Category Archives: Best Practices

How Should a Provider Qualify a Client?

Carefully.

But let’s backup.

Not that long ago, THE REVELATOR penned a post that asks what are the most important things a solution provider needs to know about a practitioner-client.

This was followed by a post that asked why are some clients successful and others not.

And the answer here is simple:

The Wrong Fit.

Which means that if the provider wants a successful client, they need to make sure the client is the The Right Fit and that they, as a provider, have The Right Stuff.

It’s not about the size of the cheque the client can write, it’s about the size of the value the provider can deliver, because if the provider can’t deliver value, there will only be one cheque. But if the provider does a great job, the cheques will keep coming year after year after year. And those cheques will get bigger over time. (A successful organization focusses on lifetime value, not one-time value.)

So, how does a company qualify a client?

In the comments, the doctor outlined a few key points that included:

  • what problems is the client looking to solve (and why)
  • what problems should the client be looking to solve (and why)
  • are those problems the provider can appropriately solve at a price point the client can afford, at a TQ (Technology Quotient) level the client can handle, and at a realistic ROI both parties can be happy with

But first, the provider needs to answer the following:

  • what problems does their solution solve, and solve well
    … and do they have successful clients they can point to
  • what processes do the successful clients follow,
    and can those processes be easily adopted by other organizations
  • what culture does the company have, and what cultures does the provider mesh with

And then, the provider needs to figure out:

  • if the problems the client is looking to solve are the problems the client should be solving
  • if not, can the client be educated into the problems they should be looking to solve (and can the provider accomplish that)
  • are the client’s problems appropriate to the provider’s solutions
  • and will the client adopt the right process modifications
  • and, finally, will the companies cultures mesh

And if any of these questions come up no, the client is not one the provider should take.

Follow the Money — To Find the Spigots that can Turn it Off!

A recent CPO Crunch article over on Procurement Leaders said to Follow the Money as a focus on profit contribution can provide a starting point for improving supply chain transparency.

The article states that having knowledge of our suppliers is one thing, but it’s quite another to have a good understanding of who are suppliers’ suppliers are … not to mention those even further beyond and in a complex, risk-riddled world, such visibility is crucial and can bring meaningful competitive advantage.

In other words, following the money can increase profitability by allowing you to optimize the flow. Which is true, but only half the picture.

The other half is how the flow can be diverted or stopped. Two important things to remember about money flows. First, if these money flows present an opportunity for you, they present an opportunity for others. Not just outright theft of money (or product), but skimming, fraudulent billings/overpayments/handling fees (or your goods don’t move), and even fraudulent good substitution (with knockoffs). Secondly, if any input to any of these flows stops (beyond your visibility), the entire flow stops. And these flows could stop 6 levels down at the source.

For example, let’s say you are in medical device manufacturing or microwave-based manufacturing. Then you need thulium, which is one of the rarest rare earth minerals in the world. If a mine closes, even temporarily, and that mine is the only source of supply into your raw material or component supplier (that produces your enclosed radiation source or manufacturing ferrites), what do you think is going to happen? Production will stop, and your inventory will disappear. Or if you need a custom chip for the control system in your high end electric car, and the one plant currently capable of producing it experiences a fire. (This HAS happened, and chip shortages have been responsible for MULTIPLE shortages in MULTIPLE automotive lines. Just Google it.)

If your only production is in a country with geopolitical instability or deteriorating relations with your country, and borders (temporarily) close, what happens? And so on. If you don’t know the myriad of ways the spigots can be turned off, it doesn’t matter how well you know, or optimize, the money flow. These days, it’s all about risk management, visibility, and quick reaction if a spigot gets turned off to get it reopened again.

Affordable RFPs – The Real Reason(s) They Are So Rare, Part 1

Two articles ago, we noted that The Key to Procurement Software Selection Success: Affordable RFPs! was critical to getting the right technology to help manage your complex supply chain. This was because a proper RFP required a LOT of understanding to get it right, including, but not limited to:

  • Procurement Maturity
  • Process Maturity
  • (Critical) Use Cases
  • Current Technical Maturity
  • Missing Capabilities
  • Key Solution Types to Address the Gap(s)
  • Key Existing Solutions to Maintain
  • Globalization Requirements
  • Service Requirements
  • Unique Organizational Requirements (less than you think, but those that exist are situation critical)

And this required a breadth of understanding across

  • the market
  • process evolution
  • use case specification
  • … including what must be technology backed
  • … and what should be technology or data enhanced
  • common module/solution types that mind the gap
  • internal foundations
  • the unique requirements, regulations, and resignations of each country you do business in
  • the services your team, and current partners, can and can’t do — even service specializations you didn’t know exist
  • what other organizations do

And most of this you won’t have in house. So you need Affordable RFPs. But we know all too well that you are all asking Affordable RFPs — What Are Those? because, as far as you know, they don’t exist. And we hear you, because they don’t exist at the Big X, rarely exist at the mid-size consultancies the next tier down (because only a select few from their talent pool can do it efficiently and relatively cost-effectively and they are going to be dedicated to any F500/G3000 that could afford a Big X to keep them as a client), and unless you are a larger mid-size buying a mini-suite, they don’t even exist at the Niche Consultancies where they should be common.

We also spent a fair amount of time explaining why they don’t exist, even though one would think that they should be readily available at the niche consultancies (as this could not only make those niche consultancies true leaders in Procurement but also help them grow). In this last case, it was because it was typically only their senior resources that could do these projects, and since these projects aren’t currently quick to complete, it doesn’t take long for a senior resource day rate to add up. And, as we noted before, while this won’t be that much when you are larger mid-sized organization looking for a mini-suite or suite, if you’re just looking for one or two modules to fill a gap, this could add up to quite a bit.

So if this is the case, why are we telling you that Affordable RFPs are the answer if they’re almost impossible to find?

Because:

  1. they are the answer,
  2. they would be affordable at Niche Consultancies if those niche consultancies stopped thinking like consultants and started thinking like enhanced product-and-data-based SaaS Management Providers, and
  3. they only require knowledge management and expert augmentation to get it right.

So what would a Niche Consultancy have to do to get it right?

We’ll outline that in our next part. But it starts with investment. (And how many partners at consultancies want to invest their money? They were brought up on the Wall Street Mantra — Other People’s Money.)

 

Cost Savings is NOT Cost Cutting …

… and we need more articles that hammer this point home!

A recent article over on the Supply Chain Management Review (SCMR) focussed on how strategic cost savings differ from cutting costs, highlighted a recent survey from Boston Consulting Group (BCG) that found that while 65% of executives are prioritizing supply chain and manufacturing costs as the biggest levels for organizations to pull for cost savings, 52% [are still focussed on] labour and non-labour overhead costs. OUCH!

Most Supply Chain / Procurement Departments are understaffed and/or under platformed due to lack of talent and lack of available budget. They’re also a very small part of the organizational headcount, which in many organizations is now a small part of total spend. As a result, labour is not the problem. External spend is.

And kudos to the SCMR and Laura Juliano from the Boston Consulting Group for pointing out that strategic cost control is the right approach.

If you’re spending 100M on a category, you should be doing a lot more than just a 3-bids-and-a-buy RFX, cutting a PO, and paying an invoice. A lot more. And looking at more than just the unit cost — at the very least the total cost of ownership from initial acquisition through warranty/repair and eventual disposal, if not full total value management which also looks at brand value, bundled services, etc. Even well managed direct categories usually have 3% or more savings opportunities, and those that were not well managed can have two to three times that (in the 6% to 9% range). In other words, giving one person the time to properly source one category, even if it takes 3 months of man effort, can save 3M. Even if the fully burdened resource costs your organization 240K a year, that’s an ROI of 50X on the proper use of that one resource’s time.

This one example surfaces the key point of strategic cost control. It requires strategy and strategy requires PEOPLE with real HUMAN INTELLIGENCE (HI!). (Not hallucinatory Gen-AI like “chat, j’ai pété”). People who can analyze the situation, the available data, case studies from similar (historical) market situations, suppliers, products, and make the overall best decision(s) for the organization. And, preferably, people who can also consider the sustainability of their decision (and the implications with respect to any regulations in laws in countries they source from and sell to). (Senior Procurement leaders can’t ignore any sustainability requirements they are subject to [40% are], they definitely can’t be unaware of legislation that could affect them [37% are], and they definitely can’t be making awards to suppliers and/or for products that might just disappear in a year or three.)

In other words, you can’t reduce headcount. (You may need to replace people if you initially hired people who thought strategic procurement was catalog comparison or invoice verification, of which 95% to 99% can be fully automated, but never, ever reduce the number of people in Procurement.)

Affordable RFPs — What Are Those?

A couple of weeks ago we penned an article on The Key to Procurement Software Selection Success: Affordable RFPs!. This resonated with those of you wanting to improve your Procurement operations who were willing to admit that you could use the help, but it also left you with one big question: where to find these affordable RFPs?

And the doctor hears you on this. You can’t just go to any old consulting firm and get an affordable RFP. Most of you have encountered high price tags, whether you went to a Big X, mid-size consulting company, or even a niche specialist. And you’re probably wondering why. Well, first you need to understand the following.

1. The Big X.

There are a number of reasons you’ll NEVER get an affordable RFP from a Big X.

  • their modus operandi is to get their people embedded on your projects and keep them there for as long as possible at 5X+ their hourly rate
  • they have agreements with a number of big suite vendors where they are a preferred implementation partner and get a big referral check in addition to YOUR implementation fees
  • they’ll put a senior resource / junior partner as lead, but you’ll never see that person, instead, most of the work will be done by a team of inexperienced, poorly educated, technologically inept recent grads “under their guidance” who will rack up the hours just trying to get the basics right (because this senior resource / junior partner will also be attached to 10+ other projects so that they can close the deals, so just how much time will that resource have to even think about your existence?)

2. The mid-size consultancies.

While it is sometimes possible to get an affordable RFP from a mid-size consultancy, the reality is that it’s a rare occurrence (and your odds are about the same as achieving success with an average technology project which, as per Gartner, is less than 1 in 5, largely because they are never scoped and planned right, starting with the RFP), and most of you never will. As with the Big X, there are a number of reasons you’ll RARELY get an affordable RFP from a mid-size consultancy.

  • like the Big X, they want to get projects that keep their people busy (usually at more reasonable 3X to 4X resource hourly rates) as long as possible as they want to grow (and they totally miss the big picture that it is delivered value that wins repeat business)
  • while they are willing to be more impartial than the Big X, they have a few partners they prefer to direct any RFPs (and awards) to as they know the systems well (and can get the implementation work) and it keeps them front and center with the vendors who need to direct implementation work to a third party
  • they can’t afford benchers, so their recent grads are not only the top of their class who have shown aptitude for their domain, but they are balanced by intermediate personnel on the projects who can guide them and there’s usually always at least one senior person, but only the senior people can do the RFPs well enough on their own, so the day rates are almost as high as a Big X as the RFPs tend to be mostly senior and intermediate personnel

3. The niche consultancies.

The niche consultancies are your best bet of getting an affordable RFP, but the reality is that it’s still, unfortunately, hit and miss and it’s likely that less than 1 in 3 of you will see a decent rate when all is said and done (where we measure RFP spend against total system spend over five years and try to maintain the right ratio).

This is despite the facts that:

  • unlike the Big X and mid-size consultancies, they believe in fair costing and keep their bill rates in the 2.5X to 3X range (enough to cover their resources’ hourly rate, overhead, and a fair profit margin)
  • even if they have partnerships with a vendor or three, they tend not to favoured by the vendors who will never direct work to them (and only allow them to implement deals they bring) due to their small size and inability to rapidly scale up (like a Big X or mid-size), which means their bias towards any vendor, if it exists, is quite limited
  • they don’t have junior people, because they can’t afford benchers and resources that don’t deliver with their cost model, and only hire (high-achieving) intermediate and senior personnel, and focus primarily on those who can do small projects entirely on their own or with limited support

When you look at this, you should be able to get a lot of value for a reasonable amount of money. And, make no mistake, you do get value for money.

However, when you look at the total system cost that you can afford as a (smaller) midsize company, and then you look at the cost of getting that good RFP, the problem is that the cost of the RFP is more than you can afford (and should be spending). This means that you end up having to cut corners on the software (and get less from a preferred vendor or go with a more cost effective runner up) or forego more than a modicum of help from the consultancy (where you just get a few advisory days and hope your team to can capture enough of the brain-dump to put together something reasonable).

Even though this shouldn’t be the case.

So why are most niche consultancy RFPs not affordable (unless you are acquiring a mini-suite or significant advanced functionality that comes with a significant price tag and are a larger mid-size with the budget for it)?

We’ll get to that in our next installment.