Category Archives: Best Practices

Can You Stop Your Event Dead In Its Tracks?

The best laid schemes o’ Mice an’ Men … often go awry. And in the Supply Manager’s world, they often do. And, to be frank, more often than you realize. And sometimes market reality will shift in an instant and continuing a current event could cause considerable loss, and not the significant value that was initially expected.

In this case a Sourcing or Procurement event, even if for a critical product or service needed in a short time frame, will need to be stopped in its tracks. But can you do it? Or will you continue with an auction only to see costs (significantly) increase (if there is no ceiling? Or an RFX only to get no responses at the deadline (with not enough time to try again)? Or a catalog buy for a product that shouldn’t be bought (because excess supply at a non-preferred supplier just resulted in a huge price drop the organization could safely take advantage of)?

And then, even more importantly, the right event will need to be kicked off in its place. An RFX or Auction might need to be replaced with a strategic renegotiation with an incumbent? A catalog buy might need to be replaced with a spot-buy auction to a set of acceptable suppliers with equivalent products? A simple RFX might need to be expanded to a more complex optimization-backed multi-round RFX to take advantage of new entrants shaking up the market. And so on.

But for this to happen, four critical abilities need to be in place.

  1. The ability to detect market shifts that would necessitate a significant change in Sourcing or Procurement strategy.
  2. The ability to determine the appropriate Sourcing or Strategy to shift to.
  3. The ability to quickly terminate an existing event (type).
  4. The ability to structure and launch a replacement event quickly.

1. The ability to detect market shifts.

This requires continuous, real-time, market monitoring which, to be honest, cannot be done without significant software support, and is a proper application of AI in sourcing and procurement. (But this is a subject for another post [series].)

2. The ability to determine the appropriate strategy w.r.t. the shift.

This requires both software support — to extract key details of the shift, summarize it in a meaningful way, and suggest the option(s) likely to be best — and senior buyer wisdom to make the right decision.

3. The ability to quickly terminate an event.

This requires the ability to quickly terminate an event, and do so in a way that will not result in offended suppliers and lawsuit. While not likely possible in the public sector, with proper foresight, and notification, as part of the terms and conditions a supplier must accept to participate, this can happen.

4. The ability to launch a replacement event quickly.

This requires the ability to set up new events quickly, reusing as much information as the current event as possible. This will require great software support (but not necessarily AI).

As you can see, not easy, but sometimes it literally is the difference between a multi-million dollar win, and a multi-million dollar loss.

Sourcing is Full of Secrets …

… and each and every one costs the organization. Sourcing is supposed to be the savings engine that powers the enterprise value engine that relies on enough cost control to maintain the cash flow required by the enterprise.

But achieving savings in souring requires success, and success can only happen if the event is appropriate and appropriately conducted. But, even though many organizations think they know the right way to conduct an RFX, Auction, or other sourcing event, the reality is that they don’t really know the right way. They know the basics, but the basics are never enough.

Why not? Because little mistakes are often made from minute one they add up, costing the organization opportunity with each mis-step. So what are the common mis-steps? There are a number, but the following three are big ones that should never be overlooked.

1. The Specs

Too often the specs provided by the stakeholder are taken as the specs and accepted more-or-less as-is with just a few minor tweaks and clarifications. The problem with this is that the specs are what the stakeholder thinks they need, not what they actually need. Take Engineering — the specs are written to match the component from their favourite supplier. Take Marketing — the specs for an engagement are usually a mirror of those supplied by their favourite agency. And so on. But if Engineering is being tasked to design a new controller, the FPGA doesn’t necessarily need to be the one they’ve used in the past. There might be a better option. And if Marketing needs to get costs down, then they need to consider separating out creative services from production services from material spend, and not request all-in-one proposals. And so on.

2. The Invited Suppliers

Typically, the invited suppliers are, more or less, the same suppliers invited to the last event or the small set of known suppliers in the database. Only for a mostly new category is supplier discovery done, and, typically, these are suppliers in the supplier network, which, of course, is limited to those suppliers the organization have done business with or those suppliers the organization wants to do business with. But these are not always the best suppliers for the stakeholder and/or the organization. And the sourcing team doesn’t do enough discovery to find the potentially best suppliers, and deprives the organization of what could be a new source of value.

3. The RFI

Many sourcing events don’t start with an RFI that focusses on the appropriateness of the supplier before inviting the supplier to submit a bid on a product or service. The stability, sustainability, social responsibility, and support capability of the supplier in the locales the organization does business in should be considered even before the ability to offer the product or service is evaluated.

Get this right, and maybe your events will be more successful and identify greater value as time goes on. And that’s the true purpose of Sourcing: Value, not Savings.

Why You Need to Capture the Flag Sooner Rather than Later

This week we have been talking about how Procurement is in vogue but that the only reason it is in vogue is because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. But we’ve also been talking about the fact that even though Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money since their customers are buying a lot of solutions, butt this alone isn’t enabling savings, or at least the savings the organizations should be seeing.

And the reason is that technology, GPOs, and consultancies don’t capture the flag. Particularly when the technology has no constraints on data, the GPOs don’t even give you any data (assistance) beyond what you can buy off of the master contract, and consultancies only cleanse and categorize enough data to find enough savings opportunities to justify their worth — and a continual retainer.

But, as we explained in our last post, dirty data is costing you big $$$. For any organization over 10M in revenue, it is literally costing that organization Millions. For any organization over 10B in revenue, it is likely costing that organization Billions. You read that right! Billions! When you add up the cost of maintaining that data, the cost of trying to integrate, cleanse, and categorize that data, and the lost Sourcing and Procurement opportunities, it will literally exceed One Billion Dollars in an organization that doesn’t have it’s data under control. And that cost will be paid year after year after year. (In fact, dirty data probably costs governments more than terrorist groups demanding multi-Million dollar payouts. Even Dr. Evil’s One Billion demand is cheap in comparison.)

Some studies have found that persisting and maintaining a single data record in some organizations can cost up to 4 dollars a year! Now consider the fact that many Global 3,000s have 50K, 60K, and even 100K supplier records, many of which are duplicated, each of which have dozens to tens of thousands of associated contracts, purchase orders, invoices, payments, disputes, etc. Consider how many of those are duplicated, incomplete, unnecessary (as good data can prevent disputes), etc. and how much of that cost is purely unnecessary.

Consider the cost of integration and categorization across the dozens of disparate (ERP, MRP, Accounting, S2P, etc.) systems the organization has and how much it costs to even do a basic global spend report, yet alone a complete analysis.

Now consider how much is being lost on every purchase. Without good data all of the following will happen:

  • on-contract / preferred products and services will not be found / purchased
  • unnecessary RFXs will go out (instead of purchasing standardized services / product customization projects off of approved suppliers through standard forms)
  • opportunities for product / category consolidation will not be noticed
  • organizational users will bend, if not break, the T&E policies (and some organizations have found that up to 2/3s of users will do this) … and this can be anything from staying at non-preferred hotels (where there are master service agreement rates) when there is an option to filing kennel receipts as hotel expenses
  • regular MRO buys that can be automated will not be noticed, and buyer time will be wasted
  • true market cost will be unknown and when there is no contact / preferred option, chances are a higher price option will be bought on spot-buy
  • fraudulent invoices will slip through the cracks, especially for services, as AP is used to not being able to process and match all invoices
  • etc.

And that’s why you need to get your data under control, and capture the flag sooner rather than later.

The Key to Cost Reduction? Capture the Flag! Part III

In this series we have been discussing how Procurement is in vogue but that the only reason it is in vogue is because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. As a result, Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money.

But not all companies are getting the returns they expect from their S2P platform, and it’s not always the fault of the provider — it’s often the fault of the data. Bad data. Dirty data. Data that causes you to miss over billings and duplicate billings, opportunities for volume consolidation, opportunities to spot new trends, and so on.

But how do you get that data under control? Especially when most systems allow any user to enter any data they want in description fields, not populate key SKU or cost center fields, and so on.

The traditional answer has been process, but process has continually failed, especially when organization’s have tried to scale it.

So what is the right answer? It’s hard to say, but it becomes less important if the opportunity for creating bad data is minimized. So how do you do that? You minimize the need for the end user to enter data in the first place.

This means you need a P2P system that not only minimizes the need for end users to enter data, but makes it easy for the admins to correct any oversights that would result in the end user entering data.

So what are the requirements for such a P2P system?

It depends on not only what you are buying but how you are buying it — for whatever procurement functions you support, they must be designed to minimize, if not eliminate, data entry. For example, if the organization has a lot of MRO and back-office purchases, the catalog must be complete, easy to maintain, and guide the buyer to the needed product, not an e-Form or RFX. If the organization needs a lot of services, then there should be well defined e-Forms for requesting standardized services which have all the requisite details, codes, and descriptions. If the organization needs specially configured products (like cars, computers, etc.), there should be standardized requests to preferred suppliers or standardized RFXs. And so on. The less user entered data, the better.

Moreover, it’s not just buyer users who create user error, its supplier users as well. So such a system must minimize the data required by the supplier. Once the supplier receives a PO, they should be able to simply and easily flip acknowledgements, shipping receipts by checking the boxes (and only overriding quantities if needed), invoices (from POs or shipping receipts), payment receipts, etc. with button clicks. The less, the better.

Anything that can be standardized and entered once should be standardized and entered once. And anything that isn’t standardized should go through a review queue to see if additional standard products, services, forms, etc. can be added to minimize future data entry requirements. The goal is single entry, and the use of correct single entries, as much as possible.

Only when data is under control can savings be identified, and realized. And only then will you have captured the flag.

The Key to Cost Reduction? Capture the Flag! Part II

As per our previous post, Procurement is in vogue. But, as we bluntly stated, only because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. As a result, Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money.

And the money is deserved if those providers deliver the ROI they promise. But the ROI only materializes in the right circumstance when the solution is properly applied, but this is the kicker. Right circumstance, proper application. And this is easier said then done. Because the proper application of the solution needs to be applied from the start of the, strategically chosen, sourcing project to the final procurement of the final product or service deliverable.

Because, as we indicated in our last post, sourcing only singles out the savings opportunities, which should be negotiated and put into a contract, it doesn’t realize them. That’s the job of Procurement.

But Procurement can’t do it’s job without good, clean, relatively complete, data. But that’s something it rarely has. Procurement usually has bad, incomplete, scattered data which is often more misleading than not having data at all and going on a whim.

Typical POs consist of just buyer SKUs, typical invoices contain either (different) supplier SKUs or short descriptions, what gets entered into the AP system is usually a buyer’s shorthand for this, and then when it comes time to m-way analysis or spend analysis, it’s almost impossible. The data is bad, incomplete, and, simply put, dirty.

And, as a result, m-way matches fail, over-billings don’t get detected, overspend happens, and the strategically negotiated savings don’t get realized. Plus, as more and more data gets mis-classified, opportunities for spend consolidation don’t get identified since the true spend on a product, category, or supplier is never known.

But over-billings and lack of spend consolidation or strategic sourcing opportunities is just the beginning. The bad data can lead to poor procurement decisions when the wrong data is in the catalog (and an off-contract item is chosen when such a purchase should have been prevented), when not enough data leads to the selection of poor service providers who deliver inferior services, and when insufficient specifications result in large project, and thus cost, overruns.

There’s a reason why many organizations are still losing 0.30 to 0.40 on every dollar of negotiated savings, and it’s not (just) bad Procurement, it’s (bad) Procurement data. So if you want to capture the flag, you need to get your data in order.

But how do you do that? We’ll tackle this topic tomorrow.