Category Archives: Best Practices

If You Can Marry Magic to Logic You Might Just End the Marketing Mayhem

In our last post where we asked if marketing mayhem got you down, we noted that, in many organizations, Marketing is still one of those sacred cow categories that Procurement has (very) little influence over (but yet often accounts for [up to] 20% of spend).

And since it needs to have a substantial impact on sales and revenue at that spend volume, it’s important that the spend be effective as well as efficient. This means that not only does the organization have to make the spend that is most likely to lead to a return, but it can’t overspend in the double digit percentages on a significant percentage of spend if it wants to get the maximum ROI. But when a considerable portion of the spend is on consumables (like print) or commodity services (like website design, social media marketing, or production overhead costs), that spend has to be efficient. But when its managed by Marketing, it typically isn’t.

But as a Procurement professional, whom Marketing often sees as the enemy who only wants to help Finance cut their budget as Procurement cuts their spend, chances are you won’t ever get to lay a hand on this spend unless you can change the status quo, which starts with changing the way Marketing sees you. In order to do this, you have to look like someone who is their friend, and not their foe, and this will involve mastering the marketing way — walking the walk, talking the talk, understanding, and working towards their viewpoint (spend money to make money, even if they can’t measure it). (Except that you will work with Marketing to take action to make sure that spend is accompanied by measurements and metrics that will help Marketing gage which spend is most successful with respect to a particular goal.)

Only once the walk, talk, and focus is mastered can Procurement get to the message, which has to revolve around Agency (Lifecycle) Management, as discussed in a recent six-part series over on Spend Matters Plus on Mastering the Marketing Way by the anarchist and the doctor. As of our last post, only the first three articles were available. Now the entire series is available. And in the last three articles you get a deep dive into agency management support, intelligence, training, and how to create a great RFX. If you want good results, you need a good RFX — and creating a marketing RFX is not like creating an RFX for commodity goods.

the doctor recommends that you check out the rest of the series, which is the most in-depth series on mastering marketing spend for Procurement that has ever hit the Procurement bit stream.

  • Offering Agency Management Support
  • Optimize Your RFX Support
  • Intelligence and Training

Enjoy.

Should All Service Spend Be Subject to Procurement

Last week, Spend Matters UK ran a great post that asked “why do executives employ their friends as consultants”, which noted that one of the most problematical spend categories is professional services, and in some organizations, this is even more problematic than contingent labour spend, marketing spend, and legal spend. Why? Not only do some executives in some firms often engage senior experts and big 5 consulting firms on six, seven, and eight figure (plus) deals without any notice or without any respect for the process, but they often do so without any background checks or references whatsoever.

Sometimes, as pointed out by the public defender, the consulting firm or expert is being hired because the consulting firm or expert was hired in the past and did a great job, and, more importantly, there is a need for speed.

Sometimes, as also pointed out by the public defender, the budget holder is simply lazy. He knows the consulting firm or expert will do an okay job, and that’s good enough for him.

But sometimes, as documented by the public defender, there is an emotional dependence on the supplier, and that’s a good enough reason for the budget holder not to rock the boat, and other times there is a personal relationship, which is a great reason for the budget holder but not so great for the organization.

And sometimes, as clarified by the public defender, the reason is not a good one, or even a legit one. The budget holder might be making the award on the future expectations of a favour or because of a bribe and/or kickbacks that have been, or will be, received.

But if bribes and kickbacks was the worst situation that could happen, that wouldn’t be so bad. It would just mean that the award was costing the organization more than it should (and maybe significantly more than market average). If the work is quality, and identifies an ROI, that’s not too bad.

You see, if proper process, and due diligence is not taken, the organization could:

  • guarantee a large minimum payment regardless of work quality, completion, or dismissal (such as a 1M payment for early termination)
  • hire someone with a known criminal record for fraud
  • hire someone with known terrorist associations who will try to steal trade secret technology protected under a defence act

And if you think overpaying an average consultant who will take twice as long to produce an inferior result is bad, imagine how much worse each of these situations would be.

So, while maybe it is the case that not all spend should be under the control of Procurement, it is the case that all spend should follow the proper Procurement process under the guidance of Procurement so that all the facts, and options, are available to the budget holder. And since the CFO and CEO can be held criminally liable for certain oversights in the business, they should support this as following a good Procurement process and policy is the best CYA defense there is.

There’s Nothing Wrong with a Paid Pilot – As Long as it’s a Real Pilot

Over on Spend Matters, the analyst team has been posting their thoughts on the market outlook for the next three years (instead of making pointless predictions like their peers, and we all know what the doctor thinks of predictions, which was reiterated in this post), and most of them are logical and expected. However, one in particular needs to be addressed, and repeated. And that’s the fifth of the prophet‘s predictions in his “E-Procurement Market Outlook” on Spend Matters. In particular, the prophet‘s prediction that

Paid Pilots [will] Become More Frequent

There are two types of pilots. The kind where a provider takes data from a past event or project, runs it through their system, and provides you with a report of what they would have done and the results they would have achieved and you compare it to the results you achieved to see if it’s worth considering the system in depth.

Then there is the type of pilot where you try out the system on a live event or real data, replace your current system with the new system temporarily, or deploy the system for a specific project or division to compare operation and results side-by-side with the live system.

Before an organization invests a large amount of money or a large amount of effort to switch to a new system, and after it runs an initial pilot on historical data to determine that a full pilot is worth it, this is a great idea as the organization should be sure that the system will work as intended before it implements the system to support critical functions, but the pilot will only be effective if both parties take it seriously and make their best effort to get the best, and most realistic, results.

Even if the platform is a true SaaS solution that runs on the cloud where the provider can instantiate a new instance simply by clicking a button that creates a new, default, private instance and can make it available by simply creating a user name and password, configuring it for your use will take a lot of effort on the part of both parties. Even if everything in the Admin section and MDM control panel can be 100% user driven, until you have sufficient training and experience with the platform, you’re not going to be able to hook it into your ERP and existing supply chain / Sourcing / Procurement platforms, configure the workflow, create the secure user hierarchy, and complete other configuration tasks. Moreover, you’re not going to know the unique features, the features that can generate the most value, or the best practices. For best results, the supplier has to be actively engaged.

And in the business world, clients come first. If you’re not a client, while the sales and account teams will do their best to make you successful, they have paid clients to support. If those clients need help, they come first. Plus, at any time, they have other organizations they are trying to sell, as any sales person or account manager that doesn’t spread the risk across multiple potential client organizations is not a sales person or account manager that is going to keep their job very long.

However, if you pay for the pilot, the provider’s costs, and risks are covered and the provider can dedicate the resources that you need to get the most that can be obtained from the platform. If every pilot is paid, the provider can hire more resources that can be dedicated to pilot success.

In other words, if success is desired, then the organization should pay for a pilot – as long as it’s a real pilot to support a real project (and not a demo analysis on historical data, that should be free), the provider treats the organization as a real client for the extent of the pilot, and, the provider is not profiting off of the organization. The pilot should be priced to cover cost, nothing more, nothing less.

And, as the prophet points out, done right, the benefits of a paid pilot include tactical ones such as building support for the cost/benefit analysis of different roll-out options (e.g., standardization vs. customization) as well as broader organization involvement in the overall selection of a solution (which will pay dividends in frontline adoption during a full scale deployment). And you can have confidence the solution, and solution provider, will work for you before signing a multi-year deal — all for the cost of a short consulting engagement (which will likely bring more results than a typical consulting analysis will).

Is it time to Plus-size?

By now, you’ve probably noticed that the doctor has been contributing on a regular basis to Spend Matters CPO and Spend Matters PLUS, the first of which, like SI and Spend Matters classic, is free, and the second of which is paid (and costs 19.99 / month).

You’re probably wondering why, as SI has always been, and has always been free, as Spend Matters basic, and the doctor will not promote any blog that is not free, because of his belief that if you’re going to have a blog with the intention to inform and educate, you make sure its accessible to all.

However, Spend Matters PLUS (a subset of their PRO business offering) is not a blog, and, sometimes blogs are not enough. Why?

Unless a blogger has a large amount of sponsorship money, or is independently wealthy, (s)he can only spend so much time on the blog on a daily basis, and only impart so much knowledge and wisdom to you. (And if a blogger does generate such a significant income from sponsorships, you have to question how complete the material is as many sponsorships come with a high price tag*.) But, as SI has clearly explained over the past year, you are in Procurement hell, facing dozens of damnations on a daily basis, and the knowledge and wisdom you need to get smarter and more efficient is much, and the amount any one blogger can impart is minimal.

When it comes time to select a new solution, define a new process, or define the next challenge, you need a lot of knowledge and a lot of wisdom, and the chances that any single blog, or blogger, will have recently written everything you need is slim.

You could go to a big analyst firm or a niche consultancy to get a customized report or recommendation, but that costs a lot of money, and if you’re not sure what you need, it could be a waste of money. But if you have more knowledge and insight on the topic, you can narrow in on what you need and if you do need to hire an analyst or a consultant, you can focus them in on your needs, spend less, and get more.

Over on Spend Matters PLUS, the prophet has assembled a team of experts who are contributing detailed pieces on technology, process, and relevant topics that you as a Procurement professional will need deeper insight on, at some point over the next year, on a regular basis. In addition to the prophet, who is an expert on P2P, marketplace analysis, M&A, and solution evaluation, you have regular contributions from:

  • the maverick who is the top analyst and supply management framework developer in the space,
  • the anarchist who is one of the leading operations research, supplier management, and process evaluators in the space, and
  • the public defender who is an expert on procurement process and public sector procurement and an international correspondent

among other experts who chime in from time to time. And the articles are deep. The average length of the articles that the doctor has been contributing on are 4 pages. That’s about 3 times the average length of an SI post. And most of the articles are part of in-depth multi-part series that give you more information on a topic than most analyst firms will.

Now, is it right for you? That depends. If you are a lucky one who works for a progressive Procurement organization, then you might have subscriptions to analyst firm research and market intelligence firm publications or training academies that provide you with a wealth of knowledge and not need much more. But, if you work for an average organization which frowns on you taking the time to even fill out a subscription for a free publication, it’s more than you could ask for given the price.

SI’s recommendation is that it’s worth it. And the recent series the doctor has collaborated on, including multi-part series on Contract Lifecycle Management (platforms), Supplier Relationship Management (platforms), Marketing Spend Management, Direct Material and Commodity Spend, among others, are among the most in-depth and encompassing series on the subjects you will find anywhere. It’s not a replacement for SI or Spend Matters (CPO), but a resource that fills in the gap when your organization won’t pay for the knowledge you need and you’re forced to acquire that knowledge yourself. As this is only the second paid resource SI has ever recommended (the first being the NLPA for new Procurement professionals who still need the foundations), you know there has to be something there.

* It’s sad to say, but some companies won’t sponsor unless they get one or more of the following: final say over what is said about them, final say about what is said (or not said) about their competition, the right to guest post whatever they want on a schedule, the right to whatever marketing or registration lists you have, and/or the right to write their copy and have you stamp your logo on it (and both SI and SM have seen examples of this on “blogs” in the past — sometimes the copy wasn’t even edited and was clearly written by an internal PR person of the company the “brief” was about who couldn’t even run a simple spell check), etc. Finding sponsors who will support pure education, and not request anything more than a simple fact check on pieces on them, is a lot harder than a reader or aspiring blogger might think.

You Might Be Getting the Basics Right, but That’s Not Enough

Last November, the public defender ran a great post over on Spend Matters UK on how “Procurement [is] Still Not Getting the Basics Right – and it’s Happening Too Often” and that’s not only why Procurement is often getting a bad rap, but why Procurement is getting a bad deal.

Case in point, the example given by the public defender where a recent tender used a complex scoring mechanism that scored “price” and “discount” separately and, even worse, weighted early payment discount higher. As a result, a tender of 100 with a 3% early payment discount got weighted higher than a tender of 95 with a 1% early payment discount! In other words, a best case cost of $97 was preferred over a best case cost of $94.05 — an overspend of almost 3%! That’s outrageous.

Another case is point, suppliers of complex services get invited to participate in electronic sourcing events with no prior engagement, and a tick-bock procurement process with no scope to include references, case studies, or suggest site visits for creative discussion. How should such a supplier expect to be judged, if they even expect to be judged at all? This is the well-known classic three-bids and a buy when you already have the bid you plan to accept. A smart supplier will not bid.

Now, as a regular reader of SI, that’s not the common practice in your Procurement department, but it doesn’t mean the common practice is good enough. Just because you know to weight all price factors in unison, that doesn’t mean that the weighting is right. If quality, reliability, delivery time, guaranteed delivery of supply, or another factor is critical, it needs to be weighted as highly. No point getting a 3% unit discount if you lose out on 20% of sales due to late shipments and stock outs. All of the critical factors need to be included and weighted, and, just as importantly, the suppliers must be made aware of the criticality of each factor so they can determine whether or not they even want to bid. If you need 15 days delivery, and a supplier can’t guarantee less than 21, the supplier needs to know that up front. Otherwise, they will get upset that they wasted time bidding on a tender they could not win.

Similarly, it’s not enough to do a proper, verbal, invitation over the phone, give the supplier a chance to include references, case studies, and suggest alternative proposals, if you know that one of the critical requirements of the bid or organizational preference (or prejudice) would preclude the supplier from getting the award. It’s not professional to invite the supplier unless you believe the supplier has an honest chance.

It’s not enough to do the process right if you want to be the BEST Procurement organization. To be the BEST Procurement organization you need the best process and the best ethics. You need to be known as the honest buyer who only invites suppliers who will be evaluated fairly and have a fair shot of winning the business if they are willing to tighten the belt buckle and make an honest effort of putting the best proposal forward. Then, when you make the award, no matter who gets it, chances are, you will be among the customers of choice from day one because you wanted to be both the best Procurement organization and the best customer.

So get the basics right. And then do one better.