Category Archives: Best Practices

It’s NOT a Suite, It’s JUST Sourcing, Part I

In Wednesday’s post, we made what some might consider the rather bold statement that it’s not optimization, it’s strategic sourcing and we will get back to this statement shortly, but first we’re going to step back and make a statement that some may feel is an even stronger claim. It is certainly a statement that is going to irk a number of vendors, but we’re not in 2005 anymore. We’re in 2015 and the market, and the game, has changed.

Thus, It’s not a suite, it’s just Sourcing.

What do we mean by this? Simple. These days, Sourcing needs to be much more strategic and is thus not an activity that can be accomplished as a descrete set of loosely connected tasks where you can pick and choose what you need ahead of time. Strategic Sourcing is an activity that needs to both analyze the need and the market situation and respond to the stimuli the market is providing in a dynamic fashion.

This can not be done according to a pre-planned, limited set of tasks. To clarify, let’s take a hypothetical, but realisitic situation. Let’s say that the company is a high-tech retailer selling custom assembled high-end development boxes to software development and engineering shops. This company will not be buying pre-configured Dell and HP machines, targetted to the consumer market, but custom configured boxes using high end motherboards, which may be manufactured by the same production houses that manufacture boards for companies like Dell and HP, high end Intel and AMD processors, ultra-fast high density DRAM, high-end Solid State drives, mid-tower cases with extra fans, etc.

This might sound like a relatively easy sourcing event as there are a relatively small number of acceptable MB manufacturers, DRAM manufacturers, drive manufacturers, case manufacturers, and only two chip manufacturers, but even 5 * 5 * 5 *5 * 2 = 1350 and each manufacturer might have over a dozen acceptable options — and it’s hard to say up front how many of these combinations are not only viable, but acceptable (as even though it might be feasible to connect the components, there might be driver or other issues that affect compatibility or performance). In addition, new manufacturers arise once in a while and old manufacturers fail or sell out. Last year’s customer spend pattern is not the same as the spend pattern two years ago, and until year-over-year is analyzed for multiple years, you have no idea of the average deviation.

In other words:

  • you may or may not need a pre-event spend analysis to determine potential volume leverage points, the opportunities with supply base consolidation, and expected savings potential, all depending on when the last event was run, how much data you have, and current market data points
  • you may or may not need optimization; if you restrict the bid to pre-configured systems, because business is up 40% and you need a quick event to get through the rest of the year with plans to do a more detailed analysis in 6 months, you can probably get away with a weighted auction, but if bid options are open, you will probably need optimization to handle all the data
  • you may or may not need multiple RFX rounds, so you may or may not need a supplier portal to handle the communication necessary for a multi-round event

And this is all fairly obvious, so you are probably thinking

  • if I need the analysis, I invoke the spend analysis module, get my insights, and plan my strategy
  • then I invoke the RFX module to create the RFX
  • if I am doing multiple rounds — I have to configure the Supplier Portal instead of just sending out the Excel spreadsheets (which I would import on return otherwise)
  • when the data is retrieved, validated and cleaned up then I either
    • push it into the auction for a weighted auction or
    • push it into the optimization module for optimization-backed analysis
  • when I have my winners, I push the data into the contract management module for draft contract creation

… easy-peasy, right?

Wrong!

This is the real world and it never works this way.

The Trade Extensions Event Was Different. Their View Is Different. It’s time for Different.

In our last post we noted that those of you following Spend Matters and Spend Matters EU will have noticed Nancy’s and Jason’s posts on the recent Trade Extensions events in London and Chicago on Managing Complexity. In these posts they made a number of interesting observations about the event and how it was different from many other customer-focussed vendor events. We summarized these in our last post and noted that while all of the differences identified were major differences between the Trade Extensions event and the average vendor event, the biggest difference was left unsaid.

The biggest difference was not in the event, or even in the unique approach Trade Extensions took in the planning and organization of the event, but in the viewpoint they took with regards to the core subject matter. The viewpoint, which is one that Sourcing Innovation has had for a long time, is simply thus:

It’s not optimization. It’s just sourcing.

It’s 2015. As indicated in a recent white paper by Mr. Smith of Spend Matters UK on “What Defines Complex Sourcing”, Sourcing is Complex. In fact, as will be clarified in Sourcing Innovation’s upcoming paper on Complex Sourcing: Are You Ready, even the most basic of categories these days hide complexity well beyond an average Sourcing Professional’s wildest imagination. In fact, even a basic print tender can hide all nine dimensions of complexity and finding the right solution is in fact a sourcing problem of the highest magnitude. (The reality is that sourcing custom made controller boards is often easier.)

Sourcing involves identifying the plethora of options available, defining the cost model breakdowns, capturing all of the data, allowing suppliers to define their own proposals, capturing all of the buyer constraints and capacity restrictions, and creating various scenarios that represent different workable options. All of this requires an optimization platform.

The reality is that strategic sourcing requires a lot of analysis, and the only sourcing platform that can support the analysis required is one based on optimization. But it’s not necessarily about the optimization. Sometimes it’s about the requirements capture. Sometimes it’s about the data collection. Sometimes its about the modelling. Sometimes its just creating and costing scenarios. And sometimes, which could be a small fraction of the time, it’s about the optimization.

It’s not optimization, it’s strategic sourcing. You can’t do sourcing without optimization, even though you can do optimization without sourcing. That’s why the Trade Extensions event focussed on Sourcing. Whether or not the end of Procurement is nigh. How to effect change to keep it relevant. How to source responsibly. And what some best practices to achieve that goal are. If you can not strategically source, you cannot optimize. Don’t try to preach optimization before one understands the importance of true and proper strategic sourcing.

That’s also why Trade Extensions commissioned a book, The Strategic Sourcing Lifecycle: An Introduction, written by the doctor, which they will be giving away FREE as an e-Book download through their TESS Academy. (Stay tuned for more information on when this will be available.) It’s not optimization, it’s sourcing. And we’ve reached a point where most firms that claim to have Sourcing don’t.

The Trade Extensions Event Was Different. It Needed to Be. Do You Know Why?

Those of you following Spend Matters and Spend Matters EU will have noticed Nancy’s and Jason’s posts on the recent Trade Extensions events in London and Chicago on Managing Complexity. In these posts they made a number of interesting observations (which the doctor can verify as he was at the UK EVENT) about the event and how it was different from many other customer-focussed vendor events.

Major differences included:

  • Focus of the talksSpeeches focused on real, live issues and scenarios that listeners could learn from and apply to their procurement functions and their companies’ wider strategic visions. (Optimising Your Game in “at the trade extensions user event an overview of the day” on Spend Matters UK) There wasn’t a single demo or even a detailed description of the next major release (which will be their biggest release since 2009), coming next year.
  • Make up of the crowdUsers tend to be forward-thinking and technology-savvy people, given this is leading-edge software, and there were more people in their 20s (“bright young things”) than is usual at events of this nature. It was the leaders of today and tomorrow, not the leaders of yesteryear counting the days to their retirement. (A Rewarding Day, Spend Matters UK)
  • Value to the crowd. Nancy noted that one person said that coming to the event had taught him more in one day than he could have learned from going on a £30K procurement course.(A Rewarding Day) The focus was on real-world value, not vendor messaging.
  • Key takeaways.There’s more to an optimization-based sourcing system than just product sourcing. One company noted that having changed from their existing sourcing system to something more advanced 12 months ago, has proved invaluable in two key areas: logistics activities (not surprisingly) and supplier data capture. Optimization is about total costs, goods and transportation, and in order to analyze and select the best total cost scenario, a lot of data needs to be captured. As a result, such a tool must be great at data capture. And, as a result, the tool can be used in more diverse ways and in more applications than you would expect. (A Rewarding Day)
  • Individual ThoughtJason noted how many thoughts of the attendees center on areas around the technology rather than the core solution itself. Taken together, I believe the thoughts below point to the future of where sourcing technology is headed, which centers as much on people as systems. (Brainstorming: Spend Matters) Trade Extensions is encouraging ideas and feedback, hoping to harvest the best for future development.

These were all major differences, but the biggest difference is the one that is going unsaid by Nancy, Peter, and Jason and Trade extensions. What is the biggest difference? What is left unsaid. What was left unsaid? We’ll tackle that in our next post …
after we give you a day to think on it.

Societal Damnation 49: Gamification

Gamification, a noun defined as the application of typical elements of game playing to other areas of activity, typically as an online marketing technique to encourage engagement with a product or service, as per the Oxford Dictionaries, is also a damnation that you need to contend with on a daily basis in Procurement.

Why is gamification a damnation? Especially since, as per Merriam Webster, it’s supposed to encourage participation as it is supposed to be, according to Wikipedia, enjoyable and motivating. There are a plethora of reasons, including:

Definitions Vary

There is really no standard definition of gamification. To see this, all one has to do is go to their favourite e-book store, download the five cheapest e-books on the subject (which may even be free), and read the first few pages. Some are focussed on the incorporation of traditional game elements, whether they make sense or not; others on team building, regardless if it is game-like or not; and others on getting marketing success or social media penetration at any cost.

Gamification is often rooted in RPGs or Video Games

Yes, RPGs are the classic team-building cooperation games and video games are all the rage, but not everyone likes RPGs (because they think of D&D and basement dwellers*) or video games (because they think of computer geeks and basement dwellers*), and not all RPGs and video games are the right fit for the task at hand.

Most of it is marketing or social media focussed

Which means that most of it is used by marketing and social media and directed at you by marketers to try and daze and confuse you, and does not help you do your job in any way.

Anything not marketing focussed is team building focussed

There are a number of methodologies out there for team building. Gamification provides little additional value in this regard unless you’re playing games that everyone likes that builds camaraderie.

As Procurement professionals, there’s nothing for us

When it comes to gamification, nothing has been developed for us. Nothing to help us. Nothing to teach us. And the beer game doesn’t count. It hasn’t been updated in fifty years, doesn’t capture the complexity of modern supply chains, and has over a dozen failings that need to be addressed in order to be useful. It’s primarily a logistics and inventory model that just doesn’t cut it in today’s just-in-time supply chain world.

In short you don’t know what it is, it hasn’t been used to help you, and suppliers’ marketers will be hitting you with their perverted version of it through broken social media channels on a regular basis. It’s a continual annoyance that serves as the background music of your eternal Procurement damnation.

* Stereotypes die hard.

Why You Should NOT Build Your Own e-Procurement Platform

A couple of months ago, SI ran a short series on Why You Should Not Build Your Own e-Sourcing System, which also included pieces on Why You Should Not Build Your Own Spend Analysis, Why You Should Not Build Your Own e-Negotiation Platform, and
Why You Should Not Build Your Own Decision Optimization because he heard that a few public sector organizations have this crazy idea that they can build their own and that it can, somehow, compete with best-of-breed solutions on the market today. As per that series, this is not the case.

Neither is it the case that an organization should build its own C(L)M system, as per SI’s post last week on Why You Should Not Build Your Own Contract Management System. It seems that there are (at least) a few organizations that not only think they can (which is often true) but think they should (which is usually not a good idea). Unfortunately, it doesn’t stop there.

Since basic e-Negotiation and e-Procurement is a commodity, and there are even free and open source solutions for both still available on the net (like WhyAbe and archived versions of open source by Coupa and Bupros), some organizations and public sectors think they can roll their own and, believe it or not, do it cheaper and better than just acquiring a low-cost on-demand solution (which might even cost less than the resources the organization / public sector body would require to maintain their own software and hardware, not counting the dollars they would have to invest up front to roll their own). When it comes to B2B or B2C, building your own in this day and age is, well, ridiculous. With so many options to choose from, the chances of your organization not being able to find a cheap, easy solution that meets at least 80% of your needs, and 90% with a few minor process changes, is low. Not only are there no cost savings (which becomes clear when a full total cost of ownership is done, see this classic SI post on X), there’s no value generated by building your own solution. Inflation is coming back with a vengeance, GDP is slowed to a crawl in first world countries, and risks are multiplying faster than Fibonacci’s rabbits. Wasting money on anything with no risk of value generation is just not something 99.99% of companies can afford to do.

While most P2P functionality is straight forward, and the cycle, which has more steps than pre-contract Sourcing, is simpler as it is more tactical in nature, a few requirements, while simple in theory, are actually quite complex to implement technically. In particular, the following three functions are quite demanding to implement technically.

Requisition Management

While the process of managing an approved requisition is no more complicated than managing any other e-Document, the process of approving a requisition can be quite complicated as it could require one or more approvers in one or more departments with the rules for determining who approves dependent upon the item, it’s category, it’s dollar value, it’s (un)approved status, the overall amount of the requisition, and whether or not any affected budget for the buyer, category, or department would be exceeded if the requisition was approved. The approval chain could actually consist of multiple approval chains that need to be executed in parallel, which can possibly be overruled by the last approver in the sub-chain or the entire chain (if it had to get final approval from a VP or CXO because of the amount), and which might need to be approved all-or-nothing for the requisition to help the requisitioner. This implies the need for powerful, configurable, and flexible workflow management that is rather time-consuming and sometimes tricky to implement and not always going to be available in an open source solution that you can easily integrate into a roll-your-own solution.

Purchase Order, Invoice, & Good Receipt Management

Not only do all of the these e-Documents have to be tracked, but they have to be cross-correlated in many-to-many-to-many relationships. For example, a purchase order may need to be split across multiple vendors, each of whom may ship the order in pieces due to geographic stock location and customer locations, and issue multiple invoices, and then the shipments might arrive in pieces, requiring each invoice to be associated with multiple good receipts, or which might arrive in unison, require one goods receipt to be associated with multiple invoices. Similarly, a shipment might arrive before an invoice, requiring goods receipts to be associated with one or more purchase orders. There’s a lot of cross-correlation logic here. Plus, documents can come in as XML, EDI, CSV, PDF (which need to be processed using OCR), or platform specific formats – so there is a lot of pre-processing that needs to be done as well. And then an m-way match has to occur against each line, because, otherwise, the platform is not very useful.

e-Payments & Tax Reclamation

These days, an organization that wants to go e-Payment has to support ACH and wires, and do very difficult secure integrations into a bank; Paypal, Stripe, and similar online platforms for small businesses; and credit cards so its employees can use their P-cards, and integrate into a credit card processor. It’s a lot of integration work that has to be done precisely, because if anything is not done up to Bank, Paypal, or CC Processor spec, and it gets hacked, it will be on the hook for all of the fraudulent payments that will result. And that can add up to hundreds or thousands or millions of dollars very quickly. Very, very quickly. This is one example of just because you can, it does not mean you should.

You’re not buying running shoes here. Just don’t do it.