Category Archives: Best Practices

The Ten Commandments of Procurement, Atheist Style

Earlier this month, on Canada Day, while LOLCat was proactively learning the pledge of allegiance (which LOLCat will need when Canadians re-elect Harper), Mr. Smith on Spend Matters asked what were “The Ten Commandments of Procurement” that you adhered to that were absolutely, unarguably, true under all conditions.

To get your creative juices flowing, a few weeks ago, Sourcing Innovation gave you the Ten Commandments of Procurement, Christian Style. And in case that wasn’t enough, two weeks ago SI gave you the Ten Commandments, err, Precepts of Procurement, Buddhist Style, and then last week, we gave you the Six Commandments, err, Philosophies, of Procurement, Hindu Style. But we’re not stopping there — not everyone is religious. So today’s post is for the atheists as we give you the ten commandments of Procurement, atheist style!

1. Be open-minded and be willing to alter your processes and practices when better ones are presented to you.

Even if you are using the best practice that is out there, that is only the best practice that is out there today. A better way might be discovered tomorrow. A good professional recognizes when something better comes along and strives to make use of it.

2. Strive to understand what the market situation really is, not what you want it to be.

Even if the market situation went unchanged for ten years, that doesn’t mean it hasn’t changed in the last few days. Consider the recent avian bird flu crisis. Like the dairy market between 2000 and 2006, the price of eggs stayed within a narrow band for years years until the recent avian flu crisis.

3.Supply Chain Mapping is the most reliable way of understanding your supply chain.

Not spend analysis, not (internal) customer surveys, not best guesses, mapping. To truly understand your supply chain you have to sit down and map it. Nothing except a complete raw-material source to finished product sink map for your primary product lines will allow you to get a full picture of the complexity of your supply chain.

4. Every category manager has the right to be in control of their spend.

You might be responsible for sourcing the category, but it is not your budget — it is Engineering, Marketing, HR, or Legal’s, etc. Not only is the budget owner a key member of the cross-functional team, but should have the final say on event design and final award.

5. A rigid set of rules is not necessary to be successful at Procurement. Only a desire to do the right thing is.

Procurement success is not driven by process, it is driven by passion. A passion to be the best Procurement professional you can be.

6. Every decision has consequences and you must be prepared to accept them.

There are tradeoffs between every option presented to you as a Procurement professional. Costs can only be reduced to a certain point before quality or reliability are affected. Outsourcing a function may save money, but could cost the organization valuable skill and knowledge in the long term.

7. Treat your customers and suppliers as you want them to treat you.

Just because Procurement is the Rodney Dangerfield of the corporate functions, that doesn’t mean it should be nonchalant in its dealings with the other functions. It should treat them the say way it wants to be treated.

8. Sustainability is not just important to corporate sustainability, but to our sustainability. We should leave the planet as good as we found it.

Environmental responsibility is not just a means to insure corporate sustainability by increasing the brand reputation, not just a means of insuring a continuous supply of raw materials by switching to renewable resources, and not just a means of insuring a continuous supply of fresh water and energy for production by going lean and using renewable energy, but it is a way of insuring our future and insuring that those that come after us will not only have a job they can love and look forward to, but a life they can love and look forward to. And the happiest worker is the most productive worker.

9. There is no one right way to source.

Every category is different, every product is different, every supplier is different, every market is different, and every professional is different. There is no one right way. There are conditions that make certain types of sourcing methodologies more appropriate or easier, but there is no hard and fast rule and it is up to me to work with the cross-functional way to identify a way that works best for us.

10. The ultimate goal is that, after, a sourcing event, the overall situation is better for everyone than before the event occurred.

You’re not just there to source a product or a service, but a solution to whatever problem your (internal) customer is having. Savings is good, cost avoidance is better, a new revenue source is better still, but solving their problem is what is truly priceless.

Contract Lifecycle Management IV: Neither Sourcing Nor Procurement Are Enough.

In Part I of this series, we argued that CLM, short for Contract Lifecycle Management, while arguably one of the most blah-blah-blah acronyms in the Supply Management space, is also one of the most important. This is because, as summarized in Part III, it overlaps S2C, P2P, and, as a result, S2S/S2P as well as intersecting with risk management, performance management, change management, and supplier (relationship) management. In other words, CLM touches almost every aspect of Supply Management and is taking a central place in your Supply Management organization.

We also argued that while the common definition of CLM was correct, as it stated that CLM required the right processes and the right platforms to support those processes, it was not useful because while an average organization has a decent understanding of a good contracting process, it does not have a good understanding of what the right platforms are to support them.

Why? Because most organizations don’t have anywhere to turn for a good, solid, stable definition of what a good supporting CM system is. Vendors only educate on their platform. Analysts only educate on the definition that is common across the cross-section of the market they are covering. Peers can only educate you on what they have, which might have been chosen randomly. And professional organizations stay out of the mix by focussing on process.

That’s why for the first time, Sourcing Innovation and Spend Matters have come together in a joint effort led by the prophet, the maverick, and the doctor to, once and for all, define the core Supply Management platforms, starting with CLM, the most misunderstood of the Supply Management misfits.

In our last post we asked if you knew where contract lifecycle management came from because one can’t move forward until one understands where the space is today, why existing platforms on their own (and Sourcing and Procurement platforms in particular) don’t meet all of an organization’s contract management needs on their own, and how what is out there now currently fits together.

That’s why “Part IV: The Traditional Platforms” of the landmark series over on Spend Matters Pro [membership required] by the prophet, the maverick, and the doctor examines all of the core Supply Management platforms out there today: e-Sourcing, e-Procurement, 3PM/SRM (Third Party Management / Supplier Relationship Management), GRC (Governance, Risk, and Compliance) and traditional CM; describes their core capabilities; indicates how they address different parts of the contract lifecycle; and sets the stage for our discussion of what defines the core of a(n integrated) CM platform that actually meets an organization’s contract management needs.

One might be tempted to think that just because their e-Sourcing platform (or P2P platform) contains a Contract Management module, that their contract management needs are met, but nothing could be further from the truth. This is because Contract Management (CM) is not (traditional) Sourcing, which is the process of identifying a source of supply. As a result, such platforms mainly focus on contract archival and meta-data management, and maybe contract authoring, but contract management is more than authoring and signing, it’s also execution and implementation. It’s making sure each party meets their obligations, complies with identified regulatory requirements, minimizes risk, and collaborates when issues, or disputes, arise. Remember, contracts not being executed as intended is a large reason that 30% to 40% of savings identified during the sourcing process never materialize.

The situation is similar if you have a P2P system with a CM module, a 3PM / SRM platform with a CM bolt-on, or even a first generation CM solution that was written to please the lawyers and not the day-to-day buyers and relationship managers. (But to understand why, you’ll have to check out our full post on The Traditional Platforms over on Spend Matters Pro [membership required].)

The Six Commandments, err, Philosophies of Procurement, Hindu Style

A few weeks ago, on Canada Day, while LOLCat was proactively learning the pledge of allegiance (which LOLCat will need when Canadians re-elect Harper), Mr. Smith asked on Spend Matters what were “The Ten Commandments of Procurement”  that you adhered to that were absolutely, unarguably, true under all conditions.

To get your creative juices flowing, two weeks ago, Sourcing Innovation gave you the Ten Commandments of Procurement, Christian Style. And in case that wasn’t enough, last week SI gave you the Ten Commandments, err, Precepts of Procurement, Buddhist Style and told you that SI was going to tackle at least one more style, because everyone deserves equal opportunity. Today we’re going back to the third most followed religion on the planet and give you the six commandments, err, philosophies, of Procurement, Hindu Style.

6. I will not make assumptions on prices, demands, or needs before collecting the appropriate information and market intelligence.

We all know the saying about people who make assumptions, and what they make of themselves. I know this to be true so I will always select categories for sourcing events, estimate demand, and negotiate, based upon research and fact and not upon gut feeling or inflated GPO claims.

5. I will take a holistic logical view of cost and return and use the appropriate tools to understand the true costs and build a realistic picture of the expected value of a product, service, or supplier relationship.

Cost is more than just the price. It’s the transportation. It’s the import and export duties. It’s the temporary storage. It’s the utilization. It’s the reclamation and return (under warranty). And the value of each product is not just limited to the cost I pay, but the quality, reliability, and other intrinsic value in the mind of the consumer. I will understand both before pursuing a product, service, or even a supplier relationship.

4. I will not be vain or assume that just because I am the expert, I am always right. I will listen with an open mind and continuously seek to learn and better myself.

I am the expert in Procurement process, and will generally know more than my peers, but I am not necessarily the expert in the product being bought, the market being bought from, the market being sold to, all of the transportation options available, or the intricacies of production or utilization. Moreover, I recognize that the market research I acquired may not be fully up to date or take into account unusual characteristics of the organization’s needs, the suppliers capabilities, or sub-markets. I will listen to others in the organization who have this knowledge and consider all relevant input before making any decisions.

3. I will be socially responsible and only work with suppliers who have the same views.

I am not just a lone Procurement professional in an ivory tower, I am a human being and a citizen of this planet and every decision I make will have a ramification on others that could go beyond just my coworkers, my suppliers, and my customers. Moreover, every effect I create has an effect on me as well and I will have to live with the effect I create on others and my self, so I will endeavour to create the best effects I can.

2. I will not succumb to pressure and make hasty Procurement decisions because any mistake I make will cost the organization in the long run.

All organization suffering results from mistakes made in the past that were produced by activity that was the result of insufficient knowledge or a lack of (social) responsibility. As a result, I will not rush a sourcing decision and cut a contract or make a buy without adequately considering all of the facts and options available to me in order to make sure I make the best decision for the organization that can be made at the time I make it.

1. I will not act without forethought and planning for what I do dictates what I will get.

The effect I get is pre-existent in the action I take. So not only will I make the best sourcing decision I can, but will also ensure that all of the actions I take with respect to contract management, performance management, supplier management, and risk management are carefully considered and made in line with the organizational goals and carried out with responsibility, respect, and an open mind.

Why You Should Not Build Your Own e-Sourcing System, Part II Spend Analysis

In Part I, where we noted that Mr. Smith was right in his recent post on “thinking of building your own esourcing system please don’t” over on Spend Matters UK where he pleaded with those organizations, and particularly those organizations in the public sector, who thought they could build their own e-Sourcing system not to, we gave a host of reasons why only those organizations with the core business of software development and delivery specializing in Sourcing or Source-to-Pay should even consider the possibility. We also agreed with Mr. Smith that any other organization that even considered the possibility was

  • going to waste OUR money building it,
  • waste exorbitant amounts of money keeping the system up to date and compliant with ever-shifting legislation, and
  • only feed those dangerous delusions at best (and possibly create an epic disaster worse than the Smug cloud that ruined South Park because, of the 11 greatest supply chain disasters of all time, 8 were caused by technology failures and 6 by software platform failures!)

But we know this isn’t enough to convince the smuggest and most deluded from considering the notion. So we’re going to dive in and address some of the difficulties that will have be conquered, one primary module at a time, starting with spend analysis.

Even though every vendor and their dog thinks they can deliver a spend analysis system these days, the reality is that most vendors, including those with a lot of database and reporting experience, can’t. If vendors with significant experience in data(base) management and reporting can’t build a decent spend analysis system, what makes you think your organization can?

A spend analysis solution must be:

  • Powerful
    and support multiple spend analysis cubes, with derived and range dimensions, stored in public and private work spaces;
  • Flexible
    and support multiple categorization schemes, vendor and offering families, and user defined filters and drill downs;
  • Manageable
    with user defined data mappings and cleansing rules, hierarchical rule priorities, and easy enrichment;
  • Open
    and easy to get data in, out, and mapped; and
  • Informative
    with built-in report libraries, a powerful report builder, and an intuitive report customization feature.

This is not easy. Let’s start with flexibility. Most vendors probably have their goods and services mapped against UNSPSC, which your buyers of domestic goods are familiar with, but globally traded goods are probably mapped against HTS, which your tax division wants, your organization probably has its own GL codings that are required to keep Accounts Payable happy, and none of these categorization schemas are suitable for real spend analysis. As a result, you probably need to maintain at least four separate categorization schemas (for buyers, traders, accounts payable, and real analysts). If you think you can easily achieve this by slapping a report builder on top of an open source relational database, think again.

Let’s move on to power. One cube is never enough. If you’re an organization of reasonable size, doing year over year spend analysis over a reasonable time frame, you’re looking at millions, if not tens of millions of transactions. If you believe that you can dump all of that in one cube, and make sense of it, assuming you can design a system that can even build that cube without crashing (it’s big data, remember), you’re probably living in ImaginationLand (which is a very dangerous place to be).

We cannot forget about openness. The data you need will not live in the Spend Analysis system. It will live in the ERP (Enterprise Resource Planning). It will live in the Accounts Payable System. It will live in the TMS (Transportation Management System). It will live in the WIMS (Warehouse Inventory Management System). It will live in the VMS (Vendor Management System). And so on. Every one of these systems will have a different schema, it’s own data master, and, probably, duplicate vendor and product entries with various spellings of the name, locations, and so on.

Nor can we forget about manageability. It must be easy to map, normalize, clean, and map all of the data that is pushed into the system — by hand. AI doesn’t work. Every organization uses its own classification and shorthand, every department uses its own variations on the theme, and no system can figure out every error a human can make. All AI systems do is pile on rules until there are more collisions than correct exception mappings. That’s why a spend analysis system not only has to support multi-level rules, but help the user define appropriate multi-level rules and understand, when a transaction is mis-mapped, which rule did the mapping, what exception rule is required, and how broad that rule should be.

This leaves us with the need to extract useful information that can be used to identify real saving or value generation opportunities. No canned set of reports can do this. Standard reports can indicate where we can begin to look, but simply knowing a spend is high, or higher than market average, does not indicate why (locked in prices, bundled in services, quality guarantees, maverick spend, supplier overcharges) or what factors, if addressed would decrease spend.

And while this is just a high level overview of the challenges, the hope is that it is sufficient enough to convince you that development is not an easy task and not something that the average organization should remotely entertain.

Why You Should Not Build Your Own e-Sourcing System, Part I

In a recent post titled “thinking of building your own e-sourcing system please don’t” over on Spend Matters UK, Mr. Smith (who went to Washington, as per Buy, Buy, Buy, Once Bitten Twice Shy) asks you to please, please, please not build your own e-Sourcing system because, apparently, a few public sector organizations have this crazy idea that they can build their own and that it can compete with best-of-breed solutions on the market today.

Wow! Today’s best of breed systems have been built on fifteen-plus (15+) internet years of development, implementation, integration, and customer support experience by seasoned professionals who have had numerous bouts with weariness and wisdom. (And since we all know that internet years are measured in cat years, that’s really ninety-plus years of experience.) How could any average organization, especially in the public sector which is typically behind in technology and running on the B-Team (since unionized pay scales typically mean that they can’t afford the A-Team that commands private sector pay scales) really think they can come up with anything close?

In addition to Mr. Smith’s arguments that, especially in the public sector, you are:

  • going to waste OUR money building it,
  • waste exorbitant amounts of money keeping the system up to date and compliant with ever-shifting legislation, and
  • only feed those dangerous delusions (until the Smug reaches critical mass and puts us at risk of a disaster of epic proportions),

there are dozens of reasons NOT to build your own e-Sourcing system, or to even think that there is the slightest of chance you could build your own.

In addition to the standard reasons of:

  • Lack of Sourcing Domain Experience
  • Lack of Software Design Skills
  • Lack of A-Team Software Development Talent

in Sourcing, you also have to deal with the traditional software challenges of:

  • Big Data
  • Real-Time Requirements in a Distributed System
  • Variable Workflows

as well as a host of challenges in each of the main, traditional, areas of:

  • Spend Analysis
  • e-Negotiation (RFX & e-Auction)
  • Decision Optimization

which, to make it abundantly clear that no public and private organization should even remotely consider building their own e-Sourcing system, will be discussed in detail in the next three posts. Unless your core business is a software development and delivery organization specializing in Sourcing or Source-to-Pay, when it comes to building a modern e-Sourcing system to meet the needs of the organization and identify savings and value, just don’t do it. Put those Nike’s back in the closet and break out those Carolinas.