Category Archives: Best Practices

Data Analytics is Big Money, But

Last Friday, Palantir raised $450 Million in a new round of funding, at a valuation of almost $20 Billion, making it the fourth most valued “startup” to date with almost 1 Billion in funding including Founders Fund, Tiger Global Management, and In-Q-Tel, the CIA’s investment arm.

But it’s not just big data that generates big money (for the software provider) and big value (for the organization that has [access to] it). It’s big analytic power. And, as SI has indicated repeatedly, the data set doesn’t necessarily need to be that big to identify considerable savings opportunities.

A million transactions might not be more insightful than 1,200 transactions. If the transactions are for 10 different products from 10 different suppliers over the course of the year, a single summary transaction for each month for each supplier-product pair that summarizes the lowest price paid, the average price paid, the highest price paid, and the total paid is just as informative from a spend analysis perspective. Given this data, the buyer can see, for each product, how much money it would have saved if it always bought at the lowest price, how the price is trending, and how much could be saved by using a contract to lock the product in at a price less than the current market price. The other 998,800 transactions are not needed.

In other words while you need large spend cubes to find value opportunities, which will often depend on redefining categories, redefining shipping lanes, redefining delivery schedules, and so on, you can often get away with cubes that are at most, hundreds of thousands of well defined (summary) transactions (for the right time period). Millions of transactions are typically not necessary, and that’s why you can do enterprise wide spend analysis on a laptop with the right spend analysis tool (like busiq.com) as you can generally define a transaction set of just a few million transactions that covers the last three years and fits in memory!

Tips to Advance Your Procurement Career

Earlier this month, over on Spend Matters, the prophet coined an article on “5 insider tips to make more money in Procurement” which is quite interesting, and in the doctor‘s view, mostly on the money. According to the prophet, if you want to earn more money, you should:

  • Choose Your School Wisely
  • Take Advantage of Scholarship Programs
  • Become a Hacker
  • Start Out in Consulting
  • Learn the Language

the doctor certainly agrees whole-heartedly with 1, 3, and 5. 2 and 4 are good suggestions, but they are not necessarily always the right move. In order to explain, we’ll first discuss the tips that are always relevant, with a few slight modifications.

Choose Your Education Wisely

Maybe Sales and Marketing, which are led by MBAs*, which can be earned by any dummy while squatting on the toilet, only care about the name of the school (because it’s not like they actually learned anything in school anyway), but smart Procurement professionals — who realize that you have to analyze spend; do in-depth Kraljic, SWOT, and Kaplan & Norton analyses; develop detailed category strategies; build sophisticated cost (and optimization) models; negotiate detailed, risk mitigating, contracts with exit strategies, and execute. This requires a lot of knowledge, skill, and experience. And while experience cannot be taught, a good mentor will not be able to guide you if you do not have the skill, and foundational knowledge, to understand his teachings. It does not matter how good your sourcing sensei is if you are not ready to learn the lessons she is prepared to teach. So choose the right program in school, and the right continuing education or professional association after school as learning is a life-long process in Procurement.

Expand Your TQ

A hacker is someone who can do a heck of a lot more than use Access or a data mining tool. A heck of a lot more. However, in order to excel in Procurement, a Procurement professional needs to know a lot more than how to use Microsoft Office. Learn how to access public market data sources, how to use use open source or share ware data analysis tools to analyze data sets, how to apply basic statistics to a population to identify a distribution and appropriate pricing or sales trend algorithm, and get any hands on experience you can with best-of-breed operations research or Procurement platforms.

Learn the Lingo

It’s critical to not only learn the language of Procurement, but also the language of Finance. In order to be taken seriously by the C-Suite, you have to speak the language they understand, and that is Finance. Being able to talk in their language, which includes measurements like ROI, ROIC, RONA (which does not refer to the home-improvement chain), etc. gets their attention. It’s not just the language, because most multi-nationals use English as the official language, it’s the lingo.

Now onto the tips that are normally good, but sometimes iffy.

Take Advantage of Scholarship Programs

You want to search for these, but not all scholarships are beneficial. If they just give you cash, that’s great. If they connect you to a good network, that’s great. But if they require you to do an internship with a laggard company or, even worse, agree to work with that laggard company for two years upon graduation, that might not be the best deal.

Start Out in Consulting

the prophet thinks this is a good idea because a big-5 background or strategy firm background gives you a pedigree [that] can help with compensation. This is true, but great results can also get you a great compensation package. Maybe you’ll have to change jobs to get it, but, in Procurement, money talks, and the more you save, the more it talks. So, when deciding on your first job, take the job that will present you with the greatest opportunity to make a mark for yourself, which is not necessarily the job with the biggest name firm. But if all opportunities are equal, then it makes sense to go with the pedigree.

the doctor has deep disdain for many MBA programs, and many executive MBA programs in particular, that promise a lot but, in actuality, deliver very little. In other words, the doctor believes that educational program investigations should not be limited to, the now defunct, Trump University. (He understands why though. Trump is now a prominent figure, so it’s no surprise why the investigations are focused on an institution that he is connected with.)

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.