Category Archives: Best Practices

Best Practice Technology Vendor Selection for True Multi-Nationals Reprise Part I: RFX – You’re Asking for the Wrong Information!

This is a reprise of a series that first ran in 2012. It’s as relevant, and important, today as it was then.

It’s that time of year again. Your budget has finally been approved — a month late — and you’re ready to begin the process of obtaining that e-Sourcing, e-Procurement, Source-to-Contract (S2C), Procure-to-Pay (P2P), Source-to-Settle (S2S), Source-to-Pay (S2P), Supplier Information Management (SIM), Supplier Relationship Management (SRM), or Third Party Management (3PM) that you’ve been dreaming of. You think you know what you want, but you have to go through an RFP and, more importantly, you know that you’ve only had time to look at a few options while building the business case as you were doing it evenings and weekends on your own time because the project wasn’t approved. Now you want to go to market and either verify that you’ve identified the best solution or find the best solution to meet your needs. Since you are a sourcing organization, that process demands an RFP. However, this RFP is not like your RFP for direct materials or indirect spend. This is a very specific technology solution RFP for a platform to meet your needs and support all of the other RFP / sourcing / procurement / supply management processes of the organization. It’s crucial to get it right.

That’s what we are going to discuss in this series — the proper process and approach to acquiring the right e-Sourcing / e-Procurement / S2C / P2P / S2S / S2P / SIM / SRM &/| 3PM solution for your needs. Furthermore, let us clearly state that this series is specific to the selection of technology and technology-based vendors to provide enterprise software platforms, and/or implementation services, back-office (processing) functions, or technology-driven consulting services for your multi-national organization. While some of the best practices contained herein should also apply to the selection of (strategic) suppliers for high-value and/or complex products and/or services, this series particularly relates to the selection of a vendor to provide an enterprise software backbone, and, in particular, a backbone for e-Procurement and/or e-Sourcing technology for your Supply Management organization. As one size does not fit all where RFX and category selection processes are concerned, no claims, express or implied, are made with respect to any other vendor selection process and, in fact, if you’re only buying paper and pencils, some of the best practices contained herein will, in all likelihood, be overkill.

Now that the preamble is out of the way, let us begin by noting that the traditional RFX processed is well understood, and well documented in many places, including in the e-RFx for Total Value Management wiki-paper, co-authored by the doctor over on the e-Sourcing Wiki over seven years ago. And, in the wiki-paper in particular, the high-level process is still more-or-less correct.

As per the wiki-paper, you start with a three-stage RFI before an RFP, which is solution focussed (and not cost or contract focussed), which is issued before a final RFQ, which is when you collect quotes and start the actual selection / negotiation process. Specifically, the high-level process is:

  1. RFI #1: Stakeholder Requirements
  2. RFI #2: Vendor Interest
  3. RFI #3: Vendor Pre-Qualification
  4.    RFP: Solution Inquiry
  5.    RFQ: Clearly-Defined Specifications

So what are you doing wrong, especially if you’re a Multi-National? To answer that, let’s look at how this is typically translated:

  1. Product Needs, Service Needs, Preferred Vendors
  2. Vendor Info. Request, Vendor Interest, NDA
  3. Product & Service Capability Profiles
  4. Solution Design Request
  5. Explicit requirements, process definition, and bid request

See the problems?

  1. Stakeholders typically don’t know what they need in a solution. They aren’t technology experts. They aren’t supply management experts. They are domain experts. It doesn’t matter what they think they need in a product or a service, it matters what problems they are having today. You need to ask them what problems they need to solve, so that you can ultimately select a vendor with the solution that solves as many of your stakeholder’s pain points as possible.
  2. A preferred vendor is one that can offer you the best product or service from an organizational perspective, not a single stakeholder’s perspective. For example, a stakeholder might rate a vendor A+ because the representatives always responds quickly. But this is not necessarily indicative of great service. If the answer is always “we’ll send someone to fix that with 72 hours”, and you need the machine up 80% of the time, that’s still poor service if the machine breaks down regularly because 3 days downtime every few weeks will not support an operation level of 80%.
  3. Asking a vendor if they can provide you with the necessary functionality or service levels after you have shortlisted them as a possibility based upon a review of their collateral is not likely to get you anything other than a “yes we can”, especially if the vendor also offers consulting or “value added services”. One has to remember that most (big) consulting (and value-add) organizations are driven by partners with a strong desire for as many dollars as possible and the reps are told to always say yes and take on as much work as possible, leaving the question of how to get it done (if the organization is already stretched or weak in that area) until after the ink is dry.

Which brings us to the biggest problems with the current selection process, which we will discuss in Part II.

The CPO’s Agenda

A CPO has a lot on her mind these days. As per SI’s recent “Future Trends” expose series, the reason that so many ancient trends are being recycled as future trends is because so many issues are still current for Procurement organizations struggling to catch up to the times and become best in class. That’s why we have to continually deal with:

  • Governmental Regulations
  • Globalization
  • Increased Competition
  • Margin Pressure
  • Outsourcing
  • Risk
  • Collaboration
  • Demand Planning
  • Governance
  • Systems
  • System Integration
  • Process Convergence
  • Raw Material Scarcity
  • Strategic Focus
  • Talent
  • Supplier Relationships
  • Product Life Cycles
  • The Cloud
  • Sustainability
  • KPIs

and a dozen more issues that should have been put to rest a decade ago. But which of these issues are the most important issues and which issues are being overlooked by a CPO who is being blindsided by false issues? And which issues are top on the list?

Fortunately for you, this is a question you don’t need to ask anymore. On the new Spend Matters Chief Procurement Officer site, the doctor of Sourcing Innovation and Pierre Mitchell, of Hackett Group and AMR fame, have collaborated on a 20-part series on the “The CPO’s Agenda”, which is overviewed in the preamble post on “What is Top of Mind for CPOs”, that will tell you, as a new or aspiring CPO, what you need to focus on.

And stay tuned to this new, first of its kind site which, for at least the next six months, will be bringing you a cross-blog collaboration between the doctor of Sourcing Innovation and Pierre Mitchell of the Spend Matters Group (with occasional contributions from Thomas Kase and Jason Busch). The new Spend Matters Chief Procurement Officer site is the first of its kind and the education that is coming your way will be unequalled! This is only the first of three in-depth series between the doctor and Pierre Mitchell that are almost ready to roll, with more in the works. Stay tuned!

The CPO Defined

What is a CPO? We all know that CPO stands for Chief Procurement Officer, but what is a Chief Procurement Officer? Considering that the only about half of organizations have a VP or CPO heading up Procurement and that only one in five of these allow the CPO to sit at the C-Suite table, it should be obvious that this position is still not that well defined.

Even less defined is who this individual is. Is the CPO an executive, leader, strategist, tactician, buyer extraordinaire, supply chain guru, visionary, or rouge? What skills should the CPO possess? What should the CPO be measured on, and, more importantly, how does this relate to what the CPO is actually measured on?

However, these problems are trivial when compared to the problems possessed by a new CPO (or VP) or a senior buyer or director aspiring to the CPO position. These individuals, desperately in training and guidance, have no where to turn. There is no one location where they can go to

  • find out what a CPO is
  • find out what the CPO job description means
  • find out what an organization that needs a CPO is really looking for
  • find out what qualities and skills a CPO needs
  • find out what issues the CPO should be concerned about
  • find out what strategies and tactics the CPO needs
  • find out what best practices need to be put in place
  • find out what technologies will be needed to support them
  • find out what transition management skills will be needed to effect the changes
  • … and so on …

This is because no one person, and to be honest, no one site has all of the necessary expertise in:

  • Sourcing & Procurement
  • Operations Management
  • Strategy & Tactics
  • Best Practices & Technology
  • Internal Sales & Fire Lighting
  • Education & Training
  • … and so on …

You see, it takes a lot of knowledge and ability to be a great CPO, and a lot of this knowledge can only be parted by true experts. Given the fact that it typically takes an average person ten years to become an expert in just one skill, it’s not surprising that there is no one person with all of this knowledge and capability. Moreover, given the fact that most small expert consultancies are formed by people with like interests and skills, it’s also not surprising that you are only going to get expertise in a few of these categories.

However, when the right people with the altruistic goal of fulfilling a need come together, to fill a need that would otherwise not be fulfilled, they can combine their expertise to create a curriculum and a resource that fully defines what a CPO is, the skills and knowledge the CPO needs, the strategies and tactics to get the CPO through the day, the best practices and technologies to put in place, and the transition management skills that will be needed.

And that’s what has happened. Today, the Spend Matters network launches “Chief Procurement Officer” on spendmatters.com/cpo. This new initiative, overseen by the legendary Pierre Mitchell, is starting off as the first collaboration between Spend Matters and Sourcing Innovation designed to fully define what a CPO is, what a CPO needs, and what a CPO should expect upon starting a new job. Over the next few months you will see a number of multi-part series on:

  • What is a CPO?
  • Tearing Apart the CPO Job Description
  • The CPO’s Agenda
  • The CPO’s Journey
  • … etc. …

the doctor has already co-authored over thirty posts with Pierre on these topics, with dozens more in the works. When you combine Pierre’s expertise on Supply Management, Operations, and Organizational Planning with the doctor‘s expertise on Supply Management, Technology, and Education with Thomas Kase‘s expertise on Strategy, Tactics, Best Practices and Field Operations with Jason “The Prophet” Busch’s ability to show you how to internally sell and light the fire — the whole gambit of what you need is covered!

So I recommend you head on over and check it out, starting with:

  • “What is Top of Mind for CPOs” that introduces a collection of issues that are top of mind for a CPO
  • ‘The CPO’s Agenda Part I: Availability and Delivery in a “Hierarchy of Supply”‘ which is the first in a 20 part series on 20 critical issues that should be top of a CPO’s mind

How Do You Define Procurement Success?

Cost Savings? Cost Avoidance? Value Generation? Just getting through the damned day? (It is the year of Procurement Damnation, after all.)

It’s an important question. Why? Your success depends on your answer, because it is this answer, given or implied, that guides every sourcing, category management, and procurement project that you do.

If you consider the art of the Strategic Sourcing Process, the Category Management Process, or the Contract Management Lifecycle, you see that they all start about the same at a high-level:

  • Need Identification
  • Business Case
  • Stakeholder On-boarding & Management Approval
  • Strategy Formation
  • Risk Assessment & Contingency Planning
  • Detailed Specifications and Requirements
  • . . .

And if you dive in to each of these steps, you find that a key requirement of each step is an acceptable definition of success.

  • Need Identification
    There is a reason for the need, and that reason is that it is required to achieve organizational success.
  • Business Case
    A key requirement is the results that will be achieved, which should define success.
  • Stakeholder On-boarding & Management Approval
    What will they get out of it? They are more likely to come on-board if they see a result that will enable their success.
  • Strategy Formation
    What strategy will lead to success?
  • Risk Assessment & Contingency Planning
    What are the risks to success and what the contingency plans to ensure success?
  • Detailed Specifications and Requirements
    What are the steps to get to success, and what measurements will keep the team on track?

And, more importantly, if you do not define success before you go to bid, you can not expect that any response to your tender from any supplier will deliver that success.

In other words, this unwritten rule should probably get its own step in your sourcing / category management / contract management process, which should probably start like this:

  • Need Identification
  • Success Definition
  • Business Case
  • . . .

For more details on how to achieve RFP success, see SI’s series on best practice vendor selection:

And check out Thomas Kase’s recent series on “Improving RFP-Driven Technology Sourcing Outcomes” over on Spend Matters Pro if you have access.

Benchmarks Will Re-Define (Re-)Sourcing .. but that is Just the Beginning!

Today, benchmarks are used to determine how well an organization has performed to date. While constant measurement is important, it doesn’t really add value. Tomorrow, benchmarks will be used in conjunction with optimization to not only measure progress, but to help the analyst determine the most appropriate method for re-sourcing an existing category that will be the most likely method for delivering additional savings going forward.

Tomorrow, before a category is re-sourced, an optimization will be re-run on market-adjusted historical data to compute a market baseline, which is the proper definition of a benchmark, that will be used to determine a if there is a potential savings opportunity using strategic sourcing decision optimization. If there isn’t, then a better approach will be defined for the category.

More specifically, the current market pricing for the commodities, as defined by the benchmark, will be compared to current organizational pricing and the differential will be used to adjust all of the historical prices for a baseline optimization. In addition, the distribution model will be updated as appropriate (with new lanes, new carriers, and new temporary storage options added) and current rate tables will be included. If this baseline optimization indicates a reasonable savings opportunity, then the category will be re-sourced using a multi-round negotiation process backed by strategic sourcing decision optimization.

If, on the other hand, this baseline indicates that costs are likely to rise, then the organization knows that it should change the sourcing approach and instead try for a contract extension at current, or only slightly increased, rates.

More details can be found in SI’s recent white-paper, sponsored by Trade Extensions, on Optimization, What Comes Next, but this is just the beginning. Automated Optimization, Stratified Optimization, and TVM Optimization will find opportunities that your organization never knew existed (and never will without these techniques).

To find out how optimization, when taken to the next level, will completely redefine your strategic sourcing and category management, download SI’s latest white-paper on Optimization, What Comes Next.