Category Archives: Best Practices

Get With the Program!

Sourcing only identifies value. But value is not realized until it is captured. Capturing value requires each purchase to go through the system and be realized as a perfect order — the right product at the right place at the right time for the right person at the right price using the right delivery method, and so on. In order to make this happen, an organization has to do more than source — it also has to execute, track, report, and correct. Otherwise, it will fail to realize 30% to 40% of negotiated value (which is a statistic that has been well known for almost a decade).

However, the only way an organization can properly source, execute, track, report, and correct procurement operations is through proper program management, which is much more than just executing an event, negotiating a contract, and filing it away in the contract management system. It’s taking that e-paper and making an e-process out of it, preferably in an integrated Source-to-Pay platform that can insure each step of the program is followed.

This requires a program-management based platform, something which the average Procurement organization does not have as most first, and even second, generation sourcing platforms did not have any real program management built in.

And when one thinks about what is involved when one tries to consolidate the messy and muddled functionalities scattered across the ERP, analytics, invoice processing, contract management, supplier management, and other supply management platforms across the organization, supply program management can be a difficult and complicated task. The solution of which is an effective program management strategy, backed up by an appropriate platform-based solution.

To find out how to get started, download the doctor‘s latest white paper on The Importance of Program Management For Savings and Value Realization”, sponsored by SynerTrade. The read will be worth your time.

Of Course Catalogs Can’t Be Trusted to Manage Low Value Spend!

They’re a tool in a machine. Saying you trust a catalog to manage your spend is saying you trust a hammer to pound that loose roundhead nail back into the wall stud. It can, but only in the hands of a reasonably skilled laborer who can hit the nail on the head at an appropriate angle to drive it back in (and not bend it, knock it out, put a hole in the wall or knock himself unconscious on the recoil.

Similarly, a catalog is only going to serve its purpose and deliver value in the hands of an appropriately trained buyer or employee who knows how, and when, to use it.

And the fact that a spend management company had to pay Spend Matters to run an article that made clear 3 reasons catalogs can’t be trusted to manage low-value spend shows that, despite all this talk about strategic sourcing, category management, digitization (or any other flavour of this overused, always misunderstood buzzword you care to imagine), and cognitive procurement, Procurement, overall, is still in a sorry state of affairs overall.

Not only are we in the situation where at least a third of mid-size and larger organizations don’t have any modern solutions at all, and of those that do, a majority are still on what we’ll call legacy first-generation solutions which are cumbersome to use and low on power, but this also puts us in a situation where those un-enabled organizations don’t have the platforms to improve processes, reduce workloads, and allow the Procurement team to execute, and get comfortable with, more advanced and strategic sourcing methods.

To these organizations, a catalog looks like an answer to tail-spend prayers. Get a few master contracts for common low-value, low-dollar purchases, load them all into a modern, single search, single view, federated catalog, and allow people to buy whatever they need through the catalog. And while this is a valid strategy for some purchases, and can really take a huge workload off of an overworked Procurement team’s plates, it doesn’t solve all the problems.

As the article noted:

  • Catalogs can Waste Time

    Unless it is always-on, up-to-date (which could require a dedicated catalog manager), federated single view, capable of filtering to in-stock items only, and guided (showing the mosts popular or typically best choice when there are multiple options), an employee will spend way more time looking for the item then she might spend using it! Catalogs are not set and forget. They must be managed! Vendors don’t focus on this, especially if they don’t have a modern solution with strong vendor self-update capabilities (where a buyer only has to review vs. doing all the work), and a buying organization that chooses the wrong catalog solution can end up worse off than they were before they acquired a solution.

  • Catalogs can Miss Savings

    Procurement can always get a better deal on volume or discontinued items (and when its an internal item for consumption, sometimes it just doesn’t matter; such as pens that get lost before they are used, cleaning suppliers where packaging doesn’t matter, etc.) and when an item is getting purchased frequently enough, it’s best just to do a bulk order and put it in the store room. A catalog will never alert you when the time is right to take something out and do a bulk-buy.

    And this is fine, as long as an organization knows that just like you can’t set and forget a catalog, you can’t forget to run the analytics on the purchases on a(t least) a quarterly basis, preferably monthly, to make sure the right purchases are going through the catalog and, at the same time, review the non-catalog P-card and T&E spend and see if other types of purchases should be put in the catalog.

  • Catalogs can Introduce Hidden Risks

    As the article notes, uninformed employees will sometimes bulk buy thinking they are saving money (even if the savings per unit is negligable), when in fact they are tying up capital when the item is low use and the other 10, or 100, will sit in the storeroom for months (or years). Sometimes they will scroll three pages in to find an in-catalog, non-preferred, item that they prefer (and costs twice as much, but because all inventory from office supplies vendor A is in the catalog at a flat 10% discount off of MSRP, just in case something else is needed than formally specified in the contract, they can do it). And so on. And if we’re talking electronics, and the organization doesn’t know how to secure certain non-standard devices, this could be very, very, bad from a data security and privacy standpoint.

Catalogs are a tool to manage tail-spend, but only one tool, and they need to be part of a larger tail-spend strategy to deliver value. Never forget that.

Any Procurement Function That Thinks Drones Have a Central Role …

Clearly doesn’t understand the goals of their function!

the doctor keeps an eye on Procurement news, even though it always

  • depresses him
    as every day it seems there is a new public scandal
  • tires him
    as many publications push the same non-innovative agenda that seems to come out of a Big 6 2007/2008 play-book

and at this time of year

  • causes major eye rolling
    because it’s conference season and it seems all the big S2P suites have to hold their shows at the same time, go head to head, and see who can come out on top in the classic Bugs and Daffy duck-season rabbit-season argument

And then, once in a while, he sees a headline so ridiculous that he has to wonder just what brand of pharmaceuticals the writers are on. As he writes this, after doing a search for “Procurement” and having the top headline be about how drones are going to be central to tomorrow’s role, he can’t decide if he should shake his head and cry or scream at the idiocy at the top of his lungs until somebody listens.

As a Procurement Professional, you have one primary goal:

  • Save Money

and two secondary goals

  • ensure availability
  • reduce spend through reduce demand

and a plethora of tertiary goals (that the C-Suite spew lots of rhetoric on, but never measure you on)

  • lean process (time) reduction
  • unit cost reduction through product redesign to use less costly / more renewable materials
  • faster acquisition time
  • proactive risk mitigation

How does a drone?

  • Save Money? It doesn’t. It costs money, can’t deliver large products, has little security, etc.
  • Ensure Availability? It doesn’t. Radio interference and your product goes off course. A small EMP and your product ends up in pieces.
  • Reduce Spend? It doesn’t. No explanation should be needed.
  • Lean Process Time? It doesn’t. They don’t go that fast. Require careful planning. And so on.
  • Reduce Unit Cost? It doesn’t. No explanation should be needed.
  • Speed up Acquisition? Unless you’re trying to get a product to the 100th floor when the elevator is broken, it doesn’t.
  • Reduce Risk? Considering another unmanned piece of hardware adds risk, it obviously doesn’t.

You use drones when you need to get products where a human shouldn’t go. And in what part of your Procurement operation are you sitting a desk somewhere humans shouldn’t be. Seriously!

Now get your drone off my lawn!

Just a To-The-Point Reminder of Why Shipping Costs So Much

Empty pallets, empty containers, empty loads.

It’s essentially the same reason (airport) taxis usually cost more than Ubers. Empty space one way (in the form of seats).

Think about it. If a truck is coming empty from a big city 300 miles away to your plant to carry product back, every week, that’s over 15,000 empty miles a year on that one truck. A truck which takes a driver (who needs to be paid by the hour), gas (which costs by the gallon), maintenance, and replacement parts on an accelerated schedule. That means that you’re paying twice what you would be paying if the truck wasn’t empty for the majority of that 300 miles.

And even if you sub your shipping out to a logistics company, if the logistics company isn’t working hard enough on your behalf, that’s why certain lanes could be too high. And that’s also why you shouldn’t let a supplier or a single carrier manage your shipping. All carriers are going to have long empty lanes. You need to make sure that you’re cargo is not on these. You need to be sure that the truck isn’t driving more than a few hours from it’s drop off to your pickup (or your drop-off to it’s next pickup) so that the carrier is able to give you the lowest cost possible on the lane.

That’s why the best companies do global lane analysis (using decision optimization) and award contracts to multiple carriers that minimize costs across all lanes (by directly or indirectly eliminating the empty lanes).

So if you want to lower costs in your supply chain, just like you would avoid the empty calories in your diet, avoid the empty loads on your lanes.

Why A True Supply Management Professional Still Will Not Be Replaced by Technology

Algorithms still don’t sense, still can’t read the majority of non-verbal cues (as even the best mood detection algorithms can barely differentiate between “happy”, “indifferent”, and “sad” … even when the people it is analyzing have big smiles, flat lips, and big frowns), take calculated risks that go outside the programmed parameters, or form common bonds. They don’t feel, and they are not intelligent. And while their predictive capabilities are now getting scary in some respects, they are not infallible, and as we discussed in our last post, when they fail, they fail in a big, big way.

As first noted in our original post five years on Why a True Supply Management Professional will Never be Replaced by Technology, not only do algorithms not feel, but they are als incapable of accurately predicting how a person will respond to a suggestion that has any emotional impact whatsoever. Especially in today’s individualistic society where the message is what is interpreted by the recipient and only someone with a shared understanding will be able to comprehend what that is and react accordingly. As a result, an algorithm cannot negotiate (unless it is negotiating with another algorithm — but that’s not the best of ideas. When two algorithms negotiate, they develop their own undecipherable shorthand [as evidenced in multiple studies and real world occurrences, which includes two creepy Facebook bots talking to each other in a secret language], and we won’t be able to figure out what they did or why. (Was it to optimize the best win-win situation or was it to advance the plans for building SkyNet. We don’t know.)]

Secondly, as pointed out in our previous posts, successful negotiation depends on more than a first party transmitting a message to a second party that the second party can accept, but understanding all of the possible messages which might be accepted, their likelihood, and which are the most preferable to each organization and selecting the best one for the situation at hand. And while an algorithm can compute which options are likely given certain assumptions, and which of these options are the least distance from optimal according to some metric, it cannot determine what assumptions to make. Only a person who can feel, and feel what the other party is feeling, can be the judge of what good assumptions are. And, secondly, algorithms cannot sense. They don’t feel, and they don’t have instinct —- because that requires real intelligence!

Thirdly, as described above, they can’t accurately read non-verbal cues. Even if someone is stating that they may be agreeable to an offer, the reality might be that they may have no intention of ever accepting the offer, and are only indicating the contrary either because it’s the culturally polite thing to do or they want to stall for more time while they figure out their position. It’s often the case that such a person is not as good at masking their demeanor as they are at masking their words. It might be the case that their non-verbal cues give more away than they would like, but only a trained negotiator with years of experience and instinct could be an accurate judge of this.

But, even more importantly, they still typically can’t detect patterns in unrelated data, as it’s typically the case they can only process specified data in a specified set of ways. And a fixed data pool never tells the whole story. A fixed algorithm might not know that a fire today will impact resource availability in six months, that your main competitor is likely to go out of business due to a massive loss in a patent infringement lawsuit, or that a new technology is going to make the current technology obsolete in 18 months, with prices and demand starting to plummet in six months. As a result, in each of these instances, the algorithm would buy (today) (at a much) higher (price) than it needs to.

In short, the proper application of good, assistive intelligence, technology will make you two, ten, and maybe even one hundred times more productive (depending on the metric), but it cannot replace you. No matter what a vendor may claim. So don’t be scared of new technology for your supply chain —- embrace it. But don’t trust it blindly. Verify. Then you’ll have the best of both worlds — efficiency, with reliability — provided not by the system, but by your intelligent brain.