Category Archives: Best Practices

Demand Control: Reduce, Reuse, Recycle, Redefinition and … Requisition Everything!

Part of good cost avoidance in Procurement is good demand management — reducing the consumption, and expenditure, on MRO, T&E, one-time buys for events, etc. We’ve covered the classic techniques in the past, which include:

Reduce: which can be accomplished by accurately predicting needs (and reducing waste) based on past use and current trends (and not maintaining volume levels on toner cartridges for a printer line being phased out)

Reuse: which can take the form of repurposing old equipment (as old developer workstations are probably just as powerful as the business user desktops used in the rest of the organization) or simply collecting unused/discarded collateral at an event and using it again next time

Recycle: where MRO inventory can be replenished by breaking down equipment (like workstations, production lines, etc.) that go out of service and harvesting still working parts that can be used in other equipment

Redefinition: where it’s not a need for more paper, but a need for second / bigger monitors so that people don’t need to print invoices / documents still submitted as (scans of) handwritten documents that can’t be OCR’d or that aren’t in a format the OCR recognizes or for tablets that allow executives to access their reports on the go

but a new type of demand management is popping up in the Procurement world, and it’s called:

Requisition Everything: where you have to literally submit a requisition to the procurement system so that all demand, and consumption, is tracked (and you can be visually guilted to control demand or utilization if you are consuming significantly more of a resource than your peer).

Now, this probably sounds very onerous to you and not worth it, but it all comes down to the implementation and user experience. At Coupa inspire, one company described an innovative method that they used to track and control demand on the factory floor (where workers would forget where they put their gloves, or realize they left them in the lunch room, and just go to the closest supply room or where workers would store extra tools or parts at their desks, just in case, leading to low stock signals and unnecessary ordering). They installed vending machines and when a worker needed something, they needed to go to the machine and punch in their id and slot number. Nothing was restricted (and no limits were placed), but every “requisition” was sent to the central Procurement system which not only updated MRO inventory but also tracked who used what, and allowed Procurement, and departments, to understand usage patterns better. This simple process reduced demand as it instilled the notion of cost consciousness and responsibility in the workers (who knew that their usage patterns could be analyzed and if they consumed considerably more than their peers, it would show), and didn’t really add any time or complexity to the process (as all the workers had to do was punch a few buttons) — especially since this process insured that the workers always knew where the stock was (which wouldn’t happen if it was moved around on the shelves).

Moreover, this technique is not limited to what fits in a vending machine — one could also use cheap RFID tags for larger items (of sufficient value) that would automatically be requisitioned when the tag left the store room (and be assigned to the right person using the employee record obtained from the entry control system when the person swipes their key card).

And, with micro-budgeting, it can be used to insure departments don’t go over their allotted new-hire budget unnoticed. New hire equipment can be kept in the secure storeroom, automatically tracked when retrieved, and automated re-orders made if stock gets too low. Plus, reusable equipment can be returned on employee departure, residual amortization amounts credited back to the micro-budget, and employees / departments who opt to use recycled equipment can be charged a deep discount against their micro-budget (and, more importantly, rewarded at annual recognition events as reuse stats can be tracked).

Now that almost everything can be automated, it might just be the time for Requisition Everything as the new method of employee-based demand management and cost control. Thoughts?

Will Coupa Inspire?

Inspire starts tomorrow, with what many would consider an impressive line up of speakers, including the great Wozniak, co-founder of Apple. The question is, will you be inspired, and, most importantly, will you be inspired by what they have to offer.

It’s a good question, and one each person will have to answer for themselves. But, at least in the doctor‘s view, an equally good question is what should inspire you?

In our space, most of the technology being sold is, believe it or not, (well) over a decade old. In some cases, it’s *gasp* two decades old. RFX / Auction is over two decades old, and one of the early purveyors, FreeMarkets, was founded 22 years ago. Coupa launched its core offerings on Procurement Independence Day 11 years ago, and the core technology in each of the half-dozen companies it has acquired over the last few years is over a decade too — including Trade Extensions (now Coupa Advanced Sourcing) and Spend 360 (Coupa Analytics).

So what should inspiring? Especially in this day in age? One word. One critical word that is the last word in Coupa’s one sentence event description that claims Inspire is the biggest industry event for creating real, business value. New and differentiated value that you could not obtain before. And where should one look for that value?

The User eXperience

A good user experience can’t be oversimplified. An application that takes a week to learn basic functionality and a month to do anything of moderate complexity greatly extends time to value and limits how much a user will ever be able to do. But an application that is intuitive, makes it easy for a user to do standard tasks with no training, and complex tasks with the help of user guides gets a user to value quickly. Plus, a good experience makes a user want to do more while a bad experience makes a user want to avoid the application as much as possible. And a user experience that is leaps and bounds ahead of the current standard will bring immediate, unexpected, benefits that cannot be predicted.

Multi-Functional Application

Right now, a lot of the current technology is not only narrowly focussed on Procurement but also on direct and indirect sourcing of products and basic services. There is little focus on specialized areas — such as Marketing, Legal, and Finance — or on broader applications — such as Finance analytics, Logistics improvement, MRO. An application that can also provide the same value to other departments and bring more than point-based value to the enterprise is many times more valuable than an application with limited focus and even more limited results.

An Inclusive Design

As SI has continually pointed out over the years, your success is extremely dependent upon your suppliers’ success because their failings are your failings. If their products fail, your customers blame you. If their reputation fails, so does yours. They need to be as successful as you in order for you to succeed. So tech that helps you make this happen is key.

So, in summary, when looking for inspiration, look for that which is going to really change the way you, and your team, does business. And if you find this at Inspire, then it will be a game changer for you.

What Makes a Sourcing Suite?

Good question, and one both customers and vendors must answer in the days ahead. Last decade, it was pretty simple. You could claim a sourcing suite if you had decent e-Negotiation support with some document management and reporting. And if, instead of document management, you had contract management and if, instead of reporting you had real spend analysis, then you were best of breed. And if, on top of all of this, you had some basic project management or category guidance, you were awesome.

But that was then, this is now. These days, if you don’t have basic S2C (Analysis, e-Negotiation, Contract Management) with decent Supplier Information Management, you’re not even a contender. Plus, given that many providers are offering some project / workflow management, expert driven category guidance, bill of materials support for direct sourcing, contract analytics (not the same as contract management), deep SRM (Supplier Relationship Management, Performance Management, Compliance Management, Risk Management, Optimization and other unique offerings that they expect to gain them market-share.

So what do you need? Hard to say because the real answer is whatever you need to successfully conduct and monitor a sourcing event that doesn’t belong in the complementary P2P suite. That varies based on the category and the industry you’re in, but there is some commonality. Specifically, while still not a mainstay of sourcing suites, every suite needs project/workflow management, every suite needs some performance tracking and management (as that should influence not only current, but future, events), a minimum of SPM (supplier performance management) and not SIM, some compliance requirement and documentation management, and better than average analytics. And any organization that does a lot of direct sourcing needs Bill of Materials Management, and while most organizations don’t know it, you’ll always find a lower-cost allocation with an optimization-backed sourcing solution. (And going back to Wednesday’s post, this isn’t savings, this is avoidance of unnecessary costs.)

In other words, you need a lot. But, fortunately, you don’t need best of breed for most of this. The only solutions that continually provide year-over-year value of 10% or more (through avoidance of unnecessary costs) are advanced analytics solutions and true optimization solutions. So you need best of breed here.

But not for most of the other components, although certain components should be better than average. The RFX in particular. It should not only be ridiculously easy to create and modify RFXs (which are typically the beginning of every sourcing event) but also to bulk upload attachments (as this can kill days in large projects when you have ten bill of materials with a dozen to a hundred items each and each component needs its own spec document), define a team for collaborative and distributed creation and scoring, and one-click integration into the analytics and optimization modules for detailed analysis.

Another component that needs to be better than average is the Supplier Portal — you need to make it as easy as possible for suppliers to provide information, response to events, create collaborative corrective action plans, offer innovation ideas, and so on. You want your suppliers to work with you and find it at least a reasonable, if not an enjoyable, experience. If the portal, and integration options, are sub-par and painful to use, and leave a bad taste in their mouth, this will eventually sour the relationship.

In other words, while the exact definition of a Sourcing Suite can be a bit nebulous, the requirements it has to fulfill, especially for your organization, are not. And a key requirement is usability and a good user experience for buyers and suppliers alike. Keep this in mind when selecting your new sourcing solution.

Strategic Sourcing Requires Strategic Suppliers Selected Through Strategic Sourcing Events

And this will generally mean you have to deal with a lot of pushback from those individuals in the company that don’t want to deal with anyone but their preferred supplier (which can be due to bias, laziness, or, in some cases, legal bribes). There will be a lot of reasons given, of various levels of validity, but you will need to bust through them all. To help, here are the standard categories of push-back and how you tackle them.

Our Process is Approved Suppliers Only

This is usually the first response because the individual knows the new supplier approval process is typically an onerous one and not one anyone typically wants to deal with and, thus, has a great chance of working (on anyone except a dedicated buyer). However, a response of “we know, that’s why we’re going to do a multi-round qualification RFI first and we simply need your input on the core requirements so we can get the right suppliers approved” will typically do the trick with this one. Of course, the stakeholder who wants the same (set of) supplier(s) will just move onto the next excuse, but you need to take ‘em one by one.

The Supplier Couldn’t Meet our Requirements Last Time

If the supplier was invited, or even considered before, and the conclusion was the price was too high, the product unsuitable, or the overall capability to meet total organizational demand insufficient, the stakeholder might like to use past performance to simply deny the supplier again, even if it’s been two or three years and the supplier might have improved (due to a lean effort they mentioned they were starting last time, new equipment and processes, or other factors). Plus, this doesn’t consider the fact that the supplier (if there were cultural/language barriers) might not have appropriately understood the requirements and put the wrong foot forward.

The answer here is “we understand, but the supplier has been doing X plus we are going to force them to go through the pre-qualification RFI that all new suppliers are going through to make sure they are actually capable of performing better this time before inviting a bid from them“. This will elicit a “grumble, grumble”, but you will be able to press on.

The Cultural / Language Barriers are Too High

Cultural and language barriers are often high, especially if you are going to new countries, but if both parties want to succeed and are willing to work together to succeed, they are not insurmountable, as long as both sides make the effort. You can’t just through a spec in English over the wall and say “you translate and give us your best effort on your own” and expect great results. You need to engage one or more product/service experts who are bilingual (or even trilingual) in the native language(s) (and who has some cultural understanding) for each geography you want to do business in.

This effort will go a long way into getting new suppliers in different geographies who speak different languages to put their best foot forward. The best suppliers will appreciate and reciprocate your efforts and put their best effort into their proposals and might even surprise you. The answer here is “we know, and that’s why we’ve engaged these individuals to be our interpreters and relationship managers — it might not work, but if it does, it could open us up to a whole new array of cost-control and innovation capabilities“.

We Don’t Have the Bandwidth

Once you get through the knee-jerk responses above, a belligerent stakeholder who really wants that preferred supplier will resort to rationalizing that there just isn’t the time to evaluate too many suppliers or re-create all the requirements in a supplier-neutral fashion. This will be hard to dismiss, as chances are the stakeholder doesn’t have the bandwidth and you will need some input from that stakeholder. This is where your negotiation and reasoning skills will be put to the test.

You will need to start by indicating we know you don’t, that’s why we in Procurement are taking on the majority of the workload — all we need is your input and expertise and review before each key document goes out. We realize that there might be some extra work for you, but if this works, we will help you identify new sources of supply (which will increase stability in the event of a disruption or customer demand surge), potentially new sources of innovation, and keep your costs — and your budget, under control. And if it ends up that the best choice is the current supplier, at what appears to be higher than market average costs, you will be able to say in confidence that you made the right choice with all of our efforts to back you up next time the C-Suite decides someone budget needs to be cut. You’ll have hard data while your counterparts, who chose not to work with us, won’t. And since the CFO says all arguments must be data driven … .

In other words, while you might feel the urge to thump out the stupidity, if you take a rational approach, use your negotiating skills, and demonstrate that you are going to take on as much of the extra work as you can, with time, you will be able to convince most of the stakeholders that your way is the right way. (And we say most because if the incumbent supplier is paying for the stakeholders yearly Hawaiian vacation in exchange for a single “talk” at their user event, well, there’s no way you can counter that as it’s completely unethical to source for the best favours. But, fortunately, this will be a very small majority of stakeholders.)

Procurement Won’t Advance Until We F*CK SAVINGS!

… and, in the same breath, F*CK CONSULTANCIES THAT ONLY PUSH SAVINGS!

Recently there’s been a big push by some parties, including Procurious, to lead Procurement into the future, and in Procurious case, it was through an online Big Ideas Summit where they convinced a number of individuals to webcast to digital attendees on the same day on Procurement topics. But Procurement is not going to go anywhere until we first deal with the number one problem, and that is our continual focus on savings because of management’s continual mis-focus on savings.

the doctor is as appalled as the public defender (who blogged his dismay) to find out that yet another big consultancy, in this case Bain & Company, recently published an article on Unearthing the Hidden Treasure of Procurement that classified the value of Procurement as the good old consultant’s snake-oil of basic spend aggregation, consolidation, and tough-negotiation to find savings.

Which is another crock of bullsh!t. (Seems we’ve been blogging about those quite a bit lately! But I guess someone has to!) The value of Procurement is cost-control (not savings), demand management, product-and-service-normalization, and overall value generation and maximization. NOT SAVINGS! First of all, there is no such thing as savings — “savings” just means you are paying more than you should. Secondly, anyone who applies proper Procurement principles to a category for the first time can quickly get prices down (near) to market pricing. Thirdly, and most importantly, as the public defender points out, there is no such thing as savings anyway as all savings, and especially those savings that resulted from bringing initial prices below market average, will be clawed back by suppliers, or the [the] new supplier / product [will] turn[s] out to be unsuitable, or oil prices [will] rise or something else happens (like a disruption from new supplier / carrier unreliability).

And this brings us back to our secondary thesis, not only do we have to F*CK SAVINGS but F*CK CONSULTANTS THAT ONLY PUSH SAVINGS! Only two types of consultants push savings, those that don’t know any better (and will not help your organization grow over the long term) and those that have learned the best way to make easy money is to just push the savings agenda because that means that you can re-source the same category every two or three years and if you split the categories appropriately, you will have re-sourcing work negotiating savings on the same categories forever more (because, as costs rise, new, fake savings opportunities will re-appear)!

The only way to move Procurement forward is to shift the focus from cost savings to value creation, with a focus on cost-control (and avoidance, but not savings), demand management, appropriate value-add selection, new supplier identification, and joint product/service innovation — where the real organizational savings will come from. And, as we indicated at the beginning of this post, the only way this will happen is if Procurement forces the conversation away from savings and towards value, regardless of the cost and how many big consultancies we have to tell off in the process!