Category Archives: Best Practices

Questions to Ask Your Optimization Vendor

This is an update of a post that originally ran way back in 2007. Yes, two, double-o seven. Seventeen years ago. It is being updated because

  1. it needs a re-posting
    (as very few of you will find it that deep in the archives)
  2. most of the vendors originally mentioned are gone

However, if you read, and remember, the original, you’ll realize that, like my article where the doctor goes mental on optimization myths (which was recently shared on LinkedIn), it doesn’t need much updating and what was written seventeen years ago is still valid to this day. (When you write to inform vs. to create meaningless buzz, it really does stand the test of time.) Let’s begin.

Not all optimization vendors are equal … and, more importantly, not all vendors that claim to have strategic sourcing decision optimization (SSDO) actually have it (since the underlying algorithms and model needs to meet a stringent set of requirements to be true SSDO), with some systems, to this day, barely qualifying as decision support. Thus, since the need for optimization is as desperate as it has ever been with costs again skyrocketing, risks rising rapidly, carbon control being critical, and supply assurance necessary for sustained operations, it’s time to make sure you know how to qualify a potential provider. This means you need to not only understand the basics of what SSDO does (see the archives), but also how to distinguish between the relative strengths and weaknesses of the different offerings, as well as how much strength you really need.

You need to buy optimization at the strength, and usability level, that you need — especially if the vendor is pricing it according to its power, or computational requirement. And while there is no such thing as too much, the reality is that a 95% solution is often more than enough as the entire point is understanding the optimal solution against each dimension (cost, risk, carbon), the cost of compromise between the trade-offs, and the cost of going with a preferred, versus calculated, vendor award. And doing this for EVERY sourcing event. Once you factor in enough discounts and constraints, it’s almost impossible to calculate the best award in a spreadsheet, and the insight of what you could be spending, versus what you are, how low your risks could be, versus what they are, and how much you could alter your carbon footprint, vs what your footprint is today, is invaluable. Even if you never select a recommended solution, the key is understanding how good your (preferred) award actually is.

Before we get to the (starting) question list, it should be pointed out that it’s almost impossible to cover every question, as many of the questions you should be asking depend on the answers you receive to your first few questions, but the question list below is a good starting point.

1. Does the product meet the four criteria for strategic sourcing decision optimization?

  • Sound & Complete Mathematical Foundations : such as MILP solutions based on simplex, branch and bound, and interior point algorithms as many simulation, heuristic, and “AI” algorithms DO NOT guarantee analysis of every possible solution (sub)space given enough time, and, thus, are not “complete” in mathematical terms (and if they incorporate Gen-AI, they aren’t even “sound” in that they may not even compute an award that satisfies the constraints!)
  • True Cost Modelling :
    that supports tiered bids, discounts, and fixed cost components — the model must be capable of supporting all of the bid types being collected, as well as the cost breakdowns
  • Sophisticated Constraint Analysis : at a minimum, the model must be able to reasonably support generic and flexible constraints in each of the following four categories
    • Capacity / Limit: allowing an award of 200K units to a supplier who can only supply 100K units does not make for a valid model
    • Basic Allocation: you should be able to specify that a supplier receinves a certain amount of the business, and that business is split between two or more suppliers in feasible percentage ranges
    • Risk Mitigation: you should be able to force multiple suppliers, geographies, lanes, etc. to mitigate those risks without specifying specific suppliers, geographies, lanes, etc. to take advantage of the full power of decision optimization
    • Qualitative: A good model considers quality, defect rates, waste, on-time delivery, etc., and must support qualitative factors and minimum and average scores across the award
  • What-If? Capability : The strength of decision optimization lies in what-if analysis. Keep reading.

2. Does it support the creation of multiple what-if scenarios per event?

Furthermore, does it simplify the creation of these scenarios? The true power of decision optimization does not lie in the model solution, but the ability to create different models that represent different eventualities (as this will allow you to hone in on a robust and realistic solution), to create different models off of a base model plus or minus one or more constraints (as this will help you figure out how much a business rule or network design constraint costs you), and to create models under different pricing scenarios (to find out what would happen if preferred suppliers decreased prices or increased supply availability).

3. How fast is it for different average model sizes?

And can performance be tweaked? Optimization takes what it takes. That being said, if one solution takes an average of 1 hour for an average scenario, and another solution takes 10 minutes, all things being equal, if you have compressed sourcing cycles, the 10 minute solution might be better. Emphasis on “might”. This is only true if the faster solution is of the same quality – some models, and some solvers, sacrifice quality and accuracy for speed. The best solution will let you trade off “tolerance” and accuracy for speed. Sometimes it’s easy to get within 1% or 2% in a few minutes, even though that last 1% or 2% could take hours. On a model with low total savings potential, getting within 1% may be enough. And when trying to hone in on the right what-if scenario, it’s nice to get within 1% quickly and then allow the right scenario to run to completion over lunch (or if its a huge model, over night) after you’ve quickly analyzed half-a-dozen scenarios and settled on your preferred scenario. Thus, tweaking ability is very important.

4. Is it “true” real-time or “near” real-time?

Thanks to significant advances in processor and hardware performance as well as off-the-shelf optimizer technology (like IBM ILog’s CPlex), it’s now possible to rapidly re-build and re-solve even very large models using off-the-shelf modeling languages in seconds, allowing for e-auction tools that keep the model relatively moderate in comparison, and presolve with seed bids (current prices, market prices, last quotes), to incorporate decision optimization in real-time by simply updating a few parameters and re-solving the model every (few) parameter(s) update (depending on model-size) on a high-powered multi- core server with an appropriately configured and optimized solver (which can spin off copies and have each processor work on a different subspace). However, if the approach the product takes is to rebuild and resolve the model on every update, that’s not real-time, that’s near real time, and the slowdown could be significant for large models. (To clarify further, real-time optimization requires the ability to merge model construction and model solution in such a way that a new bid can be introduced as a parameter change that does not require the optimizer to rebuild the sparse model matrix and start the solution process over from scratch.)

5. Can you describe two or three scenarios you have encountered where you could not model the situation exactly?

And, more importantly, how did you work around the issue, and how accurate was the final result. The real world is messy, compared to models that are clean, only so much data is available, and math can only model as much as the minds who created the model could conceive. As a result, no optimization model can handle every real-world scenario 100% accurately. If a vendor representative says so, he’s either lying through his teeth or not competent enough to be selling the product. (Note that: I’ll have our optimization expert get back to you on that is a good answer from an average sales representative.) This is about the only way to get a decent idea of how appropriate the tool is for you. If the scenarios were complex and the constraints based on business rules you hardly ever, or never, use, then the solution is probably okay for you. If the scenarios were simple and the constraints based on business rules you use all the time, it’s probably not the tool for you.

6. Would you be willing to demo your solution to, and answer questions from, our consultant who understands both our needs and decision optimization technology?

Let’s face it -– just like the right decision optimization tool can deliver huge savings multiples on your investment (10X or more), the wrong tool will simply represent a six (or seven) figure cost that yields little return. If you can’t tell the difference, and there’s no shame in admitting you can’t if you’ve never used this type of technology before, then you should bring in a consultant who can to help you select the right technology, and ensure you are appropriately trained on it, until you are self sufficient and saving an average of 10% or more per project put through the tool.

7. Can we do a pilot project at-cost (or gain-share) before committing to a long term license?

If you like what you hear, but are still unsure, or are having problems getting the budget approved, a pilot is often the way to go! (Note that I did not use the word “free”!) If you’re not willing to sign a license, given the sophistication of this technology and the amount of effort the provider is going to have to allocate to support you through the pilot and ensure you are successful, you need to be willing to pay for services at a rate that is sufficient to cover the provider’s cost for the pilot -– especially considering that many of the companies that offer affordable optimization offerings are only able to do so because they keep their costs and overheads down.

Advice For Dealing With The PROCUREMENT STINK from Leading Consultants!

Last week, the doctor asked fellow niche/independent consultants as to how we can help to dispel the PROCUREMENT STINK which is permeating the space as a result of poor choices, bad information, and sometimes bad actors, which include the reasons we described in that article as well as many more.

Why? Because it’s going to take a collective effort among analysts, consultants, and vendors to dispel the stink permeating the Procurement space, and no one on his or her own will have all the solutions. As expected, some of the greats chimed in with their thoughts and ideas and these thoughts and ideas need to be given center stage, so this is what we’re going to do today!

James Meads

Clarity and transparency on your business model is key, especially if you have revenue streams from solution providers.

As Patrick Van Osta echoed in the comments, the uphill path to recovery, I feel, is for consultants to reclaim the position of sole trusted advisor, and there’s no way we’re ever going to be trusted advisors if we are not clear and transparent in our operations and goals. If we’re hiding our intentions, or upsides, how will the client know whether or not our goals actually align with theirs?

Joël Collin-Demers

I’m 100% on-board with the need for transparency and taking decisions based on what’s best for the client long term. Your job is to make yourself redundant as soon as possible!

In Procurement, there’s always another project. ALWAYS. You don’t have to milk one for life, with your help and guidance, you can open the client’s eyes as to not only how much there is to do, but how much they can do better, for a great ROI, with your help. Just like there’s well over 25,000 (or 35,000) species of fish in the sea, there are tens of thousands of unique aspects to Procurement in a modern enterprise. And just like you have to know where to fish, what hook to use, and what bait to use to catch a type of fish, you need to know the equivalents for each category, methodology, and process.

Jon W. Hansen

Practitioners stop looking at technology as the “silver bullet” solution but instead focus on doing the real and hard work while Solution providers stop selling shiny paper and “falling in love” with your own technology. … and us consultants have to help the practitioners do the work, understand what they need, and steer clear of the vendor with the shiny new tech (that doesn’t actually do anything [more than cheaper, proven tech]).

Paul Martyn

Consultancies (and their clients) need to Provide performance based compensation with uniqueness. For example, provide specialist consultants with compensation that includes equity. In short, align compensation to customer value (revenue growth and retention). Because, right now, most of the good consultants that can generate the ROI a client should expect are not incentivized to do well on point-based projects (like an Affordable RFP), but instead are incentivized to work on, and sell, long-term “solution” oriented consulting that lines the firm’s (and not the clients’) pocketbook (i.e. keep doing the fishing vs. teaching the client). As a result, most of the good consultants move out of the roles they are needed in to the roles they are incentivized to take.

Vinnie Mirchandani

The web lulled a number of procurement (and IT) folks into expecting vendor, negotiation etc intelligence for cheap, if not free. Vendors are not afraid to spend on sales and marketing. Procurement needs to adopt a similar mindset to even the game.

The best things in life may be free, but the best things in business are not. (As the Arrogant Worms pointed out over three decades ago, you get NOTHING FOR NOTHING!) And if you don’t have the right tools that enable the right processes powered by the right intelligence, you’re not going to win the game. Remember that all of the best sports teams use high-tech sports tech backed by science and data analytics to help their athletes reach peak condition. Raw talent only gets you in the game. You need the right training to win, or, at least, the right guidance and tech to enable you as you learn.

There’s a lot of STINK out there now, but if you follow this advice, you’ll go a long way to removing it. After all, you can’t solve everything with a pressure washer.

Dear Fellow Independent Consultants: How Can We Dispel the PROCUREMENT STINK!

Hopefully you know by now what the doctor is talking about, but if not, as per the Sourcing Innovation article from two months ago, PROCUREMENT STINKS and we should not deny it anymore.

In a nutshell, and just is just the tip of the garbage heap:

  1. Case studies are ranker than expired fish in a microwave on high.
  2. Approximately 85% of companies are AI-washing everything.
  3. The Gen-AI claims that it will deliver Procurement to the enterprise are FALSE.
  4. Intake/Orchestration is totally useless on its own.
  5. Consultancies are often more in the dark than the Procurement departments they are claiming they can help.
  6. DEI is being misused to push agendas and sometimes to Do Extra-legal Initiatives,

And, as per a poll put out by THE REVELATOR, we are especially concerned with the fact that 14% of practitioners would rather trust a salesperson or a marketer than a consultant or an analyst! (Now, part of this is probably due to the lack of independence from many consultancies who continually pushed their vendor “partners” on the client whether or not the “partner” was the best solution, but still, it’s not ideal. [And, hopefully, as a result of the bloodbath, the consultants who weren’t offering value to their clients were the first to go.])

As far as the doctor is concerned, the most trusted advisors in the space should be:

  1. analysts
  2. independent consultants

and that’s it! No sales people, no marketers, no influencers, no made up positions. Sales people are paid to sell, not to solve problems, and marketers are paid for leads and, in some organizations, there is no correlation between “leads” and the sales funnel.

So how can those of us not at a bigger consultancy, where we would be joined at the hip to preferred partners or subsidiaries (and not recommending them results in a pink slip), dispel some of the stink and regain some trust?

The first thing the doctor wants to state is that he has even less ideas here than he does for his fellow analysts. In fact, the ideas he does have should be pretty obvious.

1. Disclose any (formal) relationships we have with vendors that are recommended.

Even if a partner is the best recommendation for the client, we must still disclose the relationship, especially if there is any additional benefit we get from the recommendation (and definitely if the benefit is financial). (In addition, we should make extra effort to demonstrate that we did thoroughly evaluate the identified alternatives and have a number of reasons for the partner recommendation that are specific to the client’s needs).

2. Create RFPs based on identified needs, not free vendor templates or analyst map outlines.

It’s critically important that we don’t take shortcuts here because vendor templates are designed to ensure that the vendor who gave the template away always comes out on top (by focussing in on the requirements that the vendor executes best) and analyst map requirements focus on a set of requirements that the analysts can use to compare vendors on the same scale, not on a set of requirements that is relevant for selecting a platform for a specific customer, or even a customer of a specific size in a specific vertical.

3. Recommend vendors based on technical fit and hard requirements, not cultural fit and soft requirements.

Just like it’s not an analyst’s job to judge cultural fit or other soft factors in their analysis (as that varies too much by company to even take a shot in the dark), it’s not our job to tell clients who is a good fit — that’s for them to decide. We’re there to tell them which companies can provide a good solution, and let them decide who they are comfortable with as they will be stuck with the vendor for 3, 5, 7 or more years (not us)!

4. Make recommendations on expected ROI for the customer, not follow-on work potential.

At bigger consultancies, where the consultant is often joined at the hip to partners (and must use/recommend their solution if it can be force-fit), they are often also pressured to making the recommendation that will lead to the most follow-on work and engagement extensions (and, preferably, long drawn-out implementations and integrations). As far as the doctor is concerned, this is one of the most egregious things you can do. Especially considering that, in Procurement, work is never done and the client will always need more advice, new technology, and more help.

If we focus on the technology that will deliver the most ROI, then we are enabling the client to generate funding for additional projects and, hopefully, make us their consultant of choice in the process by focussing on them before us. The reality is that there isn’t a Procurement organization anywhere, not even in the upper quartile of Hackett Group top performers, that has all of the resources, technology and knowledge it needs. So we should never think it’s a one-and-done situation if we do well (and, moreover, do it at a fair price-point where we deliver an ROI).

5. Don’t take on projects we’re not qualified to do.

While this might get you fired at a bigger consultancy where the motto is the traditional consulting motto of “sign now, figure it out later” (because they have enough expertise and people across enough areas to do it), we need to be better (because we don’t have expertise anywhere or a lot of people to fall back on). If we’re approached with something that’s not in our wheelhouse as a consultant, we take it to the rest of the company. If it doesn’t fit anyone’s wheelhouse, we need to politely decline the work. If it means we never get asked again, then we know that’s a client we wouldn’t want to work for as any client with working brain cells would be impressed and honoured to know a consultant who didn’t just say yes but instead thought about whether or not they could deliver enough value relative to their price tag before accepting the work.

Furthermore, if we take the time to educate the client on what our services are and where we could help, we should be the first call they make when they have the right project, and maybe even get it in a sole-source negotiation if the project doesn’t cross a mandatory public bid threshold. People worth working for value honesty, and are very likely to come back to you, either at their current company or their next company, if you are honest about what you can and can’t do and what value you can provide. (Furthermore, if you investigate the company and can identify something you could do to help them, nothing stops you from proposing that project and working with them to close that project while helping them find the right consultant for the project you can’t do.)

At the end of the day, no one ever ruined their reputation by saying no to work they weren’t suited for — they ruined their reputation by taking on work they weren’t qualified to even talk about and then f6ck1ng it up royally.

the doctor‘s not sure it’s enough, but it’s a start, and if other independent consultants make an effort to figure out how to restore our reputation, maybe we’ll find the answer, provide the value that we are engaged to provide, and get back the trust we should have.

Affordable RFPs – The Real Reason(s) They Are So Rare, Part 2

Three articles ago, we noted that The Key to Procurement Software Selection Success: Affordable RFPs! was critical to getting the right technology to help manage your complex supply chain. This was because a proper RFP required a LOT of understanding to get it right, which we covered in detail in that article and summarized in Part 1. Then, two articles ago, we noted that we know all too well that most of you are asking Affordable RFPs — What Are Those? because you’ve never seen one. So in Part 1, after reviewing the requirements of a good RFP, and pointing out why you weren’t likely to get an affordable RFP from the majority of consultancies, we told you that they were still the answer because

  1. they could be affordable if Niche Consultancies stopped thinking like consultants
    and started thinking like enhanced product-and-data-based SaaS Management Providers,
  2. they only require knowledge management and expert augmentation to get it right, and
  3. if a consultancy understood this and was willing to make the necessary investment, they could quickly become a market leader.

Today we’ll explain what that means. We’ll start with the 10 types of understanding we outlined in our first article on The Key to Procurement Software Selection Success: Affordable RFPs!.

  • Procurement Maturity: the consultancy needs a maturity matrix, along with key capabilities at each level, key questions that need to be asked, and follow on questions (and contextual knowledge) to elicit the right details
  • Process Maturity: the consultancy needs a process progression flow to pinpoint where an organization is in each process, both from a human viewpoint and a technology enablement viewpoint
  • (Critical) Use Cases: not just from a standard “procurement” (“sourcing”, “supply chain”, etc.) point of view, but from an industry point of view; the consultancy needs a large library of standard (critical) use cases to build on
  • Current Technical Maturity: not just from an organizational point of view, but based on the progression of technology in a typical enterprise organization (which, of course, requires a knowledge of the history of tech to the present day along with progression flows along architecture, standards, models, etc. )
  • Missing Capabilities: based on the process and tech maturity, but also based on industry peers and leading solutions; requires all of the above AND all of the below
  • Key Solution Types to Address the Gap(s): knowledge of the standard modular / best of breed offerings in the space and related spaces, as well as knowledge of the standard must have, should have, and nice to have capabilities of each solution type, as well as the progression of technical maturity in each area; a rather extensive knowledge base will be required
  • Key Existing Solutions to Maintain: knowledge of the core, should have, and nice to have requirements of foundational ERP/MRP solutions and companion solutions in inventory, logistics, etc. (to make sure the S2P+ solutions will be enough to go to market for or if other modules / systems [and RFPs] will be needed); a more extensive database
  • Globalization Requirements: knowledge of what the e-procurement requirements are in each country the organization does business in, what languages will be absolutely necessary, what currencies will need to be supported, what government regulations there are for the products/services being sourced/sold, what industry regulations/standards need to be supported etc; internal databases or appropriate database subscriptions will be required
  • Service Requirements: knowledge of what requirements are needed for implementation, data migration, integrations, and maintenance; and how to judge if a vendor / service provider is up to the task
  • Unique Organizational Requirements: knowledge of industries and what differentiates them from a process requirement and solution requirement standpoint; detailed, but yet curtailed, knowledge in an internal database that matrixes this by industry, process, and technology solution

In other words, it means a LOT of detailed models, knowledge bases, and standard progressions as well as a lot of detailed knowledge on:

  • metrics where most organizations lie on the maturity curve(s)
  • vendors, what modules they offer, and how they stack up
  • once all of the above is racked, stacked, and mapped, what the core questions are
  • etc.

And that, of course, requires the consultancy to step up and

  • make some up-front and ongoing investments to build these knowledge bases that will
  • allow their intermediate associates to do the baseline work and
  • enable their experts to come in and finish it up in a fraction of the time compared to if they had to do most of the work themselves (i.e. 1/5 to 1/4).

This will allow most of the work to be done by the intermediate resources at a lower day rate, who will be more efficient with a knowledge base to build on, and then the expert to come in and review the work, identify the areas of weakness, and take it the last mile.

And a consultancy who saw that and made the investments could scale up their operation by allowing their top resources to be four times as productive and support four times as many customers (as well as supporting their customers through the implementation in the project, change management, data migration, and assurance roles. (We only said that they had to be vendor neutral, and not be an implementation provider for the vendor’s software. Everything else is process or organization centric, and as the experts, that’s the work they should be doing, and the most valuable work to be done.)

Again, Affordable RFPs are the answer and maybe someday we’ll see a herd of those mythical unicorns.