Category Archives: Best Practices

Get it Together! Good Data Ain’t That Hard!

A few weeks ago, the Supply Chain Management Review published a short piece on
Procurement’s Data Problem that noted recent surveys from Globality and SpendHQ had some appalling statistics, including the findings that 82% of leaders are not managing indirect spend well, 79% don’t have dedicated software to track and manage performance, and 75% doubted the accuracy of the data they present. What The Hell? It’s not 2003 anymore. It’s 2023. And this is easy stuff. Get it together people!

The data problem is easy. (At least at a basic level.)

  • Have a process that forces ALL spend through the e-Pro/AP system.
  • Make sure there are POs (Purchase Orders) for everything that’s not a recurring invoice such as a utility or lease payment, and VPOs (Virtual Purchase Orders) for these recurring invoices that define either agreed to amounts, hourly/usage rates, or expected ranges (that can then be corrected to the actual amount when the monthly bill arrives).
  • Make sure all invoices are imported into the e-Pro/AP system before any payment is made.
  • Make sure they match the PO before they are paid.
  • Make sure all payments are captured in the e-Pro/AP system.

Now you have an accurate, trustworthy, record of every single transaction from order, through approval, to payment. Now you have good spend data that you can trust. To extract insight and/or create reports, just use a good spend analysis tool. Basic, accurate, trustworthy data is easy.

Baseline Performance Management ain’t hard either.

Spend performance is just analyzing the average price per unit paid over time. If you don’t have a a performance management (sub) module, you can literally do this with a spend analysis tool where you create a report for every sourcing project you do that tracks spend over time against a baseline from which savings/cost avoidance over time can be created. Associate each with a user, a department, and a category and you can easily create performance reports by user or department or category.

Managing Indirect Spend is straight forward as well.

  1. Use your spend analysis tool to identify categories and spend level.
  2. For high spend categories, do strategic sourcing projects that are (multi-round) (hybrid) RFX and/or auctions.
  3. For low spend categories, do 3-bids-and-a-buy / approved catalog Procurements (through your e-Pro tool).

Sure, you might not realize the maximum opportunity, but this simple recipe will likely capture 90%, often without significant effort, and you go from losing 15% or more on the tail of the indirect spend and 5% to 15% on the higher volume indirect spend, to only losing a few points on the higher volume and less than five points on the tail. It’s simple. It works. It only needs an e-Pro tool and a cheap RFX/Auction tool, and there are examples of each of these tools that support mid-size enterprises with unlimited use for less than 2K a month. There’s just no excuse not to have the basic tools and not to use them. (As for spend analysis, Spendata Enterprise starts at 1,200 a month! And Anydata Solutions has mid-market pricing under 2,000/month as well! [Both require minimum commitments.])

Less than 60K solves these problems. That’s less than a fully burdened junior buyer. There’s no excuse for this situation anymore. Simply none. So get it together please.

Doubling Down on the Key Tech Selection Requirement: No Tech Should Be Forever!

Building on our recent post about The Sixth Mistake that most buyers make when buying tech, we want to double down on this concept. NO TECH SHOULD BE FOREVER!

Just like business processes evolve as businesses evolve, tech needs to evolve to meet those new process and business needs. And while the tech you select today may evolve tomorrow, and even the day after tomorrow, in a way that is appropriate for your organization, it may not be appropriate for your organization the day after the day after tomorrow. Why? The vendor could stop growing, at which point the investors decide to stop investing in R&D and just try to ride out the license and maintenance (i.e. bug fix) fees as long as possible. The business focus could shift directions in terms of product lines, services, etc. and what was the near-perfect solution may no longer be. The business could scale rapidly and need a broader / deeper enterprise solution. And so on. Time brings change, which means solutions need to change as new, or variant, problems arise.

This means that you should be selecting technology with augmentation and replacability in mind. This means that you are looking for tech that:

  • has 100% self-serve full data export capability (in case you need to get the data out)
  • has extensive self-serve configuration in terms of users, access, process flows, approval flows, terminology, templates, etc. etc. etc. (so that you can adapt it as your processes change in minor to moderate ways)
  • has a fully open API that supports
    • full data pull AND push requests
    • full programming and control of the workflow
    • full task execution capability to support augmentation and plugin
  • is accompanied by extensive documentation and education resources and partner training (in case the vendor is unable to support you with your service needs)
    This also means that you are likely looking for a vendor that:

        • is true SaaS (so you get all of their improvements as soon as they are available)
        • charges on a usage subscription with no hidden/termination/third party integration needs (so you can grow if you need to, or reallocate on a renewal)
        • allows you to start with a baseline user-base and then grow during the contract term (with prenegotiated addendums for additional modules / users)

    Moreover, when you approach solution selection with this in mind, you’re actually more likely to find the right solution as a vendor that builds a modern SaaS offering with a complete API, instant updates when new functionality is available, and offers extensive documentation and tools for partners is one that understands that the minute they stop innovating is the minute their competition will overtake them and be a more attractive offering to the market and their clients. A lack of lock-in really is a win-win for all parties. (Even if most vendors with the classic ERP mentality that a piece of software should be forever, and, thus, cost millions of dollars don’t get it.)

    In other words, you should immediately eliminate any vendor from your shortlist that doesn’t have an offering that meets these criteria. After all, as our S2P series is demonstrating, you will likely still have dozens of options that do. The only solution you’ll always need is a data store, but, as long as you use a standard database type and encoding format, you can even migrate that if you need to.

A Critical Sixth Mistake Most Tech Buyers Make — in Source-to-Pay and Beyond!

To infinity and beyond isn’t just the goal of Buzz Lightyear, it’s also an accurate description of how often tech buyers make this critical mistake. And what is this critical mistake?

Not negotiating an easy, full, self-serve, cost-free, 100% DATA OUT clause in the contract — and forcing the supplier to prove it works one third (or one half) of the way into the agreement.

Sure, buyers always ask “can we get our data out if we choose not to renew” and sure suppliers always say “of course you can get a full data dump“, but the supplier rep is always going to say yes after the developers say it’s possible (but that doesn’t mean it’s encoded in the product, and more often than not with older platforms it requires the tech team to do the data dump — which might be more difficult and take a lot longer than they expect because they are using a shared database, have data and files split across multiple databases / servers, or they can only extract data a few files / tables at a time — and it might even come at a huge cost for their time), even if it’s really not. (It’s not just whether or not the development team can extract the data, it’s whether or not they can do so in some sort of standard format that would allow you to at least load it into a standard database or file storage system.)

The most important thing to remember is that even if a solution is the perfect fit for you now, it does not mean it will be the perfect fir for you next year, and by the time renewal comes up, due to changing organizational needs, changing provider directions, or a combination of the two, it may no longer be appropriate at all. Should this happen, you need to be able to migrate to a new solution quickly and easily, and this will require being able to extract all of your data from the current platform, self-serve, in a standard format that you can then push into a new platform as soon as that new platform is identified.

The only way to ensure this is to insist on a clause in the contract along the lines of the following:

The platform will contain a self-serve feature that will allow a buyer administrator to export any and/or all data in _____-format (e.g. XML, flat-file) in accordance with standard _____ (e.g. cXML, SQL) in a format that will allow the data to be immediately loaded into _____ (e.g. SAP, mySQL) application by executing a single load control-file/script. Attachments, if not stored in the database, should be capable of being downloaded in a (multi-)part ZIP file, with names and relative directory paths matching any indexes in the database directory files. If still in development, this capability must be fully implemented before one third [or one half] of the subscription term has expired.

Furthermore, on or before YYYY-MMM-DD, the supplier will walk the buyer administrator through a test of the export process wherein the buyer will self-serve export all of the data and then load it into a test instance of the indicated backup system. Should the test fail, the supplier will be subject to a monthly subscription penalty of X% a month until the functionality is complete and the test succeeds. Should the functionality not be finished by the time two thirds [three quarters] of the subscription term has expired, the supplier will be subject to a monthly subscription penalty of 2X% a month (as the buyer will have to invest in manual effort to recreate critical data in backup systems).

Any supplier that objects to the first part of the clause is likely NOT one that you want to be considering as most modern platforms support full data import and export through APIs and are built on the principles of data sharing. Furthermore, if the platform still doesn’t support export in a standard format, but claims they are working on it, you should expect most of the capability within a year if the platform really is serious about joining the modern data sharing club (and, thus, should not balk too much at the second part of the clause if they truly are serious as it should only take a few months to figure out a good export module for even a large schema).

Depending on how much data you produce, and how much manual effort it would be to manually recreate a copy of the data you can’t extract, X=20% would not be unreasonable in our view.

Finally, note that this requirement not only protects you in the situation where the platform isn’t right for you, but also increases the chance the platform will be right for you, as a platform that supports open data integration can usually be augmented with ease if you need additional functionality in the future, but don’t necessarily need a whole new platform as the current platform still does what it was purchased to do just fine.

Five Easy Mistakes Source-to-Pay Tech Buyers Can Avoid

For every win you hear about (usually in the form of some ridiculous “we saved X Million thanks to Big S2P Suite Installation“, but that’s a rant for another day), there’s always someone muttering under their breath how their Source-to-Pay module or suite was a partial to complete failure. The reality is that any tech solution, no matter how good it may be for someone else, can be a dud for you if you aren’t careful about selecting the right type of solution from the right vendor.

That’s one of the reasons we are doing a large (initially 33 part) series on Source-to-Pay right now, so that you get an understanding of what each core module should do, and could do, can figure out what modules you need now, and identify the core features that are a must have. This isn’t the full picture, and we can’t provide the rest of it in just a single post (and have written dozens on the subject in the past), but we can outline five mistakes that, if avoided, greatly increase your chances of (great) success.

Lack of understanding of the real value proposition from tech

This is probably the biggest, and the main reason we indicated that, once you have a solution in place that captures all of your spend data (i.e. e-Procurement baseline), you should do a spend and opportunity analysis to understand where the real cost control opportunities are. (Notice we are saying cost control, not savings, as you don’t get savings until you have processes and technology in place to actually capture the savings you identify. Otherwise, you identify the possibility, but don’t actually capture them. But don’t get us wrong, your costs will go down, sometimes significantly, but properly selected and implemented source-to-pay technology should deliver two rounds of cost reductions — an initial round when you start capturing all of the opportunities you previously identified, and then a second round when you are able to start using it to identify new cost reduction opportunities.)

The key here is to understand, for a given solution, how much cost reduction you can reasonably hope to capture in years one, two, and three (given that you will likely have to sign at least a 3 year subscription agreement to get a decent subscription rate), and what the total cost of ownership is going to be over those three years. (It will be more than just subscription cost, there will be implementation and integration costs, training costs, and internal costs when your IT team is working with theirs to make it work.) If the total cost reduction that can be reasonably (read: conservatively) expected for the first three years is not at least five times the total cost of ownership (with at least a 20% buffer), chances are that either the value proposition is NOT there (or you don’t really understand what it is yet and should either research further, find a different vendor, or, most likely, move on to another module).

Not knowing your true numbers — for spend, suppliers, contracts, orders, invoices, etc.

This is kind of intertwined with our first mistake, but needs to be called out on its own. When doing the potential ROI analysis, you can’t make rough assumptions on how much spend by supplier/category (you’ll always be off, and sometimes considerably), how many suppliers (which will be way, way more than you think), how many contracts (which will always be too low, and you probably won’t be able to quickly find a significant number of those contracts if you don’t have a SaaS contract management solution), how many orders (and you’ll be low here as well), or how many invoices (which will be way more than orders as some suppliers will partial ship and partial invoice, may invoices will come in without POs, etc.). Get your numbers, then do your analysis.

Overvaluing the tech (and AI)

This is the biggest mistake you can make, and goes hand-in-hand with not doing the homework required to work out the real value proposition from the tech. Whenever you hear “we saved X Million with Big S2P Suite Installation” you should immediately ask all of the following questions in order:

  • how much of that was truly do to tech vs. actually instituting a process that the tech enforced (i.e. the implementation of a new supplier management platform also instituted a process that ensured all suppliers were properly qualified before being onboarded, which minimized future event time and, more importantly, prevented orders to unreliable, poor quality, and even fake suppliers and considerably reduced organizational loss due to bad suppliers — most of those savings were due to the process, not the platform; the platform would be correlated with the development processes it was then used to manage after the suppliers were onboarded)
  • of what was actually tech, how much of that was due to baseline capabilities, and how much due to advanced capabilities (that are semi-unique to that supplier’s tech and not widely/otherwise available); for example, if the tech in question was e-Sourcing, and the vendor was one of the few that offered decision optimization, how much of that was achieved just with the baseline RFX/Auction capability (i.e. best bids and standard award methodologies, lowest bid by supplier, lowest total bid by category, etc.) and how much additional savings was from decision optimization once ALL constraints were taken into account.
  • how much more the organization paid for that advanced capability and how often it was actually used / required to get savings [if it was only used 10% of the time, and only identified considerable savings half the time it was used, is it really worth it? or should the organization just do a one-off services project when those categories come up]
  • how much the savings actually relied on ML/AI, vs. just providing a fancy NL interface (when the same result could be accomplished through submenus or a few filter definitions / selections);
  • and if any savings can actually be tied to ML/AI (vs. good process and more predictable technology), what the risks of failure are here!! [i.e. if the savings were due to reduced stock-outs as a result of the “AI” doing auto-replenishment orders as needed to adjust to demand fluctuations, what happens if there is a temporary, extreme, demand spike due to a near end-of-life sale, will the algorithm assume that is a sign of demand resurgence and fall prey to the bullwhip effect, sticking the organization with tens of thousands of units it will never sell without a fire sale?

Basically, at the end of the day, more often than not, when a customer says “we saved X Million with Supplier’s Spectacular Solution“, you would gain at least 80%, if not 90%, of those savings by implementing any any other solution with the same baseline capabilities that enforced the same processes be followed. (And this is the best argument ever NOT to overpay. Paying 5X to 10X for an incremental 10% is usually NOT worth it unless your organization is a F500/G3000 with over 1 Billion in annual spend. Again, it’s all about that ROI calculation.)

Misunderstanding the SaaS provider’s viewpoint

Not the salesperson’s viewpoint (which is to sell, sell, sell and match you with the solution they think is the best fit so you will be enticed to buy), but the SaaS provider’s viewpoint. Regardless of what terminology the SaaS solution provider is using:

  • what are they actually selling now
  • what are they currently working on that you can expect to be completed before an annual roadmap revisit
  • where are they going with the tech (i.e. they are AP/Payments — are they doubling down and adding support for global payments and clearance in more countries, or are they just sticking to the basics [and only good for post-audit countries] and working on expanding into broader P2P or the new intake-to-pay/procure/process trend)
  • what is their support and training philosophy — all in-house, hybrid in-house and third-party (and you can/can’t choose), or all third party
  • what is their target market — preferred customer size, preferred industries, etc.
  • what is their philosophy on working with customers — do they take input? hold working groups? or do they just develop the features they believe are most likely to fill gaps or increase efficiency with little to no input to keep development rapid and costs down?

At the end of the day, if you don’t understand this for each provider you are considering, you won’t know if they will be the provider for you.

Failing to find the right relationship

This happens more often than not, partly due to not understanding the most appropriate tech requirements for your organization at the present time, and partly due to not really understanding both the culture of the provider and it’s viewpoint. True value materializes when you find the right tech from the right provider that will not only work with you to ensure you get that ROI, but has a vision that is congruent with where you want your organization to go.

Are these all the mistakes you can make or all the mistakes we’ve seen? Of course not, but these are some of the biggest, and if you avoid these, your chances of success shoot up considerably.

Stop Sanctifying Savings, Recognizing ROIs without Research, or Seeking Solutions Solely in Software

If you’ve been reading the doctor for any length of time, you’re probably a bit confused about the third part of this title — as the doctor is one of the biggest proponents of sustainable software solutions that cover the extended Source-to-Pay process and enable next generation Sourcing and Procurement. However, just because he believes you should have an appropriate software solution for every stage of the source-to-pay process, that does not mean he believes all of the solutions are in software alone. Some are in systems, which are composed of talent, technology, and transformation(al processes).

Sometimes the solution to a challenge isn’t (just) a better system, it’s a better process. Take invoice overpayments, common in large organizations due to over-billings, duplicate billings, and even fraudulent billings. The current “solution” is to use a recovery firm who will take 1/3 of what they “recover” for you as their fee, but they won’t recover everything (since anything off contract is hopeless, as is any fraud that slipped through — the perpetuators are long gone, and even if the authorities find them, by the time you get a judgement in court, they’ve spent, laundered, or transferred the money to somewhere you can’t touch it). This is not much of a solution, because if only 50% of the overspend is addressable, and you lose 1/3 of that in fees, you’re only recovering 1/3 of your overspend. Ouch!

The solution here is better process enabled by technology. When an invoice comes in, the system auto-processes it and auto-matches it a purchase order and a goods receipt. If there is no PO, and it’s not a pre-defined monthly billing, it’s marked as no-pay until manually verified by the buyer that a) the invoice is for goods that were ordered and b) all of the units / services are the agreed upon prices or rates. And even then it’s held for payment until the goods are marked as received or the services delivered. If there is a PO, it must match all of the yet unmatched units (if multiple shipments, and thus invoices, are made against the PO) and each unit must be billed at the approved (contracted rate). If not, it’s flipped back to the supplier for correction. If the supplier won’t correct, possibly because the order was expedited at managerial insistence and the supplier agreed only if a premium could be charged, then it needs managerial approval before a payment can be issued, and if that is not given, it needs to enter a dispute process. In other words, no invoice is paid until matched, verified correct, and, when necessary, granted managerial approval — and the entire invoice management function is governed by a well thought out, defined, and detailed process (with flow-charts that govern process flows) that ensures every invoice is processed correctly in every situation (based upon whether or not the goods and/or services are under contract, PO, cyclic billing agreement, ordered from a catalog, requisitioned at a defined rate scale, bought in an e-auction, etc. In other words, the process comes first, and the technology enables it.

This means that while the software should enable as much of the process as possible, you shouldn’t look to the software, or even the vendor, to define the process for you. The vendor should have best practices, and should provide you with sufficient configuration options to make it work for the process you need, but you need to understand what you need before you select a solution. Some solutions on the market will be really rigid, and others will expect you to configure it to your needs. In other words, software can provide you with what you need to complete the solution, but software alone is not a complete solution — you need the right process and the right people using it. So don’t look to a software provider as the solution, look to a provider to provide software that will provide the software part of the solution.

And, more importantly, don’t accept the promised ROI without doing your own research. Most providers will promise you an ROI of 5X to 15X in an effort to convince you that NOT buying their solution wold be the stupidest thing ever as every day you’re not using their solution you’re flushing money down the toilet. And if the ROI of a solution is that high, you should definitely have a solution — but the solution that gives you that ROI might not be the one that promises it. Remember, ROI is realized return / total solution cost, and depending on how good you were doing before buying the solution, the current market conditions, your industry, and the ancillary costs of the solution (implementation, integration, training, etc.), the ROI for your organization could be drastically different than their average ROI for their average customer. For example, while the vendor’s average customer might see an ROI of 5, you might only see an ROI of 2.5, and at a multiple of less than 3, it’s likely not the solution for your organization. (Unless it’s the only solution and you need a software solution, but it’s rare that there’s only one software solution that would work.)

If you’re given an ROI, ask for the calculation the vendor uses and how you would calculate it for your own organization and do it yourself. Add padding into the price, and when you have an expected range of savings and/or cost avoidance, err on the side of caution (the lower end). That’s the number you use when considering the value, not the vendor’s number. Every situation is different, and you need to understand how different your situation is from their average customer.

However, the most important thing to understand is that you need to stop sanctifying savings and believing that the savings numbers provided by a vendor are a result of their solution. Or that you will achieve anything similar. Remember, “savings”, which is usually just “unnecessary cost avoidance”, is a function of how much the organization is spending across its addressable categories, how much overspend is across those categories, and how much was able to be captured — and this is dependent on organizational size (annual revenue), industry, and spend profile. If your organizational spend is considerably smaller, your addressable spend is less than industry average (long term locked-in contracts, etc.), or your overspend in high volume / dollar categories is less than industry average (either because you had good negotiators, or you cut the contracts at the most opportune time), then your expected “savings” will be considerably less than their average customer savings they are presenting to you. In other words, like ROI, the advertised number may not be what you get. Specifically, your savings might not be anywhere close to their advertised number.

But that’s not the most important reason you need to stop sanctifying savings — the most important reason you need to stop sanctifying savings is that there is absolutely no correlation between the savings numbers and their software. Let’s repeat that. There is absolutely no correlation between the savings numbers and their software. Why? The same reason you should not seek solutions solely in software.

The reality is that, depending on the situation at hand, sometimes most of the “savings” or “cost avoidance” results from a better process alone and has nothing to do with the software solution whatsoever. Also, sometimes the solution that is needed is simply a workflow that enforces a process, a RFX solution that collects comparable information, an e-procurement solution that supports contracted rate catalogs and rate cards, etc. These standard solutions are offered by dozens of vendors and if the majority of the “savings” or “cost avoidance” comes from a baseline solution, it literally doesn’t matter what vendor’s solution you use! Literally. So if the vendor with the significant savings number is asking 1M annually in license fees and a smaller vendor offers a solution with all the necessary baseline functionality for 120K annually, you could get the same savings for 1/8th of the cost (which would significantly impact the ROI).

In other words, when you are given a savings number, you have to do your research and figure out

  • what percentage of those savings results solely from the fact that the implemented solution enforces a proper process
  • what percentage of those savings results solely from the baseline functionality that is available in at least 3 to 5 other solutions (at a lower annual license cost)
  • … and what percentage of those savings result from advanced features found only in that solution

For example, if only 5% of the savings results from advanced functionality and your estimated annual savings from addressable spend for the first 3 years is only 10M per year, are you really willing to spend 8X as much in license fees for an incremental savings of 500K? The answer here should be a resounding NO as that incremental savings is less than the incremental solution cost! But if you’re a multibillion dollar corporate, that could save 50M a year for three years, with a 10% incremental savings from the advanced functionality, then you would be saving an extra 5M per year at an incremental cost of 800K (which is a 6X ROI) AND have advanced functionality that could be applied to all categories that might squeeze out an extra percent here and there.

In other words, what solution you should buy depends on which solution you expect will give YOU the greatest ROI based upon YOUR calculation, not the vendor’s customer averages (or outrageous quotes from multinationals who spend 10X what you do). Furthermore, don’t misread the title — you do need software to enable your Sourcing, Procurement, and Supply Chain, but the software is not the total solution — which requires the right process driven by the right people. So don’t expect the vendor to solve all your problems, just the software portion (which you should only buy after identifying what you need, and the vendor you should choose should be that which has the greatest expected ROI for your organization, as calculated by you).