Category Archives: Best Practices

Scared of AI? Just Start with Auto-Buy.

Specifically, start with auto-buy on your tail-spend and non-strategic spend.

Seriously. If you’re a relatively mature organization using SSDO (Strategic Sourcing Decision Optimization) on your higher dollar or strategic categories, using auctions and RFX for mid-dollar and somewhat strategic categories, and GPOs or catalogs for significant spend categories, there’s still one category of spend that’s costing your organization a small fortune. That spend is tail spend. Up to 30% in some organizations, the average overspend is typically 15% or more (and can be up to 20% or 30%). Do the math in the typical case. Fifteen percent of thirty percent is 4.5%. If you’ve tackled your strategic sourcing categories two or three times now, chances are you’re trying to eek out 6% savings on the top 33% of spend. That’s about 2% savings.

What’s costing you more? If you’re an advanced or leading organization – the tail spend. But it’s not something you can do much about — it’s tail spend because you don’t have the manpower to deal with it. Yes, you can put a GPO or catalog in place, but it only works if you can force buyer to not only use it, but always select the right product when there are multiple options — not something most platforms can do (well). Especially if the preferred option is temporarily out of stock and something is needed tomorrow. (And the what’s the second preferred option? The third? And if it’s common, shouldn’t it be in inventory?)

And, more importantly, since most tail spend consists of individual requests, some of which should be aggregated, if the requests are directed to different buyers, how will they ever know if there are requests that should be aggregated? (They won’t. And that’s how it is.)

So why are your people even trying to manage parts of the tail-spend when, in fact, a modern AI platform can do it much better. It can amalgamate all similar requests, analyze usage trends, gather market prices, scour and compare options in your catalog and your GPO’s master contract, identify third party options available on the network, analyze usage and feedback reviews and data, determine the options that best meet your users’ needs, and select the one that offers the best value (lowest cost against reliability against organizational need) at a cost that doesn’t exceed market cost. So even if it doesn’t get the best deal, it at least ensures you don’t pay more than market price across your tail spend, which is 15% better than you are doing today.

So now that we have systems — including, but not limited to, Dhatim, LevaData, and Xeeva — that can auto-buy, it’s time to find one that works for you and get the tail spend under control. (And use them to recommend options for higher-value and more-strategic buys that you might not come up with on your own.)

Dear Procurement Organization, Are You Making The Big RFX Faux-Pas?

Short answer: If you have an RFX due this month, you in all probability are!

Right now, many vendors have more RFXs due this month then they have had due the last two months, and the big question we all need to be asking is why.

Are these organizations really going to make a decision this month? Are they even going to evaluate these proposals this month? The answers are, of course, no and no! So why are the proposals due?

the doctor completely understands the desire to start evaluating proposals as early as soon as possible, but when as soon as possible is probably mid-January or later (when everyone returns from holiday vacation and deals with the fires that have been lit in their absence), why should the proposal be due this week?

Yes, vendor representatives take holidays too, but the best vendor representatives for the best vendors do not take holidays when you need them — or their best. And if you delayed your proposal due date until you actually needed the proposal in January, the best vendor reps would be back to work on the 27th spending even more time on your RFX to get you all of the details, value models, and other information you need to make the right decision.

But if you insist on a proposal weeks, or even months, before you are going to seriously evaluate it and make a decision, you are shorting yourself … and your supply chain peers (and even suppliers) who also have RFXs in to the vendor and need the vendor to put its best foot forward to make a proper decision.

So, don’t ask for an RFX until you are truly ready to review it when all you need is a confirmation of intent to submit and maybe a simple RFI with basic vendor information to (pre)qualify them. Ask for what you need only when you need it and you will get better responses, make better choices, and get better results!

Cognitive Procurement? How about Plain Old Informed Procurement?

While the true Procurement leaders (that pose a subset of the Hackett Group 8%) may be looking ahead to cognitive procurement solutions in the new year, the reality is that the majority of the market is still just looking for insight.

LevaData, one of the few true Cognitive Procurement players (reviewed in this post and in detail in a 3-part Spend Matters Pro series co-authored by the doctor [Part I, Part II, and Part III), recently released the results of its 2017 Cognitive Sourcing Survey that had some scary statistics that included:

  • only 13% of procurement managers engage with their suppliers on a constant basis
  • RFQ total cycle time for an average organization is 40 days
  • only 5% of respondents use third-party, purpose-built solutions for business and market intelligence, with 67% relying on internal solutions and/or Excel spreadsheets! (which is how not to excel at forecasting)

OUCH!

How do you know what you should be paying if you don’t even know what the market is paying? How can you get anything done if a simple request for quote, which only goes out after the specs are complete and the suppliers have an understanding of what you want, takes 7 weeks! (When it shouldn’t even take 7 days!) And, most importantly, how do you have a clue how things are going if you don’t engage with key suppliers regularly?

For the majority of companies, it’s not about cognitive, it’s about entering the modern age. Cognitive would be nice, but right now, they need plain old market intelligence, spend visibility, supplier relationship visibility, and efficient e-Negotiation automation. Without this, they are stuck in the industrial revolution … like their great great grandfathers were 100 years ago!

Catalogs Will Never Die

You may think catalogs are passe, but you need look no further than Coupa’s, yes Coupa’s, acquisition of Simeno … for it’s catalogs! WOW! Isn’t that what Coupa did, easy catalogs for easy buying?

According to the press release it acquired a leader in cross-catalog search and advanced catalog management that creates localized content from third-party supplier sites to power cross-catalog searches, including content from many of the leading B2B marketplaces and it did it to grow its Open Buy Program with the addition of the marketplaces to deliver a best-in-class cross-catalog search capability that is competitively distinguished while increasing its local presence in key German and Swiss markets.

We guess Coupa really wants to be the Amazon Business of the S2P world in the global market place!

But it does prove our point – the paper may have gone away, but people love their catalogs! Search, click, buy. Search, click, buy. Why RFI when you can search, click, buy. And, implemented and managed right, they are a great tool for attacking a significant portion of often overlooked tail spend.

And even if people don’t, this is obviously what Coupa believes as the new Simeno site focusses entirely on catalogs and those of you who knew Simeno knew that, especially if you read the Spend Matters Pro brief co-authored by the doctor (Part I, Part II, and Part III [membership required]), they also offered a procurement, basic contract management, and basic analytics application as well before the acquisition.

The catalog is dead. Long live the catalog!

A Lighthouse Without a Sufficiently Bright Light …

… does little to steer ships from the rocky disaster that is about to befall them. All it does is make clear the impending doom that awaits the ships unable to escape the waves about to crash them on the rocks.

Similarly, a spend visibility solution that does little more than show you data a quarter old without any ability to derive trends and capture outliers in realistic time frames, is no better than a lighthouse without a sufficiently bright light. All you will see is how much you over-spent on goods and services in the past, with no ability to recover that spend.

If you want to avoid hitting the spend management rocks and seeing all those negotiated savings go out the window, you need a solution that allows you to see your spend at most a month in the past, and for fast moving inventory, a week. You need a solution that allows you to plot trends, past, present, and future based upon similar market conditions; alter those trends based upon projections; and determine savings / loss opportunity based upon those projections that you can act on … while you have the opportunity.

Similarly, you need a solution that can capture all the contracts and contract rates, with all the contract suppliers, that can detect as soon as spend is off contract, who made the spend, where, and if it needs to be addressed. Roll it up, send it to the right managers and account managers, and make sure it’s addressed while the suppliers are still under contract.

But without this solution, you have no idea what is overspent, where, why, or how. — until it’s too late. And there’s nothing you can do about it. Don’t be in that position.