As per our previous post, Procurement is in vogue. But, as we bluntly stated, only because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. As a result, Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money.

And the money is deserved if those providers deliver the ROI they promise. But the ROI only materializes in the right circumstance when the solution is properly applied, but this is the kicker. Right circumstance, proper application. And this is easier said then done. Because the proper application of the solution needs to be applied from the start of the, strategically chosen, sourcing project to the final procurement of the final product or service deliverable.

Because, as we indicated in our last post, sourcing only singles out the savings opportunities, which should be negotiated and put into a contract, it doesn’t realize them. That’s the job of Procurement.

But Procurement can’t do it’s job without good, clean, relatively complete, data. But that’s something it rarely has. Procurement usually has bad, incomplete, scattered data which is often more misleading than not having data at all and going on a whim.

Typical POs consist of just buyer SKUs, typical invoices contain either (different) supplier SKUs or short descriptions, what gets entered into the AP system is usually a buyer’s shorthand for this, and then when it comes time to m-way analysis or spend analysis, it’s almost impossible. The data is bad, incomplete, and, simply put, dirty.

And, as a result, m-way matches fail, over-billings don’t get detected, overspend happens, and the strategically negotiated savings don’t get realized. Plus, as more and more data gets mis-classified, opportunities for spend consolidation don’t get identified since the true spend on a product, category, or supplier is never known.

But over-billings and lack of spend consolidation or strategic sourcing opportunities is just the beginning. The bad data can lead to poor procurement decisions when the wrong data is in the catalog (and an off-contract item is chosen when such a purchase should have been prevented), when not enough data leads to the selection of poor service providers who deliver inferior services, and when insufficient specifications result in large project, and thus cost, overruns.

There’s a reason why many organizations are still losing 0.30 to 0.40 on every dollar of negotiated savings, and it’s not (just) bad Procurement, it’s (bad) Procurement data. So if you want to capture the flag, you need to get your data in order.

But how do you do that? We’ll tackle this topic tomorrow.

Procurement is in vogue, but only because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. As a result, Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money.

But do they deserve that money? Maybe, maybe not. It all comes down to the ROI delivered. Much of the technology out there is capable of delivering a good, if not great, ROI in the right circumstance when properly applied, but this is the kicker. Right circumstance, properly applied.

An e-Auction won’t save a penny applied to a category for the third time in a supplier’s market during inflationary times. In fact, it will likely result in a cost increase. An RFX will do nothing if the perceived value thereof in the recipient suppliers is not worth the cost of response. An optimization will do nothing if there is not enough data or the model is not properly constructed. An e-Catalog will be useless if the contracted product is not contained at the right price. And so on.

Moreover, the proper application of each technology product purchased requires the proper data. RFXs need appropriate supplier contract data to be delivered, proper questionnaires to collect the data, and proper cost models to collect the data, the application will never be properly applied. This goes double for optimization.

But this is only the start of the data debacle in many organizations that prevent procurement pursuits from delivering the sought after savings. Bad data doesn’t just stagnate sourcing, it also prevents proper procurement. Sourcing only singles out the savings opportunities, which should be negotiated and put into a contract, it doesn’t realize them. That’s the job of Procurement.

And that’s where you have to capture the flag!

Last week, in They Terk Er Jerbs!, we noted that the age of robots (and software assistants) is here and there’s nothing we can do to prevent it now that they are roaming the floors of Walmart. We also said, especially in our follow up post on how they They Terk Er Jerbs! Good for them. that this can be a good thing since the jobs these robots are best suited for are boring, repetitive, relatively simple jobs that sometimes even suck your willingness to live.

And by doing these jobs, they can free you up to do more complex, creative, and value-generating jobs, including those jobs that couldn’t be done before.

Of course, we have the problem that most organizations only see the cost savings that result when you eliminate 20 paper pushers with automated invoice processing software that can automate 95% to 98% of the work, leaving only 2% to 3% of invoices that need manual intervention. Yes this is a savings, and yes it is significant, but it’s a one time savings. What do you the next year? Competition still increases. Costs still rise. Margins still fall. Not only is your place on the Fortune 1000, or Global 3000, threatened (or your possibility of ever getting there), but maybe even your business viability.

You get year over year savings by identifying value year over year. At the end of the day, it’s all about keeping a healthy profit, defined as Sales – Costs. You can only increase sales so much in a given market for a given product. At some point the market is saturated and your position is maximized. You can only decrease cost so much with just an RFX or Auction … all that does is take the fat out of the margin.

To find real savings, you have to figure out how to take cost out of the product — either out of the production process (lean initiatives or component substitution or design improvements), the transportation (through carefully amalgamated global shipping), the packaging (through package redesign), or even the margin through appropriate product consolidation with the right supplier (who can operate at a lower margin for higher volume). This doesn’t happen without a lot of investigation, analysis, exploration, and relationship building and management and the creative personnel to do it. Machines can’t do this. (While they can analyze the data and identify the best potential opportunities, they can’t realize them.)

The only way to truly find savings (and maybe even more value through better aligned value-added services) year after year is to have a team of people who can analyze the supply chain for them. This means that the best way for an organization to succeed is to employ invoice automation to free its people up from tactical invoice processing to, possibly after appropriate training, pursue more strategic opportunities and programs that will take identify additional value year over year without any additional overhead (since the invoice automation pays for itself and the team pays for itself).

So, the true Procurement Innovation today comes when organizations use automation not to replace headcount, but augment headcount to allow them to find more value than they would otherwise have time to find. And indirectly achieve an ROI from the software automation that is far higher than just the ROI from the automation alone.

And the great thing is that since these AI’s aren’t truly intelligent, they don’t mind doing the same mind-numbing task to infinity and beyond.
So let ’em take our mind-numbing soul-crushing jobs. We’ll keep our soul, and fly in the clouds while they dig in the mines.