Category Archives: Best Practices

Pay the Piper on Time or Pay the Price!

In response to abysmal payment terms of 120 days or more, which were seriously crippling smaller suppliers, the UK has instituted a requirement for large businesses to report on their UK payment practices twice a year, with failure to do so a criminal offence with unlimited fines. The goal is that the mandatory reporting requirement, which requires companies to report on the average time it takes to pay invoices for the majority of contracts (0-30 days, 31-60 days, and 61+ days), will encourage businesses to improve their payment practices as a result of transparency and public scrutiny.

It’s a shame that this requirement only exists in the UK, because not only should you know, and be prepared to report on, how fast you are paying your suppliers, but you should be striving to pay all of your suppliers within 30 days of receipt of a valid invoice, because your success depends on their success, and while a happy supplier, like the pied piper, will catch and lead the supply chain problem rats away, an unhappy one will allow those problem rats to multiply, and possibly even aid in their reproduction and spreading.

Suppliers are critical to your success. They not only provide the raw materials, products, and services you need, but often the raw materials, products, and services your customers need — and if these raw materials, products, and/or services are not of high quality, delivered timely, and supported enthusiastically, your customers will not be happy. Unhappy customers, especially those not under or nearing the end of their contracts, tend to defect.

A supplier is only likely to provide high quality, supported, timely products and services if it is happy. And believe the doctor when he tells you that a supplier will NOT be happy if that supplier is not paid on a relatively timely basis most of the time. Like you, suppliers need predictable cashflow and if you give them a cashflow nightmare, they will not be too concerned about giving you an inventory forecasting or customer satisfaction nightmare.

So don’t rely on a forthcoming guidance or industry initiative to tell you when to pay the piper. Just pay the piper and reap the benefits. (And if you not only pay on time, but pay early, you’ll be a customer of choice, and those customers tend to get all the benefits.)

The M&A Mania Ain’t Over Yet … But …


 

With one hand, pick up your copy of The Hitchhiker’s Guide to the Galaxy, with your other hand grab a Pan Galactic Gargle Blaster, have a seat, and read a few random entries while you have a nice relaxing drink. And definitely don’t panic.

In fact, don’t even give the acquisition a second thought right now. Why? The reality is that, for at least six months, nothing is going to change and you don’t have anything to worry about in the short term. First of all, takes a while for companies to figure out whether they are going to keep the tech, and then if they are going to merge it or keep it separate. Secondly, what to do with the teams. How they integrate (and who stays and who goes) and work together. Then the offices need to be harmonized. Etc.

Now, it’s a very real possibility that the company might have bought your provider just to squash the competition and/or try to get you as a customer, and that’s okay, because not only will it not happen overnight, but if you’re doing your job, you’re (re)evaluating your solution options at least once a year (before budget season) to not only identify what you are missing, but whether or not your current tech is still up to snuff. So, if the worst happens, or looks like it will happen, you already know who your likely options are and can start that RFP process.

Plus, if a company is paying 10, 20, 40, 100 million for another company, they probably don’t want to lose you as a customer (as they can’t afford to lose anyone at those prices for a few years), so even if their plan is to kill the technology and move you onto their platform (which will, hopefully be better … by the time they try to do so), they’re not going to force you overnight … they will honour your contract (which you signed and ensured had a change of ownership clause to your liking, right) and likely present you with a long term plan.

In other words, you have time to figure things out, and, to be honest, you should be moving much faster than the vendor anyway. So take another sip of that Pan Galactic Gargle Blaster and don’t panic!

Manual = Money

Yes, technology costs money and five and six figure technology purchases look expensive, especially if a vendor is asking for payment up front, but it’s often the case that not having an automated technology solution as a mid-size or large organization is costing your organization even more. The reality is that anything not automated has to be done by someone, and having that someone do a task costs you a lot of money. Even if that someone is a (near) minimum wage resource. Remember, it’s not just the $15 an hour, $120 a day, $600 a week, $30000 a year that resource costs, but it’s all the overhead associated with that resource. Benefits. Training. Office space. Equipment. Opportunity cost of NOT having them work on more strategic tasks. Etc. When you do the math, that $15 an hour / $30000 a year resource is likely costing you closer to $30 an hour / $60000 a year. If the solution costs less than 30K a year, and replaces one FTE that’s not only a savings, but another resource you can reassign to value identification and generation (which never comes from doing tasks that can be automated).

But in Supply Management, the solution can often replace 3, 6, 10 or even 50 FTEs with very little incremental processing power required. A great, and often repeated example, is invoice processing with m-way (typically 3+) way match and auto-return to supplier for completion of missing information and correction of (potentially) incorrect information. These systems can review these invoices 100% and often, through auto return and correction, reduce the number of invoices that need human review to less than 2%. For an organization that receives 50,000 or more invoices a year, with dozens (or hundreds) of line items per invoice, where a team of 3 people can only fully review 20% and spot check a few lines on 20% more, this system, if in the 50K price range, has an ROI 10X its cost as it allows all invoices to be fully reviewed and verified before being paid — something that would otherwise take a team of 10 people, who are more error prone than the system and will still miss issues that need to be reviewed.

But it’s not just invoice review in Procurement that takes a huge amount of time, and never gets finished. It’s data entry and maintenance. Catalogs. Supplier Masters. Approved products and bill of materials. Preferred products. An average organization has tens of thousands of records that need to be created and maintained over time. Larger organizations have hundreds of thousands. And the annual maintenance of each record is so time consuming that the cost to accurately maintain this data (and keep it up to date) is literally in the hundreds of thousands of dollars, if not millions. (the doctor once read a thesis that estimated the average annual cost at about $2 a record, and with the increased rate of data change, that actually seems to be on the low side). But a system that allows suppliers to maintain their data, automatically updates the data from one central, verified, repository (provided by the supplier or vendor), etc. can greatly reduce this cost while increasing the accuracy.

And it’s not just tactical Procurement that requires a lot of manual effort. It’s also, believe it or not, Sourcing. A lot of categories that should be strategically sourced can be mostly automated. Especially the lower value, market-driven, and non-strategic categories. Often, the best strategy is just a winner-takes-all auction or a 60/40 split between the two best RFPs, where the bidders can be limited to pre-approved suppliers (and products) in the first case (with ceilings) and pre-approved suppliers in the second. These events could be automatically configured and, once reviewed by a buyer, automatically launched and executed and, once the results reviewed, automatically awarded. The entire process, which often takes days in some platforms, could be accomplished in an hour or two, freeing the buyer up to focus on truly strategic and large value categories and new types of supplier consolidation / part standardization / raw-material unification analyses that might yield previously unknown savings opportunities.

In other words, never balk at the cost of a solution until you calculate the true ROI, which is often many times the tactical manpower cost you are replacing (as its often the case the manual effort isn’t doing a complete job). The ultimate goal is to allow your team to focus on value identification and capture, and they can’t do that if all they are doing is manual data entry and review that can be (almost) fully automated.

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.