Category Archives: Best Practices

Don’t Be Fooled. There is no SaaS. Part II

In our last post, we said there is no such thing as Savings-as-a-Service and any organization promising to deliver it (with the exception of the big provider recently valued at 1B) is making a promise they likely won’t keep. The majority of organizations that jump on this new acronym with grandiose claims of SaaS delivery will not meet up to expectations, and many will not deliver any savings at all.

The reason being is that a company is not delivering savings unless they are either delivering a product or service below market average price or delivering a product or service at market average but at a higher value than would normally be obtained (either through enhanced quality, reliability, features, knowledge, etc.). After all, anyone can go to Amazon, Staples, Office Depot, eBay, etc. and figure out a rough market average and get that price if they want to.

For a company to deliver savings, they need to (have a platform that):

  • know what the market average is for a commodity or service, and always provide options that are less or the same with additional value beyond the market norm (which means they need a modern catalog platform)
  • have a way of collecting quotes and bids from potential suppliers that can be compared in a normalized, weighted, apples to apples fashion (which means they need a modern e-Sourcing platform with strong e-Negotiation support capability)
  • have a services team to handle the negotiations and the contract process to make sure that what gets offered gets agreed to
  • have a platform capable of managing the PO, invoice, and goods receipt process (and m-way matching) to make sure that the right products are ordered at the right price, that only invoices at the right price are accepted, and that payments are only made for goods and services received (which means they need a modern e-Procurement platform with strong e-Document management capability)
  • have a platform capable of tracking obligations and supplier performance (to make sure that deliver is on time, quality is up to snuff, etc.) and handling any corrective actions that are needed and supplier development that can improve overall value (which means that a strong SRM platform is needed as well)
  • and have the expertise in the appropriate categories relevant to your business! An engineer from the direct materials world probably know squat about contingent lab or procurement or marketing agency management, which could be where a considerable portion of your unmanaged spend is.

How many providers have a full featured S2P platform with enhanced e-Catalog and SRM functionality, budget integration, analytics that support normalized year-over-year spend reporting, services professionals to support all of this as a true SaaS (Software as a Service) platform *and* the expertise to support the categories you need supported?

The answer is: relative to the number of providers in the Supply Management space, very few. Only this handful of companies can claim that they can deliver Savings-as-a-Service. And, fair warning, their services will come with a hefty price tag. (This is not to say that the price tag will not be worth it, especially since there are providers that can consistently deliver a 5x to 10x ROI year after year, but that you need to be prepared for the price tag up front and willing to work with them and follow their lead in order to realize the savings.)

Because it sounds so awesome, expect a number of companies to jump on this new SaaS acronym, and expect most of them to be stretching the truth at least a little (if not a lot). Do your due diligence and find out what it is they really deliver and what will be expected of your team to realize the ROI they are promising. Then figure out if your team is up to the challenge, can be with training, need (temporary) (GPO) (expert) augmentation, or need a services provider to simply take over part of the Procurement in an outsourcing relationship until they can be brought up to the level (and manpower) needed to realize the ROI themselves.

Everybody wants savings, but simply not paying more than you have to under normal circumstances is not saving, it’s just avoiding clearly unnecessary cost. Savings is going below the baseline, and to realize that, you need a provider that can actually help your organization achieve that consistently across categories.

Don’t Be Fooled. There is NO SaaS! Part I

That’s right — there is no such thing as Savings-as-a-Service and any organization promising to deliver it (with the exception of the big provider recently value at 1B) is making a promise they likely won’t keep. The majority of organizations that jump on this new acronym with grandiose claims of SaaS delivery will not meet up to expectations, and many will not deliver any savings at all.

That doesn’t mean that you will not see reductions in spend, because many of the offerings proclaiming SaaS will lead to reductions in unit price, but this isn’t savings. Paying less than you were spending is not saving. If you were paying more than market average, and you reduce the cost to market average, you are simply realizing a cost reduction you could have realized any time you wanted simply by shifting the spend to a GPO, (an) Amazon (or e-Bay) (reseller), or an e-Catalog provider with punch-out integrations to all the big marketplaces. That “savings” was yours for the taking any time you wanted. And, moreover, once you make the switch, and start paying market average, if you simply stay with that provider, you will never see the “savings” again.

“Savings” is what you realize when you reduce spend below market average or extract value beyond what you typically get at the price point you are paying. Thus, to deliver savings you must deliver a customer a viable option to obtain a product or service they need below market average or to obtain more value (add) when they pay market average. And, thus, to deliver savings as a service you must do this repeatedly on a regular basis.

This is NOT something you can do if all you offer is a catalog. All a catalog allows you to do is determine the market average (range) for a product or service and identify those products that meet the price (range) and document which are of the best quality or the best fit for your organization. This is a valuable “service”, and every organization should be using one for their commodity product and service tail spend, but this is not “savings as a service”. Savings comes from analysis, engagement, negotiation, and relationship management.

If you want a better than market price or value-add features and services, you have to engage a potential supplier, negotiate for delivery (based on guaranteed volume, dollars, or value-delivery — such as co-marketing, lean training, or volume-based raw material purchasing at a better rate on their behalf), and manage the relationship. Thus, obtaining savings is also more than just sending out an RFQ and accepting the lowest bid (because if quality or reliability decreases and you have more returns and stock outs, you are actually paying more), so providers that just offer RFQ/e-Auction technology don’t deliver “Savings as a Service” either. They deliver a platform that you can use as part of a strategic sourcing process to negotiate savings, but as you can see, there’s a lot more to delivering savings than just providing a platform.

And we’ll address this in Part II.

Why Does Tail Spend Take Your Head for a Spin?

In our last post on why you shouldn’t let tail spend take you for a tail spin, we noted that tail spend could be keeping an additional 3% of revenue from hitting the bottom line (and, depending on your industry, and its margins, reducing your profit potential by up to 50%) and severely impacting your organization’s profit potential (and operating budget, which Procurement rarely has enough of).

We told you the answer to that was Sourcing Innovation’s new white paper on An Introduction to Tail Spend — and why you need a technology-based solution (registration required), sponsored by Claritum, because, unlike most papers, it tells you not only what tail spend is, and why not addressing it is costing your organization more than you know, but how to do something about it.

And it’s not just the typical solutions that the paper throws at you, which include:

  • tacking it on to managed spend,
  • using a GPO,
  • e-Catalogs, and
  • optimization-backed sourcing platforms

because:

  • strategic suppliers want to supply high-volume or high-value products, not low-volume or low-value products, and certainly not as a condition for supplying strategic categories
  • GPO pricing is only as strong as their constituents and if the majority of the constituents don’t want the products or services that constitute your organization’s tail spend, their prices won’t be much better
  • tail spend is too unpredictable to be managed through a single catalog, especially since only a portion of tail spend should generally be made as catalog spot-buys
  • as optimization-backed sourcing platforms have the power to source much of tail spend, but don’t provide the guidance, and the strategy is often the most important thing

That’s why the paper provides not a single strategy, but a process for selecting the right strategy for each type of tail spend, as well as guidance on how to choose a platform to support it.

So download Sourcing Innovation’s new white paper on An Introduction to Tail Spend — and why you need a technology-based solution (registration required), sponsored by Claritum, and get your tail spend management on the right track.

Siloed Supply Risk Management Just Wastes Time, Money, and Resources

In our last post on why Why Supply Risk Management Cannot Be Siloed we noted that, despite the fact that an organization’s supply chain is full of risks that could not only cripple the organization’s supply chain but cost it 100 Million or more in fines, the average organization’s supply chain is overflowing with risk (despite the fact that many of these risks could be mitigated).

Why? Because the average organization is not properly managing risk. Why? As per our last post, there are a number of issues including lack of resources, lack of time, and lack of immediacy, but the biggest issue is lack of cohesion. Even organizations that have risk management and sustainability efforts in place tend to be relatively ineffective overall because most of these efforts grew organically over time as individual functions encountered risks and needed to deal with them. This results in a very fragmented approach to risk management that is very inefficient and ineffective. Why? Each department sends its own surveys and questionnaires and reviews its own data sources and this results in:

  • a duplication of effort where
  • some suppliers will be assessed on the same dimensions twice while
  • other dimensions for the same suppliers go unassessed and
  • some suppliers do not get assessed at all while the process generates
  • false positives as well as
  • false negatives.

How can this happen? And just how much time and money is wasted? And what should be done? For the answer, check out Sourcing Innovation’s latest white-paper on Why Sustainable Supply Risk Management Cannot Be Siloed: Lessons From Leaders Who Beat the Odds, sponsored by Ecovadis. And you’ll learn not only what the correct approach is, and what it involves, but what it can do for you.

Is Your Procurement Platform Cost Centric Perfect for Indirect Only?

We’re all familiar with the standard 5-Step Sourcing Process:

  • Category (Spend) Analysis
  • Category (Sourcing) Strategy
  • Supplier Identification & Invitation
  • Sourcing Strategy Execution
  • Award and Contract

(which is covered in detail in the doctor‘s e-Book on The Strategic Sourcing Lifecycle: A Brief Introduction [registration required])

and we’re all familiar with the core capabilities of e-Sourcing and e-Procurement tools for supporting this lifecycle, namely:

  • Spend Analysis
  • Supplier Network
  • RFX / e-Auction
  • Optimization
  • Award & Contract

… for Sourcing and

  • Requisition & Order Management
  • Invoice & Receipt Management
  • Payment & Tax Management

… for Procurement.

And we’re very familiar with what each of these technologies has to offer for each of the strategic sourcing (execution) lifecycle phases.

But is it enough? For the majority of your indirect (finished product, MRO supply, temp labour, etc.) categories, it is more than enough. Compared to what you had a decade ago, it’s the answer to all your dreams (and, for the religious among you, prayers).

For a commodity alarm clock radio, yes. For a bill of materials for a custom designed tablet, no. First of all, you can’t just do an RFX for all of the “standard components”. Why? For starters:

  • all of the components have to be compatible — it is often the case that components from different manufacturers, even if they are the same form factor, are not 100% compatible
  • the cost is not just the components, it’s the integration — and sometimes you want sub-assemblies, and you want to bid those against components and doing the assembly in house
  • complete composition data is key — if some products use materials that are restricted or banned in one or more target markets, they are not all equal

and when you consider a typical sourcing platform

  • there is typically no advanced strategic sourcing decision optimization or constraint satisfaction capability and no way to indicate that certain products are only compatible with certain others and, thus, it is extremely difficult to create and evaluate the cost of legal award scenarios; and even if the organization has one of the half dozen solutions with this capability, there’s typically no way to capture the data that defines compatibility or incompatibility (or help a sourceror identify potential issues)
  • not only does the average sourcing platform have no support for Bill of Materials, but there is no support for production cost models that capture overhead costs (as most procurement platforms designed for indirect focus mainly on logistics costs in addition to component costs)
  • average procurement platforms track descriptions and bids, not component and material breakdowns (and have no support for compliance and sustainability issues and regulations)

In other words, your typical procurement platform is cost-centric perfect for indirect, but when it comes to direct, the platform is sorely lacking.

So what do you need to support your direct procurement? Download Sourcing Innovation’s newest white paper on The Direct Procurement Challenge (registration required), sponsored by Pool4Tool, and find out today!