Category Archives: Category Management

Wham Up Your Direct Sourcing with EffiGO!

EffiGO might not be a name you know, as they spent the first decade building, deploying, and growing primarily in India (where they have over 150 enterprise customers including some of the largest names in India in Construction, Manufacturing, CPG, Automotive, IT, Pharma, and Chemicals and have sourced and procured over 25 Billion in Spend), but they now have a growing presence across Asia, the Middle East, and are just starting to expand into Europe (with America coming soon).

However, it now is a name you should know because they built the system from the ground-up to be a complete purchase requisition to invoice approval system with all of the key sourcing and procurement steps in between for indirect (and tail spend), direct, rate-card based services AND complex (project) procurements for their customers — whatever their customers needed. And the foundational “plan to pay” from purchase requisition to ok-to-pay suite can be obtained by a LMM or SE (Large MidMarket/Small Enterprise) at an annual license cost starting at 100K. Integrations, and they highly recommend integrating to the ERP (where they have integrated with most major ERPs multiple times including, but not limited to SAP, Oracle, Infor, Dynamics, etc.), custom configurations, and services are extra, as with any other major player, but the license cost makes it affordable for the mid-markets who need a direct/complete sourcing solution.

The core of the EffiGO platform is broken into two main modules that cover the two main work streams:

Plan to PO

The Plan to PO component consists of the creation/acceptance of the Purchase Requisitions (which can be pushed from the ERP or manually created in the platform), the creation and execution of the sourcing events, the selection of the award, and the definition of the contract that orders will be made against.

Once a Purchase Requisition is pulled in from the ERP or manually created by a user in another organizational department, the user will see it in EffiGO and can pull it up, see all the details, edit those details (including, but not limited to the goods and services requested, the units, the delivery dates requested, the payment terms, etc.) or request an edit if they don’t have the authority, and approve it for sourcing.

With respect to core sourcing, the platform supports:

  • RFX – Quick
  • RFX – Full (with or without TechnoCommercial Evaluation)
  • Auction
  • Reorder (from a past RFX created in the last quarter)
  • Order from Catalog (for products where [rate] contracts are in effect)

RFX (and auction) creation starts by selecting one or more approved requisitions to kick-off an RFX (or auction) process, selecting the event type, entering basic information (name, business unit, event owners, business unit, desired delivery locations, currency, etc.), and determining whether the event only requires commercial specifications and terms or detailed engineering/technical review and a weight-based award based on commercial terms and product/supplier review.

Note that the system will inform the buyer if one or more parts or items in one or more of the requisitions they select is either in inventory and/or already under contract and can just be fulfilled without going through a sourcing event.

Once the basic event criteria have been defined, and the items and quantities confirmed, the user is walked through the remaining configuration steps that include:

  • documentation – standard organizational terms and conditions, NDAs, and other project specific documents (which can be pulled in from a central library) or uploaded
  • price tables – the platform supports pre-configured bidding templates for different categories and products (that can be associated with any level of the product and service hierarchy they support), which can include non-price components, and the user just needs to select one
  • vendor selection – the buyer can search for vendors by group, category, location, etc. and add them one at a time or in groups
  • dates: clarification questions, bids, follow-ups (if requested), notifications, etc.
  • review criteria: techno only – select the template that will be used for product/services/vendor review and scoring

Note that since the requisitions can be pushed in by the ERP, they can range from a requisition for a single item to a requisition for a complete bill of materials, each item or part can be associated with its own cost breakdown table defined in the EffiGO platform, each part can have its own associated documents, including drawings and detailed product specifications, which can be included in the ERP push, pulled in from the EffiGO library, or even pulled in from a (n optional) PLM integration, and the cost tables can also include service cost rate tables as well. To make bidding easy for the suppliers, the bid sheets can be pulled down into Excel (and then re-uploaded), and that can be done on a product or event basis (and then the workbook will be multi-tab if different cost models are required for different parts and/or service rate cards).

If the sourcing event is being awarded on commercial terms only, then the application will select the lowest bids at the part, bundle (grouping), or RFQ level for award, and if the buyer approves, the award selection(s) can be output for offers, letters of intent, and contract negotiations, one per supplier. If the sourcing event is on commercial and technical, the commercial are auto-scored and the buyer scores the technical components, and then the award can be auto-computed in the application according to the award level.

Once a contract has been signed, it can be uploaded with all of the terms and conditions defined (and all meta-data from an associated event can be associated with the contract), and custom completion requirements can be specified in the meta-data to make sure that all POs go out with those requirements (and they are not forgotten — more on this in our discussion of the PO to Pay module).

PO to Pay

The PO to Pay component consists of the creation of the purchase orders, the management of the purchase order and assurance of contract terms and conditions, the management of associated communications (acknowledgements, change requests, ASNs, etc.), the acceptance of the invoices against the orders, the processing and approvals, and the creation of an ok-to-pay push notification to the payment system.

When a buyer is ready to place an order, the buyer can create a purchase order:

  • off of an RFQ
  • off of one or more catalog items which may or may not be under contract (but are approved for purchase)

As with sourcing, if the buyer selects an item that is already in inventory or under contract (and can be requisitioned without any approvals), the system will inform the buyer.

As with any other system, a purchase order consists of items, units, approved pricing, delivery locations, dates, and other key pieces of information. Unlike other systems, the buyer can specify a full host of requirements that must be met before the PO can be issued, acknowledged, and dispatched against which include, but are not limited to:

  • whether an Ack(nowledgement) is required
  • whether acceptance is mandatory
  • whether an ABG (Advanced Bank Guarantee) is required
  • whether a [C]PBG ([Contract] Performance Bank Guarantee) is required
  • whether a LC (Letter of Credit) is required
  • whether the vendor needs to submit any technical documentation
  • whether the requesting buyer needs to provide the vendor with any instructions or documents
  • whether stage monitoring is required (and what the stages are; these can be selected from pre-configured or PLM lists)
  • whether transportation is in the scope of the buyer or vendor
  • whether the vendor is required to submit dispatch instructions
  • other potential organizational specific requirements around purchase orders (for certain products, services, or categories)

When a vendor receives the purchase order, they also receive all of the associated documents and information provided by the buyer along with all the instructions they need to follow and requirements they need to meet to make a delivery AND get paid for it.

Once a vendor has dispatched (part of) a purchase order (which is also tracked against an RFQ to make sure that they never dispatch more units than they have been approved for), they can submit an invoice, which is associated with the order, which goes into an approval queue. Approval chains can be configured to be as simple, or complex, as needed, with as many steps as necessary.

Catalogs are buyer maintained. Suppliers can upload and submit catalogs to the buyer, but they don’t go live until approved by the buyer, who can accept or reject items and pricing. Once awards have been made and/or contracts have been signed after the issuance of a sourcing event, the buyers can create catalog items with the details and pricing, and mark them as under contract if a contract is signed or the rates are approved (if the supplier is willing to honour the quotes in the latter case).

Catalog items can have as many buyer standardized fields as needed to completely specify the item, which can be searched by type, category, supplier, location, status, and keywords against key fields. All items can be associated with their proper place in the organizational category hierarchy, which can be as deep as required. (Note that vendors can identify the categories they service up to Level 4 in their profile.)

Vendor Management

Required vendor information management is embedded throughout the process and is included with both of the core modules and includes vendor onboarding as well as ongoing information management, reviews, status updates (which can block on a category, unit, or organizational level), and insights (through the built-in reporting).

Vendors can be loaded from the ERP on implementation or created inside the platform. Vendor profiles in EffiGO consist of basic corporate details (type, corporate id, taxation registration, primary category, HQ, etc.), deep business details (registered and correspondence details, production locations, etc.), financial info, registration & certifications (statutory, documents, etc.), sustainability information, declarations, and audit log. Additional forms can be configured on implementation to capture any additional information that the buyer needs to track.

In addition, the buyer can maintain the vendor status and whether or not they are approved on a division, or even category basis. Unapproved vendors can be invited to events by an authorized user, but cannot be sent POs, or approved for payment.

Vendor Portal

A vendor has their own portal to interact with the buyers on the EffiGO platform. While they will get email notifications of every sourcing event, change, award, contract offer, purchase order, change, information request, etc., many actions will need to be taken through their portal (for which they will get a direct link to do so in the e-mail). This is because communications, acknowledgements, change requests, etc. need to be associated with the right event or purchase order, key documents need to be secure, and the organization needs to make sure invoices (with payment instructions) are not tampered with.

Summary

EffiGO is a very different kind of platform — one that was built to serve manufacturing clients in Construction, CPG, Automotive, IT, Pharma, and Chemicals from the ground up and one that ended up being a direct-focussed system that can also handle indirect, services, and complex project procurements as well! It’s a name you don’t know, but if you have a mix of direct, service, and indirect needs, one you should know — especially if you are based in EMEA where EffiGO is currently expanding to!

Technobug
Technobug
Technobug
Technobug

It puts the boom-boom into my heart (hoo-hoo)
It sends my soul sky-high
When the PR starts
Technobug into my brain (yeah, yeah)
Goes bang-bang-bang
‘Til my keys do the same

But something’s bugging me
Something ain’t right
My best friend told me
What he did last night
When I was sleeping in my bed
I was dreaming
But I should’ve been Sourcing instead

Wake me up for EffiGO-go
Don’t leave me hanging on like a yo-yo
Wake me up for EffiGO-go
I don’t wanna miss it when we hit that high
Wake me up for EffiGO-go
‘Cause I’m not planning on Sourcing solo
Wake me up for EffiGO-go
Lets get Sourcing tonight
I wanna hit that high, yeah yeah!

How Many Zumens to Manufacture a Light Bulb? Just One!

Zumen, billing itself as the most comprehensive Source-to-Pay software for product manufacturing companies, purports to be the connect between the Part Life Cycle, Product Life Cycle and the Procurement Life Cycle and offer you one platform to manage your entire Source-to-Pay Process through their Direct Material Life Cycle Management platform.

So how does it stack up?

Well, let’s start with the basics. The Zumen platform offers core functionality in five areas:

New Product Development

To support new product development, they have modules centered around:

  • product, part and material data
  • product & infrastructure planning

The core of any direct sourcing platform is its pats management capability, and the Zumen platform can track all of your parts, all of their versions, all of their associated programs, all associated product and costing plans, all associated sourcing events, all awards, all procurements, and all associated drawings and documents. With respect to part data, you can not only track every related code and cost, but all associated materials. With respect to materials, you can also track estimates, supplier, and market commodity price data as well as associated scrap rates and scrap value. When it comes to building cost models for parts, which can include tooling costs, the platform also allows processes to be tracked in the norms master (with associated machines, norms, and units).

The platform goes beyond just tracking parts, but also tracks inventory, blocks (internal commitments), commitments (from awards/contracts), and production schedules around the parts.

In the Zumen platform, product development is governed by a program that tracks production sourcing, supplier management, strategic sourcing, and procurement. The platform supports the definition of full programs at the final good level, even if that is an automobile or piece of construction equipment with 10,000 parts, assembly level, or part level. Like any good product management platform, it supports versioning and a full history. Programs can be imported from the ERP or engineering systems (like Windchill) or created in the platform from scratch. BOMs are placed inside a product hierarchy of product sectors, product lines, model families, models, and/or other programs, as appropriate. The bill of materials will support as many levels as desired.

Bill of materials are very extensive and go beyond just basic specifications, but will also track all costs and commitments at each phase of the bill of material lifecycle based on the associated program. This can include estimated and actual costs during initial product planing, production sourcing (during initial development), strategic sourcing (for mass production), the current procurement cycle (if the costs are tagged to indices), alternate part costs if there are alternate parts defined, and (alternate) quotations if there are associated quotations from suppliers.

Moreover, from the currently active programs, the platform can automatically extract the current material requirements plan to get a complete overview of the material requirements at the base level across all of the bill of materials, including the current delivery dates, which can be amalgamated and modified in the material requirements plan.

Sourcing

  • product costing and approvals
  • request for purchase
  • RFQ
  • budgeting & spend management

Cost estimates can be as high level or as detailed as the user desires. They can be high level models that simply break down the cost into material costs, production costs, delivery costs, and tariffs, or detailed models that break out the cost associated with each material, production processing step, service, transport leg, and delivery/trade charge. This can include tooling cost breakdowns, assumed minimum order quantities (for economies of scale), packaging, internal rate on credit, and other related costs.

Once a cost plan is complete, often after one or more suppliers have returned a quotation in a (production) sourcing event, a product cost approval can be created for formal costing approval.

At any time, a user of the platform can request a part or program for purchase for production sourcing or full (strategic) sourcing, and it will kick of an RFQ. The request will be pre-populated with all of the part data, and all the user has to do is define the volume required (which could be as low as a single unit during R&D or initial production sourcing or as high as a few million units during strategic sourcing for mass production of the product over the next few years). For production sourcing, the annual volumes are automatcally derived based on the program definition or the annual operating plan. The RFQ will be instantiated from a template that can be linked to the appropriate program classification, and the documents associated with the relevant commodities will be pulled in automatically as well when the RFQ is constructed. The RFQ can be limited to a single supplier, all suppliers who can supply the part, or a chosen set of suppliers. All associated documents, compliance requirements, NDAs, delivery terms and conditions, etc. that have been configured in the platform will automatically be included, as will the default manufacturing locations for delivery and product encodings.

During a production sourcing event, the buyer can also include details on the program, estimated annual volumes, estimated delivery schedules, current (buyer) (program) cost estimates, any associated (child) part details of relevance, and other relevant data. With proper platform configuration, all of this can be automatically included. When a buyer creates a sourcing event, they can access the entire part history for reference. They can also associate (internal) sourcing criteria with an RFQ, and when a quotation is returned, evaluate each quotation, and see the sourcing evaluations and score side-by-side with the quotations. (They can also see which documents have been returned and access any documents they need to for quotation and criteria evaluation). Note that the quotations have full drill-down capability even in side-by-side mode, allowing you to drill down to components of interest and roll back up for high level (assembly) overviews.

When an RFQ is returned, be it for production sourcing or full strategic (multi-year) sourcing, you can see the full quotation from each supplier, and compare them side by side, as well as comparing them to estimates.

These quotations can be used to create budget items, populate budgets, and update budget cycles (as budgets can be over multiple periods and associated with multi-year production plans). Budgets in the system can be at the part or program level, and, like purchase requests and quotations, be approved before finalized.

Procurement

  • purchase orders
  • accounts payable

Once the quotations have been returned and an approval has been completed, the buyer can create the relevant purchase orders to begin the sourcing process. These will then be sent to the suppliers for acceptance and/or requests for modification (if they want/need to split shipments), and once the suppliers accept the purchase order, they can send advance shipping notifications (ASN) when they are ready to ship.

Once the parts have been shipped, the suppliers can flip the purchase order into an invoice and send it back to the buyer, who will then receive it in the accounts payable module for processing.

Analytics and (Production) Monitoring

The platform contains a number of built-in dashboards for monitoring parts, programs, RFQs, production plans, cost estimates, budgets, inventory, and other platform capabilities. One of the main dashboards is the production dashboard that allows you to track total production over time from global production down to an individual part through drill-downs.

The platform also has some basic spend (analysis) dashboards for total spend and program/product cost analysis which, like the other dashboards, can summarize spend at the highest level across a time period of interest and allow drill down to a single part for a single date, and everything in between. The dashboard can also allow a buyer to drill into changes in product cost breakdowns over time. There is a similar dashboard for direct material spend, which can be global, program level, plant level, across all materials, a category, or a single material. And, of course, a dashboard that lets you drill into spend by supplier.

There are also a number of built in analyses around product costs which include, but are not limited to, landed cost analysis, import cost analysis, currency trend analysis, spend by plant, share of business analysis, and overall product cost analysis.

Supplier Management

Supplier Management is centred around supplier onboarding, information, quality (PPAP/APQP), and performance management. You can onboard a supplier using a customized workflow that collects the corporate, capability, and compliance information that you need to work with a supplier.

The Big Q

The real question is, does the platform fulfill its promise?

Let’s consider a minimal product development, sourcing, and procurement cycle.

  • Design
  • Development Sourcing
  • Design Finalization
  • Sales Projection
  • Demand Planning
  • Production Planning
  • Production Sourcing
  • Procurement & Fulfillment
  • Demand and Production Updates
  • Part Replacements and Supply Base Modifications
  • Service and Support

Through its new product development support, Zumen allows you to maintain product and part designs, including all historical versions, manage bill of materials in programs (and sub-programs), and ensure your sourcing initiatives are tied to design. With its RFQ support, deep cost models, and quotation comparison capability, development (and production) sourcing is well supported. You can import the projections from your ERP and do period based (month-over-month, etc.) demand planning and break that down into projection plans, which can be used to enhance production sourcing by providing potential suppliers with the demand breakdown over time. Once the awards have been made, they are tracked and purchase orders can be automatically or manually kicked off as needed. ASNs can be automatically received and tracked during fulfillment, demands and production plans can be tweaked at any time, part replacements tracked and associated with original parts, and associated services tied to the product/part awards.

Thus, Zumen really does manage the core part life cycle, product lifecycle, and procurement lifecycle in an end-to-end Direct Source-to-Pay platform and limits the number of additional best of breed platforms you will need to support your Source-to-Pay+ and supply chain management activities beyond the ERP/MRP and PLM. Key weaknesses are no scope 3 carbon tracking, which should be done at the part level to not only fully support EU requirements but allow for precise calculations, which is best done in the Source-to-Pay platform (and not a third party system) and supplier risk assessments (critical during qualification, and typically doesn’t live in a supplier discovery platform). While risk data should come from other platforms, the risk analysis should live in the supplier management platform to allow for not only performance tracking, but risk and compliance tracking. However, neither of these capabilities would be that difficult to build on the foundations they already have in place, so our bet would be that core capabilities for risk and carbon management will be added in over the next 12 to 24 months.

And, of course, if you are on the market for a new direct source-to-pay platform for product-development and direct product(ion) sourcing, Zumen is an option that you should add to your shortlist, especially in heavy machinery and manufactured parts industries (where the founder and his team have decades of experience).

The Green Cabbage Grows Another Leaf

When we first invited you to Take a Leaf from the Green Cabbage eighteen months ago, we covered one of the most extensive services-backed indirect-focussed spend analysis players in the market (serving clients like Delta, Home Depot, Dell, Adobe, etc.) with deep support for:

  • SaaS Subscriptions: going well beyond many of the dime-a-dozen SaaS cost analyzers (and there are quite a number of those now, see our coverage of the Sacred Cows), Green Cabbage can unpack the purposely confusing consumption models the big players throw at you (to try and get you to spend more than you need to), do SKU level price comparisons, provide you deep insight into negotiation opportunities, and, through their MITs, provide guidance into how to achieve actual savings
  • Contingent Workforce (CW): detailed insights into over 70,000 position-level-market (geography) combinations for deep negotiation insights across 120 countries
  • Clinicals: deep knowledge and insights into clinical SKUs and sourcing
  • Invari: their Invoice management platform, which allows invoice and payment data to automatically be extracted into the appropriate spend cubes while also providing core I2P capability (and eliminating the need for YAP — yet another platform)
  • MITs (Market Intelligence Theses) across SaaS, CW, and Clinicals: which could be lightweight, comprehensive, or competitive; guaranteed to be completed within 3 days, and usually completed in 1 to 2 days for lightweight and comprehensive
  • Contract Library: Green Cabbage starts by loading your contracts, not your spend data, extracting the key terms and pricing, and then loads your spend data, tying as much as they can to your contracts (for immediate insights into any pricing violations); this is important because this is the foundation for the deep insights they can provide via Elegion, which we mentioned, but didn’t get into as it was in earlier stages at the time

Now, since it’s only been six months, you’re probably wondering how much new stuff could there be that would entice Sourcing Innovation to pen an update after such a short time. Quite a bit actually. There are five improved and new offerings in particular that need to be addressed:

Elegion (formerly GC Legal)

Elegion, their in-depth contract clause repository, contains hundreds of business, commercial, and legal terms; conditions; and standard contract clauses with an explanation of what each term is along with best-in-class definitions of each clause.
The platform makes it a point to call out the highly-relevant “mousetraps” that suppliers will use to (often unfairly) protect themselves through inclusion, exclusion, or modified language. The best-in-class definitions are drafted by licensed attorneys with expertise in the relevant subject matter and areas specifically supported by Green Cabbage (IT, Marketing, and Contingent Workforce). Moreover, the attorneys who drafted these clauses have collectively negotiated thousands of deals from both sides of the table in these areas.

In addition, directly through the platform, via secure end-to-end encryption, users can use their credits* to asynchronously request input on specific clauses in the agreements presented to them during their negotiation with a response guaranteed within 48 hours. Moreover, they can also request synchronous 30 min or 60 min 1-on-1 consultations with an on-staff Green Cabbage Attorney who is an expert in the contract they are currently negotiating. (Green Cabbage‘s top attorneys used to work for the top tech giants and contingent workforce providers.) This service, of course, uses up credits much faster than one-time asynchronous message requests, but can be invaluable when negotiating a multi-million dollar contract. However, the best part of the offering is the deep insight into terms, conditions, clauses, and best language/practice that can allow a buyer to address most of their legal questions self-serve with confidence!

* each subscription comes with a certain number of credits, and clients can always buy more

Better Support for Corporate Hierarchies

As we indicated in our first article, Green Cabbage supports a number of big Private Equity firms, including Private Equity Firms that manage a number of other Private Equity Firms (where each has specialized funds). As such, they have built an infinitely extensible corporate hierarchy with appropriate view and access permissions, that allow an individual, with the right permissions in any department or company, to see all of the spend in all of the departments and companies under their purview down the chain to identify opportunities for contract (re)negotiations through the utilization of a common platform provider, CWM provider, etc. (You may not believe it, but even the mega-corps will respond to a renegotiate now or we stop using you across 10 of our companies … no need to wait for the renewal.) This helps them answer questions like “how much do I spend across my portfolio with supplier S or on category X”, which is very powerful information to have for leverage and can often support contract negotiation at a group or higher level.

Receptio Integration (GPA)

If you’re a large mid-market or Global 3000, you use a lot of tech. These will range from small task/function/department specific small SaaS apps that go on the P-Card to multi-million contracts with the likes of Microsoft, Oracle, or Google. And while there is savings available in virtually every contract in every price range, for a large mid-market or global multi-national, it’s not worth chasing 5K on a 50K contract when there is likely 200K to be saved on a 1M contract. In this situation, you’ll just blindly accept the renewal for the small SaaS app if the price increase is 10% or less, and spend your hours negotiating an extra 10% from the behemoth because that’s big bucks. But what about the mid-range? The 50K to 250K contracts where there’s likely 5K to 50K of savings? That’s nothing to scoff at, but the cost of the effort involved, especially if you need to involve Legal, sometimes negates the value you realize.

So what’s the answer? Pre-negotiated Terms and Conditions from specialized GPOs that specialize in the best rates, on average, from these providers by bringing these, usually smaller, providers more business volume than they’d get on their own. That’s Receptio — an integration platform that connects you to Green Cabbage‘s Group Purchasing Arm partners that can get you better deals from many SaaS providers and Contingent Workforce providers than you can get on your own when your needs fall into the mid-range of spending.

Supplier Newstand

What’s the one thing missing from most supplier management and contract management platforms? Supplier Insights that are meaningful at contract negotiation and renewal time. Why is this typically missing? Because it requires scouring the internet to find relevant news that relates to the supplier, pulling in the links and creating summaries (hallucination free), and then tagging the articles to relevant subject matter (ownership, management, product, etc.) to allow a buyer to determine not only the org type and management but whether that’s likely to change (e.g. the organization just brought in an expert consultant on going public, announced a new CEO, etc.).

Green Cabbage recently released the first version (that currently scours over 750 news channels and vetted news sources) of this that allows you to see and search all of the recent news associated with a supplier — including, but not limited to: acquisition/merger activity, pricing changes, layoffs, executive movement, etc. — and is currently working on the next release that will associate these articles with pre-defined tags to provide quick insights.

Marketing Spend Intelligence

This is the newest offering of the Green Cabbage platform — deep, specialized insight into marketing spend. IT Spend may be the biggest at 5 Trillion Spend, but Marketing is no slouch either at an extrapolated estimated value approaching 2 Trillion when you correlate various sources and metrics, with Advertising spending alone topping 1 Trillion in 2024 (with the E&M industry being a 2.8 Trillion industry in the US alone). And, like SaaS, there is a huge amount of overspend in this category as well, especially in the non-creative spend in production and distribution when material and standardized service costs are not analyzed. Moreover, very few spend analysis, procurement software, or consultancies can provide these deep insights and guidance — and fewer still with guidance for marketing professionals with little-to-no Procurement experience. This alone almost warrants an update as market intelligence alone unveils huge opportunities, but, as you just noticed, this is just one of many improvements.

In other words, Green Cabbage has been advancing their offering at a rapid rate, as they also expand globally, with offices in the United Kingdom and India to complement their US office, and expansion into AustralAsia imminent.

Myth-busting 2025 2015 Procurement Predictions and Trends! Part 10

Introduction

In our first instalment, we noted that the ambitious started pumping out 2025 prediction and trend articles in late November / early December, wanting to be ahead of the pack, even though there is rarely much value in these articles. First of all, and we say this with 25 years of experience in this space, the more they proclaim things will change … Secondly, the predictions all revolve around the same topics we’ve been talking about for almost two decades. In fact, if you dug up a Procurement predictions article for 2015, there’s a good chance 9 of the top 10 topic areas would be the same. (And see the links in our first article for two “future” series with about 3 dozen trends that are more or less as relevant now as they were then.)

In our last instalment, we continued our review of the 10 core predictions (and variants) that came out of our initial review of 71 “predictions” and “trends” across the first eight articles we found, in an effort to demonstrate that most of these aren’t ground-shattering, new, or, if they actually are, not going to happen because the more they proclaim things will change …

In this instalment, we’re again continuing to work our way up the list from the bottom to the top and continuing with “Category Management”.

Category Management

There were 2 predictions across the eight articles which basically revolved around a shift from generic sourcing to “category management”. As with almost every “prediction” and “trend” in this series, this is yet another prediction that makes headlines every year, no more important this year than the last, and still as unlikely to actually happen because, despite all the lip service around the value achievable from a category focus, at the end of the day, unless the C-Suite is convinced it will save more money (since it’s only savings they are ultimately concerned about), it doesn’t happen. Before we discuss further, here were the two predictions:

  • Category Management Takes Center Stage
  • We’ll See More Emphasis on Category Management Innovation

Category Management is yet another topic that a small contingent of thought leaders, Gurus, and consultants bring up year after year. And it’s yet another topic that never really sees the light of day. Especially when you consider that, at any given time, less than (half-a) dozen vendors take a category-centric approach to sourcing, and only a handful of consultancies push the approach.

We wholeheartedly agree that category centric Procurement is the key to value creation in certain enterprises where some categories are more strategic than others, have unique characteristics that can be exploited at the category level, and where experts can identify unique avenues of pursuit that will allow for strategic differentiation that can allow the company to charge more for the finished products, thus creating the value management that the experts say Procurement should be focussed on. However, as this is a value-centric activity that is, initially, far removed from the cost-cutting focus that CFOs and CEOs ultimately hand down to the head of Procurement, it will continue to live on the periphery of Procurement and only come into play in select organizations for select strategic categories.

What Should Happen? (But Won’t!)

What should happen is stupid simple. Analyze all the categories you buy and determine which categories, if any, should be sourced and procured using a category-centric approach. Then, category strategies and processes should be implemented for those categories and the remaining products and services should be sourced as they typically are. That’s it.

Nine down. Just one (big one) to go!

Craft Category Strategy Like a Chief with akirolabs

As much as many vendors and consultancies would like to tell you that category strategy selection can be automated whenever you need to kick off a new sourcing cycle, because “it just depends on the supply vs demand imbalance and based on that you either do an auction (if [way] more supply than demand), do an RFP (about balanced), or renegotiate with the incumbent for a contract extension (if there is [projected to be] a lack of supply)“, that’s simply NOT the case, especially for highly strategic, specialized, or evolving categories.

The reality is that category strategy depends on much, much more than this. Factors it depends on include, but are not limited to:

  • supply vs demand
  • current and projected spend
  • current relationships
  • innovation requirements
  • environmental requirements
  • industry and regulatory requirements
  • risk factors
  • regional differences between source / make / sink
  • etc. etc. etc.

That’s why we have so many methodologies to arrive at a strategy including, but not limited to:

  • Porter’s 5 forces
  • Kraljic Matrix
  • SWOT
  • PESTLE
  • etc.

All of which serve a purpose and give us insights, but none of which actually give us a strategy. Consider Porter’s five forces — it provides insights into the current market, but then we decide what to do with that. Consider the Kraljic Matrix. It tells us whether an item is non-critical, bottleneck, leverage, or strategic based on an analysis of risk/complexity vs. profit impact, but we still have to decide what strategy to use, and, more importantly, how to evaluate the responses based on non-price factors that are also important to us (such as supply assurance, carbon / GHG reduction, etc.). SWOT helps us identify the responses, but we still need a strategy to evaluate them against. PESTLE is one of the more complete analyses of external factors encompassing Political, Economic, Sociological, Technological, Legal and Environmental factors, but you still have to build a strategy on that.

Plus, it’s not just the external factors these methodologies are based on that’s relevant. It’s internal factors that include, but are not limited to:

  • current and projected category spend
  • current relationships
  • organizational culture and process
  • organizational direction and goals
  • stakeholder needs
  • etc.

All of this needs to be considered simultaneously with the external factors and analytic methodologies described above in order to arrive at a proper, acceptable, and executable strategy — and a strategy is not a strategy if it is not:

  • proper : an inappropriate strategy will NOT lead the desired results
  • acceptable : if the stakeholders don’t buy in, your project won’t go anywhere, and you may have to start over (or just continue with the status quo)
  • executable : a strategy that doesn’t provide actionable guidance cannot be executed and isn’t really a strategy at all

And that’s what akirolabs, challenging the 40-year old Kraljic matrix as the de-facto standard in category management, is building — an augmented intelligence (because they fully realize that no Artificially Idiotic technology can ever do something that requires real human intelligence and experience) solution that helps category managers build proper, acceptable, and executable strategies and do so in weeks, not months, and see the results in months, not quarters.

The akirolab platform guides you through an analyze/strategize/realize process where it helps a category manager, or management team in a larger organization, collaboratively analyze the company and market factors, develop a strategy based on value levers and strategic scenario modelling, and then realize the strategy using the project and performance management capabilities (not found in most strategic sourcing applications).

In the Analyze phase, the company pulls in the following company data:

  • current spend (it just pulls in your current spend cube in a frame; it’s only volume tier and trend that’s relevant for strategy, not minutiae transaction details)
  • current budget (based upon projections)
  • current contracts (which formalize relationships)
  • stakeholder mapping (who is involved, and how)
  • strategy & requirements survey (what do the stakeholders need, why, and what are their goals and concerns)

… and the following market data …

  • market intel – articles, studies, white papers, etc. found by an appropriately trained semantic search engine
  • innovation factors and data
  • cost drivers relevant for the category
  • risks and associated data
  • supplier preferences (based upon relationships, innovation, and supplier risks)

… and then completes the following analyses, with the help of the akirolabs platform:

  • Porter’s Five Forces — where the category team scores and ranks the relevant factors in each force (which can be seeded from market data using the AI if enough data is available)
  • Kraljic Matrix — where the category team evaluates the risk/complexity vs. cost (and where the platform can suggest risk/complexity based upon available market intelligence, risk data, and innovation factors)
  • PESTLE — where the category management team can complete a full PESTLE analysis using all of the available data and the aforementioned Porter’s Five Forces and Kraljic Matrix
  • SWOT — where all of the above is fused into a category SWOT analysis

And the best part about its analyze capabilities is that the strategies can be analyzed by region (or by department if each department has different needs and/or goals for the products in the category), scored and weighted separately, and then overlaid visually (using a spider graph in the case of Porter’s Five Forces) to allow a team to see the average as well as the regional, departmental, etc. differentiations.

Another unique feature is its approach to SWOT. For each quadrant, they define key questions and key parameters to ensure that the analysis is done consistently (and comparably) across categories, and to ensure that the category management team collects the right information in order to generate a good strategy.

In the Strategize phase, the category management team identifies the value levers and then creates a strategy using Strategic Scenario Modelling. Using the akirolabs strategic scenario modelling capability, a category team can build a strategy that balances cost savings, sustainability, supply chain resilience, procurement agility, innovation, quality, regulatory requirements, and growth potential by evaluating multiple scenarios inspired by the market analysis in the analyze phase. These can be overlaid graphically to provide a visual comparison of the strengths and weaknesses of different scenarios.

They can pull in the relevant information from the analyze phase, and define the strategy that will be applied as well as their reasoning as to why, backed up by all of the relevant analysis and data. They can then create Executive summaries for each executive (CEO, CFO, COO, CIO, etc.) that explains the strategy, rationale, and expected results. The platform allows the team to create standard report templates by function and makes it super easy to pull in the relevant data and graphs that explains and supports the decision.

And all of this can be done collaboratively, as it was designed to allow all stakeholders to answer the survey and all team members to work together to collect the data, associate it with the appropriate analysis, score appropriately, and collaborate on the strategy using the built in messaging platform.

Finally, as part of the Strategize phase, a category management team can assess the sustainability of the scenarios using their “Procurement with Purpose” view that assess the strategy against each of the 17 interlinked Sustainable Development Goals of the United Nations.

Once the strategy has been defined and accepted, the category management team can create a project plan and track it in the “Project and Performance Management”. They can track the stages and activities, timelines, responsibilities, status, assigned value category, expected financial effect, forecasted financial benefit, etc.

If this sounds good to you, you’re probably one of the target customers, that fall into three categories where they can provide you with great value (4.4x as per their claim):

  1. Mature Procurement Organizations: leaders (under analyst frameworks) or best-in-class (under the Hackett numbers) organizations that are high on the maturity ladder and that are looking to go beyond savings and expand the core business
  2. Maturing, But Fragmented, Procuring Organizations: average to average-plus maturity, but no centre of excellence, no history of formally captured category strategy development, and little experience bringing stakeholders together across regions and departments (leading to fragmented category events)
  3. Immature, but Growing: and, most importantly, ready to invest the time and effort to formally mature as a Procurement organization by embracing a world-class methodology and platform to jump-start their efforts and success

And if you’re still on the fence, it doesn’t just support traditional “Category” strategy. It also supports “Beyond Category” for organizations that want to use it for supply chain design, logistics & warehousing, sustainability improvements, etc. Not just traditional material or procurement hierarchy categories. And that’s a differentiator. If any of this sounds good to you, be sure to check akirolabs out.