Category Archives: Guest Author

MoviePass and the Importance of Strategic Suppliers


Today’s guest post is from Bennett Glace, the primary contributor and Editorial Lead for the Strategic Sourceror. A prolific procurement and sourcing blogger, he is responsible for advocating the function’s value in podcasts, white papers, and other accessible content.

On an almost daily basis throughout this year’s summer movie season, cinemagoers have read headlines charting the struggles of MoviePass. The low-priced subscription service was intended to disrupt the traditional theatre model and get audiences excited to go to the movies once again. While initially successful, the service’s last few months now look like a cautionary tale.

In a recent Harvard Business Review essay, Eddie Yoon points out a number of flaws in MoviePass’ pricing model and approach to customer service. Using the company’s woes as an instructive jumping off point, he provides suggestions for its inevitable successors. His arguments also suggest that MoviePass and its disappointed customer base provide a case study in the importance of developing and nurturing strategic supplier relationships. MoviePass’ subscribers are right to feel burned, but it’s clear a more strategic, informed approach to assessing the ‘supplier’ could’ve saved them a great deal of exasperation and money.

To exist as a strategic function, Procurement requires a strategic approach to its supplier relationships. A key step in establishing an effective Supplier Relationship Management program is identifying suppliers who are willing and able to provide for a strategic relationship. These are suppliers who show an interest in engaging directly with Procurement, tuning into its unique requirements, and providing flexible, dependable services. When it comes to supplier selection, anything that strikes Procurement as one-size-fits-all should raise concern. Effective supplier relationships depend on personal, individualized attention. Whether this means favouring local suppliers and distributors over national options, or consolidation over dispersal, will vary based on the organization, but no supply chain professional would dispute the importance of suppliers who can offer hands-on, tailored services that enable a strategic partnership to take shape.

Over the last few months, MoviePass has shown itself to be anything but a strategic supplier to its more than 3 million buyers. Their one-size-fits all approach to pricing and customer service provided for such a massive expansion, but, in Yoon’s words, “MoviePass had to grow much faster than its customer support could keep up with.” Describing their increasingly hands-off service offering, he continues, “The constant price and product changes clearly show how little it understood what customers wanted.”

He begins by discussing the service’s much-discussed, outrageously-low price. Presented as MoviePass’ primary selling point, the $9.95 monthly subscription fee struck millions as a deal too good to pass up. Recent developments suggest it was something closer to too good to be true. Even rookie supply chain professionals know the perils of making supplier selections based on price alone. Cinema lovers, too, have now learned this lesson the hard way.

While moviegoers across the country would agree that tickets have gotten more expensive, Yoon points out that the definition of “expensive” varies considerably by region. MoviePass’ $9.95 monthly price point is a definite bargain for residents of New York or California, where ticket prices average more than $15.00, but most Kansans are unlikely to consider the service so cost effective. Yoon writes, “It is silly to think that a one-size-fits-all national strategy is the right approach for a market as technically and economically diverse as the United States.”

MoviePass’ dedication to a one-size-fits-all service offering not only left their customer base underserved, but ultimately left them struggling with unpredictable demand. As Yoon writes, “MoviePass failed to recognize how the behaviour of super-consumers, customers who are highly engaged with a category and a brand, differs from that of average consumers.” These super-consumers, attending numerous films every week are not unlike any suppliers customers of choice. Customers of choice expect and deserve value-adding incentives based on their particular needs and buying habits. It’s these extras that differentiate truly world-class suppliers and provide the foundation for long-lasting supply chain partnerships. By tailoring certain aspects of its offering to serve its loyal, high-volume buyers, MoviePass might’ve developed methods for better managing spikes in demand. What’s more, these customers would’ve felt appreciated enough to consider MoviePass a preferred supplier even through the recent growing pains.

MoviePass, for their part, seems convinced they’re here to stay. Speaking to NPR, CEO Mitch Lowe remarks, “Amazon lost money for 20 years. Netflix still loses money … our competitors are the ones who keep spreading rumours that we’re going out of business. And clearly, they’re afraid of us and would much rather have a clear playing field.” Lowe suggests that, as a supplier, MoviePass is less concerned with serving its buyers, less concerned with turning a profit even, than it is with instilling fear. The implications for the business’ corporate culture are eye-opening. Lowe paints a picture of an organization that will forsake its commitment to customer service and spread itself past the point of sustainability in order to appear intimidating. That’s not even to mention the lingering questions about how MoviePass intends to use consumer data. Back in July, Lowe (somewhat infamously) joked, “We know all about you.” While Procurement certainly desires suppliers who know its business in-and-out, these suggestions should raise red flags.

Yoon makes note of MoviePass’ troubling attitudes as well. He concludes his essay by remarking, “MoviePass’s struggles provide evidence that bullying is a bad business plan.” Here and there, Procurement has certainly impressed its peers as a cost-cutting bully. Within leading organizations, however, those days are over. The function is widely engaged in efforts to undo its negative perception, build a better brand, and contribute to a positive corporate culture. Identifying and partnering with ethical, dependable suppliers who share Procurement’s values is an important step in establishing this culture and making Procurement a strategic business partner. Continually, MoviePass has revealed itself to be a supplier of less-than-stellar character walking into a less-than-certain future. If Procurement wants to continue rehabilitating its image and protect the reputation of its organization, it can’t afford to do business with this sort of supplier – at any price.

Thanks, Bennet!

E-procurement benefits … fact or fiction? Part II

Today’s guest post is from Tony Bridger, an experienced provider of Procurement Consulting and Spend Analysis services across the Commonwealth (as well as a Lean Six Sigma Black Belt) who has been delivering value across continents for two decades. He is currently President of UK-based TrainingWorx Ltd, a provider of a wide range of Procurement and Analytic business training programs (inc. GDPR, spend analysis, project management, process improvement, etc.) and focussed short-term consulting solutions. Tony can be contacted at tony.bridger@data-trainingworx.co.uk.

In our last post we noted that it has been difficult to find anything recent in the academic world on e-procurement.  Independent academic research appears to have started to fizzle out from 2007 as the e-procurement technology wave passed and moved on – as most technologies do eventually.  However, e-procurement software vendors are still going and new development companies still seeking a new angle – despite the fact that many e-procurement systems, and concepts, have proven notoriously difficult to embed in to the culture of organisations.

We can hypothesise and speculate on some of the reasons for this:

  • E-procurement has often been touted as the panacea for all procurement department ills. Stops maverick spending, controlled approvals and extensive workflow;

This is correct to some extent.  However, this focuses on a small slice of spend (i.e how much of procurement effort is actually spend under management?).

  • Many procurement teams write large contracts but rarely take the time or effort to check compliance to contract. No one ever said that vendor catalogues and associated pricing were always correct and accurate.   Automated PO processing cannot fix compliance if the core vendor source catalogue pricing is simply wrong;
  • Spend analysis is still lacking as a core skill in many procurement teams – so validation and compliance checking of pricing to invoice compliance still seems to be a low priority agenda item. Therefore, e-procurement provides no better protection for contract compliance than any other process in many cases.
  • The generic nature of indirect spend activity remains in many cases. Simply, this means that in some categories, the variation in process to specify, order and pay means that a “one size fits all” process platform simply will not work.   There are Purchasing cards and a range of other specialised P2P options available – but the advent of products like SAP Fieldglass for temporary labour and service time recording has started to erode the value of e-procurement investment in some categories.   All-encompassing e-Procurement capability is simply being picked off at a category level.    The purists will argue that it should all be on one system.  However, the pragmatists are busy creating applications that deliver value.

Could it be that e-Procurement has simply passed its apogee?    Perhaps.

However, do problems with purchase to pay in many organisations simply reside with procurement cultures?

There is little or no doubt that many procurement departments see the entire gamut of purchasing activity as their domain to control.   Many procurement executives still initiate major P2P investment projects on the basis that this will provide an entire control platform – and that business teams will simply comply.    That assumption is flawed as many imposed P2P initiatives run counter culture and are doomed to fail – or at best simply ignored.

It can also take time to set vendors up on e-procurement, maintain workflow using cost centre files, approve POs, set spend limits etc.   There are many variations on a theme in the e-Procurement space – many systems will now claim to resolve a range of category-based issues.   However, many business unit buyers have considerable market knowledge, good commercial evaluation skills and translate their domestic purchasing skills in to the workplace very effectively i.e.  specify requirements, create opportunities and evaluate responses from multiple suppliers – and place an order.   They also can save companies money.   As the old Chinese proverb suggests, “give a person a fish, feed them for a day, give them a fishing rod, feed them for a lifetime”.

It may simply be that the majority of e-procurement platforms are designed, in many cases, to pander to the notion of total control desired by procurement teams – not commercial pragmatism around the way the purchasing and business world really works.  A mystery for sure.

However, there are alternatives.   The question is … is anyone looking?

Thanks, Tony!

E-procurement benefits … fact or fiction? Part I

Today’s guest post is from Tony Bridger, an experienced provider of Procurement Consulting and Spend Analysis services across the Commonwealth (as well as a Lean Six Sigma Black Belt) who has been delivering value across continents for two decades. He is currently President of UK-based TrainingWorx Ltd, a provider of a wide range of Procurement and Analytic business training programs (inc. GDPR, spend analysis, project management, process improvement, etc.) and focussed short-term consulting solutions. Tony can be contacted at tony.bridger@data-trainingworx.co.uk.

It has been difficult to find anything recent in the academic world on e-procurement.   What was once the doyenne of the procurement world does seem to have become very much business as usual.

However, it really does depend on how you define the term.

So, prior to running off at speed discussing an array of e-procurement related elements, let’s make sure that we discuss the right technology platform.

In 2016, I sat in on an EU conference that had a presentation session on “e-procurement”.   Having implemented an end-to-end B2B procure-to-pay platform, I had considered that it was pretty much a common technology – and well understood.  I was wrong.    I was treated to an hour on e-procurement as an RFP (request for proposal) and optimisation tool.   Not the e-procurement I was expecting.   The (real) e-procurement, from my perspective, is the good old shopping cart and payment process.  So, let’s stick with that definition for now.

At the turn of the millennium, e-procurement and the sister product e-marketplaces, were being implemented at a furious speed.  However, as fast as the companies were starting up and creating e-procurement systems, the dot com era brought the entire edifice down and left very few players standing.   I was amazed recently to discover that start-ups are still creating these platforms.  So much for the concept of a mature market.

For those that have little experience with e-procurement systems, the simplest analogy is that it’s a little like a single organisation implementation of Amazon.   The hoster (the buy side) will have access to the range of catalogues and suppliers like any Amazon user.   However, these are only generally only contracted suppliers.  The supplier makes available their catalogue and goods to organisational buyers.  If you do not work for the client company you cannot see or interact with this environment.   The supplier can have their own website catalogue (termed as “punch out”) or use third party or software vendor supplied catalogues.   Once a PO has been raised and goods despatched, invoices can be submitted, matched and paid.  All automated.

Sounds like a transactional nirvana.  However, just how successful has e-procurement actually been?

Independent academic research appears to have started to fizzle out from 2007 as the e-procurement technology wave passed and moved on – as most technologies do eventually.    This article does not suggest that e-procurement is a failure or is declining – it merely suggests that little real evidence exists to suggest that it is an outstanding success.   One may assume that if it was a major success – there would be many (and wide ranging) articles that vaunt the case for investment.

However, e-procurement software vendors are still going and new development companies still seeking a new angle.   There have been many variations – from free systems (with revenues made on services), to the more expensive, fully integrated ERP suites.    However, none of these options are cheap to implement – and can be notoriously difficult to embed in to the culture of organisations.

Why?

Stay tuned for Part II

Thanks, Tony!

Can we stop calling cost avoidance “soft savings”?

Today’s guest post is from Torey Guingrich, a Senior Consultant at Source One, a Corcentric company, who focuses on helping global companies drive greater value from their expenditures.

I’ve heard it time and time again “we don’t count soft savings” — which at times translates to “we don’t consider value beyond unit cost and volume reduction“. In recent years, many companies seem to have taken an overly broad definition of soft savings to include cost avoidance, budgeted-cost reduction, and other ways that Procurement adds value to the organization through their sourcing and negotiation efforts. Much of the work that Procurement does isn’t just reducing costs on recurring purchases, and what we consider a strategic partner from a sourcing and procurement standpoint, is helping business units to source and put in place solutions that meet their evolving needs.

So should Procurement not get any “credit” for this work?

Below are a few scenarios where Procurement professionals may struggle in quantifying savings/impact and where the bottom line cost may actually see an increase (gasp!)

New Recurring Purchases: When a new need arises for a department, Procurement can add value by helping to support the requirements definition, RFI and eventual RFP process — this is where Procurement’s role is to help business users understand the options in the market and make the best-fit decision based on their needs. Consider an organization that is growing and needs to implement an applicant tracking system to better manage their recruitment process. This is certainly a process improvement measure to better the recruitment process for the HR department, hiring managers, and the applicants themselves — but one that is not going to yield a tangible cost reduction result (and is going to add a new expense to total cost).

Should Procurement not support the RFP to put the solution in place because they cannot quantify the process improvement or completely offset the new expense?

Capital Purchases: Organizations typically define a capital plan for the year based on upcoming large-scale purchases. For instance, within the Facilities spend category, there are a number of systems that get replaced infrequently, but that represent a large financial outlay. Say an organization is looking to replace the HVAC system at a given facility or perhaps changing the doors at a warehouse — these are both scenarios that should have some degree of competitive bid associated to ensure the project is cost competitive.

Should Procurement really be comparing proposed pricing to the cost paid 10 (or more) years ago or not support the effort because there are no “hard savings”?

Increased Volume: As organizations grow, or most obviously, as they increase production, their volumes associated with direct and indirect goods will scale to some degree. Procurement may have negotiated a great deal on electricity price per kWh in the deregulated market, but once production ramps up your total electricity cost is going to increase.

Should Procurement not bother negotiating a price reduction because the total cost will increase anyway? Note, this is probably the most extreme view of “soft savings”, but is something that Procurement should align on with Finance to ensure savings are being calculated based on unit cost reduction against actual volumes!

Dynamic Requirements: Plenty of categories are driven by constantly changing requirements or where similar services may be required, but the specifications drive the cost. Commercial print is a common area for this — the print needs of an organization may be driven by their specific campaigns, events, or one-off marketing needs. Print costs don’t get broken down into the cost per coloured pixel — they are made up of various specs that come together for a complete need.

Should Procurement not support an RFP for a large scale print campaign because they can’t count savings or be forced to measure outcomes against different specifications?

Market Changes: Certain products and categories within direct and indirect spend are more prone to price fluctuation due to the raw materials that make up the final product. Take packaging for example — due to some of the extreme weather scenarios in 2017, we saw many packaging suppliers pushing increases on final product given the rise in the pulp and paper costs as the supply market was impacted. Many times these increases were mitigated or minimized through negotiation, but that did not actually result in reduced unit cost.

Should Procurement not negotiate with these suppliers or in these markets because the mitigated increases “don’t count” or wait for the cost increase to be billed just to show tangible savings?

I hope you’re all yelling a collective “no!” to these questions, but so often ideas like cost avoidance or reduction from first proposal are written off as “not real“. Understandably, as a Procurement organization looks to build its credibility within the organization and invest in new talent and solutions, hard-dollar cost reduction tends to be a big focus. But once the group moves from a tactical to strategic approach and supports business units in managing their suppliers and sourcing events, the way value and results are measured needs to reflect this changing dynamic. For the scenarios above, maybe it’s measuring impact/value from the average of bids received, or from first proposal to final value, or coming up with a NPV for that HVAC system from 10 years ago — Procurement should define the methodologies for these common scenarios and define for finance and leadership how they will be capturing value and what it means to budgets and bottom lines.

If we expect Procurement to support the evolving needs of the organization, then we must also evolve the way that Procurement and the broader organization as a whole sees and communicates the value of the sourcing and negotiation outcomes from the Procurement team.

Thanks, Torey.

GDPR: The Dreaded DPIA (Part XV)

Today’s guest post is from Tony Bridger, an experienced provider of Procurement Consulting and Spend Analysis services across the Commonwealth (as well as a Lean Six Sigma Black Belt) who has been delivering value across continents for two decades. He is currently President of UK-based TrainingWorx Ltd, a provider of a wide range of Procurement and Analytic business training programs (inc. GDPR, spend analysis, project management, process improvement, etc.) and focussed short-term consulting solutions. Tony can be contacted at tony.bridger@data-trainingworx.co.uk.

One of the key changes in the GDPR legislation involves the creation of DPIAs or Data Protection Impact Assessments.

At first glance this appears to be what can only be termed as a “mindless piece of bureaucracy”.

However, perhaps not.

Historically, it may be hypothesised that many personal data breaches have been the result of “mindless planning” neatly followed by badly managed execution.    It has been incredibly easy to obtain data, endlessly spam individuals — and share that data around.   Often, little or no thought, planning or impact assessment has been conducted in the process of managing this type of data.

Conceptually, the DPIA is a very good idea.   However, like many EU regulations the “how” is more obtuse and intricate.

The United Kingdoms ICO site (Information Commissioners Office) states that:

“You must do a DPIA for processing that is likely to result in a high risk to individuals”.

High risk is hard to define in the procurement world.   Many hosted procurement technologies contain considerable volumes of personal data as we are all aware – both controllers and processors need to stop and carefully assess any new data management proposals.   A DPIA creates a structured approach and framework that can be used to help define if the targeted processing could breach the regulation.

A DPIA is effectively a combined project brief and risk assessment of any new data processing activity that an organisation intends to conduct.   The DPIA contains a variety of what appears to be simple requirements.   The DPIA must:

  • describe the nature, scope, context and purposes of the processing;
  • assess necessity, proportionality and compliance measures;
  • identify and assess risks to individuals; and;
  • identify any additional measures to mitigate those risks.

If you think about it carefully, it is eminently sensible in its approach.

However, deductively there are several core organisational processes that need to be in place to achieve the outcome.   In many respects, this is the point at which the DPIA becomes a little more complex in the implementation and management.   If the organisational processes do not currently exist – then these are likely to add to the complexity.

In response to this, supervisory authorities have attempted to provide guidance and checklists that can help organisations manage this process and reduce risk.   We have left the discussion on DPIAs until this stage as there are options to use the process to overcome some of the risks with personal data in this domain.  However, there may be some good news.

In our next post we will start to evaluate how procurement data could be managed through the DPIA process.

Thanks, Tony!