Category Archives: Market Intelligence

There’s No Cost Management UNLESS It’s By Organizational Design

Cost Management is what thought leaders and analysts have been talking about for 25+ years in Procurement (and is something that has been discussed on SI since its founding in 2006), but not something that is typically realized.

It’s more than just strategic sourcing, contract [lifecycle] management to capture the agreements and obligations, e-procurement, and 3-way matching for cost assurance (and obtainment), but rarely does an organization even achieve these (and that’s why up to 30 to 40 cents of every negotiated savings dollar never materializes).

It’s even more than including Procurement in NPD and NPI (which is where 80% to 90% of the cost is baked in), or in supply chain / logistics network (re) design, which still isn’t the case in the majority of organizations.

It’s a fundamental organizational realignment from traditional budgeting, pricing, forecasting and spend planning based on historical spend and revenue to dynamic budgeting, pricing, forecasting and spend management based on real-time market data as categories come up for sourcing or renewal, internal organizational spend increases or decreases (on hires or fires; internal development projects; assets are acquired, fully paid off, or divested) where budgets are defined based on real-time market data and updated forecasts when a sourcing event is kicked-off, pricing is adjusted based on actual costs and expected market tolerance to standard margins/mark-ups, forecasts are re-run using advanced curve fitting models with the most recent data, and spend planning is adjusted based on all of the prior updates.

The “when a sourcing event is kicked-off” is the key — not when it’s planned, when it needs to happen because the company has decided to introduce a new product, accelerate a planned event due to an expected demand or cost increase, or a supply chain disruption has necessitated emergency replacement of supply.

The harsh reality is that if a chip or RAM factory was just wiped out by a natural disaster or fire (which happens about once a decade), prices are going up. Doesn’t matter what you spent last year, this year is a whole new type of ball game — especially if supply routes become cut off and your only options are longer sea routes, air routes, or new (already overloaded) suppliers in new regions that aren’t cut off.

And any savings or cost avoidance success needs to be measured against the average market price at the time.

But, as pointed out by this article in Supply Chain Digest on how to get From Supply Chain Cost Cutting to Cost Management, this is not what happens every time a market shock hits, executive pressure rises, and the organization is told to take costs out fast.

As the article continues, the danger is not the mandate itself. It is what repeated, reactive cost-cutting does to the supply chain’s long-term health. It can lead to diminishing returns on cost cuts, weaken operational effectiveness, and narrow options the next time volatility strikes.

And it’s all due to a hidden problem with the traditional approach. Namely static budgets create the wrong conversation. Because, when supply chain performance is judged primarily against an absolute dollar budget, leaders often get pulled into debates about compliance instead of outcomes and, even worse absolute-dollar metrics can also steer attention toward the biggest cost line items, even when those costs enable profitable growth.

According to the author, the solution is to ditch static dollar budgets, assess performance through an adaptive lens that aligns with margin assessment, and report costs as a percentage of revenue. Which is great advice, but doesn’t really help you transition the organization to being cost management (vs the current method of cost mandating that is completely divorced from reality and regularly results in organizational failure) focussed.

That’s where the Busch-Lamoureux Exact Purchasing model comes into play. When you align around exact purchasing, and segment your spend into the pocket cube, you realize that for all of your high complexity, high risk, and/or high impact categories, you need to either architect the cost model and the supply chain around it, monitor market conditions in real time (and possibly trigger [re]-sourcing events as a result), or continuously monitor input pricing as well as the price points an average consumer will pay across your markets at different volume levels and adjust your cost and revenue model accordingly.

You no longer plan around fixed costs and prices for the next year, that never happens, but around evolving market realities. And if your price point adjustments are limited, then you know you need to scale back on service commitments, marketing during a downward market trend (when consumers don’t have time to buy), or overpriced sales personnel just adding to expenses with no identifiable return. i.e. Spend is reallocated as appropriate to keep the organizational profitable and productive during extreme events or market conditions while other companies can’t adapt due to lack of category management structure and organizational alignment around what is actually being bought as they still operate off of a spreadsheet that represents a fictional model of non-reality.

Hansen’s Models are a Great Addition to the Pool of Analyst Offerings …

… but they still don’t solve your solution selection problem end to end. As per my successful vendor selection, Assisted Solution Selection is a Seven Stair Methodology, and many of those steps aren’t covered.

Backing up, Hansen just launched his new Hansen Procurement site where he centralizes his three new offerings around Organizational Maturity, Vendor Fit Measurement, and Strategy — all of which are sorely needed in our space as the consultancies and analyst firms don’t really address this (or at least don’t address these aspects to the level they need to be addressed to flip the script and turn the 80%+ chance of failure with every new technology project into an 80%+ chance of success).

The best way to see this is to outline the steps of a solution selection project, define what they are, and indicate where various analyst and consultancy offerings come into play.

Step Goal Offerings
Organization Maturity Determine if the Organization is Ready for Process Change that will Involve New Tech Hansen Phase 0 Readiness Assessment
Actual Need Identification Expert review of current processes and problems to identify real process and automation needs, not parroted buzzword descriptions from non-expert executives. Any Niche Consultancy or Expert Advisory Firm Engagement
Holistic Solution Assessment Translation of the need to actual process improvements, platform and automation needs, and service requirements. Any Niche Consultancy or Expert Advisory Firm Engagement
Vendor Pool Selection Starting vendor pool where the vendors meet the minimum platform, automation, and service requirements specified. Spend Matters Tech (only) Match &
Hansen Fit Score Vendor Assessment (Actual Performance)
Vendor Assessment Process RFX cycle management, response and demo analysis, and overall vendor suitability for the client to find the best match. Any Niche Consultancy or Expert Advisory Firm Engagement
Project Assurance Guidance on implementation plan creation, project monitoring, and vendor and partner management with a focus on client success, not the vendor or implementation partner! Engagement with select niche consultants and experts who understand both modern platforms and process requirements of Procurement and Supply Chain.
Strategic Post-Implementation Training, Monitoring, and Advisory A successful implementation does not guarantee success -— that requires adoption, continued utilization, and results. Engagement with select niche consultants and experts who understand both modern platforms and process requirements of Procurement and Supply Chain and why adoption is critical.

As you can see, with the Hansen Models, you finally have a way to judge your organizational maturity and readiness for a new tech-based solution before you start done a path you aren’t ready for (as that always ends in failure), and you finally have a way to determine a potential vendor’s ability to support you in achieving your goals in addition to whether or not the technical core is up to the challenge (which you didn’t have until Spend Matters introduced Solution Map, which powers their Tech Match).

These are key additions because without them,

  1. it’s almost impossible to judge organizational readiness
    you can’t bring an expert in, do a few interviews, and reach a conclusion because you have nothing to compare against (and, moreover, you need scale … at least 30 to 50 related, relevant, projects for any level of confidence in your assessment)
  2. it’s hard to zero in on the best vendors for a selection
    as the best tech fits from both a capability AND a vendor support perspective

The Strategy offering from niche professionals who understand where the organization actually is from a maturity perspective is a nice touch, as they can create more appropriate plans for you more efficiently, but other niche firms could also offer you the same level of strategic advice if they ran the models from Hansen and Spend Matters — although it might take them longer and cost you more depending on their change management and transformation chops vs. Hansen’s chops.

But, as we said above, it’s not end to end, and you’ll still have to do a lot of manual work to get from beginning to end, and possibly need a lot of guidance. But it’s getting you a step (or two) closer to a good assisted solution selection methodology in practice.

Today is the One Day Procurement Doesn’t Have to Worry About Purchasing Software and Services …

… because vendors try to make a fool of them every day of the year.

As per our recent 3-part series on Now is NOT a Good Time To Buy (1, 2, and 3), vendors across the board are trying to overcharge you on a daily basis, by as much as 900% of the software’s actual value.

Services vendors are constantly trying to push you towards the most expensive offerings (that give them the greatest kickbacks, sorry, partner commissions), upsell you on as many modules (that you don’t need) as possible, drag out the implementation (which they know will be easy because they know you’re not organizationally ready to support an implementation because they didn’t prepare you because you didn’t ask), insist on extraneous integrations using custom connectors, and then up-sell you on training for an overly complex system you weren’t ready for.

Then there are GPOs who are claiming they can save you dollars you can’t save on your own, and that you should hand over a whole host of categories to them for an annual six figure access fee and a slice of every transaction, even though you could do just as good on your own managing the larger categories they want to hand over (by the time you factor in the transaction fee and the amortized GPO access fee) and handing the rest over to low cost Amazon Business.

Then there are the marketplaces you need to use for your tail spend that try to convince you to pay preferred access fees, priority order processing fees, expedited shipping fees (for carriers they control), etc. All extra costs for non-priority goods and MRO.

And, of course, when the sales person at the supplier thinks that you don’t have any other immediate options, they come up with fees you never heard of in order to guarantee that order.

In other words, every vendor and supplier is trying to make a fool out of you every day. There’s nothing else they can try to pull on April Fools day that they haven’t already. Multiple times.

In other words, we’re the one profession that doesn’t have to worry about being an April fool, as we deal with tricksters, cons, and frauds every other day of the year.

Now is NOT A Great Time to Buy (Part 3)

Standalone “Intake to Nowhere”, “Classic Onboarding and Supplier Management”, “Predictive” Analytics, “Contract” AI, “Agentic” AI or Classic Mega-Suites … until 2029

Yesterday we reminded you that while you need intake and orchestration, you need supplier intelligence, you need predictive analytics, you need AI-based contract analytics, and you need “Agentic” AI that executes (but does not make) decisions, you should not buy it standalone, at least not now, and you definitely shouldn’t buy a classic mega suite.

While all of the solutions we have tackled so far are currently over-priced, Agentic AI, which is the new hype, is the most over priced offering of them all, especially with the consistent over-promising by these new generation vendors that are promising BS “AI Employees” while delivering task automation that is reliable as a chocolate teapot where consistent, dependable, execution is concerned. Now, some of these vendors will figure out that you need constrained, double guard-railed, multi-agent systems with human monitoring and exception intervention and eventually deliver reliable augmented intelligence systems that make an average employee super human, and they will be worth it, most of these vendors will simply try to out-prompt each other through custom clod and chat, j’ai pété wrappers, cr@p out at about 80% to 95% reliability depending on the task, never be trust worthy, and never be worth it. Since these just started to hit the big time, with ridiculous over-funding, in the past year or two, it will be three more years before the dust truly settles and 2029 before you want to make any long term bets.

Plus, if you know the real history of AI, which is probably older than your grandfather FYI (with the first algorithm to be awarded the title developed 70 years ago), you know that it’s usually close to two decades before a new algorithm is mature enough, and understood enough, with real, solid, mathematical measures of reliability, for mass, unmonitored, industrial use. And typically at least a decade before it’s ready for leaders to apply it in industry for monitored, target, use. The first LLM hit the scene in 2018. That means 2029 is also the year it will finally start to be reliable for a certain (but small) set of tasks in certain (but a small set of) domains. It will still hallucinate more than an LSD loving dead-head, but by then we’ll have much better detection methodologies and confidence measurements and will actually be able to trust it when the results get through the multi-layered security gates that we’ll finally be able to build with more understanding.

And yes, as we’ve said twice already, you need this tech. But buying “best of breed” will only “bleed your cash in the best way possible” with little measurable return.

But don’t return to a “classic mega-suite”. These are now more over-priced than ever. First of all, as we’ve discussed many times on this site, unless you are a Fortune 1000/Global 3000 multi-national with extensive, and complex, source-to-pay needs, you don’t need to pay Millions of Dollars a year for a suite when an 80% mid-market solution for 250K a year will do the trick. (See our piece on how much should you outlay for ADVANCED Source to Pay.)

Not only do most organizations only have a few categories where advanced technologies are needed, and usually only in one or two of the modules the mega-suite sells, but most of their categories are so straightforward that even BoB mid-market solutions present not just an 80%+, but a 90%+, solution. Plus, modern ARPA and appropriately focussed Agentic solutions are allowing mid-sized organizations to cobble together “good enough” solutions from low-cost 80% point solutions for 10% of the cost of a mega suite that gets them started on their journey, allowing them to upgrade to better solutions as they need, and only as they need.

This is putting severe cost pressure on the mega-suites, which are going to have to admit that most of their solutions, workflow, and UIs are over a decade old and not worth the premium they once charged. For organizations that truly need these solutions, from vendors which aren’t aggressively updating their solutions (due to these vendors being purchased by PE firms at too high a valuation and, thus, being forced to cost cut to meet ridiculous sales targets), if they wait a year or two, these will soon be priced at what they’re worth, and you’ll get an annual license for less than half of what they are charging today and get all the functionality you need to boot!

So, at the end of the day, while you need a solid Procurement solution that comes with a modern intake front-end, has orchestration at the core, provides you supplier intelligence, integrates the analytics you need, helps you with your contracts and their processes (to the extent you actually need that help), and allows for adaptive robotic process automation for all your well defined tasks (and provides the data foundation for “Agentic” AI if you have valid applications where such technology will actually bring value), you don’t need to overpay for it. And you definitely don’t need to pay the double to quadruple price tags that current mega-suites are charging.

But if you can find what you need, at a fair price tag, and you buy that, you buy real value that will appreciate with time because it will do what you need it to do, at a fair price, and that’s the only way you save time and money with ProcureTech. Getting what you need, when you need it, at a fair price point. You know, classic Procurement!

Remember that.

Now is NOT A Great Time to Buy (Part 2)

Standalone “Intake to Nowhere”, “Classic Onboarding and Supplier Management”, “Predictive” Analytics, “Contract” AI, “Agentic” AI or Classic Mega-Suites … until 2029

Yesterday we told you that while you need intake and orchestration, you need supplier intelligence, you need predictive analytics, you need AI-based contract analytics, and you need “Agentic” AI that executes (but does not make) decisions, you should not buy it standalone, at least not now, and you definitely shouldn’t buy a classic mega-suite.

While analytics platforms have been traditionally scarce, they’ve been popping up faster than bluebonnets in spring, faster than the weeds in unplanted fields, and faster than Starbucks on an empty corner in Y2K. This is creating severe downward price pressure as well as diluting the average actual functionality as many of these are built on third party white-labelled platforms and, even worse, wrappers on third-party LLMs that are great at conversation, not so great at analytics, and entirely dependent on these third party platforms where accuracy can change overnight on the same prompt, models can change with zero notice, and token pricing can skyrocket with no notice.

Even worse, some of these don’t work reliably because they depend on experimental LLM/AGI models, which are horrendously unreliable at math, and they will inevitably fail. That’s why you should be careful with what you buy from the “new standalone analytics startup” category — many have no real functionality (and won’t last very long because of it) and those with only average run-of-the-mill functionality will soon be available for dimes relative to the dollars they are trying to bill you for today. If you need a solution, get one that was available on the market by 2022 at the latest, as the current generation of LLM/AGI/wrapper solutions started to spring up about 3 years ago.

With regards to contract AI, this has been emerging for quite some time, but the current generation of LLM-powered plays that have been multiplying faster than cane toads in Australia started spiralling out of control about 2 years ago when the proclamations started to be made that your corporate future would be human lawyer free.

After all, clod and chat, j’ai pété can review a contract, spit out a summary, and (purportedly) tell you if any clauses are missing in a matter of seconds. Also, if you give it enough (historical) contracts and a few instructions, it can also draft a contract for you in seconds, even if you need a hundred page monstrosity. Who needs a lawyer?

Well, you. These are not infallible, and they make mistakes all the time. Often, they are minor, and easily fixed by a contract or legal expert with a quick review, but sometimes they aren’t so minor. Sometimes the omissions or clause errors are so major that it takes a lawyer longer to rewrite than if they just had their paralegal assemble the draft by hand and they dotted the i’s and crossed the t’s.

In other words, since you get results that are just as good using your own low-cost LLM subscription, it’s not worth a large price tag for a “Contract AI” that just wraps someone else’s tech. Especially when it’s going to get a lot cheaper and have no value unless embedded in the sourcing and supplier management applications you use everyday where all of the embedded supplier and agreement data need to complete the contract is embedded in the application. Wait a year or two and you’ll get it for a dime on today’s dollar.

To be continued …