Category Archives: Market Intelligence

Not All Consulting Advice is Good, And Their Understanding of Tech Varies Wildly!

In yesterday’s post we pointed out you need to be very, very careful what advice you take from consultancies, large and small alike, who aren’t really expert in modern Supply Management processes, best practices, and technologies.

Yesterday’s post covered a recent piece (from a mere two months ago) on Sourcing and Purchasing Transformation that provided such bad advice for weathering the rough seas ahead that we were serious when we said the advice was equivalent to sailing right into the heart of the Bermuda Triangle in the middle of a category 5 hurricane! Maybe the advice was good in the 80’s when everything was home or near-shored, innovation was slow, the economy was more stagnant, and cutting cost to the bone was the only way to survive. But that was then. This is now. Three decades later. And anyone still peddling that advice in today’s fast moving, outsourced, global economy is seriously out of it (or trying to create more work than they can handle by putting in peril any supply management organization that actually takes that advice).

But we digress. Today’s rant is about the Big 6 / 8 and their dangerously low understanding of S2P technology and their unfounded (and unfathomable) belief that you can somehow measure capability and/or innovation based upon market value, customer count, or investment dollars.

For instance, the doctor was just sent a brand-new paper by ATK on The Future of Procurement Technology and how Mediocrity is No Longer Acceptable (and it is NOT) by the way, where they correctly noted that

  1. Today’s Procurement Technology is a Failure
    which it generally is as most solutions that have been implemented don’t give a full view of spend, don’t address many of the day to day needs, and, frankly, just don’t work
  2. Suites are Problematic
    as most are built through acquisition and all the components don’t really talk or sync
  3. Most solutions are archaic, rigid, and poorly thought out
    and push users into the wrong decision and
  4. A revolution is coming

… but not all fighters are created equal!

In particular, they name eleven (11) companies that represent the most current and advanced technologies, but their is almost no comparison between the extremes they represent.

For example, even though Scout has the fourth largest investment raise of all the companies listed, it’s one of the weakest offerings in the list. And even though LevaData is one of the lowest raises, it’s one of the strongest offerings.

And while you can barely compare the likes of Scout and Bonfire (traditional e-Negotiation based Sourcing with a much better UX than last generation systems), who have the lowest solution scores on the (deep) Spend Matters Sourcing SolutionMap, to the likes of LevaData, Suplari, Supplier.ai and Xeeva (who are bringing in the era of Cognitive Sourcing and Procurement), there’s just no comparison to the likes of tamr (with its advanced machine learning capabilities for which there are few equals) and Concord (which is in the field of contract automation).

Plus, when it comes to contracts, consider what the likes of Seal and Exari are doing. Moreover, when it comes to analytics, don’t discount Coupa AI-Classification (formerly Spend 360) or AnyData. And why are there no true optimization vendors on the list like Coupa CSO (formerly Trade Extensions TESS) or Keelvar, that is trying to apply AI to true optimization-backed Sourcing. And when it comes to Supplier Discovery, Supplier.ai is one option, but Tealbook is another.

In other words, they have some names. They have some investment figures. They have some insight that each is doing something different, that each is trying to revolutionize something about the industry, but no real insight into what the core of the difference is or the strengths they bring.

And while this may not seem too dangerous, as they aren’t really reporting each is equal, just that each is revolutionary, in the hands of a half-wit, or even worse, someone with an incomplete understanding of tech and best practice, they could take this as a guidebook to the best vendors, and, in the end, select the absolute worst vendor for them. One has to remember it’s not just about revolution, or even evolution, it’s about the platform that solves the Procurement department’s greatest needs. Today. And when the needs are met, the platform that offers the greatest flexibility and power for the organization with respect to their goals.

5 Sure-Fire Ways to Sabotage Your (Competition’s) Supply Management Operation

Sometimes the only way you can do better is if your competition does worse. It’s sad, but true. To this end, a colleague of mine forwarded me a great piece on Procurement Transformation on 5 surefire ways to devastate a supply management operation. All you have to do is convince your competition to take this advice, and down they go!

Clearly labelled “Step 3: Run down” at the end of the white paper, these tips and tricks will do exactly that … run down your (competition’s) operation straight to the ground. A tanker filled with kerosene wouldn’t get the job done any faster. These tips were so great we can’t help but share them.

1. Aggressively trim smaller vendors to consolidate the
supplier base by each category in order to increase
negotiating leverage and press for lower rates
.

Yes, increased volume and category consolidation can often extract better prices from the suppliers large enough to supply the volume and/or breadth of products needed to get the volume, but it comes at a price. Less suppliers to pick up the slack if the primary, or sometimes single, supplier fails due to a plant accident, natural disaster, or government shutdown. And failure will happen. Your chance of a major supply disruption not happening in the next 12 months is less than 10%. But hey, you always beat the odds. And you don’t need innovation, right? After all, if you wait long enough, the big bloated supplier will buy the little guy that comes up with the innovation if it is needed, right? (And it is always the little guy who comes up with the innovation, but that doesn’t matter, right?) The new economy runs on innovation, but your big clients are slow to move, and your suppliers should be just fast enough, right?

2. Institute a ‘champion/challenger’ model for all key
categories with 70 to 80% of the business going to
the champion and the remainder going to a single
challenger. This will keep both parties hungry. The
champion and challenger should also be rotated
periodically, though not too often as business
disruption is also costly
.

Well, this eliminates the risk of one supplier right? And flipping will definitely keep them hungry. And they won’t be p1ss3d that every few years you just snatch 60% of their business because “it will make them hungrier”. We’ll ignore the fact that they must have been pretty damn hungry to sharpen their pencil and submit the lowest bid even though that meant that their sales people probably didn’t get the commission they expected, and aren’t happy. So yeah, make them so hungry they’d rather eat your competition’s handout.

3. Search for new suppliers and give new suppliers a
chance to prove themselves if the pricing is better
than the incumbent. Potentially try a new vendor
as the ‘challenger’ (or as a second ‘challenger’) to
balance disruption with cost savings
.

This is probably the suggestion you share first when trying to discreetly bring your competition from the ground. Third challenger is a good idea, except when the challenger is brought in purely for cost savings. And then even less of a good idea when the category is one that doesn’t need much innovation. After all, why waste a good idea on a good implementation.

4. Execute a ‘cost-to-price’ initiative. Assemble a cross-functional
team to help quickly understand the
direct relationship between input-cost inflation and
necessary customer price increases to maintain or
improve product margins. For global companies,
this should be done on a country-by-country basis
with key performance indicator heat-maps to ensure
proper indexing of price inflation
.

It’s all about price after all. Who cares about quality, reliability, or even form and function that a customer actually wants. And who really cares about innovation after all — choose a supplier that lets someone else do it and then just copies it to the extent legally permissible. It’s good enough, right? And, of course, ignore the fact that all the lowest cost suppliers will be overseas and require complex supply chains to make your good and even more complex logistics chains to get your goods to your customers. That’s just details.

5. Hold a supplier conference in which the
suppliers are given indicative cost reduction targets
and asked to come and present to the company
their ideas. This demonstrates a commitment
to the relationship and working together to solve
pricing concerns
.

After all, every supplier loves a beat down, right? They love a hard-nosed negotiation customer who only cares about cost, cost, cost. Who doesn’t respect their innovation, quality, reliability, and overall effort to bring the product that’s the best overall value, not just the lowest cost.

Combined, it’s a sure-fire powder keg that, when lit, will burn your operation to the ground. It definitely is a run down …

Oh wait, it’s not run down, it’s run downwind and it’s step 3 in a course designed to sail through Rough Seas Ahead for Procurement … and it’s meant to help your organization sail in heavy weather!

EEEK!

I can’t think of any advice that would be worse. They’re basically telling you the only way to combat the rough seas ahead is to sail right into the heart of the Bermuda Triangle in the middle of a category 5 hurricane!

YIKES!

Do they truly hate their readership? Or, as a consultancy, are they trying to increase the number of companies that will be in dire need of consulting help? Because any company that follows this decades old advice, which might have worked in the 80s [when everything was home sourced, innovation was rare, and margins were fat] will definitely need help after trying this!

RPA: Robotic Process Automation or Redistributed Process Automation

RPA, ML, and AI is all the rage these days, with RPA being the most mature technology. But just because it’s a mature technology, that doesn’t mean it’s a mature technology offering from the vendor you are considering, as powerful as they are purporting it to be, or even as general purpose as you might expect (especially if it relies heavily on ML or AI techniques).

In fact, like early spend classification technology, which was usually 60% auto-class and 35% behind-the-scenes manual-class by the hundred interns in the backroom (in India, Poland, or another outsource locale with a relatively high percentage of English-as-a-second-language speakers), a lot of the RPA technology being promoted today is in fact supported by, if not done by, humans behind the scenes.

This is especially true when natural language processing is involved, and doubly true when interpretation is involved. And it even comes in to play with something as simple as calendar scheduling. For example “book me an appointment with John Russell” next Wednesday is not often straight forward. John Russell the person, or John Russell the company? And the next calendar Wednesday, or the calendar Wednesday in the next week? (English speakers typically refer to the next calendar Wednesday as this Wednesday and the Wednesday in the following week as next Wednesday, but certain European cultures always refer to the next calendar Wednesday as next Wednesday.)

So imagine how much human intervention is required behind the scenes if you want to do document analysis or contract interpretation! Quite a bit. When it comes to document and contract processing, it’s one thing to break it up into sections and annotate what’s in the document, it’s another thing to interpret what each section means, and yet another to determine whether or not its enforceable, or even allowable, against a regulation or law.

Advanced RPA / ML systems can analyze a document or contract and break it up into relevant sections, identify the constituent components of each section (party, address, obligation, description, explanation, etc.), and make it easy to determine whether or not a section, entity, or value is contained within. With sufficient ontological definitions, training, and tweaking, these systems can get highly accurate.

But when it comes to interpretation, that’s different. It’s easy to determine that a document contains the phrase “the receiving party is bound to provide the sending party with a hold payment to be applied against the obligation of the sending party upon transmission”, but harder to figure out precisely what that means if the hold payment, receiving party, sending party, and obligations are specified elsewhere in the document. And then if you want to determine whether or not that obligation is in line with organizational policies or contract law in the jurisdiction of choice, that’s yet another level.

Really good tech might be able to sift the document and make probabilistic guesses as to what the hold payment is, what the obligation is, and maybe even what transmission means (providing to a courier, being received by a local courier, showing up at the recipients door if its a physical good, or confirmed receipt / acknowledgement if an electronic IP deliverable), but chances are it will be wrong a good percentage of the time and require human confirmation. And when it comes to interpretation, frankly, unless a human is reviewing the clause and given the most likely scenario, a random number generator mapped to an outcome table is likely to be just as accurate. (In other words, trusting RPA means you are rolling the bones.)

Thus, any RPA system that performs an advance task is likely not true Robotic Process Automation but in fact Redistributed Process Automation, even if the vendor doesn’t advertise it as such. But if you are curious, there are tells. How long does the system take to perform the task? An hour or two to process a document? Definitely RPA of the second category. Fifteen minutes or more to schedule that appointment? If both sides were using true RPA of the first type, it would take seconds, maybe a few minutes if there was limited bandwidth and email delay. And so on. Look at service times, customer counts, and what’s being heavily promoted. The truth is under the covers.

But redistributed process automation is not necessarily bad. It’s probably the most efficient use of your organization’s time, especially if the vendor has RPA-lite algorithms that can quickly determine what needs to be done by a human and what can be automated. Anything that saves your organization time and money while improving outcomes is a step forward, and as long as the vendor continues to reinvest its profits into system development, the system should get better over time.

But don’t buy RPA with eyes wide shut. Otherwise, you might not get what you are expecting. Or put too much faith into the system.

P2P: Points 2 Ponder when People are Pushing Off S2P Platforms

Years are passing and still not enough companies are using good, modern, fully electronic, Source 2 Pay Technologies when they should be. (We’re using technologies and not platform because it doesn’t necessarily have to be one platform from one vendor, as long as the S2C can be tightly integrated, even if by way of a third party like Per Angusta, and the P2P are tightly integrated and the S2C and P2P are integrated at the end points, that is sometimes the best solution for some companies.) Even worse, many of these companies have realized the importance of good Supply Management and adopted point-based Sourcing, Procurement, and/or and Supplier (Performance/Information/Risk) Management software. But that’s not enough. SI has been ranting for years about the fact that it’s Sourcing AND Procurement and that if you don’t implement the full cycle, you’re not only leaving savings on the table but failing to capture all of the value available to you.

Why are otherwise smart, moderately progressive, companies doing this? Because they have deep concerns that the platform won’t do what they need it to do and fears that the only reason these platforms exist is to eliminate their jobs the same way machines and automation have led to our manufacturing woes. And while they have good points, since some of the early solutions didn’t do everything they needed to do in order for the company to obtain the promised benefits, and since automation of any sort typically leads to elimination of workforce in the function, when you look at some of the current solutions and look at the goal of Procurement in the right light, their points are no longer valid. And this is true even if the platform has cognitive or auto-buy elements. There’s still only so much it can do, and so much more you have to analyze these days when doing high-dollar or strategic buys.

Nevertheless, if the points of trepidation are not addressed, the solutions won’t be considered, the function will not advance, and, vendors, you won’t survive. So, because SI encourages the proper use of technology platforms to increase efficiency, eliminate non-value-add tactical tasks, and augment the capability of your workforce (which is different from replacing it), SI is going to give the vendors building these solutions a helping hand by identifying the common trepidations, the solution requirements needed, and, as a result, the message you have to get across to calm the prospective buyer’s nerves (provided, of course, that you do have the solution requirements).

Trepidation # 5: It Won’t Save Money. There will always be exceptions to manage, suppliers who can’t use it, and administrative requirements and the costs will just be shifted.
Many early systems claimed big savings, typically in the 80% range, but never really delivered. The reality is that if the organization still has to support offline paper processes, still has to review all the invoices for errors, has to have an IT person administer the system, etc., the costs just shift. A modern S2P system has to support, and be usable by, all suppliers (and not just the top X that constitute 80% of spend), has to automatically detect errors and unmatched bids, invoices, and documents and has to be low, or no, cost to administer for the 80% savings to materialize. Otherwise, the buying organization won’t be able to achieve the 3X to 5X ROI the system is supposed to deliver and will not want it.

Trepidation # 4: We use X for purchase orders and / or Y for payables tracking and / or Z for Strategic Supplier Management. We can’t replace these systems.
A lot early systems expected that they would be the system of record for whatever the system did, and that all the system had to do was export the payments to a flat file for importing into the finance system. This is not the case. The platform has to integrate, in a straightforward manner, with the systems the buying organization uses for Purchase Orders and Inventory Management and Supplier Masters and the systems the buying organization uses for Accounts Payable.

Trepidation # 3: It Won’t Work For Us. Our Processes are Unique.
A lot of early systems followed the Henry Ford philosophy in that “you can have any colour as long as it’s black“. This doesn’t work for organizations that have distinct sourcing processes depending on the category type and value, distinct supplier relationship management processes depending on what the supplier supplies and where the supplier is located, distinct contract negotiation processes depending on contract value and risk, unique invoice approval workflows, distinct payment procedures, and different master-data storage policies. While the basic workflow is the same at a high level, it is different in the implementation across companies and the platform needs to support workflows that can be customized.

Trepidation # 2: Our Suppliers Can’t Use It / It’s Too Much Work for Our Suppliers
A lot of early systems took the view that “we have a portal that accepts EDI format and/or manual data entry and that’s good enough“. The problem is that supply organizations, like buying organizations, have different systems and different processes and, typically, don’t have the manpower to support a different bidding, data submission, and invoicing mechanism for each customer and, frankly, won’t. The system has to support the common processes and technologies used by suppliers in the buyer’s market. A few (small) suppliers can be given a single “portal” solution, but this has to be a minority.

Trepidation # 1: They Took Their Jobs and Now They Will Take Our Jobs!
A good S2P system with guided buying and auto-buy for low-dollar / non-strategic categories, which is exception-driven and requires a buyer to only manually review buys above a certain dollar amount, supplier approvals for key categories, and invoices that don’t match POs and / or exceed a certain dollar value, and which provides mechanisms all suppliers can use to submit electronically, should reduce the tactical invoice processing effort by 80% or more. This means that if the people doing the invoice processing had no other skills, then 4 out of 5 would lose their jobs. But if these are true procurement people, their job function would just be shifted to a more strategic role as redeploying these resources to spend more time on strategic supplier management, category management, and risk management would provide the organization with a value that (far) exceeded their cost. You don’t get rid of smart people just because you got a new system. You just ask them to deliver many times more, which they can do thanks to the new system.

Time for Alternative Design!

The US President slapped 16.1 Billion of tariffs on Canada. Canada retaliated. The US slapped Billions on the EU. The EU retaliated. Trade is getting quite expensive between these countries, especially since the US slapped tariffs on goods and services it needs (because it just doesn’t have enough of them) — which is kind of contrary to one of the main purposes of tariffs, to prevent the market from being flooded from lower cost goods you don’t need.

Now global companies that can are moving production out of the US to other markets when they can to produce goods for sale in those markets in those markets to avoid tariffs — home manufacturing. (At least the US can say it’s tariffs are helping to deliver on job creation — it is creating jobs, in other markets.)

But what do you do if your primary market is the US and your factories are also in the US but you currently rely on raw materials, goods, and/or services where the home-based supply is not enough? Well, right now you pay more, but at some point this could price your product out of the range of your target market, and put your organization out of business.

You could try making a different product, but if it’s not one the market wants, that could also put it into bankruptcy.

Or you could get creative and find an alternate design that uses alternate materials that are lower cost. This is not easy, but it is possible. You’ll just need some creative thinkers, good engineers, and an open mind. (And if they need a methodology to get started, check out SI’s classic post on The Operations Research Process which gives you some hints, including the possibility of adopting TRIZ.) Or, if that’s too onerous, you could always try crowd-sourcing. Post a challenge on a secure platform that uses blockchain where researchers or groups can post responses (that can be unarguably traced back to them) and offer a guaranteed contract or reward if the response is chosen.

With a lot of elbow grease, you’ll find that you probably can successfully home-source, even if the best answer would be to near-source (as that option might not be available for a while).