Category Archives: Market Intelligence

Procurement Needs to Change for the Better … But it is Currently Stalled!

A recent article over on Supply & Demand Chain Executive noted that Procurement is Changing for the Better, but if you look at the 5 most strategic objectives from the recent APQC survey they referenced, two of the five focus on costs — specifically, #2 on reducing procurement costs and #5 on maintaining of improving margin. Just like the recent Ivalua/Procurement Leaders survey, cost is the focus, and all the real value they could be delivering is being ignored — and the doctor would argue that while Procurement may have been changing for the better before the pandemic, the supply disruptions and successive inflation that resulted since has not only stalled that progress but reverted Procurement back to its early days.

The reason, as indicated in an article over on CIPS, which also references the Ivalua/Procurement Leaders survey, is inflation. Rapid inflation, which has not only wiped out prior savings for many organizations but resulted in the Procurement department blowning past budgets, has resulted in the C-Suite ordering Procurement to contain costs through any means necessary, and, as the CIPS article has noted, this has resulted in the ESG agenda, along with other agendas, being pushed to the sidelines, if not thrown out entirely.

This is very sad. Not only because ESG initiatives are critical, but because the other three priorities from the AQPC survey are also more critical:

  • avoiding supply disruption
  • improving social responsibility in supply chain
  • improving supplier relationships

First of all, the number one focus of procurement should always be supply, not spend. Doesn’t matter how great the negotiated savings are, if you don’t get the goods, you don’t get the savings and, more importantly, if that was product to sell, you don’t get the revenue. No cash-inflow, no business. (Or, as we say up North, No Sale, No Store.)

Secondly, with carbon emission limits and carbon taxes coming in globally, ESG needs to be a top priority, especially in jurisdictions where you are responsible for all of the carbon in your supply chain.

Thirdly, your quality and capability is limited to that of your suppliers, so you want to improve your suppliers, and that requires good relationships. Furthermore, suppliers can be a source of innovation and creativity, but you won’t get access to any of it without good relationships.

So how do we get Procurement over the hump and back to strategy and not cost reduction regardless of the true price that is paid? It’s a good question, especially when the focus is always short term and not long term. Long term, innovation, responsibility, quality, and sustainability will result in the best value for money, but this never happens in the short term. So, focus on long term sustainability, get back to value, and show the organization what Procurement can really do.

Prices too High? Take a Leaf from the Green Cabbage!

Green Cabbage, formerly known as PAAS Advisors (which stood for Product Analysis and Strategy), is an interesting spend analytics offering as it is both a product and a service advisory practice. The platform provides unequalled insights into the indirect technology, contingent workforce, and clinical categories; deep invoice analytics down to the line item; market intelligence theses (MITs) on very specific indirect technology, contingent workforce, or clinical sub (sub) categories that are far deeper and fresher than any peers; and a third party negotiation (support) service (where they will negotiate at the Senior Executive/C-Suite level) to help you get the best contracts possible on key high-value contracts. That’s a lot to digest, but we’ll tackle each point in this write up.

Let’s break down the “practice and platform” part first, starting with their pricing model. Their pricing model is a variation of standard percentage of savings model — it’s a subscription model with a savings target and a guaranteed savings of at least 3X, which is better than just a straight cut of savings for you. If they don’t help you hit the savings target they promise, you will get a discount, or an extension to your subscription, but if you blow way, way, past the target (like many of their clients do), instead of paying more than 3X what you would have otherwise have paid through pre-negotiating a fixed fee for unlimited use of the platform, you pay the pre-negotiated subscription fee.

It’s important to understand their pricing model, as it drives the unique approach they take in their practice, which is designed to deliver savings to the clients that engage them for software and services as fast as possible. Most spend analysis companies start by attempting to load, cleanse, classify, and enrich all of an organization’s spend data before attempting to do any analysis or identify any savings opportunities. This can take weeks or months, which means its weeks or months before the first opportunity is identified. To allow them to start pursuing, and capturing, opportunities in just a few weeks, Green Cabbage starts by loading all of an organization’s contracts, starting with the Indirect Technology Human Capital, and Clinical Supply contracts, because the most immediate opportunities are where contracts are needed ASAP (because the organization allowed them to expire) or in the short term (as they are coming up for renewal), and in those categories where Green Cabbage are experts in finding cost reductions quickly.

From just the contracts, using their deep community intelligence provider benchmarks and market knowledge, they can identify the best opportunities to go after immediately in indirect technology, contingent workforce, and clinical supply categories. They can even negotiate on behalf of the client and often get savings better than their client would on their own due to their deep domain knowledge and years of experience analyzing and negotiating in these categories, usually with senior executives in the supplier organizations.

Once the contracts are loaded, only then will Green Cabbage begin to load and classify all of the organization’s spend data into their One Workspace Spend Analysis platform, which can be provided to them as flat file exports or loaded through an API. The organization can define their own categories and Green Cabbage will map the organizational spend to those categories. Once the spend has been loaded into One Workspace, the organization can build some basic spend reports to do some basic spend analysis on their own, export the clean categorized data to Excel files for local spend analysis, or use the customized workspaces with deep pre-built custom dashboards for Indirect Tech, Human Capital and Clinicals.

The Indirect Tech module is designed to help a buyer identify the current and upcoming projects based upon expired and expiring contracts that need to be renewed to support their organization. The main dashboard shows the buyer the YTD savings, the upcoming renewals by contract, the top suppliers by spend, key category metrics, and the primary actions that can be taken (such as upload a contract or request a MIT). From here, the buyer can click into the suppliers dashboard or straight to an indirect technology supplier dashboard that summarizes key metrics (last year of spend, lifetime spend, estimated spend this year, next key [contract] date, relationship length, agreement gaps, etc.), contracts, and visual timelines. From there, the buyer can click into a contract and see associated details or kick off a project.

In addition to the supplier dashboards, there are also spend analysis, renewal, project, and MIT dashboards. The spend analysis dashboard allows the buyer to create custom reports to slice the data by different dimensions. The renewals dashboard in the Indirect Tech Module summarizes the status of contracts coming up for renewal (queued, in review, out for sourcing, terminating, etc.) as well as the category breakdowns, spend by stage, and timeline summaries. The projects dashboard allows contract renewal projects to be created, assigned, and tracked while providing a summary view of all current projects. It also supports savings tracking by agreement. From a project, the buyer can click into the renewal details and access the current (draft) version of the contract for review, the reviewers, see any notes or documents they uploaded, and the activity log.

Finally, the MIT — Market Intelligence Thesis — dashboard allows the buyer to quickly access the completed MITs, month-over-month and year-over-year savings from projects based on the MITs, and key MIT metrics (in process, completed, estimated savings available, % discount from baseline, etc.). The Green Cabbage Market Intelligence Thesis is much more than just a benchmark, it’s a detailed sub-category analysis on a specific product or service of 1 to 2 pages done in near-real time by expert advisors that augments the benchmark data with deep vendor insights into the SKUs being purchased, market conditions, and negotiation strategy. The MIT is offered at three different levels:

  • lightweight: basic MIT as described above
  • comprehensive: lightweight MIT as well as a detailed analysis of standard/available terms & conditions
  • competitive: competitive MIT as well as a detailed analysis of top 3 competitors across similar SKUs and similar terms and conditions, with appropriate negotiation strategies and expected savings under different conditions

Unlike some providers which simply do this every quarter (Denali, SpendHQ, etc.) and provide this as a reporting service, or others that do fully automated real-time augmented benchmark production based on current data, trends, and standard practices based on the trends and current market conditions, Green Cabbage does a custom, semi-manual, MIT upon request within three (3) business days, and usually within one (1) business day, on every request to make sure the client always has the most up-to-date information appropriate to that client’s situation. They can do this because their platform automates the benchmark computations and their advisors are experts in the indirect technology and human capital categories and are analyzing and negotiating in the categories on a daily basis. As such, their analysts can turn around a custom analysis specific to a client’s situation in an hour or two.

However, as per our intro, Indirect Tech is not the only area they go deep. They also go deep in contingent workforce/staffing agency in their Human Capital module that more-or-less mirrors the Indirect Tech module with a main dashboard and dashboards on contingent workforce suppliers, human capital spend analysis, renewals, projects, and MITs. The main dashboard summarizes savings to date, percentage from baseline, forecasted spend (vs. actual for historical), top agency relationships, expiring contracts, and key metrics. The other dashboards are similar in purpose to Indirect Tech, but customized to Human Capital.

The main difference is in the MITs, where a contract owner / project owner can benchmark as many positions as they want in a sub-category or category for a given provider (should they be looking to renegotiate) or a small set of providers (should they be looking for true market intelligence or looking to negotiate with multiple providers and trying to figure out how to best split demand). The benchmarks are similar, wth all the benchmark data (which shows the low/medium/high averages, the service locations, the expected savings at each level) auto-generated. The only exception is the additional market/negotiation notes at the position level that is manually generated on top of the basic thesis information. Note that there is a limit to the number of positions if you want the guaranteed turnaround time, but if they have a few extra days, they have done detailed benchmarks of over 1,500 positions in the past, and with their deep insights, expertise, and negotiation skills obtained savings percentages typically only seen by providers who offer deep multi-level decision optimization across multiple national and regional contingent workforce providers. (We’re talking 30% range in some cases.)

(When you have deep benchmark data and powerful spend analytics, you can quickly divide contingent workforce needs among the providers best suited to offer those positions at a lower cost, use this data for fact-based volume-based negotiation, and shave off almost as many points as the best optimization engines without any mathematical modelling whatsoever, and not have to worry about if the split between the providers is one you are comfortable with.)

Other key features of the platform include:

  • Clinicals: which is their clinical supplies spend analysis module that is similar to their Human Capital Module (except the SKUs are clinical suppliers and not contingent workforce positions)
  • GC Legal: which maintains a standard set of Terms and Conditions clauses that specify exactly what different Ts and Cs means to the client (and helps the analysts do custom MITs and negotiation projects)
  • SKU Search: that allows the client to search for particular SKUs across their suppliers and contracts
  • Outside Data: that allows them to import additional data to augment their spend from third party products, with out-of-the-box integration options for a number of indirect tech (SalesForce, etc.) and contingent workforce (ServiceNow, etc.) providers
  • Invari: their invoices platform
  • End-to-End Security: all MITs, which are often based on organizational contracts, are done through the platform, where data is fully encrypted both in transit and at rest, and not through e-mail, FTP, or other unsafe data transmission methods employed by some other service/advisory firms

Let’s talk about Invari now. This is an analytics backed invoice management platform that allows an organization to upload, manage, and analyze invoices in real time. While it can support any category and supplier, it is designed to support their technology, human capital, and clinical supply categories and benchmarking in particular. When purchased, they request at least 3 months of invoices for all of your providers, and will accept up to 3 years of history if available in order to get enough invoices to allow them to train a custom model for every single provider so that, when an invoice is uploaded, it can be automatically parsed at least 95% of the time for immediate availability. Because models are customized per supplier per client, their system detects any issues and when the invoice cannot be parsed or key information cannot be found. When this happens, the invoice processing system kicks the invoice out to a manual processor who will fill in the missing information in under 3 hours and then update/retrain the model to prevent the same error from happening again.

In addition to allowing invoices to be immediately available for management and analytics in the future, these detailed models also allow the system to build up invoice profiles by supplier and the system can detect when an expected invoice is missing (because you always get a monthly invoice for a service by a certain date in the month), duplicated (because the spend profile is doubled in a month, etc.), or suspect (because it doesn’t fit the pattern).

The main dashboard provides an overview of key invoice KPIs (pending submission, awaiting approval, total count, unresolved, missing), an overview of missing invoices (so immediate action can be taken), a summary by providers, and a summary of top variances.

The approvals dashboard shows all of the invoices that need to be approved, along with variances from the best “prior” invoice, colour-coded on the green to red spectrum (so you can quickly see if there is a likely price issue even before drilling in to the invoice). On this screen, you can quickly pop-up the six-month history for more details on the variance and trends and pop-up the invoice summary window that summarizes billing arrangements (from the contract), line items, and sub-charges.

Fore more details on costs and variances, you can dive into the invoice analytics dashboard that provides a variance report across suppliers over the past X months (on a green – red spectrum that represents decreases to increases) that also clearly identifies new charges (in yellow) so you can see where regular billings start or change. From here, you can dig into a supplier and see the same breakdown by line item / SKU, and then, in that breakdown, you can drill into a particular line item / SKU and see the same breakdown across the sub-charges. For example, at the top level, you see all your providers. When you drill into Your-BroadBand-Provider, you see High Speed Service, Mesh Network Rental, Taxes and Fees. When you Drill into High Speed Service, you see monthly service fee, modem rental, and fixed IP lease. And, of course, you can also search across contracts for specific SKUs and set up alerts when new variances are detected off of new invoices.

At this time it’s worth pointing out that in Indirect Tech, Green Cabbage does true micro-SKU benchmarking, unpacks all of the different offerings in a SKU offered by a tech provider who might include multiple modules in a SKU or a broadband provider who will pack in rentals with subscription fees, and can tell when a provider changes a SKU description or composition. This allows it to do price benchmarking (or at least price range benchmarking) across individual products and services and provide more finer grain details and guidance than the majority of its peers, even in the specialized SaaS market.

And while Green Cabbage might not be a common name in S2P, or one getting a lot of buzz from the analysts, they are bigger than you think. Serving eight (8) of the top ten (10) private equity firms in the US and four (4) of the top private equity firms in Europe, global consultancies like KPMG and BCG, along with other big name Fortune 1000 clients, they have over 500 Billion of spend under management (which is sizeable when you consider that Coupa, that claims to have the most, only has about 4 Trillion in global business spend data), over 1.25 Billion data points, and over 13,000 benchmarkable suppliers in their categories of expertise. That’s very significant, very powerful, and allows them to identify large cost reduction opportunities and negotiate them for you at contract renewal time. (And if you don’t have the volume on your own for significant savings, they also have a group purchasing offering called Receptio that you can look into. Note that since this blog covers technology, we won’t be covering Receptio in this write-up.)

The main weakness right now is that the API is only for getting data in. They are working on extending it to get data out, but there is no timeline for that yet. This is critical for a number of reasons:

  1. their contract management is limited to file uploads and metadata and it would be very useful if they could push rates, benchmarks, and standard Ts and Cs to a contract management/governance platform to support creation, negotiation, and ongoing management of contracts outside of renewal projects
  2. spend export is limited to Excel / flat file dumps; while their tool is good, it’s not BiC for generic spend analysis, especially outside their core categories, and neither is their categorization knowledge beyond their core categories — depending on the spend, it’s not guaranteed to be accurate beyond level 2 or 3 (of a 4 to 6 level UNSPSC or equivalent hierarchy), so if the organization has some very specific or detailed indirect or direct categories it needs deep categorization for, this will have to be done in an external tool (where you can classify to a lower level, do more detailed analytics, and then push the refined data back) and you need Green Cabbage to be the single source of truth (because it allows you to do invoice management and deep invoice analysis and keep your spend data up to date)
  3. you can mark a category or contract as in Sourcing, but there is no connection to an external sourcing tool

We will note that they have indicated they are working on expanding the API for pushing/pulling data out, and that their first priority is to push appropriate data to a contract management platform to allow for contract creation, negotiation management, and governance (as all the platform supports around contracts is file-based uploads and meta-data). Hopefully they finish this by the end of the year and can start extending the API for export of all data in the first half of next year as an organization needs a single source of spend truth and there are lots of great DiY spend analysis tools (like Spendata) that could connect to the Green Cabbage platform for one-off category analysis where Green Cabbage doesn’t provide detailed benchmarks (or support easy/refined classification).

In other words, if you are in an industry that makes heavy use of indirect technology (SaaS, Cloud, etc.), the contingent workforce, and/or clinical supplies and you want a service-based spend analysis offering that can help you find deep savings based on real-time competitive benchmarks and on-demand category analysis, and even use their manpower to capture those opportunities for you, you really should check out Green Cabbage. There’s really no one like them in their categories of expertise.

A Slow Cautious Approach to Pulling Out of China May Be Justified …

… but the justification has NOTHING to do with geopolitical events or economic factors, as suggested by this recent SCMR article. First of all, those are always in flux. Secondly, neither of these factors are the ones that could be limiting your ability to peel out.

There are two primary factors that could be limiting your ability to peel out of China:

  1. available production capability
  2. source material availability

And these are the only factors you should be considering when you are considering how [do] you reconfigure the global supply chain. Because, unless you are selling in Asia, you HAVE to get out of China if you want stable supply streams.

Available Production Capability

First of all, are there alternative near-shore plants? If not, you’re stuck until you (co-)invest in one, get it built, get it up and running, and verify the quality is acceptable. If there are, can they produce the products you need in the quantities you need, or at least a reasonable percentage? If so, are the quality and service levels sufficient. If there are three or more near-shore suppliers that can collectively meet your needs, you shift a considerable amount of your award to them immediately (depending on existing contracts, the time-frames for the suppliers to fully ramp up to support your business, and the time-frames your organization needs to get ready to support the shift) and start the process of shifting all of your award to them.

Source Material Capability

You also have to consider where the raw materials are coming from, and how easy it will be for your suppliers to get sufficient stacks of the materials you need in steady supply. For example, if you need lithium-ion batteries produced by current processes, you need cobalt. 73% of today’s cobalt comes from the Democratic Republic of Cobalt (DRC). The DRC has considerable trade agreements with Qatar. So while the country has bilateral trade agreements with over 50 countries, its relationship with Qatar could cause you problems if you want to use a producer in the middle east NOT in Qatar if another diplomatic crisis (like the one in 2017) arises.

Also, China is the largest producer of grains, gold, coal, rare earth minerals, and two hundred (200) plus other materials, components, and products, so if your production depends on any of these materials, components, or products, you need to make sure your suppliers are located in countries who have good relations with China or have already locked up enough secondary sources to guarantee your product production will be uninterrupted.

That’s it. Yes, you have to consider the economics, because you can’t pay 50% more and not seriously upset (and lose) your (current and potential) customers with the price increase that will result, but with proper investments in new processes, equipment, and talent, costs can be reduced anywhere in the world, and all it will take for the potential supplier to make these investments is enough guaranteed business from you. (So make it so!)

Your Biggest Threat of Disruption For the Next Decade is NOT What You Think!

Disruptions are on the rise. It’s a fact, and if you want proof, just visit the World Economic Forum and check out their Global Value Chain Barometer. While some categories of disruptions are holding steady, disruptions are on the rise overall and not a single category is declining.

If asked what the biggest source of disruptions are, depending on where you are located in the world and what industry you are in, you’re likely to say that the biggest sources of disruption are either
a) war and conflict,
b) natural disasters, or
c) cyberattacks.
And while those have traditionally been (among) the highest sources of disruptions, you’d be wrong. The biggest source of disruptions this year have been strikes and walkouts globally. And as the brilliant Robert Reich will tell you, despite the large number of strikes we’ve seen over the last year, workforce revolts are just getting started.

When you consider

  • the rapid rise in inflation globally, especially around necessities (food, housing, healthcare),
  • the fact that, despite the almost two decades of low inflation, intermixed with short periods of stagflation, the majority of the population in many first world countries were financially struggling before inflation came back, especially given that many were out of work for part or all of COVID and didn’t get near enough financial aid to keep their heads above water, and
  • they’re all scared of AI taking their jobs

Many people are near their breaking point. Strikes are going to keep happening, and repeat every 2 to 4 years (depending on the union contract length) until the underlying issue is fixed. But it’s not going to be fixed!

Why? As the brilliant Robert Reich points out, it’s because of the vast inequality between the (super) wealthy and the average person. In the past 45 years, CEO pay has skyrocketed 1,460% while the typical worker saw a pay increase of just 18%. This has led to a vast inequality between a small group of very wealthy people in a mid-size or large company and the average employee. Until this gap is narrowed, the situation is only going to worsen as more and more laborers reach the point where they’re already broke and have nothing to lose by walking off the job, and strikes are going to become much more common than they were in the past 40 years.

The situation could be fixed easily if CEOs and Boards increased worker’s pay each year a few % above the average rate of inflation for the next few years, a move that would cost most companies only a small fraction of their profit (and still keep the differential pay increase between the average worker and the CEO above a 1000% differential using the same baseline), but it’s obvious this is not going to happen (even though that would still be a ridiculous divide). This fact is best illustrated by the current writers’ and actors’ strike that every single person in the world is aware of where the executives have simply decided to do nothing because the unions will come around when the majority of writers and actors (where 99% don’t make enough to pay their rent and eat without side-jobs) get to the point where they are at risk of losing, or have lost, their sh!tty apartments. (And trust me when I say that they are sh!tty apartments! There are two sides to Hollywood, the side you see, and the run down slums you don’t see where the majority of actors and writers live by doing side gigs while waiting for their big break, which won’t come for over 90% of them.)

It’s an utterly ridiculous situation, especially when it would be trivially simple for any government to fix with a one page bill. (For example, it could be solved if all first world governments were to simply pass a law that, in any company with more than ten employees,
1] No single person in the company can earn more than 100 times the lowest paid worker on an hourly basis during a year across all company payouts including, but not limited to, salary, bonuses, stock grants, share grants, and company paid benefits where the definition of worker would include all employees, contractors, and contractor employees doing any work for the company, which would prevent the company from shifting all low paid employees to a subsidiary to try and get around the law;
2] Any individuals found in violation of this rule would get fined $2 for every $1 in excess of their maximum allowed remuneration for the year;
3] Any officers responsible for compensation who knowingly violated this law could be criminally charged and serve jail time; and
4] These Companies would be required to submit a financial statement of compliance listing the full effective compensation of every worker (down to the janitor in the contracted cleaning firm) as part of their tax returns. Just these four simple rules would prevent most CEOs and their overpaid C-Suites from earning more than 1,500 an hour or 3 Million a year as these mega corps have plenty of minimum wage employees under current remuneration models.)

Furthermore, if a reasonable fix was made (in law) that limited executive pay to more than reasonable levels and thus limited the ability of these executives to grow their wealth to ridiculous levels unless they:

  1. paid their workers more,
  2. increased their net company value (to increase the values of the shares and stock options they earned in prior years), or
  3. started or invested in other companies

… the truth is that such a fix would all be fantastic for the economy as it would force a return to classic growth scenarios (and not the current focus of make money today to please Wall Street, even if it bankrupts the company tomorrow), which would create a much more sustainable economy in the long run. (Markets only crash when they are run up to unsustainable levels. This is a result of Wall Street pushing companies beyond sustainable growth levels.)

But it will never happen, because all the Billionaires would simply spend whatever amount of money they needed to buy enough senators and congress representatives to prevent it from happening (or enough judges to find it an unconstitutional law).

Thus, in the interim, across all industries (not just the entertainment industry the news is fixated on) you will have the greedy out-of-touch Billionaires, whose loss of income from a strike event is so negligible they won’t notice it, starving out union workers until they cave to a new union contract below inflation (while giving themselves a big year end bonus for their trouble). This will not only cause you additional disruptions you weren’t planning for (as strikes linger on for weeks and months), but will increase the inequality gap even further (while the workers get even poorer due to pay raises less than inflation), which, in turn, will set the stage for a whole new round of strikes (and disruptions to your supply chain) in two to four years when the contracts end (that the Billionaire executives will deal with in the same way).

Now, don’t get me wrong, I’m not saying Billionaires are bad (because I shouldn’t need to say it), I’m saying that the actions of the ridiculously overpaid super rich and their sole focus on the almighty dollar have set the stage for the first decade in our lifetime where strike-based disruption events will exceed natural disasters, even though natural disasters have almost tripled in the same time frame (and will continue to increase as long as global warming continues to increase).

the doctor would wish you luck, but even that can’t combat greed!

Per Year, How Much Should You Outlay for a Multi-National Enterprise Source to Pay? Good Question! Poor Answer. 500K+

Whereas we were willing and able to put a real, actual, number, or a very tight range, for mid-markets, the situation gets more tricky for a multi-national enterprise with 1 Billion + in Revenue.

Why? Aren’t they using the same advanced tech as a large mid-market, except using advanced capabilities across the board? And, because of this, shouldn’t it max out at 500K? Well, yes, but there are additional considerations you don’t have in the mid-market.

[01] If you are using a lot of decision optimization, semantic analysis, network modelling, etc., then you are using a lot of computing power — that’s driving up the vendors’ hosting costs well beyond the mid-market. Now, at some point, it maxes out at costs on a dedicated machine basis, but it’s still higher.

[02] As a true multi-national enterprise, you are going to need a vendor that has extensive multi-lingual and multi-currency support in the product AND at the help desk when suppliers and third parties have difficulties using the solution to bid, provide information, submit invoices, etc. And while it’s only a one-time cost for a a suite built for true internationalization to add another language pack and currency, an enterprise that offers support in those languages usually has to add more headcount to support that language, and that adds cost.

[03] You’re not only going to have a larger Procurement team using it, but you’re going to have a decentralized global team with a lot more differentiation in capability, with a lot less people capable of being full DIY. They’re going to need more support on a regular basis, and you’re going to need to contract for this up front.

[04] You’re going to need a lot more data. You’re going to be subject to a lot more regulations and you’re going to need to collect, and verify, a lot of data on your partners and suppliers. A LOT of data. You’re going to need a number of data subscriptions on business identifiers, (beneficial) owners, and credit scores for verification that they aren’t on any embargo lists, involved in any legal suits, and acceptable to your insurance provider. Then you need data on their human/workers’ rights practices, compliance, and third party assessments for those countries with laws enforcing compliance and putting you responsible for your supply chain actions. Then you need Carbon/GHG data for countries with reporting requirements or limits. Then you need other ESG/Risk data for your own internal risk assessments. And so on. These subscriptions add up.

So even though the suite itself should still be within that 250K to 500K per year range, when you add up the additional support needs, additional data needs, and dedicated computing power needs, you’re going to double or triple that cost. That being said, before you sign on the dotted line, especially if the quote gets close to 7 figures (one million), you need to do your expected ROI calculation. If you’re not going to see at least a 5X ROI a year on a conservative estimate, with an expected ROI of 7X to 10X a year by years 2 and 3, you need to step back and decide if you need all the functionality, all of the support, and all of the data subscriptions you’re asking for / being quoted, and if so, if you’ve included the right vendors in your RFX for (a) technology solution(s). The reality is that you should NOT be paying a million plus annually for an extended S2P suite unless you’re getting the ROI.

Also, be sure to build that model in-house or engage a third party that is not a reseller or implementer of the suite you’re considering. First of all, their savings averages are not guaranteed to be applicable to your situation. Secondly, their manpower requirements, and reduction, averages might not be appropriate for your business either. Thirdly, because they often build their savings model as a rollup of savings models across the different modules / functions, many of these suite models often end-up double-counting resource time or savings numbers by way of their design.

(Please note our choice of wording here — “end up“. Usually the provider or consulting organization is not trying to deceive you, and they often don’t realize that their roll-up model is double counting. What we’ve seen happen is they take the best calculators they have access to (through consultant or analyst relationships) in each area they are selling in the suite — sourcing, SXM, CLM, etc. — and then roll them up. But they fail to understand that the attributions of a savings percentage in each model always favours the solution/module being sold, which may also assume some baseline functionality of another module. As a result, especially since the savings opportunity often changes based on what technologies are available and applied together, all the estimates will be “Best Case” for the selected modules, and when you add those up across five/six modules, you will sometimes get a total “Best Case” that is as much as double what is actually reasonable. For example, you can have a category where if you just applied spend analysis on the RFX you could identify 6% savings, if you just applied supplier risk profiling to the RFX and eliminated the high risk suppliers and then took the low bids you could identify 4% savings, and if you just applied strategic sourcing decision optimization you could get 10%, but if you applied all three you only achieved 9% (since optimization finds everything spend analysis finds, but the risk assessment resulted in the manual elimination of a high risk supplier that optimization didn’t catch, lowering the initially identified savings opportunity). Rolling up 3 separate models, it would produce a 20% savings opportunity when it was in fact 9%. Now, in other situations, the rollup could be worse than the actual of combining all three technologies, i.e. the RFX is projected to only identify 3% on it’s own and the negotiation module to save 3% on overheads, but the application of both to a targeted subset of suppliers which are deemed to be most willing to negotiate based on volume could allow for an 8% reduction. But overall, these rollups don’t average out and usually over-count.)

[Also, most vendors feel they have to do it this way since most buyers don’t buy all the modules and they don’t have enough average savings data across the application of all advanced modules to all categories to have reliable numbers. So you really need to do your own models based on your own situation and come up with realistic estimates.]

Depending on your current state of affairs, current market conditions, and technologies available that your organization is actually capable of utilizing, that could be an overall, estimated, cost reduction of 3% against all spend expected to be put through the platform in the first year, or it could be 5% (or more, or less). Even 3% is good if you’re spending 1 Billion a year, 500 Million is addressable, and you think you can address 20% of that, or 100 Million, the first year. That’s an estimated savings of 3 Million, and if your year 1 cost was 750K, that’s reasonable with an ROI of 4X, especially if you think increased efficiency will come in year 2 with familiarity, that you will address 200 Million in year 2, and increases the estimated savings percentage to 4%, which would be 8 Million savings in year 2, and an 8X multiple even if you needed to add more data subscriptions and support, bringing the total solution cost up to One Million.

Probably not the answer you wanted, since the mid-market looks to be getting off cheap, but they are also spending less as an organization, addressing less of that spend, dealing with fewer volume or consolidation opportunities, fewer resources to tackle the mid-size categories, and losing on the tail since they can’t effectively manage it beyond catalogs, budgets, and hoping the 3-bids and a buy are fair (and not rigged through collusion). They might pay less for their S2P solution suite, but their total savings potential is also (considerably) less and, thus, their typical ROI is limited compared to yours.

But, well chosen, at least you’ll get an open, modern, usable solution for One Million dollars per annum — not something you can say in all areas of enterprise software.