Category Archives: Market Intelligence

Be Wary of Marketplace Solutions for Procurement

Spend Matters is running a series on Marketplaces (Part 1 and Part II) because, sadly, they are making a comeback. Why does the doctor say sadly? Because Marketplaces were designed by (specific) point-of-sale sellers to serve end buyers. They were never designed as full-fledged solutions for Procurement Professionals.

And to understand that, we have to step back and understand what a marketplace is. Traditionally, a marketplace has been a physical area where a number of individuals with goods to sell gather together to present those goods to whatever buyers happen to wander through. And these goods can range from food items and bobbles through clothing and accessories to high end electronics and even personal transportation devices or animals and, literally, everything in between. And payment can be cash, credit, promissory notes, or other goods in trade. And it has been like this for thousands of years. All over the world. Persistent, temporary (one day a week), and transient markets still exist in every county to this day (although my American friends like to call them swap-meets and flea markets, for reasons that perplex those of us with more British and French sensibilities).

Now think about translating this to the online world. You’d essentially be putting together an e-Bay where anyone can sell anything to anyone, but in addition to having to support payment in every online currency imaginable, you’d also have to support promissory notes or offline trading of merchandise, and, of course, implement mechanisms to track that. Does any marketplace support this? No. But this is not the real problem you need to be wary of Marketplaces as a Procurement professional.

The real reason is that they are NOT designed as Procurement solutions. A Procurement solution controls the universe of what’s available, at what price, to who, and when. This is essentially an integrated managed catalog solution. Now it’s true that modern Marketplaces are beginning to support this capability and allowing Procurement organizations who license an instance of the marketplace to restrict the catalogs, items, and have approval over the items and prices before they go into the catalog, but this isn’t really a marketplace, as sellers have limited control, no ability to negotiate, and no ability to provide better offers dynamically. So while it is more of a Procurement solution, it’s not really a marketplace.

Then there’s the issue that Procurement strives to use existing inventory and buy off of contracts, not from marketplace items, so you need a solution that will not allow a non-contract item to be bought when a contract one will do. Furthermore, you also need to buy non-catalog items and services and track those too, and will the marketplace do that?

And then you probably have the issue that you need to make different catalogs and items available in different locations if you are global, and restrict them to those specific solutions — so in addition to buying rules (no off contract items when there is an on-contract one and budget enforcement), you also need multiple view restrictions (or virtual marketplaces) in that single instance.

And then there’s the fact that you don’t typically pay item by item, you typically pay in bulk or monthly, as per a contract, or pay through another system. So you need more advanced accounting and payment tracking than will be found in a typical marketplace. And so on.

So, dear Procurement, be wary of a vendor that offers you a Marketplace solution for your maverick-spend or related Spend Management woes. Most of the solutions, which were really built for B2C, are not yet where you need them to be for B2B.

Be Wary of FREE Supplier Discovery

As per our recent pieces on how supplier discovery shouldn’t be a kick in the pants, at least today, it shouldn’t be free either — because a good supplier discovery solution costs a lot of money to maintain.

A number of vendors are now offering, or considering an offering of, free supplier discovery bundled with their Sourcing or Procurement Solution because, just like it shouldn’t cost suppliers to do business on a network, it shouldn’t cost you anything to do searches (when search engines are free), in their view.

And while it sounds great in theory, at least today, it’s not practical in practice. Computing power, storage, internet access, and electricity costs money … as does a lot off the software used to enable this FREE supplier discovery (as there is no free software, someone still has to compile it, integrate it, maintain it, etc. And this resource time is costly as well). Google only enables free search because it makes money on ads and services that it sells, which subsidizes the internet search.

This means that the only way a provider could really offer free discovery is if it was subsidizing that search with other software offerings (which means you’re still paying for it as it could charge less for those offerings if it was not subsidizing supplier discovery). And if it this is its main offering, you need to ask how it’s making money as it costs a lot of money to maintain a good supplier discovery solution, and if the provider tells you it is cheap (and some providers are making this argument), then the solution is not good.

I’ve heard some providers argue that since there is so much supplier information out there freely available on public directory sites (paid directories that are open, supplier associations, government registries, investment sites, etc.) that it would be cheap to scrape and combine all off this information if you have a good AI engine and all you really need is just a lot of storage and fast internet access, which can be relatively low cost. And while this sounds good in theory, it’s not good in practice.

First of all, the majority of all supplier listings are micro-businesses, and most of these aren’t big enough to serve a corporation in any capacity. Many have never done any substantial business and there’s not enough information to assess risk or capability. Many listings are outdated and incorrect and many more are for out of business suppliers. Many listings don’t have enough information to determine products or services to any level of accuracy. In other words, the majority of free information is bit-garbage.

In order to have a good supplier directory, you have to have information that has been manually validated to a reasonable extent. Which means that either the vendor needs to spend a lot of expensive manpower validating or start with third party databases that have been manually validated, which cost money to access. Either way, good information costs money, which means that a supplier discovery vendor can’t create or maintain anything good for free.

Which also means that if the information is good, it’s likely also limited to a directory supplier discovery vendor has built up over time from its customer base, which will only be good for you if there are like organizations doing business in like geographies already in that customer base.

So, just like there’s no such thing as a free lunch, there’s no such thing as a good, free supplier discovery service. At least not today or tomorrow.

Are You Sick of the “Digital Transformation”?

the doctor is certainly sick of the terminology. Not a day goes by that some backwoods yahoo doesn’t think this makes the perfect headline, twenty years after we were introduced to specialized Procurement tools, almost thirty years after the introduction of the ERP, and more than forty years since specialized MRP systems were introduced to the market. The “digital transformation” is now new and hasn’t been since the internet evolved to the world wide web and every software company started transitioning to the cloud (which, by the way, is just someone else’s computer!).

the doctor is also sick of all the article stating that the digital transformation will not displace (real) Procurement professionals because that’s obvious. Besides the fact that we are nowhere close to real AI systems, most of Procurement today is not number crunching. It’s fire-fights. Stakeholder-pleasing. Countering disruption blights. Supplier appeasing. It’s a lot of relationship management, which is something a piece of software just can’t do. (There are a few good SRM platforms that enable SRM, but they do not accomplish SRM — that is accomplished by the expert relationship managers that astutely use the system.)

the doctor is also sick of the futurists who are stuck in the past and still predicting a great digital renaissance to come. Our collective IQ has dropped since the renaissance started; Twitter is making us dumber than goldfish (and you wonder why the doctor despises Twitter); the more we trust the machine, the more blind we become to the risks involved; it’s creating an unparalleled digital divide worse than anything William Gibson and his Neuromancer mind can come up with; and Ready, Player One might be the best possible future if we continue down the current road (assuming a certain dictator-want-to-be doesn’t start World War III first).

For better or for worse (and its for worse if we don’t stabilize our power grids and shield the hard drives that contain all of the data that drives our economy, as a natural EMP could wipe out economies in a second), we’re going to keep moving down the digital highway at ever increasing speeds, which means pending something drastic, the next twenty years are going to the be the same as the last twenty and all this hullaballoo about digital transformation, at this point, is just unnecessary noise.

It’s NOT the Marketplace or the Network … it’s the Facilitation!

Ten years ago SI ran a piece on how it’s not the portal or the network … it’s the facilitation in response to a piece in Global Logistics & Supply Chain Strategies, now on supply chain brain, that asked if supplier portals were so great, then what went wrong?

The article concluded, somewhat correct, that most suppliers who originally embraced the “portals” pushed back because they quickly realized that a “portal” offered little value and was just another way for a buyer to boost a discount. But more accurately, it turned out to be yet another system they had to access to receive orders and send invoices in a buyer’s own custom format, and instead of having to deal with a common XML or EDI format, they now had to deal with dozens. It was an amplified nightmare, even more so when they not only had to deal with a different portal for each customer, but multiple instances of each customer’s portal as early portals didn’t even have the decency to provide suppliers with centralized access to their customer requests — they had to log in separately to check the status of every customer!

The article also claimed that the survivors have evolved into networks with real value, which SI questioned, and still questions, as many networks were just searchable supplier directories with the ability to send electronic communications, and did not really enable any value for the supplier. They would have to enter their profiles in multiple networks, hope to get discovered, check and answer queries in each network and then, when selected for a contract award or PO, they would have to … you guessed it … use the portal associated with whatever Sourcing or Procurement system the buying organization used to submit the signed contract or order acknowledgement, submit the invoice, and generally interact with the buying organization.

So why are we bringing the subject up again? Because marketplaces and networks are on the rise again. With respect to marketplaces, we’re not sure if it’s because a number of the instigators see the recent M&A frenzy as an opportunity to fulfill a need and are thus trying to bring marketplaces back or if there are actually silent screams from pending customers that a select few hear. But in the case of networks, it seems that all the S2P players either believe that they need a network to compete with Ariba or that it will make their platform a lot more valuable.

We don’t agree with either. Marketplaces didn’t really work before, so there’s no reason to think that they’ll work now if nothing changes. And we don’t see anything changing. And another network doesn’t add value just by its existence as it’s just another copy of the half dozen that came before it.

If you’re going to build another marketplace or network, please, please, please remember the following:

  • no one cares about a marketplace or a network anymore, they care about doing business
  • the platform needs to make the supplier’s life easier — it should be less work to communicate, interact, and process e-documents
  • the platform should be differentiated and probably industry focussed — not another generic be-all end-all consumer-like marketplace (that’s what Amazon is for, right)

Because another copy-cat platform is just going to follow it’s brethren to the bit-bucket. That’s just the reality.

Finding Wealth in the Year of the Pig

In yesterday’s post we noted that next year is the year of the pig, and that it could bring greed and obnoxiousness to Procurement, as per the western stigma, or it could bring wealth and good fortune, as per the eastern stigma, but that your fortunes all depend on whether or not you make the effort to acquire a next-generation best-of-breed system. If you acquire a next-generation best of breed system that uses analytics, optimization, advanced modelling, machine learning and/or AI, you can realize value and wealth. If you don’t, well …

So what should you look for? As per our upcoming series on AI in Procurement Tomorrow on Spend Matters Pro [membership required], there are a number of advanced functionalities coming your way that will add value. These include [but are not necessarily limited to]:

  • Overspend Prevention
  • Invisible Buying (of all types of MRO products and services)
  • Automatic Buying (including basic sourcing)
  • Automatic Opportunity Identification
  • Automatic Category Analysis and Emergent Category Identification
  • Procurement Method Identification

To convince you of the need for advanced (AI-based) applications to find the wealth you need to make Procurement profitable again, and the importance of reading the doctor‘s in-depth thought leadership pieces (if you have Spend Matters Pro membership), we’re going to give you a preview of the power of a platform with invisible buying capability.

While current systems can automatically re-order MRO and stock room items when minimum inventory levels and EOQs are defined, the reality is that MRO and stock room items change over time as old products are retired, new products are selected, and organizational needs change. And it can be a lot of work to maintain these items accurately over time.

But why should you have to? After all, the system can infer when a product is retired … as orders stopped being placed. The system can infer what product replaced it, as it’s not only in the same sub-category but ordered when the previously item would have been ordered by the same department and stocked at the same location in a similar quantity (under an appropriate metric). And so on.

But a modern Procurement platform, with augmented intelligence technology, can:

  • Auto-detect regularly needed items through repeated orders
  • Auto-compute usage schedules by tracking inventory levels and computing trends
  • Auto-predict best order quantities based on projected trends, re-order times, shipping costs, and inventory costs
  • Add the items to the MRO repository with minimum stock thresholds and projected EOQs
  • Use the embedded assisted intelligence to re-order the MRO items on schedule
  • And re-calculate the inventory levels and EOQs on a monthly basis using actual usage data to update the trends

And you don’t have to do tactical inventory review and re-ordering when that time can be better spent on value-generating strategic sourcing events.

So keep your eyes open for the doctor‘s upcoming series on AI in Procurement Tomorrow over on Spend Matters Pro [membership required] and, if you haven’t already, read the doctor‘s series on AI in Procurement Today (Part I and Part II) if you haven’t already.