Category Archives: Market Intelligence

How Many Platforms Do You Need? How Many Platforms Should You Need?

Sourcing is not simple. Finished goods. Made to order goods. MRO products and services. Services. Tail Spend. An average organization, if they need best of breed, might need an indirect, direct, MRO, services, and tail spend solution. Especially since most current platforms only support one such type of (strategic) sourcing project well.

Think about it. Especially in North America, the typical platform was built for indirect. Finished goods and cookie-cutter one-price services. The deep bill of materials (BoM) support required for direct sourcing or Statement of Work (SoW) for services sourcing is not present. And then MRO, which is mainly the re-ordering of parts and maintenance services to keep production lines or distribution humming. And, of course, the management of tactical tail spend as part of an overarching strategic initiative to never pay more than market for anything not worth strategically sourcing.

But an organization that ignores any of this spend is losing. Most organizations are not able to source more than 1/3rd of spend strategically a year, and if the organization only has an indirect or direct sourcing platform, that’s 1/3rd of product spend, or maybe 1/4th down to 1/5th of total spend. Even if you identify a savings of 10%, that’s only 2% to 3%, max, that can go straight to the bottom line.

Considering that, on average 30 to 40 cents of every negotiated dollar of savings does not get realized, that’s only 1% to 2% savings to the bottom line. That’s not enough. Procurement needs to be delivering 5% or more to justify it’s place as the undisputed value king of the organization. To do that, it needs to be identifying 7% to 8% savings, and to do that it needs to be sourcing not 1/5th to 1/3rd of spend, but 2/3rd to 3/4th of spend.

This means that if the solution it has only supports indirect, but it’s product spend is roughly evenly split between indirect and direct, then it also needs a direct platform. And then, depending on what the next biggest category of spend is, it will also need a platform for services spend or tail spend.

But should Sourcing need three different solutions to be the value king? That seems extreme! Especially when the sourcing process in all cases typically revolves around RFX, online bidding, optimization and analysis, award, and contract. It’s not like each type of spend uses completely different processes. The difference is just that direct uses a bill of material and extensive cost models, and services use detailed multi-line statements of work. Couldn’t one build a direct solution that could also do indirect by simply allowing the BoM to be a top line finished product? And couldn’t the grids, models, and analysis adapt to that lack of detail?

And when you think about a statement of work, isn’t that just a bill of materials for a service. Instead of raw materials, it’s individual task components. The grids are similar, it’s really just the realization of the abstraction.

So, we know how many sourcing platforms you typically need (at least three). But how many sourcing platforms should you need?

(Hint: The answer is ONE!)

UX is More Than a Functional Experience, It’s a Program Experience

This year we’ve attacked the UX in Sourcing and Procurement solutions, and for e-Auctions, e-RFX, Optimization, Spend Analytics, and Procure-to-Pay in particular. This was great, but if you really understand Sourcing and Procurement, you know that it’s more than just a set of (integrated) modules with a great user experience. It’s a plan, a process, and, most importantly, a program.

Those organizations that are reasonably advanced in their sourcing journey know that the best success often comes from a category management program that starts with category identification and opportunity assessment, proceeds through a sourcing plan, and then the sourcing process, which culminates in a contract, that then flips over to Procurement which issues a purchase order, receives one or more goods receipts and invoices, issues approvals, and, finally payments. This is all part of a program that works against a project plan and one or more category goals.

This project plan also needs to be managed. Hopefully within your S2P suite, but if not, in another tool that, hopefully, integrates with the S2P suite or, in some cases, the organization’s mix of best-of-breed Supply Management applications. But, as one might surprise by now, such a tool must be immensely usable and provide a great user experience if it is to be used.

However, this is easier said than done because simply slapping a great user experience on a traditional project management tool is not going to cut it. This is because the types of programs that revolve around Sourcing, SRM, Analytics, and P2P are considerably different and require functionalities considerably above and beyond a typical project management application. In other words, slapping a category management theme onto a project management or sourcing application won’t make the grade.

This is why the next UX series produced by the doctor will be on Program Management UX, with the P2P posts co-authored by the revolutionary. So keep a watchful eye out for this one — it might help you understand some of the key functionality that should be included in your S2P platform, which many platforms are still missing today.

One Hundred and Twenty Years Ago Today …

London licenses taxicabs. Just a few short months after electric battery-powered taxicabs became available on the streets of London in August the same year.

Just goes to show that once a government succumbs to the winds of change, they are fast to regulate and tax it.

In other words, if the North American government ever truly accepts not only e-Commerce but e-Procurement, you might see a model where all major transactions have to either flow though a government site or, more likely, be immediately reported to a government site and taxes paid immediately (so they don’t lose their share of the digital pie).

M&A: And the Mania Continues …

Our last post on the subject was on how The M&A Mania Ain’t Over Yet. In it, we had two words of advice. Don’t Panic! Those two words are more important now than ever now that Jaggaer has bought BravoSolution. Big has bought big to become bigger and fatten the bottom line, most likely dancing to the tune of the private equity firm looking to get a return on its investment by either growing the company big enough to take public (again) or by making a global offering attractive enough to a bigger private equity firm.

And while this could be very good for the private equity firm, is it good for the customers? Let’s think about this. There are three things that make an M&A attractive:

  • More Customers
    Check, and check. The first check for the sizeable customer base that BravoSolution has. The second check for the fact that most of this customer base is in Europe, where Jaggaer is not well established (with the exception of Jaggaer Direct as a result of its Pool4Tool acquisition).
  • Synergy
    Either in customer base (for cross-selling) or in application (for broader platform). Check, but no check. There is a theoretical synergy in customer base (as both organizations sell to Procurement organizations), but there is not only a geographic divide, but a bit of a cultural divide as well (as most customers tend to buy from organizations with similar cultures, and BravoSolution and Jaggaer have, at least historically, considerably different cultures with regards to solution development and delivery.
  • Cost Reduction
    If there is an overlap in personnel, systems, locations, or other cost centers that can be reduced, then there is a great opportunity for cost reduction. Check, Check, and Check! First of all, while Jaggaer needs to be on all continents, and needs multiple offices on big continents (like the USA, EU, etc.), but only so many. There can be office reduction. This would be a big savings. They now have 2 of just about every Purchasing system — one set can be retired (in time). This would be a big savings. And as for personnel — while customer support personnel cannot be reduced (without losing customers, which negates reason one for M&A), tech support and sales and back office personnel can — especially when one set of systems is retired.

Now, we can’t be sure any of the changes hypothesized above will materialize, but unless some do, how will Jaggaer realize the potential benefits of the merger? It’s not time for panic, but it is time for thought. And the formation of a plan, or at least a back-up plan, if you are a current, or potential, Jaggaer or BravoSolution customer and someday it is announced that your solution, local support office, or team is being retired.

30 Days Left to Get Your Supply Management Solution Budget In Order …

… unless, of course, you are a government / defense contractor and on the government fiscal year. But we’ll assume you’re not, and move forward.

There isn’t an organization in existence that has a complete Supply Management Solution platform, not even an organization in the Gartner Top 25 or the Hackett Group top 8% even though they are much, much closer than the average organization. Most (average) organizations only have part of the Source-to-Pay spectrum covered, and almost half don’t even have a modern solution at all.

And, as we have indicated previously, this cannot continue. But you can’t afford everything, and big bang implementations usually go up in a big bang. So you need to start by figuring out what you need first, what the average price point is for the solutions most likely to meet your need, and get that in the budget.

And that will require a good ROI argument, which needs to be a believable one. Which means you have to understand the full impact of the acquisition, implementation, and usage cost of a new purchase, as well as the time it will take to reach the ROI the solution will achieve. For example, while an optimization-backed sourcing platform will identify 10%+ savings on the top 30% of spend, delivering at least 3% to the bottom line, if the contracts are three years, it will take 3 years to realize the savings, and not all will materialize without a proper Procurement platform that insures the contract is properly executed.

Plus, when it comes to Sourcing platforms, even if you pay a monthly SaaS subscription, there will still be the integration costs with the current platforms (including ERP), the training costs for the intended users, any customization costs that result, and delayed ROI costs as it will take a few months to get all users on the platform, which means that it will take a few months before significant savings are identified, and a few more months before savings start to materialize.

The savings will materialize, and the ROI over the long term will be considerable, but the best way to get the necessary budget for a Sourcing, Procurement, SRM, or Analytics platform is to be honest about the cost and the time to significant ROI, which will typically be 6 months to 12 months, minimum, not the first 3 to 6 months like some vendors will promise. But there was a time company’s would take the long, 5 to 10 year, view, and if you take the long view, you will save Millions, maybe Billions (if you are a Fortune 100).

And that can be true of any best of breed (conglomerate) Sourcing, Procurement, SRM, or Analytics platform. So, get your well researched, well thought out, arguments.