Category Archives: Market Intelligence

Procurement Innovation Today

As hinted at in yesterday’s post, Procurement Innovation today mainly revolves around automation, but when that automation allows us to focus more time on analysis, strategy, and actual relationships than just pushing paper and matching numbers, that’s a very good thing.

The truth is you don’t even get savings by matching numbers because, in effect, what you are doing is preventing overpayments. Thus, all matching paper does is prevent loss. To save, you have to find a way to reduce costs below current baselines, and, to be really aggressive about the definition, reduce costs below expected baselines through the identification of an appropriate business strategy or process improvement.

Furthermore, if you really want to get analytical, you cannot claim cost avoidance as savings unless that cost avoidance is the result of a strategic or smart decision that allows volume to be reduced through actual need without the process improvement. For example, if you generally order 110 crates of ingredients, 10 spoil in the storage locker before they get sold, and you identify this and alter your order size so you are only ordering 101 crates and losing 1, that is not cost avoidance. This is loss prevention. But, if you realize that your current supplier is packing such that only 95% of the ingredients can be used (because the tomato paste sticks to the containers, the containers are too large and when customs does its random inspections, 5 times the food is wasted) and you switch to a new supplier where 98% of the ingredients can be used, (because the containers are non stick, smaller, or the spices are stronger), that is cost avoidance as you can now reduce the order size by 3% and serve the same need. Similarly, it’s not cost avoidance if you invest in printers that print double sided to reduce paper, as you are still using the same amount of ink (which costs more than blood) and the increased printer cost dwarfs the paper cost. It’s only cost avoidance if you can figure out how to reduce the total printing done by the organization (such as double monitors to prevent print outs, more online materials, etc.).

And automated m-way match is only one area where automation is helping us get more tactical. Another is automated price comparison, feature comparison, contract item identification, and what is emerging as guided buying in many of the catalog-enabled P2P solutions. If there is a contract item, it appears first (and the system can even be configured to prevent a user ordering anything but the contract item if it is in stock). If not, then items from preferred suppliers are shown. If no contract or preferred items, then either the lowest cost items that meet the need or items most ordered by the peer group are displayed. And so on. And the better solutions will even pop-up visual guilt information that shows a requisitioner how much it’s costing the organization if they don’t use a contract, preferred, or low-cost item (in hard dollar savings or missed volume/discount opportunities).

Automation, when properly used, is always a good thing. Of course, proper use is key. Automation never replaces the human element, it only enhances it. And any manager that doesn’t get that should be the first employee of an organization to be let go. Because any manager that can’t see how to use automation to make her people more valuable is not one worth having.

And for the record, I’m not saying that automation won’t displace some people – it will. Some people may not be willing or able to adapt to the new role, and will need to be replaced. And while this is unfortunate, that doesn’t mean that the organization can’t find them a different role in a different department or that they can’t go do something else more suited to them. What I am saying is that automation, properly applied, doesn’t reduce overall headcount. It just makes that overall headcount considerably more productive and value generating. And that should be the focus.

The Procure to Pay User Experience Should NOT be Overlooked!

The history of enterprise software systems is fraught with implementation failures. This is especially true in the ERP and MRP space, which have contributed to some of the biggest supply chain failures in history (including Hershey Foods, Adidas and Foxmeyer). But not all failures are catastrophic. The majority are just the result of (significant) project overruns in terms of time and money or the inability to deliver critical features or functions in the original system specification. And this is more common than one may think. Some estimates put the rate of project overruns in IT as high as 85%. That’s problematic.

Why are there so many failures? The reasons are many. Some are the result of poor change management; others are the result of the selection of inappropriate process automation for the company; and still more are the result of limited or low-quality information. If one goes through the list of possible reasons, we see there is one commonality across the majority of failures: the user experience. Poor change management leaves users confused. Inappropriate process selection frustrates users as it increases time and effort (rather than decreasing it), and low-quality information makes users question why they are migrating to a new system at all. (And when significant system features or functions fail to be implemented at all, that’s the worst user experience.)

That’s why the user experience (UX) is important, and why the doctor has been writing tomes on it this year, starting with a number of multi-part series co-authored with the prophet over on Spend Matters on:

What Makes a Good UX? Part I
What Makes a Good UX? Part II “Smart Systems”
What Makes a Good UX? Part III “Mission Control Dashboards”

The UX One Should Expect from Best-in-Class e-Sourcing, Part I
The UX One Should Expect from Best-in-Class e-Sourcing, Part II

The UIX One Should Expect from Best-In-Class Auctions, Part I
The UIX One Should Expect from Best-In-Class Auctions, Part II

The UX One Should Expect from Best-In-Class Optimization … Part I
The UX One Should Expect from Best-In-Class Optimization … Part II
The UX One Should Expect from Best-In-Class Optimization … Part III
The UX One Should Expect from Best-In-Class Optimization … Part IV

The UX One Should Expect from Best-in-Class Spend Analysis … Part I
The UX One Should Expect from Best-in-Class Spend Analysis … Part II
The UX One Should Expect from Best-in-Class Spend Analysis … Part III
The UX One Should Expect from Best-in-Class Spend Analysis … Part IV
The UX One Should Expect from Best-in-Class Spend Analysis … Part V

… with SRM & CLM on the way …

But that is just the beginning. Now that we have fairly adequately covered the core Sourcing technologies, we need to cover P2P, and that, as we all know, is the domain of the revolutionary. So, starting last week, the doctor teamed up with the revolutionary and, in the months to come, we are going to bring you deep, deep insight into Procure-to-Pay, both from a UX and a FX viewpoint so that at the end of the day you have deep insight into not only what P2P has to do, but how it should do it.

Our first instalment of “The Procure-to-Pay User Experience” premiered last Thursday over on Spend Matters Pro (membership required), and more will be coming.

Stay tuned!

Why You Have to Find that Fraud in Big Spend Stacks …

We recently published a piece on how it’s hard to find fraud in big spend stacks, and it is an important one. While fraud in most organizations might be relatively small, and might be mostly controllable by the right culture, processes, and systems (but that’s a subject for a future post), it’s still going to be there, and the most common form of fraud you are not going to detect is collusion fraud.

But this can be the most costly. Let’s say Bill and Ted both have invoice approval rights in the services procurement system and can singlehandedly approve services procurements up to 20K. Let’s say Bill’s buddy Bob has a services firm and let’s say Ted’s buddy Tim also has a services firm. Let’s also say that the organization also has a great need for temporary contingent labour to man the warehouse, clean the offices, and guard the assets of the company.

Let’s say that oversight of these services is left up to the approver for verification. Let’s say that Tim routinely sends two services guards when the general policy is to have three guards on duty and that Bob typically sends only two janitors to do the work that would typically be done by four by the old services provider. Who’s to say that Tim doesn’t send two guards but bill for three? And who’s to say that Bob doesn’t send two janitors and bill for four? And if these invoices are sent bi-weekly, they are going to fall well within approval limits.

Moreover, who’s to say that Ted doesn’t know about Tim’s over-billing and Bill doesn’t know about Bob’s over-billing? And who’s to say that Bill and Ted don’t have a deal to approve the over-billings for each other because their wives are getting an “efficiency consulting” fee from Tim and Bob’s companies?

Maybe this doesn’t happen in your company, but it happens more than one thinks, and just because you never detected this, how do you know it’s not happening? Invoices from real suppliers for real services at approved rates can still contain fraudulent over-billings for services not actually delivered, and those proceeds can still be partially kicked back through indirect channels to organizational employees.

But how do you detect this? Very sophisticated AI-based algorithms that detect unusually high approval patterns between two organizational employees, for amounts that should have been reduced with new contracts, that don’t match typical, anonymized, organizational patterns. And then human investigation to find the truth.

So why is this so important? Besides plugging the leaks? Because if you can’t find internal collusion, how will you ever detect potential cases of external collusion? And gather enough corroborating evidence to at least get an investigation going? If industries collude, and jack prices above market prices, the organization will lose considerably more than it will lose to Bill and Ted (from the evil, parallel, universe). And this happens more than you think too, it just doesn’t always get detected and investigated. Fortunately, sometimes it does, and sometimes, even if there is no certainty that fraud happens, regulators, presented with enough evidence still investigate — like they are doing now among the German automakers (which led to a surprise raid on BMW headquarters as recently reported in the New York Times) that are suspected of conspiring to hold down the prices of crucial technology (as initially reported in July). Regardless of the outcome, technology that can identify potential fraud and gather correlating evidence will keep everyone more honest, and that’s a good thing.

Want to Know Another Great Thing About SolutionMaps?

It doesn’t give broad, generic, totally useless Software Advice on categories so vague that they compare head-to-head vendors doing 3rd party logistics and vendors doing catalog based procurement!

SolutionMaps are on specific Supply (Chain) Management categories, that are precisely defined and tailored to a specific Sourcing, Procurement, or Supply Chain business process.  Right now, they are defined for e-Procurement (e-Pro), Invoice-to-Pay (I2P), and the broader Procure-to-Pay (P2P) areas, (Strategic) Sourcing, Analytics, SRM, and Contract Management with Contingent Workforce Management and Services in the pipeline.  Future areas may include GRC (Governance, Risk, and Compliance), Direct Sourcing (focussing on BoM, Should Cost Modelling, Production Planning, Etc.), WIMS (Warehouse and Inventory Management Systems), and Logistics/Freight Management.

We do not compare apples to oranges (as such a comparison is pretty useless) in SolutionMaps, but we definitely don’t compare apples to bananas, peaches, pears, and oranges in a single market basket.  They might all be fruit, but that’s about all they have in common.

Granted, there are analyst firms that think that pretty much all Supply Chain Management Solutions are the same.  One even has a big bold advertising page which says it can help you compare the following 12 vendors:

3PLCentral, Bellwether, CobbleStone, Coupa, CongaNovatus, ContractWorks, Deltek, Fishbowl, FreightView, Halo, Kinaxis, and Procurify.

If you ever compare more than any set of three of these at a time, either you don’t know what you’re doing or the advisors don’t know what they are doing.  These vendors fall into the falling seven distinct categories:

  • Business Intelligence
  • Contract Management
  • ERP
  • Freight Management
  • Procurement Software
  • Supply chain Management
  • Warehouse Management

SolutionMaps only evaluates vendors in a defined market segment, and then it only evaluates demoable product.  We know that some (not all) analyst firms review the solution component of vendors based largely off PowerPoint and other documents.  Given some of the hyperbole the marketing gurus at the market leaders can generate with the flick of the wrist, this is also quite scary.  Just because a new cloud-based SaaS solution can provide you with community intelligence, that doesn’t mean it does.  The crowd has to buy into the solution in order for its wisdom to be shared.  That usually takes time.  But forcing demos forces reviews on real functions, not perceived capabilities.

And, finally, as we hinted at in yesterday’s post, rose colored glasses have no influence on the scoring.  It doesn’t matter how much we like, or do not like, a vendor, it only matters whether or not they can meet the binary requirements to advance up the scoring scale.

SolutionMaps are based on the existence, or nonexistence, of functionality, in a well defined domain, tailored to real-world buyer needs.  And even the customer questions, and scores, are meaningful to other real world buyer needs.  SolutionMaps are different.  And that’s why they are awesome.

And if you adopt a SolutionMap methodology in evaluating your potential vendors, when asked how you came up with the best solution, you will be able to honestly say, “Because I’m Awesome”!

Why the doctor Loves SolutionMaps, Besides the Obvious …

the doctor loves SolutionMaps. He loves them for many reasons.

But most important of all, it’s because of the scientist in him.

SolutionMaps are expert. And constant. And data driven.

Unlike some analyst reports whose methodology and “qualifications” often insult the name of the authors and parent firm (e.g., requiring baseline revenue or geographic footprint requirements further tailored to weed out smaller providers or fiercest competitors) and typically have participation and validation requirements that change from report to report, SolutionMaps are based on rigidly defined capabilities (where every capability has a pre-defined scale at least to 3, if not to 5) that must be demoed for a 2 and rigorously demoed for a 3.

And these requirements will not change from iteration to iteration. More specifically, as long as the doctor is involved, the scale for any requirement will be static for at least one year and while requirements may be added, they will persist for at least one year before being dropped. And, furthermore, since SolutionMaps are designed so that the average score for any vendor should be 2.5 to 3 (or less, depending on the “Map”), the number of 4’s should be 10% or less, and the number of 5’s should be 1% (or much less), and since functionality does not typically improve that much quarter or over quarter, when we have to do a renormalization after a year or more (when we hit enough 5’s and 4’s), we can do a fair, equal adjustment against historical scores (which can’t be done when everyone starts at a 5).

And, as we noted yesterday, these rigid objective scales not only allow an expert analyst to score providers consistently against a common goal, but multiple analysts to do so, because the baselines are all set in stone! Whether it’s the doctor, the prophet, the maverick, or the revolutionary doing the scoring, it’s all consistent on one scale.

Moreover, we know that technology is only half the battle, so half of the scoring is based on average customer reference scores, which are scored over a dozen or more factors, not just one or two! This also means that, just as in real life, there’s more than one right answer depending upon whether you value technology innovation or customer service more, or just want an equal mix. Plus, the ability to differently weight the analyst vs. the customer dimension allows vendor profiles to be constructed against different personas, because the right vendor changes based upon your actual needs.

But that’s not the only reason the doctor loves SolutionMaps. The other reason is that — they are surprising!

Given all the angst that is out there from some current and many former SAP Ariba customers, would you have expected them to score so well on the customer references? Not by a mile! Obviously this vendor is a love it or hate it or nothing in between type of vendor, with a lot of customers lovin’ it! (Kinda like McDonald’s.)

Also, I bet not a single person, including the entire analyst team, would pick EC Sourcing to the be the value leader for Nimble Sourcing. But one thing is for sure, it’s days of being overlooked as a small Best-of-Breed vendor are now over! (Especially since you can set up decent size RFX projects in 15 minutes. If you don’t believe the doctor, ask for a live demo and see it for yourself.) Also, while we always knew it was the little-engine-that-could, no one predicted that Keelvar had made it so far up the hill. Sure, it still has a lot of work to do on rounding out its RFX and Auction features (for example, it’s easy to lock lots in optimization, but you can’t force vendors to fill all or nothing in setup), it’s hit on every major optimization requirement, developed a novel approach to parametric bidding, and is currently weaving in AI in a novel way (which, when released in a quarter, could bump it even higher in the rankings).

But sourcing and optimization weren’t the only surprises. In analytics, large pieces of the pie went to, wait for it, Anydata and Spendency! While the analyst team expected (even though the market may not have) SpendHQ to do well, this was a bit of a surprise. These are both new players with small customer bases relative to the big boys, but they both made an amazing grade.

In SRM, we have State of Flux and PRGX Lavante killing it on the capabilities front (even if not so much on the customer references, but customer response counts for State of Flux, who participated at the last minute, were low and PRGX forgot about the customer references entirely), and are likely to fair better overall next iteration as more customer references come in. And from a reference perspective, Ivalua and SAP Ariba (yes, SAP Ariba again) are just killing it. Ivalua is really proving that a single-platform home-grown S2P suite can really do it all (well, almost all, they need work in optimization and direct sourcing, but then again, name any S2P platform that has both of these capabilities) and do most of it well. You can learn a lot of lessons in sixteen years, and Ivalua is showing it.

In other words, when you dive past the marketing, and the vision, and the pretty, pretty deck, and just get to the heart of the problem, or in this case, the solution, sometimes the results surprise you. But that’s a good thing. This knowledge benefits everyone and we don’t expect these (relative) rankings to be static. Not in the least.

the doctor looks forward to the next iteration of SolutionMaps, and another 8 to 12 vendors being added, and seeing how things shake up. It will be illuminating to say the least.

And to those vendors who didn’t fair as they expected, shake it off and get back to work.  You know what you need to do to get a better score.  Nothing is hidden here. You have the RFI.  You have the scoring scale.  You have our feedback.  It’s all up to you!