Category Archives: Market Intelligence

Whichever Moron Decided that “Touched Spend” Was a Good Metric Should be “Touched” Out of a Job!

Last week over on Spend Matters, the maverick pointed out that there is a new benchmarking metric being collected by CAPS Research called “touched spend“, which is supposedly defined as a new metric to encapsulate sourceable spend and managed spend … and then some. Specifically:

  • Sourceable Spend
    All company-wide external purchases that could be sourced by supply management (whether they currently are or are not). Does not include such items as taxes, fees, legal judgments or charitable contributions.
  • Managed Spend
    Purchases made following policies, procedures or commercial framework developed by the supply management group.
  • Touched Spend
    Total of all spend that has been bid, negotiated, indexed or influenced in any way by the supply management group during the reporting period.

The first two metrics, appropriately defined (using the definitions provided by the maverick, are quite good, but the latter, not so much. the maverick points out that it could use a “little” touch-up, and, in particular, the word “influence” should be removed. As influence could refer to any policy/procedure/system/tactic/whim put in place by Procurement but executed by someone else, who might have a completely different definition or interpretation of the policy/procedure/system/tactic/whim and source using a methodology that would not be approved by any Procurement personnel under any market (or mental) condition.

But that alone wouldn’t make the definition meaningful. There’s still that word “indexed“. Just because you “index” something doesn’t mean you actually take, directly or indirectly, any action to actually manage, or even influence, the spend. The index can be completely ignored by anyone doing the actual buying. Or, worse yet, interpreted as “the minimum” one should pay (instead of the maximum) and lead to all sorts of problems.

And even though what remains after removing the words “influence” and “indexed” is a decent definition of a spend metric, it shouldn’t be called “touched” spend because that just conveys a definition so loose that anything qualifies.

If we examine the definition of touch, which is to come so close to (an object) as to be or come into contact with it, then my way, your way, anything goes tonight. You sent a policy to an end user, they half read it. The spend was touched! You passed an engineering manager in the hall, gave him a tip on a metals category, that he may or may not have taken into account, the spend was touched! You compiled an index that no one looked at … hey, they spend was touched! Because, in each case, you came so close that you could have come into contact with it … even though you did squat. See how stupid this metric is. How blazingly stupid. If you report this metric to any CFO with half a brain (and the vast majority have a full brain, by the way), your credibility is shot … forever.

It’s just too damn easy to touch too much.

And that’s why whichever moron that decided touched spend was a good metric should be touched, where, to be specific, we use the other definition of touch that is to handle in order to manipulate, alter, or otherwise affect, especially in an adverse way where we define “adverse way” to mean shown the door.

The UX One Should Expect from Best-in-Class Spend Analysis … Part V

In this post we wrap up our deep dive into spend analysis and what is required for a great user experience. We take our vertical torpedo as far as it can go and wrap the series up with insights beyond what you’re likely to find anywhere else. We’ve described necessary capabilities that go well beyond the capabilities of many of the vendors on the market, and more will fall by the wayside today. But that’s okay. The best will get up, brush off the dirt, and keep moving forward. (And the rest will be eaten by the vultures.)

And forward momentum is absolutely necessary. One of the keys to Procurement’s survival (unless it really wants to meet it’s end in the Procurement Wasteland we described in bitter detail last week) is an ability to continually identify value in excess of 10% year-over-year. Regardless of what eventually comes to pass, the individuals who are capable of always identifying value will survive in the organizations of the future.

But if this level of value is to be identified, buyers are going to need powerful, usable, analytics — much more powerful and usable then what the average buyer has today. Much more.

As per our series to date, this requires over a dozen key useablity features, many of which are not found in your average first, and even second generation, “reporting” and “business intelligence” analytics tool. In our brief overview series to date here on SI (on The UX One Should Expect from Best-in-Class Spend Analysis … Part I, Part II, Part III, and Part IV) we’ve covered four key features:

  • real, true dynamic dashboards,
  • simultaneous support for multiple cubes,
  • real-time idiot-proof data categorization, and
  • descriptive, predictive, and prescriptive analytics

And deep details on each were provided in the linked posts. But even prescriptive analytics, which, for many vendors, is really pushing the envelope, is not enough. Great solutions really push the envelope. For example, the most advanced solutions will also offer permissive analytics. As the doctor has recently explained in his two-part series (Are We About to Enter the Age of Permissive Analytics and When Selecting Your Prescriptive, and Future, Permissive, Analytics System), a great spend analysis system goes beyond prescriptive and uses AR and a rules-engine to enable a permissive system that will not only prescribe opportunities to find value but initiate action on those opportunities.

For example, if the opportunity is a tail-spend opportunity that could best be captured by a spot-auction, approved products that meet the bill, and approved suppliers that can automatically be invited to an auction to provide them, the system will automatically set up the auction and invite the suppliers, and if the total spend is within an acceptable amount, automatically offer an award (subject to pre-defined standard terms and conditions).

And that’s just the tip of the iceberg. For more insight onto just how much a permissive analytics platform can offer, check out the doctor and the prophet‘s fifth and final instalment on “What To Expect from Best-in-Class Spend Analysis Technology and User Design” (Part V) over on Spend Matters Pro (membership required). It’s worth it. And maybe, just maybe, when you identify, and adopt, the right solution, you won’t end up wandering the Procurement Wasteland.

The University is Still Here Because …

A couple of years ago TechCrunch wrote an article that asked Why is the University Still Here? In a time where information is universally accessible, knowledge can be compiled by experts and shared in a reviewed and verified form far and wide, and intelligence can be conveyed direct from an expert in Oxford (England) to an able learner in Liberal (Kansas) if both are ready, willing, and able thanks to virtual classrooms with audio-visual conferencing and screen sharing.

Then, earlier this decade, we saw the launch of massive open online courses (MOOCs) where anyone can register for a course from a leading professor, get the lectures, complete assignments, send them to TAs (teaching assistants) half a world away, get graded (automatically for multiple choice and by a human for essay or problem solving questions), and work towards what is supposed to be the equivalent of a University degree. But is it?

First of all, universities, even with remote learning aspects, have always been based on classroom learning. Secondly, advanced programs have always been based on one-on-one instruction between teacher and student. Thirdly, they have always been based on carefully structured curriculums that are designed to ensure a student gets an appropriate depth and breadth of knowledge. Fourth, the testing is always done in a manner that makes cheating or plagiarism difficult.

MOOCs are the antitheticals of University. They are trying to abolish classrooms. There is no personal one-on-one instruction between a recorded lecture and a semi-engaged viewer. The student can design their own haphazard curriculum that ensures neither depth nor breadth in the appropriate subject matter. And anyone can submit a document created by anyone else and there is no way to know.

But the failure of MOOCs to displace universities is not an argument for the continued existence of universities. Just because X does not displace Y, that doesn’t mean that Y is superior. It just means that the masses do not believe that X is superior. In our case, it’s not enough of a case for universities.

To make the case, we look at where MOOCs failed. As per the techcrunch article, they failed in keeping a user’s interest. Most people who registered for and even started a course, never completed. Most who completed didn’t come back. They weren’t motivated. The reasoning in the article is that because, for the majority of learners, it was part time, on their own time, it never got primacy and without primacy, efforts get abandoned.

And that’s part of the reason MOOCs failed and part of the reason we still need Universities. When you go to University, you make education a primary focus of your life. But the other reason is that a real, established, prestigious University provides something no other form of education can — a well-rounded full-featured educational experience with primacy, one-on-one instruction from an expert, great curriculums, and, most important, a community to share the experience with. This last aspect is key — you are part of a dedicated group of people there to learn and share the experience of learning and better each other in the process. And while that group shrinks a bit over the years, by the end, you have your own support group, and possibly a few colleagues for life, that got you there and take you further. That’s something you’ll never get from a MOOC.

And that’s why Universities still exist and need to continue to exist.

We Need BlockChain, But Not for the Reasons You Think.

The biggest use for blockchain right now is to support digital currency, namely bitcoin, and secure trade of that currency. And since it has the potential to revolutionize e-payments, everyone is talking about it. But let’s face it, your employees don’t take bitcoin, your suppliers probably don’t take bitcoin, and your customers aren’t paying in bitcoin. Most of your employees want direct debit, your contractors want checks, and your suppliers probably want ACH. Bitcoin and blockchain is the furthest thing from their minds and, thus, is the furthest thing from yours.

But there is one use for block chain, and that is, simply put, the secure transfer of IOUs. What do we mean by this? About a year ago we penned a post that asked With Currencies Crazy, Is It Time to Return to Barter. In this post we asked what if there was no exchange of currency. What if it was an exchange of a raw material or service for another raw material or service, where each raw material or service came from the organization or a partner in the same country. Since the value of a product or service, adjusted for inflation, is relatively constant over time and since the relative value of one versus another is also relatively constant over time, such a contract would not be subject to rapid changes in value differences regardless of what happened in the currency markets.

Now imagine if instead of trading raw materials, you could trade IOUs and send them up and down supply chain until all of the differences could be settled within a country. You wouldn’t need to exchange raw materials with a company you might not want to, and, more importantly you definitely wouldn’t need to deal in non-native currencies. You could just settle those IOUs with in-country in-currency bank transfers, clear out the IOUs, and all would be settled.

Up until now, there has been no way to securely trade those IOUs. You had to trade payments in banks. But now, with the advent of blockchain, you can trade those IOUs simply by creating an IOU cryptocurrency specifically for keeping track of all the barters. And, if you’re not sure how to optimize the trading of IOUs, we gave you a great idea on how to do that in our post on With Currencies Crazy, Is It Time to Return to Barter — you build a special, shared, supply chain optimization model that allows all participating entries to upload their data and opt-in to in-currency barter optimization and then trade the IOUs through the new cryptocurrency and only the final imbalances in each country need to be paid. It’s the future …

Is WalMart Going to Force Logistics Scheduling Optimization Mainstream?

Recently, Spend Matters pointed out that Retail Mega-Giant Wal-Mart is stepping up its pressure on suppliers to get fulfillment perfect or pay a fine. According to Bloomberg, the goal is to add 1 Billion to revenue by improving (desired) product availability at stores (as the average stock-out rate of 8% costs a mega-retailer like Wal-Mart an awful lot of money).

But it’s not just stock-outs costing Walmart money. It’s deliveries that don’t happen when they are expected to happen. If a delivery arrives late, then warehouse workers have to stay overtime to get the truck unloaded, and that costs Walmart at least time and a half for every hour the workers have to stay late (plus any hours they had to be paid to wait around, probably doing nothing, for the delivery). If a delivery arrives (a day) early, then regularly scheduled deliveries have to be pushed ahead, possibly contributing to overtime and payment for empty hours (when workers show up for their shift and there is no work to be done for two hours).

And if trucks are waiting in winter, the drivers are not only being paid to sit to wait, but are probably also idling their trucks to keep warm, burning fuel, bumping up costs. So, the supplier is paying more to deliver, and passing that cost onto Walmart. When you think of how many early and late deliveries a mega-retailer like Wal-Mart must get, and you add up all the OT costs, empty hour costs for warehouse workers and drivers, and additional fuel costs, that costs a lot of money even before you take in the potential losses from stock-outs.

Bravo for Wal-Mart for trying to force more perfection into the supply chain and eliminate the considerable losses that come from imperfect orders. But how will the average supplier and/or carrier comply? Logistics scheduling can be a nightmare and be way too much for the average scheduler, or spreadsheet to handle. But as we’ve indicated before, not too much for an appropriately defined optimization solution. It’s about time optimization got more respect, even if it starts with scheduling.

And while optimization needs to be more universally applied, once a supplier or carrier gets comfortable with scheduling optimization, they’ll get more comfortable with optimization in general and move onto the adoption of decision optimization for logistics, and that’s just one step away from the application of decision optimization to high value / strategic events. And that’s, hopefully, only one step away from the universal application of optimization across all sourcing events.

So while this isn’t the most critical application of optimization for an average organization, it’s a great start and bravo to Wal-Mart for forcing suppliers and carriers to perform better in a manner that should force the eventual adoption of optimization.

And if you don’t like it, get over it. And if you don’t like Wal-Mart, remember, their dominance is all your fault.