Category Archives: Market Intelligence

Procurement 2024 or Procurement’s Greatest Hits? McKinsey’s on the money, but … Part 1

… in some cases this is money you should have been on a decade ago!

Let’s backtrack. McKinsey ended Q1 by publishing a piece on Procurement 2024: The next ten CPO actions to meet today’s toughest challenges which had some great advice, but in some cases these were actions that your Procurement organization should have been taking five, if not ten years ago. And, if your organization was doing so in these cases, should be moving on to true next actions the article didn’t even address.

So, as you probably guessed, we’re going to discuss each one, give credit where credit is due (they are pretty good at strategy after all), and indicate where they missed a bit and tell you what to do next if you are already doing the actions you should have been doing years ago. And, just like we did to THE PROPHET‘s predictions, grade them. In this first installment, we’ll tackle the first three actions, which they group under the heading of:

End-to-End Value Capture

1. Utilize New Frontier Analytics and AI. B

Even though you should have been doing this since the introduction of spend analysis over 20 years ago, the recommendation to employ advanced analytics to extract valuable insights from procurement data is definitely A+ because analytics gets better every year, knowledge of which analytics to apply to a vertical and category gets better every year, and the constant increases in computing power makes it an increasingly powerful tool at your disposal.

However, the “AI” part is a B- at best. Using predictive analytics for commodity and market forecasting, risk prediction, and performance optimization is good, but AI can’t predict talent and you definitely should NOT use a Gen-AI bot to develop strategic decisions! Remember Gen stands for Generative which is defined as “make sh!t up” and there is a strong likelihood that it will hallucinate and the hallucination will sound more reliable than the non-hallucinatory recommendation it gives in very similar situations. Properly used, traditional, predictable, and, most importantly, deterministic (or at least verifiable) techniques can provide great value … but new, generative, unproven AI technology (which could have embedded sleeper behaviour) is NOT the answer.

2. Create a Request for Proposal (RFP) Engine. B

The article notes that you should develop … an approach for prioritizing categories and suppliers based on market development, spend analysis, and supplier leverage. This is something you should have been doing since the day you first implemented a strategic sourcing program. And you definitely should have been prioritizing spending with the highest potential to drive value for the organization, while deprioritizing categories or suppliers where value will be more challenging to obtain. In 2024 what you should be doing as part of this RFP engine is prioritizing categories and suppliers based on potential return from the strategic effort at this time (not potential for future value, potential for immediate value to meet the organization’s #1 priority of cost control) and then shifting all of the other categories to semi-automated sourcing events most likely to generate the best return. (i.e. well designed events, not an event for every request, you don’t want the squirrels thinking you are nuts)

The organization should have a platform that supports multi-round RFX-based events and multiple templates, reverse auctions (of various types), and the intermixing thereof. It should also support supplier onboarding, API-based verification with third parties, business/insurance/certification verification where possible, and so on. A buyer should be able to select a template for a single or multi-round event, define a timeframe, define a volume, click go, and the platform should automate an entire sourcing event until it’s time to verify an award (as the the platform should also recommend the award based on the bids and RFP responses). That’s the key to cost control — everything is sourced, but the effort made is relative to the potential return on that effort. Small return potential, semi-automate everything using the right technologies and processes. Large return, put in full manual effort in to maximize the value.

3. Redesign Value Creation with Key Suppliers. A

While this is something that needs to be done on a regular basis, given that rapid inflation is back, logistics is still unstable (we went from COVID to disruptions in the red sea at the same time as Panamanian droughts, forcing a return to long, dangerous, ocean routes around the capes), consumer demand is down, relations with China are deteriorating, and so on. Furthermore, not only is cost control paramount, so is value creation to increase not only value capture, but to also maintain, and maybe even slightly increase, consumer share in a down economy.

Come back for Part 2!

Solution Smash-Up! PROPHETic Vision or Magic 8-Ball!

A few weeks ago, THE PROPHET, who noted he was often asked about which disparate providers and/or solutions might work well together (as part of his strategy and M&A work), said that the answer(s) always depend on hard dollars and common sense in a recent article on LinkedIn.

He noted that there were questions that could be asked to help make the determination between any two specific providers and/or solutions, which included:

  • From a TAM perspective, will it increase the TAM beyond 1+2=2?
  • Does it add additional ideal customer profiles or elevate the solutions to the C-Suite?
  • Does it open up additional GTM strategies and channels?

… but also noted that you can go beyond just payments with AP (traditionally Treasury and Accounting), and provided five examples of solution smash-ups that were a bit more “radical”. In a nutshell, with only minor paraphrasing, these were:

1. Intake Management, “light” e-Pro, and GPO.

This makes perfect sense — there’s a reason intake pre-dates stand-alone intake solutions (Zycus launched iRequest back in 2015, almost nine years ago), and that’s because intake and e-Pro go well together; adding in the GPO allows the organization to take advantage of better prices for regular purchases and makes sense.

2. Contract Management and Price Compliance.

The whole point of contracts is to lock in commitments, which are useless if not realized. Integrating contract management into a price monitoring solution, be it part of e-Pro or AP or payments, is a great choice.

3. Third-Party Risk and Working Capital Management.

Before a cash outlay, or an agreement thereto, it’s a good idea to understand the risk.

4. Spend Analytics and BOM/Part-Level Management.

Well, this already exists in some specialists — mainly in electronics (think Levadata and SupplyFrame), but other players are popping up in other verticals as well. (Sievo and Scalue do a great job of doing direct material or part analysis; and Scalue’s material categorization is great for direct management.)

5. Solve Supplier Supervison Sheol

A few companies are starting to make good progress here on “on-boarding, 3PRM, cyber, GRC, and ESG in one place”. Think Brooklyn Solutions, for example.

So, 3 for 5 on new ideas for solution smash up.

The real question is, what solutions could we smash-up that that, on an initial analysis, shouldn’t increase the TAM, elevate the sale, or open up obvious new GTM solutions … because that’s the smash-up no one will see coming, that we won’t see twenty new entrants next year (where ten will ultimately fail), and that will create the new unicorn. And for this, we’ll need to extend Source-to-Play further into the enterprise.

Here are three smash-ups that might seem strange on the surface, but if look deep, and innovate, you can see how they might just be one of the next break-out solutions.

A. Payroll, Benefits, CLM, SOW, and Sourcing Optimization

Manage all people-related spend in one application to balance employees vs. contractors vs. services firms to balance cost vs. risk (of knowledge walking out the door, resources not being available, etc.)

B. WIMS, Distributor Marketplace, and central e-Procurement Catalog

Optimize not only inventory balance between the local office/warehouse/retail outlet, central warehouse, and distributors and guide the buyer to the right inventory at the right time, auto-replenishing as needed.

C. MRP, Assembly Line Control, Quality Control, and Order Management

Continuously monitor materials coming in, used, defect rate, and intelligently re-order against an existing contract as needed.

Of course, if you want to be the next magical unicorn, you’ll have to get even more radical. Anyone have an idea for a solution smashup that makes almost no sense on the surface but, if you get radical, could revolutionize the space? (If so, and you need a prescription to help flesh it out, you know who to call.)

Dear Fellow Analysts: It’s Time to Step Up And Deal with the PROCUREMENT STINK!

Because if we don’t, no one else will!

What am I talking about?

As per last Wednesday’s article, PROCUREMENT STINKS and we just can’t deny it anymore. In a nutshell, and this is just the tip of the garbage heap:

  1. Case studies are ranker than expired fish in a microwave on high.
  2. Approximately 85% of companies are AI-washing everything.
  3. The Gen-AI claims that it will deliver Procurement to the enterprise are FALSE.
  4. Intake/Orchestration is totally useless on its own.
  5. Consultancies are often more in the dark than the Procurement departments they are claiming they can help.
  6. DEI is being misused to push agendas and sometimes to Do Extra-legal Initiatives,

But this isn’t even the worst of it!

THE REVELATOR recently conducted a poll on who do you trust, and the results were more than a little disturbing as far as I am concerned.

 

That’s right. Only 50% of practitioners trust analysts to help them make the right decision when selecting technology. 36% would rather a consultant, who likely has a very strong incentive to either recommend a preferred partner solution (where they are guaranteed to get the implementation contract) or the solution that requires the most implementation effort (to add months, or years, to the engagement), and, even worse, 14% would rather trust a marketer or salesperson, who gets paid for leads or sales, not for solving a customer’s problem!

As far as the doctor is concerned, anything less than 75% is appalling. While he will happily admit there are some independent consultants at smaller firms without vendor partnerships who will be truly objective and will offer valuable advice, this is not the norm at most of the larger firms that are preferred partners or implementation providers for the bigger players in our space (where the majority of consultants reside), so the fact that the consultant trust is so high is a little off-putting. However, he’s simply aghast at the fact that 14% would rather trust a salesperson or a marketer for solution advice. Frankly, this means we are definitely failing the market.

Basically, if we can’t be the unbiased experts and independent voices of reason that the Procurement practitioners can always trust for good, unbiased, advice, then what good are we?

So what can we do to regain the trust? the doctor is sad to say he’s not exactly sure and hopes that

  • some other analysts will echo the call to action to deal with the PROCUREMENT STINK,
  • analysts will collectively take the lead in cleaning it up and restoring our reputation, and
  • offer up suggestions on what we can do to make it better!

Now, while the doctor doesn’t have all the answers, he does have suggestions on where we can start.

1. Be fully transparent on whom we do and don’t include in maps and logo charts, why, and the business situation in which our recommendations are, and are not, relevant.

This is quite obvious, and most of us are getting pretty good at being very explicit about the inclusion requirements for our maps and studies, but we don’t always take the time to clarify what this means for the market and, more specifically, which types of organizations the reports and maps are targeted at, which types of organizations will get the most value, and, most importantly, which types of organizations are unlikely to get any value because they don’t fall in the size/verticals/etc. the map or report is targeting. As far as the doctoris concerned, now more than ever we need to double down and get it right on both sides of the equation — who is being included, and why AND who should, and should not, be reading the report, and why, when we release something to the market. (Like the doctor did with his mega map.)

2. Stop glamourizing hype cycles and start busting them when there is no perceivable value to Procurement.

Procurement is supposed to be about solutions that deliver enterprise value, not cool technology. Leave that to the Consumer Electronics Show. When we promote tech for the sake of tech, we’re not helping anyone. We need to promote solutions to business problems with measurable ROI, regardless of what the underlying technology is. It’s irrelevant how many vendors embrace Gen-AI, when it has yet to demonstrate even a single use case that offers value beyond traditional tech, and the majority have failed to deliver any value.

3. Stop taking our cues from vendors as to where the space is going and start leading vendors to where the space should be going.

For example, intake-to-orchestrate is the craze, vendors are popping up faster than rabbits in a carrot field, and it’s likely only a matter of time before we see a map covering the intake-to-orchestrate space. (Especially since the doctor has been led to understand that one major analyst firm is already considering such a map, and where one leads, others will follow.)

However, in the doctor‘s view, this SHOULD NOT happen. Because, as stated above, and explained in detail in our article on why PROCUREMENT STINKS, there is NO VALUE in intake/orchestrate on its own. NONE. Intake is nothing more than pay-per-view on your data and orchestrate is just pure SaaS-based middleware, and middleware is something we’ve had for decades (and the need for such is negated completely if all the applications you use have complete, open, APIs as they can then be connected directly). The only value in these offerings would be in any additional functionality they embed to enhance the value of the applications they are linking together so that 1+1=3.

It would be understandable if they all embedded additional functionality that was comparable, valuable on its own, and formed a new application category that made sense to evaluate separately. However, right now, many don’t embed sufficient functionality; those that do are, for the most part, not comparable (as they all tend to specialize in something different, such as easy self-serve Procurement, services management, statements of work, etc.); and there has been no application thereof that wasn’t designed to enhance, or, most of the time, just make existing applications accessible. A standalone map would be senseless. (Instead, the intake and orchestrate requirements that are necessary for success should be included in the definition, and measurement of, Procurement, Sourcing, Supplier Management and other existing applications that can deliver enterprise value.)

3b. Start calling vendors out on bullsh!t when they start chasing, or putting, cool tech before practical solutions with actual ROI.

Privately at first (of course), unless the vendor insists on marketing it through a bullhorn. Then we may have no choice but to publicly call them out on it. Vendors may not like it, and may get upset when we burst their tech-centric bubble, but we’re not helping anyone when we don’t. Not us, not the procurement professionals we claim to support, and definitely not the vendors if we don’t try to dissuade them from throwing good money after bad on tech that won’t solve actual problems and ultimately won’t sell once their potential clients see the lack of value that comes with the price tag. This space has always been about ROI, we need to remind vendors of that, and guide them to where the ROI is just as we guide the practitioners. We need to be helpful to both sides to mature the space.

the doctor‘s not sure it’s enough, but it’s a start, and if other analysts make an effort to figure out how to restore our reputation, maybe we’ll find the answer, provide the unparalleled value that only we can provide, and get back the trust we should have.

Thoughts?

Why Do Outsourcing and AI Go So Wrong?

In a recent post on how We Need to Hasten Onshoring and Nearshoring, Jon The Revelator was inspired to ask the following question:

even though outsourcing and AI have merit when properly implemented, why do things go so wrong?

This was after noting, in another post, that we have suffered year-by-year, decade-by-decade disappointment when 80% (and even higher) of initiatives fail to achieve the expected outcome.

Because in both cases [and this assumes the case where the organization is implementing real, classic, traditional AI for a tried-and-true use case and not modern Gen(erative) A(rtificial) I(diocy)], things have gone wrong, and sometimes terribly wrong, on a regular basis.

So, the doctor answered.

Fundamentally, there are two reasons that things consistently go wrong.

The first reason is the same reason things go so wrong when you put an accountant in charge of a major aerospace company or a lawyer in charge of a major hobby gaming company (when the first has zero understanding of aerospace engineering and the second of what games are and what fans want from them).

Like the accountant and the lawyer, they don’t understand their organizational and stakeholder/user needs!

The second major reason is that they don’t understand what these “solutions” actually do and how to properly qualify, select, and implement them. And, most importantly, what to realistically expect from them … and when.

A GPO is not a GPO is not a GPO — these Group Purchasing Organizations specialize by industry and region; and in making an impact by category and usage. They are not everything for everyone.

AI is not AI is not AI (unless it’s all Gen-AI, then it’s all bullcr@p). Until Gen-AI, the doctor was promoting ALL Advanced Sourcing Tech, including properly designed, implemented, and tested AI, because the right AI was as close to a miracle as you’ll get. (And the wrong AI will bankrupt you.) Now, any AI post 2020 is suspect to the nth degree.

Simply stated, the failures are because they all think they can press the big red easy button and throw it over the wall. But you can’t manage what you don’t understand! And until the world remembers this, these failures will continue to happen on a consistent basis.

And, as organizations continue to press that Gen-AI powered “easy” button while outsourcing more and more of their critical operations, expect to see a resurgence of the big supply chain disasters, like the ones we saw in the 90s and the 00s (including the ones which wiped out Billion $ companies). Hard to believe that only nine years ago the doctor was worried about companies relying on outdated ERPs ending up in the supply chain disaster record books, given how many of the disasters were the result of a big-bang ERP implementation. However, the risks associated with Gen-AI makes ERP risks look like training wheel risks!

As a result, it’s more critical that you select the right provider and / or the right solution if you want a decent chance of success. (The worst part of all this is that while there have been spectacular failures, most of the failures were not the result of selecting a bad provider or a bad solution, but the result of selecting the wrong provider or the wrong solution for you. (Remember, provider sales people are not incentivized to qualify clients for appropriateness, they are incentivized to sell. It’s your job to qualify them for you. In other words, even though there are bad providers and bad solutions out there, they are considerably fewer than there were in the days when Silicon Snake Oil was all the rage.) In the majority of failures, primarily those that weren’t spectacular failures, the providers were good providers with good people, but when the solution they offer is a square peg for your smaller round hole, what should be expected?

THERE ARE NO PROCUREMENT SECRETS!

And it sucks that reporters don’t know better!

This headline, repeated across over a dozen sites this week, really annoyed me:

German ex-officer convicted of handing procurement secrets to Russia

He may have handed secrets to Russia, but there were NOT Procurement secrets!

When it comes to Procurement, overall, your competitors, and their Procurement personnel, don’t know any more than you do. They don’t have access to any more information than you have access to. They don’t have secret technology. The only differences are:

  • their investment in the Procurement function
  • their willingness to learn
  • their willingness to acquire, implement, and use new Procurement technology

… but NONE of that is “secret”, and certainly not “state secret”.

(And if you still believe there are secrets, then the doctor will sell you some, starting at only $1,999 USD per secret! Bundle discounts available. Simply e-mai us (using the contact information in the FAQ) with a brief message stating how many secrets you would like, and he’ll send you a secret sharing non disclosure agreement and payment instructions.)

Yes, the officer worked in the Procurement office, and, as a result, had access to secret information as, outside of Engineering, Legal, the C-Suite, etc. the ONLY Department who has full access to corporate/state secrets is Procurement (as they need the specs), and it’s the ONLY department outside of the C-Suite that has access to organization-wide secrets.

So, yes, this practitioner had access to secrets and yes he could have handed them over to Russia, but they weren’t Procurement secrets — they were state secrets in internal documents he just happened to have access to as a result of his role.