Category Archives: Marketplaces

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.

Important Things to Consider in a Merger and Acquisition

When doing a M&A, many companies over focus on the balance sheets, and the potential balance sheet that could result from the merger/acquisition. For example, if the company being acquired has a product that could be sold to a large percentage of the current customer base at a pretty penny, if the customer base of the company being merged with would be very likely to acquire the current company’s product, if the combined offering would appeal to a large new customer base, and if the merger could take a considerable amount off of overhead (through facility, asset, and resource rationalization), a merger or acquisition is often give a thumbs up even if the M&A could be toxic. How so? Let’s discuss.

Culture. As pointed out in last Friday’s post on how Fraggles and Doozers Require a Delicate Balance to Co-Exist, if the cultures are opposite and the relationship not delicately balanced then one, or both, sides of the relationship are going to suffer. Badly. And despite one’s belief to the contrary, you can’t always Dance Your Cares Away.

Process. How do the two companies accomplish their daily operations? How defined and rigid are their processes and how much do they overlap? If one company has a practice of just handing out “suggested” budgets and buying what they want and another has a minimum two level approval just to buy a stapler (crazy, eh)? Trying to instill a heavy process-driven no-maverick culture on what has essentially been a wild, wild west is no easy feat, and might take longer, and cost significantly more, than one expects. Considerably.

Data. The number crunching M&A advisors continually underestimate the difficulty of doing systems integration. It doesn’t matter if all of the systems have file export capability, APIs, or even interfaces to third party connective middleware — it’s difficult. Why? In the majority of organizations, data is dirty. Very dirty — full of spelling and classification errors (including SKU/categorization, document ID, timestamp, etc.), duplicates, holes (key fields missing), and so on. And in order to integrate, harmonize, and normalize (down to a minimum number of) systems, the data has to harmonized and normalized so that it can be matched one to one (on common suppliers, products, locations, etc.). This is a significant data cleaning effort, that, in large organizations, can often take months, or even years, due to the huge volumes of data that have built up. The Finance geeks will usually take the word of a high priced consulting firm that will promise their ability to do the project in X months for Y dollars, but then realize when they dig in deep it will at least 3 times as long. This is a huge cost and a considerable delay to expected efficiency gains.

Platform. If the M&A is between two software companies, the purpose is usually to acquire a (semi-)complementary software technology that, when integrated, will provide the combined customer base with a bigger, more valuable (and to the combined company, more profitable) offering — but that’s not always as easy as both parties might expect. Generally speaking, software companies that create software for a living believe “it’s all just code, and we’re good at code, so integration will be no problem”, but that’s not always the case. If the two products are on (completely) different stacks; if one product requires a deep knowledge of complex mathematics, modelling, or data science and the other is just implementing a simple business process without a lot of complicated logic; or if one product requires deep domain expertise (such as insurance pricing in a complex regulatory market, aircraft engine reliability testing, etc.) and the other requires nothing more than a knowledge of modern UI elements, that is definitely not the case. And if the acquiring company is the one whose developers have never coded anything that requires deep mathematics or domain knowledge and the acquired company’s code requires world-class expertise to build, this is generally not an integration that’s going to go smooth, if it happens at all.

In other words, a successful M&A is not all about the numbers — it’s about the synergy, which usually has nothing to do with the numbers at all (but which will typically push the numbers up as soon as the two companies truly become one).

Just What Is A Next Generation Supplier Network?

Just about every vendor with a supplier network these days that is doing any development at all is claiming to have a next generation supplier network, but just what is a next generation supplier network?

To answer this, we first need to define what was a first generation supplier network. But this is easier said then done.

According to the procurement dynamo, in his post on how marketplaces transformed into next generation supplier networks that was posted earlier this year, last generation supplier networks were marketplaces. And that’s more less accurate.

By definition, a marketplace is where suppliers can list their wares, buyers can search and review wares of interest, and contact the supplier to place an order. And that’s pretty much what first generation networks, which weren’t that much more powerful than craigslist or e-Bay, could do.

But that doesn’t a network make. Once these “marketplaces” began to allow buyers and sellers to transmit electronic documents, manage their offerings on a public and private basis (for current customers), and securely collaborate they became networks. And this is all many networks do.

So what is a next generation supplier network? According to the procurement dynamo, first and foremost a supplier network is a collaboration framework where both parties exchange business information in order to perform better together. And the doctor agrees. But any secure messaging portal fits this description, so we need to elaborate.

Secondly, a next generation supplier network is one that allows for seamless e-document exchange in EDI, XML, and other standard, accepted, and (government and regulatory body) approved e-format between buyer and supplier supply management systems. It must provide an open API for integration into these systems because if a buyer or supplier has to log in to send or receive a document, it’s first generation.

Thirdly, a next generation supplier network is one that allows suppliers to manage public and private catalogs, with multiple price tiers on the private side, to allow potential customers to find and browse their ways, and current customers to buy, buy, buy. Similarly, it allows buyers to announce tenders, define their typical needs, and be discovered by suppliers they might miss in their searches.

And fourthly, and this is the biggie, a next generation supplier network must support the development of custom apps that allow a supplier to access a supplier portal or capability on a buyer’s platform (to do VMI, for example) or a buyer to access a buyer portal or capability on the supplier’s (sales) platform to access shipment and status information or query factory stock levels. It must not only be the “glue” that allows people to connect, but processes and platforms to connect as well. We’re not really seeing much of this yet, but this will truly distinguish a next generation platform from a current generation one.

Cap Gemini IBX – Closing the Loop on Source to Pay

Cap Gemini is a one of the world’s largest multi-national consulting companies headquartered in Paris, France that focusses on management, outsourcing, and technology-based consulting and specializes in strategy, digital transformation, finance, marketing, IT strategy, solutions design, big data / analytics, and supply chain management consulting. Of course, we are primarily interested in the latter and, in particular, any technology underpinnings.

As part of their technology underpinnings, Cap Gemini has three primary offerings. Spend Analysis, powered by Spend Radar; Procurement Intelligence, powered by Microsoft’s Strategy Companion; and the IBX Business Network that implements their Source-to-Pay platform with e-Sourcing, e-Procurement, and supplier (portal) support. This is what we’re going to cover briefly in this post.

The solution is a seamlessly integrated Source to Pay Solution with a global supplier network, where suppliers can self-register, manage their customer interactions through a portal with a single integrated view, and even manage their invoices that originate outside of the IBX platform (which is a unique capability that will be discussed later on). If you consider the classic Sourcing and Procurement lifecycle, first diagramed by the doctor on SI back in the doctor wants to remind you it’s Sourcing and Procurement, a good S2P solution needs a lot of capability, especially if you want to capture low-volume purchases and spot-buys (and, in particular, catalog management needs to underlie the requisition through the approval process). The IBX platform contains, to some degree, almost everything indicated in this diagram (with the exception of true strategic sourcing decision optimization, which we know is currently limited to the six samurai) plus a lot of cool supplier network, catalog management, and spot-buy features, including a few that you will not find in any other (best-of-breed) platform on the planet.

In this post, we’re going to focus on spot-buy and the invoice management dashboard, as they are the most unique offerings in the platform. The new spot-buy functionality allows a requisitioner to create a requisition for anything they need, fill out as much information as possible (including expected pricing), suggest one or more suppliers on the network, and route it to Sourcing for identification of the proper products and/or services. A (senior) buyer in Sourcing will validate the request, choose the appropriate sourcing process (RFX, auction, third-party catalog offering), make a selection, and return it to the buyer for final acceptance and submission, at which time it will be routed to the appropriate approvers. Note that we say Sourcing, not a buyer, as it contains rule-based workflow management that allow it to be routed to the buyer with the proper authority with the smallest workload to minimize processing time.

The new invoice management dashboard, designed for the supplier, allows a supplier to sign in and see on one screen the status of every invoice sent to every customer on, and off, of the IBX network as well as drill in and get as much related information as there is for IBX platform invoices (including, but not limited to, conversations, buyer requested corrections, goods receipts, purchase orders, etc.). The system supports uploads from standard AP and ERP systems for suppliers to get this information in the system. Being able to log into one portal and service all their IBX customers through one login and one interface is great, but being able to manage all of their invoices, which is something that is always top of mind for a supplier, is even better still.

There’s a lot of other cool and powerful features in the IBX system, and they are covered in detail in the recent piece by the doctor and the prophet over on Spend Matters Pro (Part 1 of 2, membership required) which gives one of the most in-depth and balanced reviews of the system that you are going to find anywhere.

Geopolitical Damnation 25: Government Actions

We already know governments can be a daily source of damnation, and even though we’ve directly or indirectly addressed some of these damnations in our coverage of Waste Legislation (15), Customs Acts (28), Trade Embargoes (29), TPP & the Poison Pill (30), Tariffs (34), Labeling (36), and, especially in Consumer Damnation 71 Government, we’re going to discuss governmental actions again because, from a geopolitical perspective (as opposed to the environmental, consumer, and regulatory perspectives where the government has already received a significant amount of coverage in our damnation series to date), there is still so much more that they can do to make your job living hell.

Here are just a few of the damnations they can create that will cause you never ending nightmares.

Budget Freeze

If a budget can’t be agreed upon by a deadline, or a budget is exceeded and an overspend is not approved, until such time as the budget, or overrun, is approved, any an all payments owed to your company are on-hold. If you desperately need that cash for daily operating expenses for the big order you just delivered before the freeze, tough luck. Let’s hope you can get invoice financing or a bank loan when an expected payment date is unknown. But this is not as bad as a

State of Emergency

In a State of Emergency, you may be forced to supply goods or services to the government and/or consumers at pre-approved rates, even if such rates could net you a loss due to increased production or delivery costs in the state of emergency, and even if such goods were earmarked for sale to another customer in another locale willing to pay a premium rate. Even worse, you could be forced to deliver those goods when there is a budget freeze on, which not only prevents the organization from being paid for an unknown amount of time (and a restricted cash-flow severely hampers Procurement when the organization cannot pay its suppliers), but also clears it of inventory. Then, as we all know, there is no sale, no store.

New Legislation Outlawing Your Product or Service

As makers of betting and lottery technology, radar detection units, and even video game consoles know all too well, a single incident of consumer outrage or, even worse, the single minded focus of an effect lobbyist or lawmaker can result in your primary product becoming illegal almost overnight. Then the organization can be stuck with a glut of inventory, ironclad contracts (with huge penalty clauses), and, sometimes, no (obvious) way to get the product to where it might still be legal to sell the product in a secondary market. But yet Procurement will be expected to save the day and get the contracts nullified in exchange for new contracts for other, still legal, products, get rid of the inventory, and manage the paperwork hell that will ensue.

Criminal Charges against your Organization and/or Executives

Even if your organization unwittingly broke the law as a consequence of a rogue employee who broke the rules (despite training and policies in place to prevent it), a contractor, or a supplier that you couldn’t monitor as closely as you’d like, your organization could still be the organization brought up on charges. If an authorized party, acting in the interest of your business, makes a bribe, conducts business with a terrorist (organization), or purchases from a supplier that uses forced labour, you’re on the hook. And since Procurement is ultimately held responsible for policies and purchases, the heat will be coming down hard on Procurement.

There are, of course, a dozen more areas where government actions can pile on the damnation, but as these are among the nastiest that have not yet been covered in this series, we feel we’ve made our point. Enjoy the heat. (On the bright side, at least you’re not freezing in the cold northern winter.)