It seems that the fashionable thing to do these days if you’re a Supply Management technology provider is to build a “Quick Start” platform and promote a rapid initial implementation, and the “obvious” rapid ROI that will result. Coupa, Rosslyn Analytics, and Aravo, among others, have all been making noise about their new SaaS platforms that allow for rapid results. And while each platform will give you rapid results if you listen to their advice and apply it properly, I’m starting to worry if this is the right thing to do.
Just like a narrow focus on “cost savings” can actually result in overspending and financial devastation if taken to the extremes, a narrow focus on quick wins can also cause you to miss the big picture, and the incredible savings opportunities that can result from good long term planning and cost control policies. A focus on short-term wins usually focusses on overspending recovery (which is good, but doesn’t solve the fundamental problems that led to the overspending), re-sourcing or re-negotiating high-spend categories (which may or may not have high savings opportunities), auctioning commodities (with little oversight), and “automating” processes (which is good if you take the time to redesign the processes first, which most companies don’t). And while all of these activities are good, because they always result in some cost reductions, there’s only so much low-hanging fruit on the spending tree and once it’s gone, if you don’t have a plan for reaching the bigger fruit in the higher branches, your new cost reduction program will finish as soon as it starts.
This is not to say that the companies I mentioned don’t have the tools and techniques to help you reach the fruit in the higher branches (after all, I’ve reviewed them all in the past and noted many positive aspects of each platform), but that you will have to take the time to build the ladder to get there. You’ll have to carefully research high-spend categories and build should-cost models to see which ones offer opportunities for immediate cost reductions, and which ones you’ll need to spend time working with engineering to come up with new product designs or delivery models to enable real cost reductions. You’ll have to move beyond auctions to decision optimization to tackle custom manufacturing categories where you have to consider dozens of costs which could include unit, shipping, storage, production, tariffs, taxes, currency exchange, hedge, utilization, and other costs. You’ll have to move beyond pure spend data to understand why production costs are higher than you expect — are your production times lagging industry average?, is your equipment out of date?, is your plant too big or too small?, etc. And you’ll have to implement end-to-end sourcing and procurement technologies to do true m-way matches that match contracts to purchase orders to invoices to goods receipts to payments to make sure you’re only buying on contract at the contracted price and only paying for what is actually delivered. True, long-term cost and risk reduction is a marathon, not a one hundred meter dash. And just like a quick start can wear out a marathon runner and prevent him from finishing the race, an uncontrolled quick start can set unreasonably high expectations or deliver less than optimal results, which can kill support for your project before you reach the end of your journey, where the real cost reductions await.
