Category Archives: Process Transformation

The Sourcing Innovation Source-to-Pay+ Mega Map!

Now slightly less useless than every other logo map that clogs your feeds!

1. Every vendor verified to still be operating as of 4 days ago!
Compare that to the maps that often have vendors / solutions that haven’t been in business / operating as a standalone entity in months on the day of release! (Or “best-of” lists that sometimes have vendors that haven’t existed in 4 years! the doctor has seen both — this year!)

2. Every vendor logo is clickable!
the doctor doesn’t know about you, but he finds it incredibly useless when all you get is a strange symbol with no explanation or a font so small that you would need an electron microscope to read it. So, to fix that, every logo is clickable so you can go to the site and at least figure out who the vendor is.

3. Every vendor is mapped to the closest standard category/categories!
Furthermore, every category has the standard definitions used by Sourcing Innovation and Spend Matters!
the doctor can’t make sense of random categories like “specialists” or “collaborative” or “innovative“, despises when maps follow this new age analyst/consultancy award trend and give you labels you just can’t use, and gets red in the face when two very distinct categories (like e-Sourcing and Marketplaces or Expenses and AP are merged into one). Now, the doctor will also readily admit that this means that not all vendors in a category are necessarily comparable on an apples-to-apples basis, but that was never the case anyway as most solutions in a category break down into subcategories and, for example, in Supplier Management (SXM) alone, you have a CORNED QUIP mash of solutions that could be focused on just a small subset of the (at least) ten different (primary) capabilities. (See the link on the sidebar that takes you to a post that indexes 90+ Supplier Management vendors across 10 key capabilities.)

Secure Download the PDF!  (or, use HTTP) [HTML]
(5.3M; Note that the Free Adobe Reader might choke on it; Preview on Mac or a Pro PDF application on Windows will work just fine)

You Need a Plan to Mitigate Supply Chain Risks. But You Also Need a Platform.

A recent article over on Supply & Demand Chain Executive on Navigating a Supply Chain Management Toolkit noted that with a plan in place, organizations can quickly respond to any changes and help mitigate any supply chain risks.

Which is true, but how much of the risk they can mitigate is the question.

The article, which is very good and definitely worth reading (so check out the link), noted that problems arose as a result of COVID and disruptions since because many organizations use just-in-time inventory management (which we’ve already noted should have ended by now along with seasonality). The article also noted that the problems were often exacerbated by the fact that order processes were often not documented effectively and, in general, most organizations don’t spend the time and resources to really manage their supply chain. All of this is correct, as is the observation that these challenges can be alleviated with wholly embracing the tried-and-true methods for effective supply chain management because effective processes, measurements and accountability are … key to a supply chain that works for an organization.

But, on their own, not the key. Today, you also need a platform that enables the organization to:

  • quickly detect a risk event has occurred
  • quickly analyze the impact
  • quickly initiate any pre-defined mitigation plan
  • quickly implement new decisions and processes where the mitigation plan isn’t sufficient and doesn’t exist
  • monitor the impact of the risk event and the response in near real time

Otherwise, your process could be too slow, your measurements inaccessible and/or unrecorded, and your accountability (under audit) non existent.

For example, the article indicates you should start by getting a better grip on inventory management (which is correct, no product, no business for most companies), and that involves a self-assessment, forecast accuracy review, and inventory segmentation. All correct. But that doesn’t help you when all of a sudden there’s a fire in the factory, a strike at the port, or a strait/border closing. What do you do then?

It also tells you that you should focus on better supplier relations, which is also extremely important, and focus on vetting suppliers before you onboard them and then measuring them and computing the total cost of ownership of keeping them, which is also very important as suppliers should improve over time and costs should not inch up faster than inflation. It also mentions the importance of proper strategic sourcing (matrices) to get the right products from the right suppliers. Another definite. But fails to tell you what you do when all of a sudden a key supplier can’t deliver or becomes unavailable.

The answer here is you use all of your good relationships and data to immediately identify the next best supplier. If you were splitting award, you try to shift to the other supplier (if they can handle the volume — if you were doing an 80/20 split and the 80% supplier suddenly became unavailable indefinitely, the 20% might not be able to support you, or at least not for very long, and you will have to add a new supplier to the mix. If you were doing proper sourcing, and proper supplier vetting before including them in an event, then you already have potential suppliers — the runners up from your last event. A good platform will let you immediately identify them and immediately start another sourcing event to onboard a new supplier as fast as possible.

If you have a good logistics (sourcing) platform, and your primary carrier / route becomes unavailable, you may be able to identify another carrier / route that will get you the products on time, or at least be able to accelerate an order from a secondary source of supply while you wait for the first source through a lengthier route.

The point is, while you need great processes, measurements (to indicate if something is taking too long, such as an order acknowledgement or a delivery, which can be a sign of a potential risk event materializing), and accountability (to show you made efforts to detect and mitigate risks in a reasonable time frame), you can’t measure, execute processes, or provide unquestionable audit trails of accountability without a proper platform. Never forget that. (And for help, you can see our Source-to-Pay series which helps you to identify where to start with your acquisitions and what vendors you might need to look at.)

And again, remember to read the article on Navigating a Supply Chain Management Toolkit as it will help you understand the basic processes you need to put in place.

A CPO Leading a Spend Management Strategy is a Key to Organizational Success

Not that long ago, the doctor gave you THE SIGN that you need a CPO which, directly put, was that your organizational spend was over 10 Million a year. No ifs, ands, or buts about it! Not long after, he found this article over on CXOtoday.com which pointed out that empowering business success was The Art of Mastering Spend Management. This article stated that companies should consider implementing a spend management strategy, regardless of their size and it made him happy (even though the article looks like it was written by a junior copy-editor* who just cut and paste standard spend management summary sentences from generic spend management publications as it was not very deep or specific) because CXOs need to hear this at a high level over and over and over again until they get it. (Note that the doctor doesn’t get happy often. Most articles just make him angry. Sometimes very angry, especially when the conscientious invoke their right to dare to be stupid and embrace artificial idiocy, but that’s a rant for another day.)

The article starts off by clearly stating that a spend management strategy plays a vital role in today’s economic reality as it enables companies to control costs, boost financial efficiency, and make informed decisions. It ensures resource optimization, agility, and long-term stability, enhancing competitiveness and adaptability in a rapidly changing business landscape.

This is most certainly true. And all one has to do to see that it is true, and it would have been so much better if the article said this, is remember the first formula they teach you in business school:
Profit = Revenue – Expense

Since Spend Management allows you to minimize expenses, this helps you maximize profit. And when you consider that
Margin = Sale Price – COGS      and that
Margin % = (Sale Price – COGS) / Sale Price      and that
Margin % for most industries <= 10%

This says that every $1 saved in expense generates at least as much profit as every $10 increase in sales. As a result, spend management is at least ten times as effective as sales or marketing and key to get a grip on early, even before you can afford the full time CPO. The CFO and COO should develop best practices for any decisions that result in spending, monitor the decisions, ensure corrections are made (and employees [re-]trained) when mistakes are made, and baselines generated for all recurring costs. Even though they might not realize the same level of success as an experienced and dedicated CPO, the baselines they generate and the knowledge they capture will be key when the CPO starts as the knowledge will allow them to dive in quickly and find near-term and mid-term opportunities for improvement (and cost reduction) and the benchmarks will allow them to not only prove it, but ensure that all bids received are competitive.

The only thing we want to note is that the important aspects of spend management, especially for smaller organizations, are:

  • strategy,
  • process (that implements the strategy), and
  • governance (that ensures the process is followed and the strategy implemented)

Technology is not critical (or even necessary), and only technology that supports the process (and collects the appropriate data) should be implemented.

This is important to note because this article is sponsored by a particular vendor in an effort to promote a particular product (which is only good for T&E spend, not all organizational spend) and you don’t necessarily need that technology (or any other instance of that technology) to have a spend management strategy and do proper spend management, especially if you are a smaller organization. (However, larger organizations do need good T&E spend management, and spend analysis, because flowers should not be $5,000 unless it’s a greenhouse.)

* but what should one expect considering it was sponsored by SAP to promote SAP Concur (and routed through their PR Agency)?

The Procurement People-Process-Technology Pain Cycle …

Recently on LinkedIn, someone asked the trick question of which came first: process or technology. The answer, of course, was people since, when Procurement, the world’s second oldest profession, started, it was just a buyer haggling with the seller for their wares. and this is how it was for a long (long) time (and in some societies was as far as “procurement” progressed), until shortly after a culture advanced to the point where people could form private businesses that were entities unto themselves. Once these entities started to grow, and multiple people were needed to do the same job, they realized they needed rules of operation to function, and these became the foundations for processes.

But when business buying began, there was typically no technology beyond the chair the employee sat in, the table they used to support the paper they wrote their processes and records on (and the drawers they stored the paper in), the quill and ink they used to write with, and the container that held the ink. And in many civilizations, it was like this for hundreds of (and sometimes over a thousand) years. The first real technological revolution that affected the back office was the telephone (invented in 1876, the first exchange came online in 1878, and it took almost 30 years for the number of telephones to top 1,000,000 (600K after 24 years, 2.2 million after 29 years). [And it took 59 years before the first transatlantic call took place.] The next invention to have a real impact on the back office was the modern fax machine and the ability to send accurate document copies over the telephone. Even though the history of the fax machine dates back to a 1843 patent, the modern fax machine, that used LDX [Long Distance Xerography], was invented in 1964, with the first commercial product that could transmit a letter sized document appearing on the market in 1966. Usage and availability was limited at first (as the receiver need to have a fax machine compatible with the sender), but with the 1980 ITU G3 Facsimile standard, fax quickly became as common as the telephone. But neither of these inventions are what we consider modern technology.

When we talk about “technology” in modern procurement, or modern business in general, we are usually talking about software or software-enabled technology. This, for some businesses, only became common place about 30 years ago (since most businesses could only afford PCs, and even though they were invented in the 1970s, it was the 80s before they were generally available commercially, and the 90s before most smaller businesses could afford them [for the average employee]), and only commonplace in the largest of businesses 50 years ago. Once has to also remember that the first general purpose automatic digital computer built by IBM (in conjunction with Harvard) only appeared in 1944, and that IBMs first fully electronic data processing system didn’t appear until 1952, and, as a result, back office technology really only began in the fifties, and was only affordable by the largest of corporations. (Furthermore, even though he first MRPs were developed in the 1950s, the first general commercial MRP release wasn’t until 1964, and it took over a decade until the number of installations topped 1,000. [And MRP came before ERP.]) In other words, technology, beyond the telephone [and fax] did not really exist in the business back office until the MRP. And it wasn’t common until the introduction, and adoption, of the spreadsheet. The first spreadsheet was VisiCalc, on the Apple II, on 1979. This was followed by SuperCalc and Microsoft’s Multiplan on the CP/M platform in 1982 and then by Lotus 1-2-3 in 1983, which really brought spreadsheets to the masses (and then Excel was introduced in 1985 for the Mac and 1987 for Windows 2X). (And 36 years later Excel is still every buyer’s favourite application. Think about this the next time you proclaim the rapid advance in modern technology for the back office.)

In other words, we know the order in which people, process, and technology came into play in Procurement, and the order in which we need to address, and solve, any problems to be effective. However, what we may not fully realize, and definitely don’t want to admit, is the degree to which this cycle causes us pain as it loops back in on itself like the Ouroboros that we referenced in our recent piece on how reporting is not analysis — and neither are spreadsheets, databases, OLAP solutions, or “Business Intelligence” solutions as every piece of technology we introduce to implement a process that is supposed to help us as people introduces a new set of problems for us to solve.

Let’s take the viscous cycle created by incomplete, or inappropriate, applications for analysis, which we summarized as follows:

Tool Issue Resolution Loss of Function
Spreadsheet Data limit; lack of controls/auditability Database No dependency maintenance; no hope of building responsive models
Database performance on transactional data (even with expert optimization) OLAP Database Data changes are offline only & tedious, what-if analysis is non-viable
OLAP Database Interfaces, like SQL, are inadequate BI Application Schema freezes to support existing dashboards; database read only
BI Application Read only data and limited interface functionality Spreadsheets Loss of friendly user interfaces and data controls/auditability

This necessitated a repeat of the PPT cycle to solve the pain introduced by the tool:

Technology Pain People Process
Spreadsheet Data Limitations Figure out how to break the problem down, do multiple analysis, and summarize them Define the process to do this within the limitations of existing technology
Database Performance Issues Define a lesser analysis that will be “sufficient” and then figure out a sequence of steps that can be performed efficiently in the technology Codify each of those steps that the database was supposed to do
OLAP Stale Data Define a minimal set of updates that will satisfy the current analysis Create a process to do those updates and then re-run the exact same analysis that led to the identification of stale data
BI Tool inability to change underlying rollups / packaged views define a minimal set of additional rollups / views to address the current insight needs, as mandated by the C-suite create a process to take the system offline, encode them, put the system back online, and then do the necessary analysis

In other words, while every piece of technology you implement should solve a set of problems you currently have, it will fail to address others, introduce more, and sometimes bring to light problems you never knew you had. Although technology was supposed to end the pain cycle, the reality is that all it has ever done is set it anew.

So does that mean we should abandon technology? Not in the least. We wouldn’t survive in the modern business world anymore without it. What it means is that a technology offering is only a solution if it

  1. solves one or more of the most significant problems we are having now
  2. without introducing problems that are as significant as the problems we are solving

In other words, technology should be approached like optimization (which, in our world is typically strategic sourcing decision optimization or network optimization). Just like each potential solution returned by a proper mathematical optimization engine should provide a result better than the previous, each successive technology implementation or upgrade should improve the overall business scenario by both solving the worst problems and minimizing the overall severity of the problems not yet addressed by technology.

This is why it’s really important to understand what your most significant business problems are, and what processes would best solve them, before looking for a technology solution as that will help you narrow in on the right type of solution and then the right capabilities to look for when trying to select the best particular implementation of that type of technology for you.

Now that Per Angusta is going away …

… we’re finally getting a new Procurement Management Platform! And that’s a great thing!

Hopefully that last line caught your attention enough to read on (since Per Angusta isn’t actually going away, just its name) because the reason it’s a great thing is that Per Angusta, which finally completed it’s integration with SpendHQ, is soon to be one with SpendHQ. This will provide the procurement space with one of the first, true, Procurement Management Platforms, which, as per yesterday’s post, is something the space is desperately needing. (We doubt it will be the last such platform this year, but it’s certainly the first.)

Why?

1) It will be spend data driven, not just pull and push spend data around.

2) It will support all of the necessary intake requests and output reporting.

3) It is built to support procurement-centric workflows or projects.

4) It is built to integrate with any application an organization needs to support a certain process, sub-process, or data-centric capability through easy multi-endpoint integration with push-pulls at either end.

… which solves the four big problems created by Source-to-Pay suites as pointed out in yesterday’s post that asked where the Procurement Management Platform was.

And how they did it is very slick. Not only did they follow the levels of integration appropriately (where they started by re-creating the Per Angusta UX using SpendHQ look-and-feel, while they were working on data model integration on the back-end [which is a difficult task that many companies don’t actually achieve]) to get to the point where they are now working on full integration, but they built the solution to support third-party solution integration at key process points, not just separate integration tabs / menus, and this allows all of the embedded applications to be extensions of each other, not a pool of disconnected apps you have to glue together with Excel.

In other words, every solution that is integrated is inserted at key points of the process flow where it makes sense to do so … for example:

* sourcing partners are brought up when an opportunity is being created and sourcing is selected as the mechanism
* data partners are displayed in a supplier overview / risk report so that an analyst can punch in to the source system for deeper analysis, metric breakdowns
* partner spend solutions are integrated at key parts of category drill downs if an analyst wants to push out a subset of data for what-if or experimental (AI) analyses without messing up the categorization or mappings of the source system
* key data from CLM systems can be pulled into the core to drive the application, and when contracting opportunities arise, data can easily be pushed out and pulled in at key points

etc.

And on top of all of this, there’s a solid, modern, competitive spend analysis platform built into the solution that is both a leader in data usability and in multi-data source integration, which is a key requirement for spend analysis, and Procurement success, as a whole, because, unless you can get a complete picture across all of your spend (related) data, you can’t truly make informed decisions and determine which opportunities are worth pursuing and likely to deliver the best organizational results over all.

The only thing that’s missing is the message.

* SpendHQ is all about “Spend Intelligence: Clear & Simple” (which is not a unique message or capability)
* Per Angusta is all about “Powering Up Procurement” and “Procurement Performance Management” (which is not a unique message or capability either)
… but neither comes close to capturing what the integration truly is, or can do, or how they’re one of the handful of players that will be creating the new foundations for Procurement offerings going forward (as Suite 4.0 is not just a suite, it’s a platform).

I hope they get it right, as we don’t want SpendHQ to go away too …