Category Archives: Procurement Innovation

On the Ninth day of X-Mas (2016)

On the ninth day of X-Mas
my blogger gave to me:
Direct Sourcing Posts
Risk Management Posts
Sustainable Posts
e-Procurement Posts
some SRM Posts
some CLM Posts
some Best Practice Posts
some Trend Bashing Posts
and some ranting on stupidity …

While it should just be sourcing, as direct sourcing for one organization is indirect sourcing for another, the reality is, it’s not. Most sourcing platforms were designed for indirect sourcing only and can’t handle the complexity that often goes hand in hand with direct sourcing.

If you’re not convinced, take the Direct Procurement Challenge. Chances are your platform will fall flat on its user interface.

Remember, as Aberdeen pointed out in one of their better pieces, back in the time when they had strong supply analyst talent, we’re Living in a Materials World and you better be prepared to do something about it.

That is because Procurement is Complex [and] Your Platform [better be] Capable of Handling It!

The reality is that, for the average organization, Your Procurement Platform is Cost Centric Perfect for Indirect Only. And that’s just not enough.

If you don’t get it, then you need to get a grip on The Nature of Supply Dynamics
Part I: Unknown when Unmanaged
Part II: Commodity Based Cost Models Alone Aren’t Enough.

You need more, much more.

You need a direct procurement platform capable of Sourcing Lifecycle Management: [it is] The Direct Sourcing Cure.

Come back tomorrow for the tenth day of X-Mas.

iValua: Brewing the Kettle for the Vertical Petals

When SI last did a deep dive on Ivalua back in late 2013, they were proving their mettle with source-to-settle (Part I, Part II, Part III, and Part IV) because an integrated Source-to-Settle (S2S) platform brings unparalleled benefits to Supply Management. Since then, they’ve been extending the platform, but instead of broadening it (as they already had just about everything covered except decision optimization and cashflow optimization), they’ve been deepening it with industry specific functionality for a plethora of verticals, namely, the manufacturing and automotive industry; the banking and services industry; the retail and distribution industry; the construction, oil, and gas industry; the health care industry; the telecom industry; GPOs (Group Purchasing Organizations), and the public sector.

For the machining and automotive industry, in addition to their powerful RFX capability which allows buyers to create detailed cost models for components and products being sourced, they also have integrated sourcing project management (as a Bill of Materials might require multiple sourcing projects, capabilities for New Product Introduction (NPI) management, asset and tooling management and tracking, and the ability to identify raw material / component price data variance across plant locations. This is in addition to the detailed supplier master data management (that can support the definition of approved suppliers by category, buyer, and location), quality tracking and management (through scorecards), and productive action plans (that build on the corrective action plan capability).

For the banking and services industry, in addition to vendor managed catalogs, contract compliance management, invoice data capture, and dynamic discounting, unlike some of their peers that grew up in the indirect (commodity) sourcing world, they support detailed rate cards and services profiles, e-Signature integration, and multi-envelope bidding.

For the construction, oil, and gas industry, in addition to support for spot-sourcing and spot-awards to on-contract suppliers, detailed service personnel data collection, and supplier data access to available assets (and tools), the platform also supports the creation of field service request estimates based on PR and PO process initiation, asset and tooling management, automatic monitoring of supplier credentials and certificates, data collection for supplier personnel performance management, and the collection of documents and specifications on all relevant supplier safety practices.

They’ve also fleshed out their analytics and out-of-the-box reports to cover spend data and metrics from all aspects of the source-to-settle lifecycle (which is easy to do when all of the data is in one store maintained by one platform, and not 3, 4, or 5 — which is common with some of their competitors that created their suites from multiple acquisitions), increased the configurabilty of their solution (where the buying organization not only has control over modules and workflow, but even what is displayed, or not, on individual screens), exposed the full extent of their integration capability within the platform (where lead buyers can configure the APIs through a simple form-based interface and XML), and created an add-on store where clients can share and download additional reports and components and integrations created by their peers or third parties.

Ivalua is still coding strong, and extending their platform year after year. It’s hard to say what will come next, as two-thirds of their road-map is always client-driven, but if you’re looking for a true, native, end-to-end source-to-pay platform from a responsive organization, the Ivalua platform is one that should be on your short-list.

Oversight for more than just your Travel & Expense budget management

Oversight is an Atlanta-based software (as a service) company founded back in 2003 to help organizations monitor spending in an effort to identify errors, waste, misuse, and fraud in the grey area of enterprise spend. As every recovery firm will tell you, the average organization will overspend by 1% to 3% as a result of over billings, duplicate billings, unnecessary spend on superfluous demand, maverick spend, and even fraud. (And they make their living recovering a portion of that, typically a third, and then charging you 33% of the recovery as their fee. Sounds small, but 1/3 of 1/3 of 3% of spend is 0.33% of spend, and if the organization spends 100 Million, they get 330,000 for an effort that can be largely automated and, even worse, be avoided with proper up-front spend monitoring.)

For example, if all invoices are compared to invoices and goods receipts before payments are authorized, this can prevent overpayments. Duplicate billings can be identified in the same way (and duplicate payments prevented). Potential fraud can be identified by forcing all invoices from unknown suppliers, for unknown products, or for unexpected amounts to be manually reviewed. (This can’t prevent in-house fraud, where a buyer pays a fake invoice to a fake company controlled by a relative, or a co-conspirator, but it can prevent external fraud.) Unnecessary spend on superfluous demand will require up front requisition control, as will maverick spend, but at least there will be no overspend or duplicate spend that can be unrecoverable once the contract with the supplier expires.

Oversight is unique in that it is not so much a software platform but an insights platform. Employing a team of data scientists focussed on identifying new algorithms and techniques for fraud detection, Oversight uses their in-depth knowledge of fraud to build solutions that will help the clients identify potential cases of fraud that they could never hope to identify on their own. The best most companies can do is sample based audits and spot checks which are unlikely to identify much fraud as these will generally only be on a few percentage of invoices or transactions, and most employees who have been getting away with fraud for a while will not be doing anything obvious, and the fraud will not be detected without correlations across documents and systems. That’s where Oversight comes in.

The Oversight solution is a web-based software solution for automatic spend analysis and identification of high-risk or potentially fraudulent transactions that comprehensively analyzes T&E, purchase card, and accounts payable spend using a suite of statistical, clustering, data mining, break point, rule-based, evidentiary reasoning, and machine learning algorithms that look for discrepancies, suspicious patterns, known fraud, and risk indicators to identify those transactions that need to be manually reviewed. The dashboard-driven, or work-bench driven, interface allows an analyst to drill into suspicious transactions by country, organizational unit, risk level, or exception type and can be configured to show the analyst only those exceptions assigned to her, or her team, or every unresolved exception in the system.

When a user drills in by exception type, she sees an overview of the overall risks by country and can drill into suppliers to see the specific exceptions. When a user drills in by country, she can see the overall risk by supplier and then by exception. In other words, she can drill into at-risk transactions using country, organizational unit, supplier, and at-risk type in any manner they please.

Or, they can look for exceptions by process. Right now, Oversight supports the identification of at-risk transactions in the travel & expense, procure to pay, and purchase card processes and has recently added support for FCPA, Anti-Bribery, and Corruption Risk — including the identification of known politically exposed parties.

Plus, the platform not only integrates with all of the big supplier and financial data providers — such as Dunn & Bradstreet, Bureau van Dijk, and CreditSafe — but also integrates with providers of risk indicator data such as Ecovadis and Sedex Global. Plus, they maintain their own databases of known politically connected parties, gentlemen’s clubs, denied parties, and other parties that an organization typically should not be allocating funds to. This last capability is quite important … just ask American Express which once received a 241K strip club bill authorized by the CEO. (Source)

Since fraud attempts differ by country, and collusion is hard to detect with a standard m-way match invoice processing platform, Oversight brings a powerful offering to the expense management space. It’s a platform worth checking out. For a deeper dive into the platform, check out the recent coverage by the doctor and the prophet over on Spend Matters Pro [membership required]. (Part I is up with Parts II and III coming within a week.)

MBAs, for those of you who are hard of hearing … you have to put Procurement first!

We told you last Friday that whether or not you were 100% convinced, you have to put Procurement first. Hopefully some of you listened, but I’m sure some of you didn’t. Even though the seventh rule of acquisition is that you should always keep your ears open.

We will again start by reminding you that your organization depends on goods and services provided to it by suppliers. Those goods you sell come from somewhere, and even if the goods are made in house, the components and raw materials will come from suppliers. The days where a company was vertically integrated down to the raw material extraction and production are lone gone (and it’s all your fault — you started the outsourcing and “right”-sizing craze, and now you get to live with the consequences).

And the individuals selling those goods and services are your brethren (from another school) who have the same training, follow the same rules, and never forget the the one hundred and eighty first rule of acquisition that says that not even dishonesty can tarnish the shine of profit. They use the same tactics you do and sell the sizzle, not the steak, as per the one hundred and fifty third rule, and if that’s not enough, they’ll use the one hundred and sixty eighth rule and whisper their way to success.

And only Procurement understands this. They are trained to look past the sizzle, tune out the whispers, and look for the shadiness behind every corner. Procurement knows that, by default, satisfaction is not guaranteed (as per the nineteenth rule of acquisition) and that sales people live by the thirty ninth rule and don’t tell customers more than they need to know.

Like you, your MBA brethren trying to sell into your organization are trying to figure out how to learn the customer’s weaknesses, so that you can better take advantage of him (as per the eighty seventh rule). If you don’t want your profits to become their profits, you better make sure they only deal with someone that is tight lipped and won’t give away the farm … like a hard-hitting Procurement Professional. Plus, if they came from Engineering, you give your organization a bit of an advantage. Your brethren know to beware of the scientist’s greed for knowledge, as per the seventy ninth rule, and sometimes an Engineer can catch them off guard.

Who else besides Procurement knows that as far as MBAs are concerned, MBAs are not responsible for the gullibility of others (the sixty ninth rule) and that they will never give up because faith moves mountains … of inventory (as per the one hundred and fourth rule). And only Procurement lives by the rules that only fools pay retail (which is the one hundred and forty first rule) and that you should know your enemies … but do business with them always (as per the the one hundred and seventy seventh rule).

MBAs, If You’re Still Not 100% Convinced You Have to Put Procurement First …

… we’re going to make it even clearer in today’s post.

Let’s start by reminding you that your organization depends on goods and services provided it to by suppliers — suppliers who have also invested heavily in sales and marketing, and sales especially, in an effort to make sure they gouge as much cash out of you as they can. They’re always on the hunt to find those organizations with the least educated, experienced, and supported buyers that they can take the most advantage of while you are focused on marketing, sales, and revenue increase. And the more successful you are at fattening the revenue stream, the more successful they feel they can be. After all, they know the Rules of Acquisition as well as you do, and they are going to apply them to your fullest.

Those MBAs selling to your organization live by the first rule of acquisition which says once you have their money, you never give it back, so you better do all that you can to make sure you hand over no more than you need to, because even if you have what looks like an iron-clad contract that says you handed over too much, good luck recovering any funds without spending additional funds to get the lawyers involved. That will quickly wipe out any recovery you might realize. This means that you need to support Procurement in strategic sourcing to identify deals with value, support Procurement in their efforts to negotiate solid contracts, and support Procurement in their efforts to implement best-in-class e-Procurement software with m-way invoice match that insures that an invoice is not allowed to be placed in the payment queue unless the goods have been received and the invoices amount matches the contract or purchase order amount without an executive override that leaves a full, unalterable, irrevocable audit trail.

A properly supported Procurement department is in the best position to ensure that the third rule of acquisition is enforced. Their job is to make sure you never spend more for an acquisition than you have to . Similarly, as they are often charged with risk management, they are naturally in tune with the eight rule of acquisition, small print leads to large risk and are not likely to accept seller paper unless it has been thoroughly vetted by legal, even if it means that Engineering or Manufacturing or Marketing have to wait a little longer for their goods or services.

Plus, a great Procurement organization knows the eleventh rule of acquisition by heart, even if it’s free, you can always buy it cheaper. They know that every initial quote has a considerable margin built in, any value add that is “free” is included in that margin, and that if it really is “free”, it’s probably not worth anything, and the reason it’s free might just be because it would cost the seller more to pay someone to take it away or haul it to the recycling depot than give it to a customer as a “thank you” for the deal, on the condition the customer pays to have it shipped.

You know deep down the tenth rule of acquisition is the truest of all the rules. Greed is eternal and your suppliers are as greedy as you are, so while you’re out there doing what you do and living by the second rule of acquisition, the best deal is the one that makes the most profit, you need someone minding the fort making sure that deal is not undermined by a an even more cunning supplier. Remember the sixty-sixth rule of acquisition, someone’s always got a better sense for business, and only Procurement stands in the way of them getting the better of you.