Category Archives: Procurement Innovation

Follow the Money — To Find the Spigots that can Turn it Off!

A recent CPO Crunch article over on Procurement Leaders said to Follow the Money as a focus on profit contribution can provide a starting point for improving supply chain transparency.

The article states that having knowledge of our suppliers is one thing, but it’s quite another to have a good understanding of who are suppliers’ suppliers are … not to mention those even further beyond and in a complex, risk-riddled world, such visibility is crucial and can bring meaningful competitive advantage.

In other words, following the money can increase profitability by allowing you to optimize the flow. Which is true, but only half the picture.

The other half is how the flow can be diverted or stopped. Two important things to remember about money flows. First, if these money flows present an opportunity for you, they present an opportunity for others. Not just outright theft of money (or product), but skimming, fraudulent billings/overpayments/handling fees (or your goods don’t move), and even fraudulent good substitution (with knockoffs). Secondly, if any input to any of these flows stops (beyond your visibility), the entire flow stops. And these flows could stop 6 levels down at the source.

For example, let’s say you are in medical device manufacturing or microwave-based manufacturing. Then you need thulium, which is one of the rarest rare earth minerals in the world. If a mine closes, even temporarily, and that mine is the only source of supply into your raw material or component supplier (that produces your enclosed radiation source or manufacturing ferrites), what do you think is going to happen? Production will stop, and your inventory will disappear. Or if you need a custom chip for the control system in your high end electric car, and the one plant currently capable of producing it experiences a fire. (This HAS happened, and chip shortages have been responsible for MULTIPLE shortages in MULTIPLE automotive lines. Just Google it.)

If your only production is in a country with geopolitical instability or deteriorating relations with your country, and borders (temporarily) close, what happens? And so on. If you don’t know the myriad of ways the spigots can be turned off, it doesn’t matter how well you know, or optimize, the money flow. These days, it’s all about risk management, visibility, and quick reaction if a spigot gets turned off to get it reopened again.

The More Things Change …

… the more they stay the same … and the more relevant the past, and the education of, becomes.

Ten years ago today, the doctor asked are you doing it wrong?

Ten years later, the question is just as valid now as it was then. Because if you were doing it right, your supply chains wouldn’t be in such disarray.

Ten years ago we noted that, if you’ve been following the media, you know that we have reached a point were most major business publications are now putting focus on Supply Chain as your top risk and your top opportunity and that they have been preaching the following solutions to not only tame the risk but increase the opportunity.

1. Comprehensive Category Management

Nothing has changed here. One consulting firm is literally sending the same email newsletters they were sending a decade ago on the topic because it’s still relevant, and most firms are still doing it wrong.

As the doctor noted a decade ago, spot buying individual categories at market lows or evening running reverse auctions at opportune times is not category management, not in the least — nor is running your buys through a “magic” or “delightful” intake-to-procure platform (better called “faketake” as a colleague of mine will point out). As was said before, Category Management isn’t just about grouping all seemingly related items and running an event, it’s grouping items that have related characteristics that allow the items to be sourced effectively under the same strategy — which could even be early renegotiation with an incumbent who might give you a great deal to keep you from going back to market. It’s taking a holistic strategic approach, not just mapping to UNSPSC or some out-of-the-box 2-level taxonomy and running with it. And not doing it is what’s resulting in stock-outs and cost-overruns. Because now, it’s not just price, it’s quality and supply assurance. Especially supply assurance. Which brings us to …

2. Supply Chain Risk Monitoring

Not much has changed here, even though the technology now exists for it to change at the majority of multi-national companies. A decade ago, we noted that natural and man-made disasters devastate supply chains when they result in raw material or product unavailability for weeks or months. When a company doesn’t understand their dependence on a single source or the risks that single source is subject too, they can figuratively get caught with their pants down to say the least. Still holds true today.

A month ago we also noted that most leading companies in the Risk Management arena are now tracking and monitoring their tier 1 supply base for not only missed deliveries, but late shipment dates and inquiring immediately when something is late shipping. However, by the time a shipment is late, it’s often too late to go to another source if the reason for the lateness is the lack of an important raw material. Multi-tier monitoring is key, but most Procurement departments are only now exploring supplier risk management in their supplier management module / application, which is tier 1 — even though we now have a number of great solutions that can monitor to at least tier 3, if not down to the source of each raw material in your supply chain. Considering that any good supplier information management solution will allow you to push in risk, compliance, performance, and visibility data, there’s no reason not to be monitoring your critical supply chains. Especially now that we can easily handle:

3. Big Data

What used to be the biggest buzzword-du-jour (before all this useless Gen-AI, desired only by Dr. Evil himself), Big Data is still desirable, but only to the extent you actually have valid, verified, data. Considering that the algorithms that actually work predict demand, acquisition cost, projected sales, etc. based on trends — unverified non-demand, cost, price data (for the wrong product) is NOT going to be of any help.

Get a real data analysis tool, validate the data at your disposal, and use it to your advantage, no more, no less.

e-Procurement Implementation Success Goes Well Beyond The Basics

the doctor was quite disappointed with this article over on the WorldBank Blogs on 10 success factors for implementing [an] e-Procurement System because all of these “factors” were generic success factors for the implementation of any technical system. Let’s look at them at a high level (and direct you to the article for a description of what the requirements are if they aren’t immediately clear to you):

Governance Principles
all projects need to be managed and governed, so this is pretty much a “d’uh!”
Transparency on Legal and Regulatory Frameworks
any platform that processes any personal, payment, or classified data HAS to adhere to Legal and Regulatory frameworks of ALL countries the corporation operates in, so this is obvious for any platform that requires it
Strategy Ownership and Sustainability
it’s classic project management, no owner, everything goes to cr@p
Implementation and Integration Challenges
preparing for this is just a given
Technical Infrastructure and SaaS-based Systems
all technology implementations need to integrate with the current infrastructure and SaaS systems that contain the necessary data, so this is pretty much a “d’uh!”
Training & Capacity Building
well, you need the capacity and the training regardless of the system being implemented
Engage Stakeholders Actively
without stakeholder support, it will be hard to get the resources for a timely, successful implementation of any technology
Align with International Standards
technology should always align with any regulatory standards in place
Clear Communication and Change Management
necessary for the success of ANY project, not just a technology project, so this is pretty much a super “D’UH!”
Data Security and Privacy
if the data is personal, payment, classified, trade secret, etc. etc. etc. then security and privacy is of more concern than the tech, so, another ‘d’uh!”

e-Procurement success goes beyond the basics. There are too many six, seven, and, for some multinationals locked into 5-year contracts, eight figure acquisitions that have failed to deliver on the promises made. This is because the selection, implementation, and utilization of such systems goes beyond most back-office tech to get right.

Selection

In our recent article on The Key to Procurement Software Selection Success: Affordable RFPs!, we noted that selecting the right vendor was paramount to success, and a critical requirement in this selection process was a GOOD RFP.

Furthermore, that RFP needed to specify, among a host of requirements:

  • typical use cases
  • target processes
  • globalization requirements
  • data migration requirements
  • integration requirements

Why are we calling these out? Because these define the key factors for implementation success!

Implementation

Key Factors are thus:

Primary Components / Modules
… that are needed to support the critical use cases and target processes, that need to be implemented and demonstrated first
Test Cases
that must be passed, in priority order, to ensure the use cases and target processes can be accomplished
… including multi-lingual use cases
that support not only the customer organization requirements but the supplier requirements
Data Migration Requirements
spelled out in detail, as well as cut-over requirements
Cross-System Bi-Directional Integration Requirements
spelled it in minute detail, not just push to the ERP … and considerably more than just a high level holistic strategy … when it comes to tech, the devil truly is in the details and chaos emerges when you overlook even one

Utilization

A system not utilized is a failed system, even if the implementation and integration goes as well as can be reasonably expected. Utilization is critical, especially early on, or widespread adoption will never be reached. This is why it’s paramount that the functionality required for the critical use cases be implemented and tested first so that utilization of key capabilities can begin as soon as possible, leading to adoption.

In other words, the basic checklist for technology implementation is nowhere near enough for the successful implementation of procurement technology — that success requires going deep.

Procurement should NOT be reimagined!

It’s not just vendors that have latched onto the Marketing Madness that we addressed in last week’s article where we tried to help you decipher ten meaningless phrases that are polluting the Procurement technology landscape, but consultants and thought leaders as well. And while the marketing madmen fill us with meaningless messaging, these consultants are feeding us with dangerous delusions that we can solve our problems by simply redefining Procurement as something it is not.

Procurement is not something to be reimagined as it is not something that should even be redefined at the core. The purpose of Procurement has not changed since the first known Purchasing manual, The Handling of Railway Supplies: Their Purchase and Disposition was published back in 1887, nor should it change. It’s the process of sourcing, acquiring, and paying for the goods and services the organization needs, and doing it in a manner that ensures that the products will meet the needs, at the best price, and show up at the right time — and that as many orders as possible are “perfect” (or, more precisely, problem free).

Key aspects are thus:

  • Supplier Discovery and Vetting (Risk and Compliance)
  • RFP creation or Auction (Product Service Verification and Competitive Pricing)
  • Award and Contract (Negotiation and Terms and Conditions)
  • Catalogs, Purchase Orders, Pre-Scheduled Deliveries, Auto-Reorders (“Buying”)
  • Logistics Routing, Delivery Scheduling and Monitoring (Risk Management)
  • Invoice Processing and Payment (Payment Confirmation, Fraud Prevention)
  • Quality Assurance and Inventory Management (Loss Minimization)

There is nothing to imagine here. And definitely NOTHING to re-imagine here. Now that supply assurance is still near an all time low (due to geopolitical instability, rampant inflation, unpredictable demand, etc.), it’s time to double down on what is critical and get it right. Not wander off to Imaginationland searching for a magical solution to tough, real-world problems.

New and improved processes might increase the chance of success (by decreasing the odds that something is missed), new technologies might increase the level of automation (and decrease the amount of manual [e-]paper pushing), but neither fundamentally change the work that must be done, the effort that must be made, and the human intelligence (HI) that must be applied to get the job done. No amount of “re-imagining” will change this. As we’ve said before, and will probably have to say again and again and again, there is no big red easy button, and no amount of imagining (or re-imagining) will create one. So, if someone tells you to re-imagine procurement. you tell them the same thing you should tell them if they spew Marketing Madness: CUT THE CR@P!

GlobalTrade Tackled Procurement 2024 Before McKinsey, But Their Suggestions Weren’t that Innovative, Part II

As per Part 1, the doctor ignored this article over on GlobalTrade Magazine on 10 Innovative Approaches to Enhance Procurement Efficiency in 2024 because the approaches weren’t all that innovative, and the article, while professionally written, clearly wasn’t written by a Procurement Professional, as most of the recommendations were so basic even Chat-GPT could likely have produced something equally as good with high probability (gasp!). He’s only covering it because one recommendation had the potential to be the most innovative recommendation of the year (because no one is recommending it) had the author got it right (and approached it the right way).

However, since we covered and analyzed the McKinsey recommendations in great detail in a four-part series over the past two weeks, we will be fair and give GlobalTrade their due. In this two part article, we’ll quickly discuss each recommendation one-by-one to make it clear most of the suggestions really weren’t innovative. In fact, the one recommendation that is innovative wasn’t even described in the one way that makes it innovative. But since it did remind the doctor of one thing many of the recommendation articles were missing, this gives us another reason to cover it and use it as an example of why you need to seek out advice written by the experts, or at least people who live Procurement and/or Procurement Tech day-in-and-day-out.

6. Use AI to Review Process.

Uhm, NO! Use analytics and automation, not AI! And use traditional process analysis tools to identify where you are spending the most (and possibly too much) time.

7. Try New Inventory Software.

And if everything written to this point wasn’t a dead giveaway this article wasn’t written by a Procurement Pro, this is. First of all, inventory is operation / supply chain & logistics, not Procurement. Secondly, it’s not new inventory software, it’s e-Procurement software that can integrate with the inventory management system to determine if a request should be (re)allocated from inventory or ordered from a nearby supplier (using a pre-approved catalog item). (Heck, the author couldn’t even get the market size increase right — it’s 4.9 Billion according to the linked study, not 4.9 million! And if you’re interested in the Procurement market, Technavio, owned by Infiniti Research, is NOT one of the leading analyst firms in the Procurement Market.)

8. Formalize the Procurement Process.

How non-innovative can you get? Are there any organizations still in business at this point who have Not formalized the process? It’s no longer formalize, it’s SaaS-back and automate as much as possible!

9. Strategize Market Analysis.

Would any Procurement department doing market analysis really be doing it off the cuff? Uhm, no! It’s not strategize, it’s automate — implement platforms that automatically collect, track, analyze, report on changes and provide predictions on costs, availability, risk, and other important pieces of information.

10. Reassess Cost Evaluation.

This is the ONE prediction that could have been the most innovative prediction this year if thought through and presented properly. The author noted that many companies are not looking at the total acquisition cost and indicated that buyers should look at this, as well as usage costs and even disposal costs, getting into total cost of ownership (TCO) territory — you know, the concept we’ve been talking about here on SI since we started in 2006!

However, in today’s economy, TCO is no longer enough, and you have to move onto the next generation of what we have been calling TVM: Total Value Management since 2007! The root of TVM was that total cost of ownership is not enough when the end goal of every product or service obtained is about value, and value goes beyond pure cost elements and includes bundled services, controlled and understood risk, and brand recognition.

So cost evaluation needs to factor that in as well, but often that’s not enough anymore either. It’s not just supply or stability risk, it’s regulatory compliance. It’s not just product cost, but carbon cost. It’s not just brand recognition, it’s brand risk if your suppliers are using slave labour, polluting the environment with carcinogens, or finding new and inventive ways to be truly evil. It’s also not just today’s price, it’s tomorrow’s price. If the product relies on a raw material currently getting scarcer by the day, can you find an alternative that doesn’t need that material, or needs less of it? And so on. Cost evaluation is not just cost alone anymore. And any organization that takes the next step here will be truly innovative.

Now, in all fairness, the doctor should point out that the article’s recommendations could be considered innovative if the organization didn’t have a Procurement department, but in today’s economic environment, unless it had a monopolistic stranglehold on a market, the doctor doesn’t see how a company of any size without a proper Procurement function could still be in operation.

Anyway, that’s all, folks!