Category Archives: Procurement Innovation

Furthermore, No Modern 2020 Platform Will Be Without What-if?!

As you may have noticed, the doctor has been on a bit of a bent lately defining what a modern S2P platform is as he’s completely fed up of all of the “digital” bullshit where marketers are trying to sell everything old like its new again and technically advertising solutions that are less powerful than the doctor could code on his 8088 three decades ago! (It had a 2400 baud modem so the requirement of network connectivity was even met.)

And if you think the doctor is being a bit extreme, go back and re-read the definitions of “digital” and “analysis”, ask some pointed questions to these vendors about what their solutions can really do, and you’ll find that maybe, just maybe, he’s not being that extreme at all. It’s sad how many vendors believe that a fancy new UX on a weak Procurement 2.0 solution all of a sudden makes it 3.0 and 4.0 ready when all they are really doing is putting lipstick on a pig (and no self respecting pig wants to wear lipstick)!

Yesterday we defined the levels of analytics and hopefully made it clear that there shouldn’t be a single platform on your consideration list that doesn’t have at least basic prescriptive capability and that you should also make sure the vendor is on a permissive journey before signing on the bottom line!

But that’s not all you need to demand in a platform. You also need to demand a platform with embedded What If? capability.

It’s going to be a while before the predictive analytics work across all the situations a procurement specialist need them to work in, and even longer until the platform supports the insights needed for permissive analytics. But, in the interim, the procurement specialists still need to extract value from analytics — and that value is going to come from What If?.

What If? the demand next year is the same as this year, what will the total cost be if the cost stays flat? What if demand rises 10%?

What If? the delivery is late by a day? By 3 days? By a week? What if the order is routed to the backup supplier? The backup location?

What If? the supplier’s financial woes get worse? What if the supplier goes bankrupt?

What If? the contract milestone isn’t hit? What is the impact? What is the risk?

The procurement professional needs to be able to ask What If? throughout the platform and, more importantly, throughout the analytics. Some Reports should be interactive and allow the user to project the next quarter, year, etc. of data using current data and advanced What If? algorithms. Anything less won’t be enough.

… And Advanced Analytics Should Be a Must in 2020!

Just like any vendor can claim to have a digital procurement solution because, as we clearly explained last week, email and spreadsheets technically count, any vendor can claim to have analytics. Consider the definition:

the analysis of data, typically large sets of business data, by the use of mathematics, statistics, and computer software

And then consider the common definition of analysis:

a presentation, usually in writing, of the results of this process

This means that any software that provides a canned report summarizing a data set (average, mean, etc.) qualifies. MRP software from four decades ago had canned reports that did this and qualify. Thus, since computers are modern in the grand scheme of human history, any vendor can tell you with a straight faced that they have a modern platform with a modern analytics solution if it runs on a computer, supports bid collection in a spreadsheet, and contains a canned report summary — especially if they were an English or Arts Major (especially since we are in the post-modern phase in their worldview).

DO YOU REALLY WANT TWO-PLUS DECADES OLD TECHNOLOGY?

Think carefully about this — because if you don’t ask the right questions and use the right measuring stick, that’s precisely what you might get if you don’t get beyond this “digital” and baseline “analytics” crap.

What you have to know is that there are levels to analysis. And while the number of levels might very depending on how granular you want to get, there are at least five in today’s technology platforms, and these are the seven levels the doctor likes to use.

1. Classificative
At this level, data is classified into buckets for the purpose of basic analytics.

2. Descriptive
At this level, basic statistics are run to compute summary, typically canned, reports on the data.

For decades, this is all you got, and many vendors still try to pass this off as sufficient.

3. Diagnostic
At this level, the user is either given the ability to define their own reports to drill in and find the potential root causes of issues identified in the reports or to run more advanced statistics (beyond just average and mean) to identify correlations between data to find potential root causes of issues.

Most platforms developed or upgraded in the last five years in S2P, Sourcing, and Spend Analysis have this capability. But this is not enough any more, especially when there are do-it-yourself software packages for under 1K that can allow you to get to the next level, which has been around in specialized demand planning and analytics for decades.

4. Predictive
At this level, the platform employs statistical trend analysis, advanced clustering, and/or machine learning to identify trends and predict future costs, risks, performance, etc.

A few platforms are starting to incorporate this, but this should be a baseline requirement considering ERPs, demand planning, and advanced BI tools have had at least some capability here for close to 2 decades

5. Prescriptive
At this level, the platform is not just identifying and computing future trends, but providing advice on what to do as a result of those trends.

Leading platforms are starting down this path, but given that the foundations of prescriptive analytics have been around for over two decades and that best practices in sourcing and procurement have been around almost as long, if a platform can’t provide not only insight and recommendations what to do with that insight, it will never even achieve 3.0 objectives … meaning 4.0 will never be a reality.

In other words, any platform without some prescriptive capability is behind and not one you should be investing in.

6. Permissive
At this level, the prescriptive analytics is used to power automatic actions based on embedded rules. If the platform determines a commodity that is typically on a one year contract is at an all time low, it might initiate the renewal event two months early to lock a rate in if a rule is defined that says events can be initiated up to three months early if prices drop below contracted rates and are projected to be within 2% of the projected low.

Few platforms are here, but you should be looking for a configurable platform with rules that permit simple automation based on both entered and derived data values from the application and the data it contains. Permissive analytics is a cornerstone of the Procurement 4.0 promise so make sure your chosen vendor is building in permissive analytic capability. It can be fledgeling to start, but something needs to be there or it won’t be there when you need it.

7. Cognitive
At this level, the platform embeds machine learning and advanced AI techniques to not only make good predictions but choose the right actions to take on those predictions without any user intervention for run-of-the-mill sourcing and procurement processes and events. When we reach Procurement 4.0, such systems will not only eliminate 98% of tactical work to allow buyers to focus on the strategic, but eliminate 90%+ of strategic work identified as relatively low value (at the time) and allow buyers to focus on strategic efforts that present the greatest opportunity to provide value … truly optimizing the limited Procurement resources available.

Insight is Good. Actionable Insight is Better!

In our last post we talked about how important insight is in a modern platform now that we’re in the third decade of the century and how any platform that delivers anything less should NOT be on your radar!

But you want more than insight. First of all, you want actionable insight. As per our last post, just knowing that an invoice doesn’t match a PO isn’t enough. You need to know why, and more importantly, what the typical action should be. Extra units? Over-billing? Unexpected Taxes? Higher-than-anticipated surcharges? Approve? Send it back for clarification? Send back a revised version for acceptance (that will result in instant payment)?

However, the ability to take instant action would even be better! If the platform gave you the ability to flip back with request for information, flip back with suggested alterations, or approve with one click, that’s good.

But this ability should be across the platform. When an event is selected, the platform should not only recommend the best set of suppliers, but allow them to be added to the event, and invited, with a single click. This recommendation should take all factors into account — incumbency, performance history, risk scores, environmental data, etc.

When the award is selected, the system should not only identify a template but automatically fill in all the relevant award data and meta-data, alter the clauses as necessary, and bring up an editable contract for buyer review with a single click.

Every insight should lead to one or more courses of action and the platform should provide a mechanism to immediately take the courses of action identified — with a single click if at all possible.

A modern platform doesn’t just provide insights in canned, or customizable, reports — it provides insights embedded in the platform that allow the right actions to be easily taken at the right time … without having to search for the way to make it happen deep inside the depths of the platform where few will ever have the patience to drill into.

Considering that this decade should see the emergence of Augmented Procurement Platforms based on Augmented Intelligence that not only provide insight into the right action to take, but learn to make better recommendations over time in more scenarios, the last thing a buyer should settle for is a platform that still provides “insights” in the form of one-off canned reports in a dark corner of the platform.

Insight. That’s What Marketers Should be Marketing in 2020.

Because that’s what you need. In this day in age, any platform should be capable of implementing a digital process that accomplishes a basic sourcing, procurement, catalog buying, or contract negotiation process … this technology has existed for almost two decades. So if an organization is going to spend money on marketing, it should be marketing something more than just basic digital process support as dozens of vendors have that (as evidenced by the participation of over 75 vendors in Spend Matters SolutionMaps with more in the wings). And if the organization doesn’t have anything more to market, then it shouldn’t be marketing at all — and investing those pesos in product development until it has something worth marketing.

Now that we are in the third era of Procurement, we should be looking for solutions that enhance our processes, not systems that just digitize them. And for systems to enhance our processes, they need to do more than digitize them or automate them with fixed rules. They need to provide relevant insights at key stages of each process to help a buyer make good decisions in an efficient manner.

For example, when a buyer selects a category or set of products / services for a sourcing event, the system should automatically highlight current and past suppliers, suppliers who responded to previous events, and new suppliers who have matching products or services. Furthermore, if there is any risk or environmental data associated with those suppliers, it should also be highlighted. When all the bids are in, it should automatically highlight the lowest-cost award, the incumbent award, the best award with a preferred number of suppliers, and any other relevant out-of-the-box scenarios.

During contract time, if there is an appropriate template, it should present that to the project lead as well as highlight any clauses that might be missing or any clauses that might need to be addressed.

When an organizational buyer needs to make a requisition, and logs into the catalog, the system should guide the buyer to the on-contract product for requisition. If that product is unavailable, then it should guide the buyer to the next preferred option. If there is no on-contract or preferred product, then the system should recommend the product that provides the best overall value to the organization (which balances cost, quality, volume requirements on general product/service contracts, etc.).

When an invoice comes in that doesn’t precisely match the purchase order, but is within what could be considered a reasonable tolerance or has an extra charge that could be considered reasonable under the circumstance, the system should immediately point out the discrepancy and whether or not an approval should be given or denied. For example, if there was an expediting charge because the order was shipped same-day (when the contract required three days notice) that is relatively low value, or extra units were shipped and received (and billed at agreed upon rates) (and needed anyway), the system can point out the discrepancy and recommend approval. If the surcharges exceed typical amounts or a significant number of units were marked damaged on receipt, the system can recommend rejecting with a request for more information or invoice reduction.

Similarly, before an order is placed, the system should highlight any suppliers that have become more risky in the past month or performing poor on OTD.

While the talk of Procurement 4.0 might be more autonomous systems that do more of our work for us, that’s at least five, and most likely, ten years away. Right now, what we need are systems that allow us to make good decisions efficiently. And that means presenting the right information at the right time. If the system can’t do that, then don’t bother. Seriously.

Invoices are still costing you money!

Six Years Ago we pointed out that:

  • You’re probably overpaying your suppliers by 1%
  • There’s a 2 in 3 chance you’re being defrauded of 2% of your revenue
  • Up to 75% of your AP overhead is completely wasted
  • At least 1 in 10 invoices are erroneous
  • One Million Invoices requires at least 100 standard 4-drawer filing cabinets

But things aren’t much better.

  • PRGX and other leading recovery firms still recover 0.3% of total spend on average which means the over-payment average is still the same using the rule of thirds (1/3 not recoverable because contracts expired, 1/3 goes to the audit firm in fee based recover, 1/3 goes to you)
  • PwCs recent Public Procurement:: Costs We Pay for Corruption, average loss to fraud is 3.5%, with a UK average of 4.76% … and while private companies might think they are better off, the cyber crime economy keeps reaching record highs (and is 1.5 Trillion in the US alone) and private fraud losses in the UK almost equal public fraud losses according to a CIPS study
  • Based upon recent data from the 2019 Payables Friction Index, a good portion of your AP overhead is completely wasted
  • The number of erroneous invoices hasn’t decreased

Furthermore, according to the 2019 Payables Friction Index, in collaboration with Corcentric, PYMNTS surveyed 2,570 firms on AP processes and found the following:

  • Paper Still Dominates
    • 81% of firms still use paper checks to pay invoices
    • 45% of firms still use cash
  • e-Cash is still in the minority
    With the exception of ACH, that has finally penetrated more than half at 62%, all other methods (including credit cards / p-cards) are still less than 50%!
  • e-Invoices are increasing
    but up to 34% of invoices are still paper (in organizations under 100M in particular)
  • OCR, on average, is still under 50%
    (as low as 37% in organizations under 10M) and, more importantly,
  • utilization of basic automation, ML, and/or AI is even less
    when modern RPA + ML systems exist that can automate e-Invoice processing through simple rules, m-way checks, bounce backs for correction, completion, and verification, to 98% … and
  • approval times of one or more weeks averaged between 16% and 45% across respondents, depending on the number of approvers needed and organization size … when the majority of invoices should be auto-processed and auto-approved …

In other words,

  • You’re losing money on overhead,
  • You’re losing money on early payment opportunities,
  • You’re losing money on over billings and duplicate billings, and
  • You’re losing money on fraud …
  • … when the majority of this loss is easily preventable!

So why not get a modern e-Invoicing solution, standalone or part of a S2P platform, and stem the bleeding and use that money to hire more A-class talent to identify long-term strategic savings build on a supply resilience strategy?