Category Archives: Procurement Innovation

The Procurement Wasteland …

… is well on its way, as we discussed in our last post. Buying is not difficult anymore. Thanks to the internet, anyone can find a dozen potential suppliers. Free RFX and Auction technology, alongside good old fashioned e-mail, allows anyone to solicit bids, do simple comparisons, and make a buy that’s not the worst buy one can make. Heck, three bids and a buy is still better than what a lot of buyers do. And with Amazon Business and about 200 different major suppliers online with punch-out, anyone who needs anything that’s not custom manufactured can just go out and get it.

It’s a Procurement wasteland because not only are (tactical) buyers unnecessary, but, as indicated in our last post, it’s easy to replace those (tactical) buyers with cognitive systems that, armed with a few rules and a bit of machine learning, can do just as good of a job as the buyers and, with huge databases of potential suppliers at their disposal, outdo the organizational representative who’d just punch-out to her preferred site and buy the first product she found. No need for buyers, and the work they do is replaced by systems.

The big question is, is this procurement wasteland going to exist in:

  • A Mega-Corporate World,
  • A Project Economy, or
  • A Barter Economy

Mega-Corporate World

While this option wasn’t (explicitly) mentioned in the KPMG report, it is one situation where Procurement could gain primacy if, and only if, it could prove more relevant than the machines. So what is the mega-corporate world? It is a world where the M&A Frenzy continues like crazy across all sectors, where the big get bigger and only a few companies dominate in each category, and you have a select few buying from a select few for the majority, but making sure that those that are bought from properly orchestrate further down the chain because even though mega-cos might own most of the little mom-and-pop shops that supply the raw materials, orchestration is still key to cost control, and these little mom-and-pop shops will be bought and sold like shares in the stock market as balance sheet adjustments appear necessary. And since there are only a few real suppliers, you just carrot-and-stick negotiate between the sales folk, as the corporate landscape is now so small they need what you produce too, until you get the deal you want and you’re done.

Project Economy

As more and more professionals go freelance, and more and more companies try to trim the fixed overhead on the balance sheet by outsourcing more and more to freelancers (who don’t come burdened with health care, retirement contributions, and other benefit costs), we switch to a project economy where mega-corporates still exist on paper, but the organization is primarily a balance sheet that orchestrates projects which are led by freelancers in a project economy. In this economy, the project manager is the purchaser, and she buys how she sees fit.

Barter Economy

A solar megastorm produces a solar flare 5X as powerful as the Carrington Event and takes down every power grid on earth, and the internet with it. All forms of instantly electronic currencies cease to exist, and global communication, and trade, status reverts to what it was in the early 1900s. After the initial panic, riots, and lootings, the power grid is restored in major cities and the global internet restored a few weeks later, but faith in any form of electronic currency crumbles. Especially since the global chaos makes foreign currency worthless for a short period of time and faith doesn’t come back.

In this situation, goods and raw materials are of the utmost value and trade is the name of the game. Failing that, payment in the local currency only is accepted. And unless a buyer can negotiate the trade of goods only, there is no need for a Procurement practitioner.

At the end of the day, there is no need for Procurement. it’s not only dead, it’s cremated. Only ashes remain. The only hope is …

Procurement Tomorrowland …

… could be here sooner than we think, but are we ready for it? For over a decade, everyone has been talking about Procurement 2020 and how advanced and great it would be, and 2020 is fast approaching. It’s less than two and a half years away. But what will it look like. The short answer is not much different than today. That’s why the new date is 2035, because we haven’t gotten to where every big consultancy, and vendor, proclaimed we’d be 10 years ago.

So, the big question is, what does Procurement 2035 look like? Well, last year KPMG said the future is likely going towards one of four scenarios:

  • Procurement Primacy where democratic co-existence between man and machine is common
  • World of Project Economy where companies become decentralized and most of the work is done by free-lancers and there is no central procurement department with procurement the responsibility of project managers
  • The Creative Agency where procurement becomes the primary source of business and finance model development and not only purchases for, but defines the organizational projects

or

  • R.I.P. Procurement because the age of cognitive procurement has ushered in fully automated processes that have replaced buyers

The most likely scenario now is the last scenario because the cloud has eliminated the need for tactical procurement people who buy on someone else’s behalf. Office supplies, janitorial supplies, and simple electronics? Amazon for Business. MRO — Grainger and Home Depot — punch-out online. Electronics, Best Buy, Dell, HP, Apple, etc. Point, click, and order. Custom uniforms, a few dozen suppliers can take your RFX, easily found on half a dozen procurement networks. And so on.

And if you think knowing how to set up an auction will save your job, you’ve got another thing coming. It’s not only very easy to setup and run an auction with a modern platform that makes it eBay easy, but with today’s platforms it’s just as easy to push a category to a platform with demands that can automatically invite all the approved suppliers, send them the specs, get e-Signatures on acceptance and guarantees, run the auction, make the award, send out the draft contract, get a response, analyze it, send it to legal, who can put the finishing touches and it’s off to the races with no human intervention whatsoever. Modern platforms can be set up to automate RFXs and e-Auctions with no human intervention whatsoever.

Similarly, your job is not safe if the extent of your analytics prowess is running the canned reports; identifying the top n categories, suppliers, and geographies; identifying those not under contract, and queueing those categories for sourcing and suppliers for contract negotiation. This can be easily automated too. Who needs a buyer?

In this scenario, not the organization! For Procurement, Tomorrowland is a wasteland …

Coupa + Trade Extensions = ??? … Part II

Back in May, the doctor indicated that at some point after Inspire he’d do a deep dive into the acquisition of Trade Extensions by Coupa. He waited as he wanted to think more on the possibilities and probabilities and get more insight into the potential, but as no additional insight appears to be coming in the short term, in our last post we began to summarize where things are at now from the perspective of a SWOT analysis. Yesterday we outlined some of the key strengths and weaknesses of both platforms. Today we will dive into some of the key opportunities and threats.

Coupa + Trade Extension Opportunities

  • Quick deployment anywhere due to pure SaaS nature
  • The great UX offered by both platforms is extremely attractive
  • Both are true market leaders in what they do
  • Both are deployed, supported, and used, globally
  • The Open Business Network can feed new suppliers and quotes into both platforms
  • All spend can be appropriately placed under management
  • Easy analysis of all spend and spend data can be accomplished between the platforms
  • Collectively, each key step of the full Source-to-Pay platform is supported
  • A large amount of educational content on both fronts that can form the foundation for end-to-end Source-to-Pay education

Coupa + Trade Extension Threats

  • Not the only Source-to-Pay offering
    Jaggaer has better CLM & SXM
    Ivalua is one platform
    etc.
  • Weak CLM and no contract analytics leaves an opening for competitors
  • Weak SPM and no best-of-breed SRM leaves another opening for competitors
  • Out-of-the-Box integrations with on-site systems is limited
    and a great web API is often only great for cloud-based solutions
  • No end-to-end category guidance and management
  • No category templates for common categories for strategic sourcing or group-purchase Tail Spend sourcing
  • The platforms do not integrate and may not for some time …
    while sourcing always precedes procurement, awards need to get from sourcing to procurement and spending needs to be monitored and analyzed against spend and logistics may need to be optimized mid-contract if demands change or factory allocations shift
  • No end-to-end education on how to master S2P to not only maximize SUM but maximize savings and value

    … but most importantly …

  • No clear direction on how the two platforms will be integrated to increase the net value of both.
    Considering there has not yet been a truly successful acquisition of a strategic sourcing optimization platform (where both the acquirer and the acquiree’s platform have thrived), this is a major threat … and worry.
  • The two companies don’t speak the same language. Not even close.

At the end of the day, as we have indicated before, there is a huge potential for both companies and all of their collective customers, but, hiding in the shadows, there is also the potential for catastrophic failure. (This was one of the priciest acquisitions of a best-of-breed platform in optimization history, and Coupa could have done a lot with the money it spent.) The jury is still out, but to be honest, the longer it takes for a clear direction to materialize, the more one naturally starts to worry.

Coupa + Trade Extensions = ??? … Part I

Back in May, the doctor indicated that at some point after Inspire he’d do a deep dive into the acquisition of Trade Extensions by Coupa. He waited as he wanted to think more on the possibilities and probabilities and get more insight into the potential, but as no additional insight appears to be coming in the short term, we’re going to summarize where things are at now, from the perspective of a SWOT analysis.

Coupa Strengths

  • Pure SaaS
  • Extremely easy to use tactical e-Procurement/P2P Solution
  • Compliant e-Invoicing in 30 Countries
  • Open Business Network
  • Integrated Expense Management … on the go
  • Integrated Budgeting
Trade Extension Strengths

  • Pure SaaS
  • Easy to use optimization-backed Strategic Sourcing Platform
  • Most powerful decision optimization platform on the market
  • Extremely powerful fact sheets for upload, verification, and analysis
  • Extensive formula and modelling support to support any category and modelling needs
  • The TESS Academy
Coupa Weaknesses

  • Integration to On-Site Systems is Limited
    (the API is great for integration to other SaaS solutions)
  • Integrated RFX/Auction support is extremely limited, no BoM support
  • Community Intelligence is limited to what is pushed through the platform
  • Large Supplier Network, but limited intelligence on reliability, sustainability, and risk
    (the Riskopy acquisition will hopefully improve the situation over time)
  • Well suited for Tail Spend, but no built-in help identifying categories that should be strategically sourced
  • Contract Management is very limited
  • Focus on just pushing spend through the platform to increase SUM detracts from value-generation opportunities
Trade Extension Weaknesses

  • Out-of-the-Box integration to other systems is extremely limited
  • No repository of out-of-the-box models for standard categories
  • Contract Management is very limited
  • No auto-classification, initial cube construction requires expertise and elbow-grease
  • No Supplier Information Management or integration with an SXM platform

Come back tomorrow where we discuss the opportunities and threats.

How do you explain the importance of Procurement to a CFO or CEO?

O’er on Spend Matters UK, the public defender does a great job of figuring out how we would explain Procurement to a (hyper-intelligent) alien race who has no concept of what it is or why it is needed in his post on back to procurement basics – explaining to an alien, which is a must read, but I don’t think that would ever be a problem.

Any alien race smart enough to build and pilot spaceships that can exceed the speed of light and traverse vast distances to get from where they are to where we are in a lifespan would obviously be smart enough to understand why beings of lesser intellect have to specialize to do well, and that these beings of lesser intellect would have to work together, and come up with a system (the corporate world) to allow that, as flawed as it may be. They’d get it.

Our real problem is explaining the importance of Procurement to an old-school CEO who still thinks success is all about sales (and marketing to pave the way) and a CFO who thinks success is all about cost control, especially internal, and trying to pay peanuts rather than wages and rates that would incentivize someone to success.

I challenge the public defender to come up with an explanation that an average old-school CEO who only ever studied operations and came up through (Sales or Marketing) Management or traditional Finance would not only understand, but understand to the point that he (let’s face reality, these narrow-minded CEOs are usually male) would embrace Procurement and the value-based vision we run off of.

Bonus points if it changes the viewpoint of someone who graduated Trump University.