Category Archives: Procurement Innovation

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!

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

Except for one suggestion, and only if you interpreted it the right way. But let’s backup.

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!).

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.

1. Consolidate Various Supplier Lists.

Is this 1984? This was advice you’d expect to see when Jack Welch started revolutionizing Procurement at GE in the 80s, which gave rise to the first sourcing and procurement platforms in the 90s (like FreeMarkets Inc. that was started by Meakem in ’95 after leaving GE to productize what he learned). Today, the advice should be upgrade to a modern supplier management 360 platform that consolidates all of your suppliers and their associated information including, but not limited to, complete corporate profile, insurance and compliance, risk, sustainability/ESG/Scope 3, and any other information you need to do business with the supplier.

2. Conduct Frequent Educational Courses.

This is best practices 101 for any critical discipline within your organization, not just Procurement, and it’s relevant both for the team, and the people who need to interact with / depend on the team and / or use Procurement’s systems. Plus, overworked, and overstressed, professionals will learn better with frequent short courses (that they can put into practice) vs. a once a year cram session. The best advice here is to conduct frequent, specialized, courses on key systems and processes by role. And archive the materials online for easy access for refresh as needed.

3. Work on Supplier Relationships.

Supplier Relationship Management is Procurement 101 for strategic suppliers and has been for two decades. Nothing to learn here. Except make sure your modern Supplier Management 360 platform can support your supplier relationship management activities by tracking performance, agreed upon development plans, synchronous and asynchronous activities between all parties, etc.

4. Review Expectations with Suppliers.

Isn’t this part of supplier relationship management? Which, as we just discussed, is something you should have been doing since day 1. The advice here should be to make sure your modern Supplier Management 360 portal contains all of the agreements, milestones, orders, delivery dates, real-time performance data, development plans, and other elements that define supplier expectations.

5. Remain Open to Solutions of All Sizes.

While not very innovative, especially as written, this was the only other suggestion that Procurement departments need to hear. Consumer spending is flat or falling. Investment money has slowed to a trickle. Inflation is back with a vengeance, and budgets are being slashed to the bones. So you should be open to solutions of all sizes, especially when it comes to:

  • supplier management
  • process management
  • software / SaaS platforms
  • consulting

And especially SaaS platforms and consulting. If you haven’t looked for a solution to solve process / problem X since the last decade because it was too expensive, look again. When spend analysis first hit the market, it was a Million Dollar solution for software and services. A few years later, when BIQ hit the scene, you got more power and more value identified for 1/10 of the cost and low six figures bought you a full enterprise license and enough services to identify a year’s worth of opportunities. Then, a decade later, when Spendata hit the scene, a mid-market could get a full enterprise license for a core analytics team of 5 for $14,000 a a year, and for another $10,000, get enough training and guidance to use the software themselves to identify a year’s worth of opportunities from built-in templates and standard analyses. Same holds for any application you can think of — for any module you could want, someone has a SaaS mid-market solution for 2K to 3K a month. Not the 20K to 30K you would have paid a decade ago.

And for consulting, you don’t need a Big X where you have to hire a team at rates starting at 4K a day for the recent grad. You can hire an expert from a mid-market niche who is powered by the right tech who can do the work of an entire team for 6K a day — which is less than the Big X charges for the project manager who adds no value to your project.

We’ll tackle the next 5 in Part II.

Procurement Leaders Listen to Roxette!


How do you do (do you do) the things that you do?
No one I know could ever keep up with you
How do you do?
Did it ever make sense to you …

A recent article over on Procurement Leaders asks CPOs why do you do and notes that a recent exercise they’ve been carrying out has been to ask CPOs to share the value propositions they have in place for their function.

Procurement Leaders’ goal was to force extremely busy people to take a step back and think deeply about why they do what they do. What are the ultimate goals of those negotiations with suppliers? Why are they spending time building relationships with certain suppliers and not others? Where should scarce resources and investment dollars be spent? This is because while a value proposition for a Procurement department is not an easy thing to produce and even more challenging to agree and implement, the provocation can allow a Procurement Department to get back to strategy, think about how our decisions affect our stakeholders, suppliers and the communities we do business in.

And while a Procurement department should understand its value proposition, because it helps it focus and relay its value, getting everyone in the organization to agree can be a very extensive effort and extremely time consuming. Furthermore, when you consider the possibility that the “value proposition” ultimately agreed on could be such a mish-mash of different viewpoints and demands to the point that it adds absolutely no value whatsoever, just like a corporate “mission statement” when everyone gets to add their bit to it (and the end result is no different than what the Dilbert Mission Statement Generator used to generate).

However, if you look at the example questions Procurement Leaders’ quoted, you realize that while a vision might be a good goal, a better effort, or at least a better way to start, is to ask the C-Suite to outline it’s top goals for the year, and then for the Procurement organization to identify the best ways they can meet those goals. From there they can identify: which categories should be strategically sourced, which products or services are critical for them, which suppliers are likely critical, and then, for each project, define the value and the goal and not spend effort building relationships with suppliers who are supplying tactical products or services that can be just as easily obtained from the next three lowest bid suppliers and instead spend time developing relationships with suppliers who are critical, even if the overall spend is low. For example, control chips in cars and power regulation systems are extremely critical and often only (capable of) being produced by a few suppliers due to highly specific requirements or proprietary natures. Compared to the costs of the steel, the transmission, the engine and/or the batteries, and even the tires, the total spend might not even register when the chips are only a couple of dollars each — but if a supplier failure, logistics delay, or raw material shortage shuts down your entire production line because you didn’t see a shortfall coming and either work with your supplier to build up an inventory or work with the backup supplier to allow production to be ramped up quickly, hundreds of millions of dollars in revenue could be at stake.

Furthermore, no effort should be spent “strategically” sourcing a product or category where the payback isn’t at least 3X the cost of the manpower required to do so. If an automated multi-round RFX with automated feedback or a reverse auction will get you 99% of the savings and the last 1% won’t even pay for 3X the salary and overhead of the buyer, it’s just not worth it if this prevents the organization from sourcing a lower cost category with a 5% savings potential through better analysis and negotiation. Know the value, define the value, and only put effort in where there is real value to be gained. Otherwise, use appropriate automation or redefine categories and projects. (Definitely don’t go nuts and RFQ everything, because even the squirrels will know you’re nuts if you do. But maybe do some overarching sourcing or negotiation that you can just cut POs or one-time orders against for a year. Sometimes just negotiating for 20% off of lowest list price in a 30 day window [and carefully tracking and documenting those prices to prevent invoice overcharges] is enough to automate catalog orders.)

And similar logic applies to all Procurement (related) activities. While machines can’t replace procurement professionals, they can take over the tasks where their intervention doesn’t add value. That’s the point. So think before you act, and act appropriately.