Category Archives: Procurement Innovation

It Was Nice to See Procurement Get a USA Today Headline, But …

… it would be nicer still if the article made any sense!

Last month, the USA Today ran an article on How to Optimize the Procurement Lifecycle of Your Business that gave the doctor hope that maybe Procurement would get a sliver of the just desert it deserves. But, alas, the article was yet another example of how the big publications don’t care, don’t actually verify the content, and allow whatever big company gets their attention to push their agenda.

Because SEO has no place in any article on “How to Optimize the Procurement Lifecycle of Your Business”. Sales cycle, maybe. But Procurement cycle? Not a chance!

Let’s back up.

The article starts off by noting that understanding the procurement process is vital to improving cost efficiency, ensuring quality procurement solutions, and staying compliant with regulations, which is all true, and all critical to any business (among other things, but you can’t overwhelm the average reader who’s likely not a Procurement expert). It also notes that the procurement process is fraught with complexities and challenges which is also true, and also critically important for a non-Procurement person to understand.

Then it says that optimizing the procurement process entails the use of modern technologies, insights, and strategies, which gave the doctor hope that maybe it would help an average user understand what kind of technologies the organization needed, what insights the technologies should provide, and what types of procurement strategies the organization might want to consider.

But instead of actually providing these key insights it goes on to say that inefficiencies in procurement management can lead to increased costs, delayed deliveries, and compromised quality, which, while also true, is not that helpful at this point (and should have been listed as examples of the complexities and challenges highlighted above). It used this as a lead in to how modern point-of-sale (POS) systems are instrumental in dealing with inefficiencies, WHAT THE HELL?, which is used as a lead in to a whole section on digital transformation: incorporating SEO for Procurement Optimization, WHAT THE FUCK?

A POS solution is NOT a Procurement solution, and it’s certainly NOT instrumental in dealing with inefficiencies in Procurement management. Procurement is about acquiring the product an organization needs when — and where — it needs it. While a modern POS system can push roll up data into the inventory management system which, in turn, can generate forecasts to feed Procurement, a modern POS system is not necessary because all Procurement needs is sales projections, and if the delivery timeline from the source in Bangladesh or Shanghai is 45 to 60 days, it only needs 60 days of granularity, not sales data by the hour! Logistics will need that granularity to do finer forecasts to push stock where it is needed before it is needed, but NOT Procurement.

But the cardinal sin of this article is claiming that incorporating SEO techniques into the digital transformation strategy of the business can add another dimension to procurement optimization. No NO NO NO NO! The article claims that with SEO techniques, businesses can reach out to a wider pool of global suppliers, which is completely false because THAT’S NOT HOW SEO WORKS! SEO helps people doing searches find sites that match certain keyword searches, and, thus, would only work if the potential supplier has a sales person who is actively using the internet looking for new customers, who is using the keywords that the site has been SEO’d for, and who is searching in the organization’s language and in the organization’s geography (as most search engines prioritize same language results in the region). In other words, the chances of a supplier you might actually consider finding your SEO-optimized site and reaching out to the right person at your organization is only slightly better than you winning the grand prize in a mega-millions lottery.

The proper solution for finding new suppliers is a supplier discovery / network solution like
Apex Analytix,
Graphite Connect,
MFG,
Onventis,
Promena,
ScoutBee,
Supplhi,
supplier.io, and
Tealbook.

NOT SEO!!!

So, even though Procurement is the life blood of the business, when it comes to mainstream coverage, Procurement Don’t Get No Regard, No Regard At All!

The One Sign You Don’t Have a Highly Functional Procurement Department

Recently, on Linked In, Anders Lillevik, who (once) tried to buy and drowned in paperwork (which is why he decided he needed to find a Focal Point), decided to post what he thought were the six signs your procurement efforts aren’t delivering the impact they should. In his view, they were:

  1. No spend visibility
  2. Unhappy customers
  3. Backlogs and delays
  4. Poor supplier relationships
  5. Reliance on manual processes
  6. Department is seen as tactical, not strategic

… which were signs that your Procurement department is not delivering, but not the one sign you have to look for to determine whether or not you have a highly functional Procurement department, since these are all symptoms of a single root cause. In fact, if you wanted to go down this route, instead of identifying the core problem, you could also add the following to Anders’ list:

  1. Spend is spiralling out of control while the
  2. Company is having to fire-sale / toss out expired products and outdated inventory on a quarterly basis and
  3. Your brand is in the toilet thanks to excessive carbon, poor working conditions / human slavery, and excessive waste (and wasteful practices) in the supply chain.
  4. Every department head is screaming “The Sky is Falling!”, “The Sky is Falling!”.

… as these are also signs that your procurement efforts aren’t delivering the efforts. But if you want to know whether or not you have a highly functional Procurement department, all you have to really do is answer this one question:

Do you have a strong CPO providing quarterly metrics charting success improvements over time?

Now we know this is a bit of a cheat, as it’s actually two parts, as just thinking you have a strong CPO is not enough, you need the metric-based reporting to verify, but that’s it. If you have a Strong CPO leading a procurement team charting key metrics across all relevant areas, key categories and initiatives get managed, and, eventually, improved. Moreover, you will find that:

  1. you have great spend visibility across all Spend Under Management (SUM) which will increase over time
  2. you have happier customers as your quality, reliability, and predictability improve in key areas and remain consistent in others
  3. backlogs reduce over time along with unexpected supply chain delays
  4. supplier relationships, at least for key products and services, improve
  5. process automation is employed where appropriate
  6. the department starts to assist other departments with strategy, and begins its journey from tactical to strategic
  7. spend increases are at least contained to inflation
  8. inventory management (and inventory loss) improves
  9. improved supplier vetting and risk analysis weeds out any suppliers known to be exceptionally polluting, use sub-tier suppliers that turn a blind eye to working conditions or slave labour, or be completely indifferent to CSR activities
  10. the department heads stop screaming “The Sky is Falling!” and instead scream “Why Is Everything So Bl00dy Expensive!” (even though Procurement consistently meets or beats market prices)

Not perfect, but all signs that your procurement efforts are delivering the impact they should, or at least getting there.

Why Should Small Businesses Invest in Procurement Software?

Plenty of reasons, but the doctor was surprised to see that one of the best articles for a small business layperson that listed some of these reasons was an article on Intelligent Living on 7 Reasons Why Small Businesses Should Invest in Purchasing Software. While e-Procurement vendors are usually targeting mid-size, or larger, organizations (as they want 6-digit deals, and small businesses can’t afford more than 5-digit deals, and micro businesses not more than 4-digit deals), e-Procurement software, especially turn-key self-serve software, is beneficial for small (and micro) businesses as well because it helps organizations of all sizes.

All organizations spend money, and as a result, all organizations can overspend, get defrauded, spend too much time on tactical (thunking) tasks, etc. Low-end baseline 80% e-Procurement solutions can help them immensely, even those that cost as little 500 to 1500 a month. (Yes, they exist. After all, why did the doctor say that 120K is enough for full Source-to-Pay.)

The article points out the following seven (7) benefits of e-Procurement solutions in everyday layman terms which an average small business person should be able to understand.

Automated Purchase Orders
Quickly generate accurate purchase orders from catalog items or repeat buys and push the orders into your Accounts Payable (AP) and/or inventory systems.
Vendor Management
Unified view, complete order and contract history, and automated alerts.
Budget Control
Set budgets, monitor spending against budgets in real time, and set alerts when budgets are (close to being) exceeded.
Real-time Analytics
Real-time spending reports against up-to date data with simple trend analysis.
Enhanced Security
SaaS providers that have industry standard security certifications need to stay on top of cyber security, something the average small business would really struggle with.
Integration with Other Systems
Most small businesses are not very tech-savvy and a platform that integrates with the other systems they use is very useful to them.
Scalability
Most of this software can scale up to support more users, more catalogs, more POs, more transactions, etc.

In fact, as a small business, the only other things you would care about starting off is:

Invoice Matching
to make sure the invoice matches the PO (or is from a known vendor if it’s for a one-time off-catalog product or service you wouldn’t normally do a PO for)
Contract Tracking
basic governance with document storage with searchable, indexable, metadata for quick location for price and term verification

Again, e-Procurement is great for small businesses (and some of the providers in Part 37 of our Source-to-Pay+ Series are priced right for smaller businesses). It’s even greater to see plain language explanations of the benefits that small business owners can understand.

Finance and Procurement Need to Collaborate, but Sometimes the Relationship Needs to go Beyond the Financial Viewpoint

A recent article over on Financial Executives on Why Finance and Procurement Need to Collaborate For Success made some very good points …

The article in question, which noted that how companies approach expense management will become a top priority with the economy heading into uncertain times summarized an interview with Matthew Smith, CFO & CoFounder of finetune, a full service expense management firm focussed on select complex categories (such as uniform rental, waste & recycling, pest control, energy & utilities, and security) for large clients. In addition to the baseline assessment, sourcing, implementation, and ongoing management (which many BuyDesk operations will do), they also do regular auditing, which is key to ensuring you get what you pay for because, as Matthew said, where the rubber meets the road in expense management is what happens after the contract is signed.

Matthew believes that expense management does need to be its own thing and that there has to be a coordinating element between the affected functions, which always includes Procurement (which is responsible for placing the order and managing the contract) and Finance (for paying the bill) and then the department(s) that are using the goods or services being procured. Especially since the vendors will give up a lot in the negotiations, and then do their best to get it all back through change orders and off contract-purchases of items not covered under the contract. In addition, analytics is becoming critical, but most organizations have bad data. However, without the necessary expertise, the data won’t be clean and the right calculations can’t be done. Procurement can identify the good data and Finance can identify the key analysis that needs to be done. (Not ChatGPT, which is hallucinating and getting all those bad answers and producing false information. Matthew’s words, but the doctor couldn’t agree more.) Furthermore, without a good understanding of the entire situation from multiple sides, you don’t know when incentive are good or bad.

Expense management is a key area where Finance and Procurement needs to collaborate because it takes both departments to prevent overspend, and the article was a really great deep dive in this respect, but it’s not the only area. Working capital management is also key. Managing expenses is a great start, but the goal should be improved working capital management. If both departments work together, and with other organizational departments, to appropriately predict demand and utilization, and optimize payment terms, then the organization can do accurate cash-flow forecasting and working capital can be optimized. And that can truly only happen when both departments collaborate.

A CPO Leading a Spend Management Strategy is a Key to Organizational Success

Not that long ago, the doctor gave you THE SIGN that you need a CPO which, directly put, was that your organizational spend was over 10 Million a year. No ifs, ands, or buts about it! Not long after, he found this article over on CXOtoday.com which pointed out that empowering business success was The Art of Mastering Spend Management. This article stated that companies should consider implementing a spend management strategy, regardless of their size and it made him happy (even though the article looks like it was written by a junior copy-editor* who just cut and paste standard spend management summary sentences from generic spend management publications as it was not very deep or specific) because CXOs need to hear this at a high level over and over and over again until they get it. (Note that the doctor doesn’t get happy often. Most articles just make him angry. Sometimes very angry, especially when the conscientious invoke their right to dare to be stupid and embrace artificial idiocy, but that’s a rant for another day.)

The article starts off by clearly stating that a spend management strategy plays a vital role in today’s economic reality as it enables companies to control costs, boost financial efficiency, and make informed decisions. It ensures resource optimization, agility, and long-term stability, enhancing competitiveness and adaptability in a rapidly changing business landscape.

This is most certainly true. And all one has to do to see that it is true, and it would have been so much better if the article said this, is remember the first formula they teach you in business school:
Profit = Revenue – Expense

Since Spend Management allows you to minimize expenses, this helps you maximize profit. And when you consider that
Margin = Sale Price – COGS      and that
Margin % = (Sale Price – COGS) / Sale Price      and that
Margin % for most industries <= 10%

This says that every $1 saved in expense generates at least as much profit as every $10 increase in sales. As a result, spend management is at least ten times as effective as sales or marketing and key to get a grip on early, even before you can afford the full time CPO. The CFO and COO should develop best practices for any decisions that result in spending, monitor the decisions, ensure corrections are made (and employees [re-]trained) when mistakes are made, and baselines generated for all recurring costs. Even though they might not realize the same level of success as an experienced and dedicated CPO, the baselines they generate and the knowledge they capture will be key when the CPO starts as the knowledge will allow them to dive in quickly and find near-term and mid-term opportunities for improvement (and cost reduction) and the benchmarks will allow them to not only prove it, but ensure that all bids received are competitive.

The only thing we want to note is that the important aspects of spend management, especially for smaller organizations, are:

  • strategy,
  • process (that implements the strategy), and
  • governance (that ensures the process is followed and the strategy implemented)

Technology is not critical (or even necessary), and only technology that supports the process (and collects the appropriate data) should be implemented.

This is important to note because this article is sponsored by a particular vendor in an effort to promote a particular product (which is only good for T&E spend, not all organizational spend) and you don’t necessarily need that technology (or any other instance of that technology) to have a spend management strategy and do proper spend management, especially if you are a smaller organization. (However, larger organizations do need good T&E spend management, and spend analysis, because flowers should not be $5,000 unless it’s a greenhouse.)

* but what should one expect considering it was sponsored by SAP to promote SAP Concur (and routed through their PR Agency)?