Category Archives: Procurement Innovation

Knowledge is Power

So why would you want a platform that doesn’t embed any knowledge?

There is not a product or service in existence that cannot be made more valuable with information, and in technology, there does not exist a solution that cannot be made more valuable through embedded information. So why would you ever want a platform without it?

In fact, if the platform has enough embedded information, and can use it to power adaptive workflows built on top of robotic process automation, you’ll find that you might not even need any AI at all (especially if all it equates to is Applied Indirection). If the platform comes embedded with leading market knowledge for the majority of your categories, and you can define, and embed, rules with the help of experts to cover the rest, then you have the majority of what you need.

Because, at the end of the day, the best value comes from not only getting Spend Under Management, but making the best Sourcing / Procurement decision possible for the organization — and that can only be done if the organization has the right information. No organization has expertise in more than a few categories, and it definitely doesn’t have all the information. So having a platform that comes equipped with the best should cost models out of the box, integration to current market data feeds, and historical data on previous events (anonymized if necessary) to help organizations select the right type of even tfor current conditions is very beneficial — versus just a piece of dumb software that executes a canned one-size-fits-all workflow.

At the end of the day, the more you know about your raw materials, your components, your assembly / manufacturing options, your products, your shipping, the import and export restrictions and costs, and the inherent value of each product versus your other options, the more accurately you can model your options and make a good decision. The more accurately you can model your options, the better chance you have of determining the solution with the lowest cost, the lowest risk, the highest value, and the best value (defined as risk reduction, profit generation capability, etc — whatever makes sense) to cost ratio.

This is how leading Supply Management organizations can save 12%, off-the-top, in an optimization-backed information-enabled sourcing event — and even more if they collaboratively work with their peers to identify all of the options that may be available and all of the associated tradeoffs.

Plus, good, timely, information allows an organization to:

  1. constantly improve products and services by way of the fact that they are able to
  2. collect more relevant, timely, accurate, detailed, and integrated data.So get an information enabled platform – at the end of the day, it’s better than all the platforms with the fake “AI” that do nothing more than automate static, dumb, one-size-does-not-fit-all, workflows!

Driving Procurement Visibility: Why & How


Today we welcome another guest post from Brian Seipel a Procurement Consultant at Source One Management Services focused on helping corporations understand their spend profile and develop actionable strategies for cost reduction and supplier relationship management. Brian has a lot of real-world project experience in sourcing, and brings some unique insight on the topic.

Nobody ever suffered from too much clarity in their personal lives, and the same is true from an operational standpoint. Procurement teams that run most efficiently typically have a high degree of visibility – they use this view to identify cost cutting opportunities faster, and communicate them more effectively to get the job done quicker. They also don’t suffer the lost opportunity cost of letting maverick and tail spend savings slip through the cracks.

But I’m not telling you anything you don’t already know. For most organizations, the business case is already clear for increased visibility – the challenge is attaining this increase and using it to improve Procurement practices. So, how do we do it?

Keys to Better Visibility

Strategies for improving visibility can be broken down into three groups: Focusing our efforts on People, Process, and Technology will set the stage for the improvements we need.

Are Our People Set for Success?

The first step we must take is ensuring our human resources are up to the task. There are plenty of skillsets your team already has in place that are mission critical – strong negotiating skills, relationship management, and the ability to drive change are our bread and butter. What about data analytics, statistics, or tech-based skills needed to interact with the latest data management and visualization toolsets? These aren’t skills every Procurement team has readily available.

Closing this gap may mean bringing in outside hires. On one hand, we can quickly assimilate the skillsets we need by bringing in data scientist and analyst roles. On the other hand, this can be a tough sell internally, especially if you’re building a brand new data practice. The ROI will certainly be there in the longer term, but it may take some time to get to that point.

Another direction is to grow internally. Review the members of your team and assess their ability to pick up data analytics skillsets. At the same time, work with your IT team to understand what building up this practice will mean, and utilize their expertise to do so.

Do Our Standard Processes Encourage Visibility?

The best resources will still get hamstrung if they have to stick out outdated, cumbersome, or bureaucratic SOP. If our processes aren’t built from the ground up with visibility in mind, odds are good that they’ll pose a challenge down the road.

How many steps are there from the time a purchase is requested to a PO being generated to a supplier getting that order? I’ve seen some complicated processes built around this staple of Procurement activity, requiring the input and effort of multiple team members, stakeholders, and ultimate product/service users. Despite the heavy lift, everyone’s actions are siloed, with visibility only to the point of their own sign-off.

We need to rethink SOP – simpler processes requiring the effort of fewer resources (yet open and visible to many) is key. This is especially true any non-critical, easily standardized purchases. Anything we can do to automate these purchases or implement catalogs to support buyers is a win.

Do We Have the Right Tools in Place to Succeed?

Lurking behind both our People and Process goals is the set of technology tools we need in order to function. As with traditional processes, technology platforms and practices built without visibility in mind could become a bottleneck.

Before even considering the tools, themselves, think of the data they are used to marshal. It isn’t uncommon for these data sources to be diverse in terms of physical or logical location, ownership, update frequency, and other key variables. Implementing a master data management (MDM) methodology solves this issue by establishing a centralized “golden record” that serves as a single point of reference. This way, everyone has the exact same view of data, and knows exactly where to go to find it.

As far as important tech tools go, we’ve already covered the business case for a few. Are platforms in place to establish proper Supplier Relationship Management? Do we have an electronic procurement system that supports and promotes the use of PunchOut catalogs? Have we ingrained unified communication platforms into our processes to ensure proper communication at every step? Have we built dashboards that actually act like dashboards (offering an at-a-glance look KPIs instead of cramming a bunch of numbers on a screen)?

The Benefits are Clear

It is far easier to describe the steps above than it is to enact them. The road to improved visibility isn’t short, and requires more than just process change – better visibility requires an organizational mindset change from everyone involved in the Procurement process as well as those that support it or depend on it.

Yet the benefits are clear. Better visibility is critical to strategic sourcing and shines a light on all of the dark spend that our teams would jump to address… if only we knew about it. It also helps to reduce soft costs by streamlining our process, cutting out wasted time and energy to maintain manual, opaque practices.

Laying the groundwork today will ensure that our teams move into 2020 in the best position possible to impact our organizations.

Thanks, Brian!

Still Looking for that Supply Management Usability Guide!

Long-time readers will know that there are a lot of guides out there as to what a good Supply Management solution for Sourcing, Procurement, etc. should do — including a lot of advice on this topic here on SI and over on Spend Matters, but not many guides. And while the doctor did write rather extensively on the topic of usability in Sourcing, Supply Management, Procurement, and P2P over on Spend Matters Pro, there are still very few guides for usability. (Searches in major search engines still come up few and far between, even after our first post on the topic here on SI seven years ago).

As per our last post, if the provided software was so obvious and easy to use that even a fifth-grader could figure it out, then the issue of “ineffective instructions” is a small one. But the reality is that, even with most platforms that are attempting to adopt consumer-style interfaces, most procurement and logistics software is still reasonably complicated due to the complex nature of what a Procurement or Logistics package capable of supporting global trade needs to do.

The thing is, even though the functionality is well understood, the best way to lay out the functionality, and underlying workflow, is not well understood in comparison and, unfortunately, if one company builds an interface that is too close to a competitor’s for some standard functionality, instead of the formation of a standard, in America, we get a frivolous lawsuit (courtesy of the patent pirates). So even though there should be design standards, there usually aren’t.

And even when the best-of-breed providers finally figure it out, since most of their UIs are built on decade(s) old technology, updating the UI is no easy feat. Especially when the new generation of employees, the millennials, are expecting consumer like interfaces. But who has anything close to this? Coupa with parts of the core platform (which has been built and re-built repeatedly to be easy to use around core Procurement functionality) and advanced sourcing (built on TESS 6 built from the ground up to be eminently configurable); Zycus is on the right path with their dew drop technology, but it will take a while to upgrade the entire platform; Vroozi with their mobile-first philosophy is quite usable for what it does; Keelvar with their configurable automation-based workflows; and GEP with their new user-centric UI vision are not just a few examples, but the majority of examples.

In comparison in the S2P game, Ivalua is getting close with their configurable workflows, but it’s still not obvious how to configure the platform to make it obvious to junior users; Wax Digital is one platform on one code base and pretty simple (but based on older Microsoft tech that takes time to upgrade); Determine, based on the old b-Pack platform is very configurable, but older technology and far from a modern look-and-feel; and Synertrade is really outdated (but very powerful).

And if we go beyond the big names, when it comes to the smaller vendors, except for a few of the newer best-of-breeds, like Bonfire and ScoutRFP, usability has always been a second concern and while a few of the smaller vendors are updating their UI (like EC Sourcing which should be much more modern with a year), most vendors are definitely not there yet.

Hence, since most platforms aren’t consumer like, and not likely to be figured out 100% by junior users without training, we still need that Supply Management Technology usability guide — especially since none of the platforms mentioned above with “modern” interfaces have the same workflows for the processes they support.

And what about the poor organizations who still have a mishmash of five generation one or two systems with inconsistent interfaces and workflows? What hope do they have of making sense of the full inter-related capabilities of their systems? Very little.

And while the doctor knows more than ever that the very nature of software, which is always evolving, makes such a guide difficult (and that this particular challenge is compounded by the fact that America still allows software to be patented so the pirates can plunder), but there should be at least some standard workflows and processes that all sourcing, procurement, and logistics software should attempt to follow in a reasonably standard way. It would make things easier for all supply chain partners, minimize unnecessary stresses and bumps, and help us evolve the profession as a whole. But alas, it will probably be another seven years before we get close to a real usability guide.

How Much Unmanaged Tail Spend Should You Have?

It’s hard to say, but it should be a lot less than you do. In most organizations, “Tail Spend” is 20% to 40% of total spend that should be managed by Procurement, but isn’t for various reasons.

It includes a whack of spend that includes, but is not limited to:

  • one-time buys for a new hire
  • short term buys to replace supply lost to a supply chain disruption
  • temporary services
  • one-time buys for a trade-show or event
  • one-time MRO buys for replacement parts
  • “small” purchases for recurring orders under a certain volume or cost
  • etc.

But how much of there really deserves to be there? In theory, none of it, but in practice, some of it will always be, but it should be less and less as time goes on … and certainly a lot less than 30%.

Why?

Let’s start with the above:

  • one-time buys for a new hire should be a standard kit, which shouldn’t change more than once a year, and since volume can be projected based on hiring patterns, any significant spend is good fodder for, and should be, either a sourcing event or a pre-negotiated catalog-based buy
  • if proper sourcing was done for a critical part or item, then it should be easy to switch supply to the secondary supplier with only a minor disruption
  • temporary services that recur should also be on a master contract that should be strategically sourced
  • trade-shows and events costs tens of thousands these days; if you’re holding the event, you should have an RFI to select the most cost effective venue and most of the items you buy are in bulk and should be auctioned or 3-bids-and-a-buy sourced
  • replacement parts could be put on a master contract when you buy the equipment that you know will need replacement parts; you can define a max price and have the option to buy or go to a third-party if a third-party alternative comes along in the future and have the spend at least partially managed
  • just because volume is only a few thousand or spend is under 100K or 1M does not mean the category shouldn’t be sourced; if there’s 15% overspend that’s 15K that could be captured even in a simple event that might only cost 5K of resource time or 150K that could be captured only in 15K of resource time; and if 2/3 rds of that could be captured by automation (automated auctions, etc.), why not?
  • etc.

The reality is that you should not have very much tail spend.

What is a Good Foundation for S2P Tech?

A couple of weeks ago in our posts on What Elements Should You Be Looking For In A Platform (Part I and Part II) we outlined some of the key platform requirements we are looking for in the new Spend Matters SolutionMap (where Sourcing, SXM, Analytics, and the vast majority of Common Platform requirements were defined by the doctor) to give you a hint, but it’s a lot to take in.

And might be more than you need today when you just need to solve a few major pain points and advance on your S2P journey, especially if you still don’t have any dedicated modern technology or are still on Procurement 1.0 when most of your peers are on Procurement 2.0 and the leaders are starting on the Procurement 3.0 journey. (As per another recent post, while there’s a lot of talk about Procurement 4.0, we won’t see it for another 8 years based on history. 1.0 started around 97 with FreeMarkets and the emergence of stand-alone players. 2.0 started around 2007 with the first mini-suites [S2C or P2P]. 3.0 began around 2017 with the rise of the true [mega] S2P suites and integration that allowed for the pursuit of value where the whole is greater than the parts. 4.0 will began around 2027 based on the rate of historical development.)

But it’s not necessarily more than you will need in time. Especially if you want to reach the height of Procurement 3.0 with your peers when it materializes later next decade.

But we do recognize that you won’t need it all today. So what do you really need to look for in the first go-round? Especially if you can’t have it all or can’t become enough of an expert to evaluate it all?

While the most important capabilities do depend on the specifics of the technology you’re buying and the problem you need to solve, there are a few general capabilities that need to be there regardless, and these * capabilities in particular must be there in every solution you buy if you want to have any hope of “future-proofing” your platform.

  • Configurable Workflow
    Preferably with RPA support. Let’s face it, whatever process you use today won’t be the process you use tomorrow, especially as you mature in your processes and best practices, the partners you work with change, and governmental regulations continue to change the way you have to report.
  • Open / Extensible API
    that supports both 3rd parties integrating with your platform and the development of interfaces to integrate with third party platforms through their open API. Your platform will never do everything, no matter how much you want it to. It’s software, not sorcery. So the ability to extend it with ease is critical.
  • Dynamically Extensible Data Model
    that you can do, not a third party or the provider. Because you never know every piece of data you’re going to need until you need it.
  • Globalization Support
    including the ability for a user to select their language and overrides, the organizing to define new currency exchanges and projections, and IT to define where the application instances are hosted and where the data is stored (which may need to be segmented for a global organization)

This is not to say that other technical requirements are not important, but that without these, the life expectancy of your platform is limited, to say the least.