Category Archives: Procurement Innovation

For Those Who Recently Adopted Sourcing, Start Thinking About Next Generation Sourcing Now!

SI has been about next generation sourcing since the day it began. No matter how good you think you have it now, it’s not good enough. Why? Most of you are still on last decade’s sourcing platforms which, especially if you never had anything like them before, is a great start (and maybe beyond your wildest dreams if you were in e-mail and spreadsheet world), but not good enough. What you are going to find out, as SI told the Procurement leaders seven years ago today in its post on Next Generation Sourcing, all good things come to an end.

As we noted for those of you with first generation and early second generation systems,

  • Once you institute RFX, the manpower savings from automating bids can only be claimed once.
  • By the time an organization gets to the third auction, there are no more savings to be had as the fat from supplier margins has been squeezed out.
  • Once the allocation has been optimized across the supply base in a way that minimizes unit costs, transportation costs, (interim) storage costs, etc., re-running the optimization won’t lower costs further unless something changes — such as the identification of a new supplier, an alternate material (that is cheaper), additional demand (that increases the economy of scale), or a more powerful optimization model is provided.
  • Once contract management and monitoring is put in place and no invoices are paid that are not for delivered, defect-free products, at contracted rates, there is no little on-contract leakage to be stopped.
  • Once controls are put in place to stop off-contract purchases that should be on-contract (through integration of the e-Procurement system with the Contract Management system), there is no little off-contract leakage to be stopped.
  • Once spend analysis has identified all the opportunities, the savings won’t actually materialize until something is done about them. This something cannot be appropriately identified unless the appropriate information is available to the knowledge worker

And, more importantly, for those of you with later second generation systems:

  • Once a SIM with a powerful supplier portal and information / (compliance) documentation monitoring and alerting system is put in place, there is no additional time savings from information maintenance offloading.
  • Once a SPM which automatically collects organizational data and metrics is put in place, there is no additional time savings from automating supplier scorecard production.
  • Once a SRM with proper corrective action requests / corrective action monitoring and integration system is put in place, there is no additional time savings from quick-and-easy semi-automated resolutions.
  • Once an audit recovery system is put in place that not only 3-way matches invoices but identifies when rebate or discount targets are hit and automatically applies the discounts to current and future invoices, there is no more savings from high-priced audit recovery services.
  • Once integrated contract negotiation and e-Signature is implemented, there is no more process time savings from being able to track all updates by both parties and do sign-offs quickly.
  • … and so on

At some point, your year-over-year returns will start to trail off … somewhere between the three and five year mark, depending on how much spend you are able to put through managed sourcing events every year and how much you are able to use the system to support it. So don’t stand still. Start identifying your biggest weaknesses and looking for the next generation system to address them when the opportunity costs of not taking advantage of the opportunities you are missing gets too high.

So where do you start? Stay tuned.

The Real Reason No One’s Buying Your Traditional Contract Lifecycle Management System … Part II

Yesterday we noted that the real reason no one’s buying your traditional contract lifecycle management system has not changed in eight years. That we’re still in the situation that, to be blunt, many of these solutions can still be built by a high school student with Microsoft Word and Access and mad visual basic scripting skills. A situation that, to be blunt, is pretty pathetic. We also noted that, when we first addressed the subject eight years ago, SI was only able to identify one true value of a CLM system — a value that only materialized from deep, real-time, integration with the P2P (and, to be honest, only used the metadata).

Since then, SI has only identified three other sources of true value, but, as we explained in yesterday’s pst, one of these can still be accomplished by a high school student with Microsoft Word, Microsoft Access and mad visual basic scripting skills.

So when does a system provide true value? When it offers one, and preferably both, of the following:

2. Prescriptive Analytics

And we mean true prescriptive analytics. Just integrating a third party analytics platform, like Qlik, and creating some fancy reports based on standard operational metrics (like turnaround time, new contracts per month, average expiry rate, etc.) is something that can be done by the script kiddie with an open source reporting engine. And even throwing in some predictive trend analytics isn’t that valuable as their are open source libraries with dozens of textbook algorithms to throw against your data set.

We mean real prescriptive analytics that takes the data, runs the trends, compares it to a knowledge-database of standard times across companies and industries, identifies those trends that improved with the application of one or more specific actions, and recommends those actions to decrease turnaround time, automate renewal processes, negotiate better results in a category, industry, or geography, etc. True situationally aware intelligence. That’s true value #1.

3. Semantic Intelligence

Let’s say a new compliance requirement or initiative you never expected comes at you out of left field and you have 3 months to get in compliance. You don’t track any metadata associated with it, only started using clauses in the past two years that might cover the requirements, but it really depends on the variant of the clause used, the geography in which it was used, and the rest of the contract. How do you identify which contracts are likely to be in non-compliance quickly and those that definitely need human attention without actually manually reviewing each contract without a clause you are sure is safe? Of which there could be thousands?

This is where a modern machine-learning backed semantic intelligence solution that can automatically scan, parse, index, and make sense of all your contracts comes into play. A solution that can, from enough examples of sufficiently compliant and/or irrelevant contracts (across the industry, not just your company) determine those definitely not in compliance and those most likely not in compliance and give you a probability. One that can also determine those contracts that can be eliminated from review due to expiry or coming expiry and those coming up for renewal that need one or more clauses inserted and automatically identify the right personnel. One that get’s it right 95% to 98% of the time, a success rate that will be better than the temp manpower you’d otherwise have to higher.

These solutions didn’t exist 8 years ago. But now we have almost a dozen players, mostly new, with this type of functionality — which you won’t yet find in most suites. So if you want your suite CLM to have value, better find one of these new, standalone, BoB contract intelligence platforms that can integrate and integrate it. You’ll finally be able to drill deep enough to extract gold from the claim your original CLM vendor sold you, that, up until now, has proved worthless.

So if you want real value from a CLM solution, get one that embeds natively with your P2P through APIs, offers integrated prescriptive analytics, and provides you with modern semantic intelligence capabilities. Then you will truly find value that you could not find before.

The Real Reason No One’s Buying Your Traditional Contract Lifecycle Management System … Part I

… has not changed in eight years. We’re still in the situation that, to be blunt, many of these solutions can still be built by a high school student with Microsoft Access and mad visual basic scripting skills.

Think about the following selling points:

Centralize all of your contracts

Guess what – so does a file server with a shared root drive.

Automatic Contract Generation from Standard Clause Template Libraries

Microsoft Word Template with some embedded scripts to select the right version of the clause based on product or service category and/or supplier geography.

Quick Query and Custom Ad-Hoc Queries

An access database with the right metadata fields, indexes, and a good script kiddie.

Change Tracking during Negotiation

Microsoft Word (as long as both parties are honest) and a Shareware file difference tool (if they are not).

Secure e-Signature

Usually through integrated DocSign or another e-Sig tool anyway!

Budget/Completion Tracking on regular refresh

Regular status file export from your P2P tool and import into the access database.

Get the picture? The value of a traditional contract lifecycle management solution is quite limited, especially compared to the enterprise price tag it comes with.

The only value SI was able to identify eight years ago was if it real-time integrated with your e-Procurement / P2P solution and be used to automatically check and verify all invoices and time-sheets in real-time against the contracts before they were queued for approval to make sure they were for valid products or services at agreed upon rates.

Since that time, SI has identified only three other true sources of value.

1. Compliance Insurance

A new regulation is coming into effect, or the company wishes to enter a new region or country and needs to comply with a regulation it previously didn’t. Part of this insurance requires making sure that the supply base is (contracted to be) in compliance and/or the products or services it is buying are in compliance. This requires identifying all contracts that relate to the new move, all of those that need appropriate clauses, and all of those that might relate to products or services that need to be automatically checked.

But guess what? This can also be done on the home-grown solution built by a script kiddie with Microsoft Office. If the contracts are generated from templates, you can see which ones *have* the clauses. If the products / services are extracted into the meta-data you can quickly see which contracts have to be scrutinized. Etc.

In the end, there are only two true values that a modern contract lifecycle management solution, and it is still the case that a number of big name solutions don’t have either. What are they?

Come back tomorrow!

The Key to Successful Supply Management? No MoBAs, no PiMPs, and no Paper Pushers!

SI has said it before (back in our post on the key for a successful supply management center of excellence? No M(o)BAs and no P(i)MPs!), and will say it again. Successful Supply Management relies on supply management expertise and experience, not on meaningless business models and knowledge-free project management frameworks. (SI believes that individuals who only have MBAs are just Master of Business Annihilation!)

Remember, not only is it the case that you can’t manage what you can’t understand, but all you can do if you try is make it worse! Supply Managers are overworked and under-resourced, and any misstep has a ripple effect throughout the supply chain — one that can go from a minor delay to a major catastrophe. Management knowledge and project management skills are good things, but whereas supply chain is concerned, only if this knowledge and skill is added to a fundamental understanding of the supply management process that needs to be performed.

But simply eliminating the unknowledgeable MoBAs and PiMPs is not enough anymore. You must eliminate the paper pushers as well. You see, in a modern fast moving supply chain, there is no time for tactical people who only receive, process, and send e-paper. Especially when the majority of this work can be automated by modern machine learning / automated reasoning systems. In a modern supply management organization, personnel need to be educated and experienced in their roles and focus on making sound, strategic decisions. They need to identify potential problems as soon as they arise and resolve them. They need to identify a changing market landscape as the change begins and the potential impact on the supply chain and the organization. They need to assure supply and regulatory compliance. And so on.

And they need to be able to identify, implement, and make use of modern cognitive systems that can help them identify what needs to be analyzed, what needs to be addressed, what needs to be done, and the best ways to potentially go about it. The individuals who can do this are not PO paper pushers or AP invoice processors. They are knowledgeable and capable sourcing, procurement, and supply management experts who know their domain, and the tools, first and the business and project management second.

Will this be the year we traverse the supply chain plateau? Part II

In yesterday’s post, we noted that five years ago we covered a piece by the Supply Chain Shaman who believed we had reached the supply chain plateau. And while SI did not agree, SI agreed that progress had completely stalled. And SI believed that the root cause of the issue was manpower capability. Precisely, the fact that most executives do not understand the supply chain from a holistic perspective, treating each step as its own function (and disassociating NPD/Design from Sourcing (a manufactured product) from Logistics and Distribution, when they all have to be examine and managed as part of an integrated supply chain. And the fact that neither do the function managers. Moreover, these function managers often do not even understand the best practices associated with their job.

And SI believed the root cause of this was a lack of education — most Supply Chain / Supply Management / Sourcing / Procurement / etc. managers don’t leave college or university with a solid supply chain background, as few institutions offer such programs, and they haven’t been properly trained. Add this to the fact that year over year training budgets are slashed and leaders are run ragged fighting fires and dealing with tactical issues instead of being given time to focus on long-term strategy, how the supply chain works, and how it should work for optimal performance and optimal corporate gain.

Now, it’s true that the education issue hasn’t improved much in the last few years, but what has improved is the technology to provide executives and function managers both with a more holistic view and guidance as to directions they can take. Modern cognitive technologies backed by machine learning and automated reasoning, which can process millions of data records in near real time, identify trends, identify outliers, identify normal behaviour, identify typical responses, and so on, can present executives and managers with holistic views that let them understand not only what their options are, but what impact it has on the immediate problem and the supply chain as a whole. Ripple effects through the organization and the chain can be predicted and an informed decision made with the known impacts in mind.

Companies will know not only the impact of a delayed payment, but the benefit of an early payment as well as the trade-offs between JIT delivery and maintaining raw material inventory or the benefits of combining volume with a single supplier for more cost-effective shipments from a closer supplier. And so on.

If we can’t fix the education, at least we can fix the holistic understanding of the impact of a decision. And while we don’t have systems for all situations yet, you can bet they are in development. Maybe 2020 will indeed bring 2020 vision to some supply chain areas!