Category Archives: Procurement Innovation

Could Strategic Sourcing Save the US Government?

It’s a hard question to answer, but when you consider the fact that Joe Jordan, administrator of the Office of Federal Procurement Policy just said that our government is the largest purchaser in the world, but it buys as if it were 130 mid-sized businesses. We’ve got to leverage our buying power, you’ve got to think about it. Especially when a recent report from the IBM Center for The Business of Government by David C. Wyld estimated there are 8.9 Billion in Savings to be had in US Federal Government Spending Alone just by using public sector reverse auctions on a mere 75 Billion of Federal Spend identified as appropriate for reverse auctions.

When you think about the fact the the U.S. Government Budget for 2012 consisted of 3.796 Trillion of Expenditures, with 716 Billion going to defence, 56 Billion to International Affairs, 31 Billion to Science, Space, and Technology, 23 Billion to Energy, 43 Billion to Natural Resources and Environment, 19 Billion to Agriculture, 103 Billion to Transportation, 32 Billion to Community and Regional Development, 361 Billion to Health, and 62 Billion to Administration of Justice (which adds up to 1.446 Trillion, where you know manpower costs are probably less than half, you have to believe there is at least 750 Billion of Federal Spend that is appropriate for strategic sourcing. At least. Slap on the expected 12% expected average savings if the Federal Government bought strategically using its buying power, and we would expect there are at least 90 Billion in what is likely low-hanging fruit savings opportunities just waiting to be plucked. At least. Now, it’s true that this wouldn’t even cut 10% off the deficit, but if the US returns to a balanced budget in the near future, and strategic sourcing saves the company 12% of sourceable spend, then even if sourceable spend is only 50% of the entire spend, the company will be saving 150 Billion a year, and that adds up quite fast!

According to Jordan, strategic sourcing could perhaps apply to $150 Billion of $500 Billion under his (direct) purview. It’s only a fraction of the total spend that eventually needs to be strategically sourced, but it’s a good start if addressed. That would likely give the government savings of 15 Billion to 18 Billion and an incentive to force strategic sourcing through all the agencies that receive and/or control government funds.

And the savings will be magnified if the office really does improve the government’s records on contract past performance and takes advantage of inspectors’ general work in exposing waste, fraud and then suspends and debars “bad actor” contractors from getting work. (While some governments don’t believe past performance should be used against bidders in future RFPs, those of us in the private sector know that is the among the stupidest ideas ever and you don’t give a non-performer more work.) It’s one thing to overspend on a contract by 10%. It’s another thing to overspend by 100% because you awarded the contract to an entity that could not deliver.

And if Jordan is convinced that the office needs good, timely and robust past performance information and uses this as an incentive to evaluate the use of data to drive fact-based analytics in the acquisition process and moves to spend analysis and decision optimization / support systems, the savings opportunities for the U.S. Federal Government are an order of magnitude above what even the biggest corporations can hope to save with advanced sourcing efforts. For the US Federal Government, strategic sourcing is definitely worth the effort it will require.

And, for sure, this is another arms race the UK doesn’t want to win.

Looking for a Value Generation Opportunity?

Then consider starting out with the five C’s of opportunity identification (for would-be innovators), as outlined by Scott Anthony on the HBR blogs.

  • Circumstance
    The specific problems a stakeholder cares about and the way they assess solutions is very circumstance contingent. For example, when beginning a new advertising campaign, Marketing is clearly interested in who can create the campaign most likely to convince a customer to part with dollars and not how much the invoice for the materials will be. However, the marketing assistant charged with obtaining 10,000 flyers and 100 posters for an upcoming conference will likely be much more cost conscious as she will likely be questioned by the CFO otherwise.
  • Context
    Ask a stakeholder to report what they did in the past and you are likely to get something that bears only a loose resemblance to reality. Ask a stakeholder to describe what they will do in the future and you are going to get guesses that are less than accurate. Most people have no conscious memory of how they do routine tasks or any real idea of how they will accomplish a (new) task in the future. If you really want to understand how something is done, you need to watch as it is being done. And if you want to get a good feeling as to what kind of solution will please the stakeholder, watch as they try to solve the problem. Get some insight into how they think! How is Operations managing their temp labour contracts?
  • Contraints
    One of the time-tested paths to growth is to develop an innovative means around a barrier constraining consumption. If your e-Sourcing platform is not being used outside of your core buying team, then it is probably too cumbersome, too incomprehensible, or too demanding. As the author notes, understanding why a customer doesn’t consume is critical. Something new typically isn’t enough. And simply replacing Big Vendor Product X with Big Vendor Product Y isn’t guaranteed to solve the problem if Big Vendor Product Y is also missing critical path function Z.
  • Compensating Behaviours
    One of the biggest challenges facing the would-be innovator is determining whether a job is important enough to consider targeting. One clear sign is a stakeholder spending money trying to solve a problem. Another clear sign is they are trying to use a product in an unintended way to try and solve a problem. Unfortunately, if the tool is a spreadsheet (and they are misusing it horribly), it probably means they aren’t willing to spend money, at least in Supply Management – so don’t get your hopes up!
  • Criteria
    Stakeholders look at jobs through functional, emotional, and social lenses. Quality is a relative term; you can only determine if a solution is good by first understanding the criteria that matter to a particular stakeholder. If they care only about new market acquisition, a cost discussion is a losing battle. Only about innovation, a strategy to extend the longevity of the current product is a losing battle.

One Size Does Not Fit All – That’s Why You Need User Configurable Workflows

Andrew just posted a great post over on CPO Rising on how One Size Does Not Fit All where e-Sourcing and e-Procurement is concerned. As Andrew astutely notes, process standardization is very important within Supply Management, but having only one option for e-Sourcing or e-Procurement events is certainly not the way to go.

One has to remember that even in the simplest classification scheme, you will break your events into quadrants based on dollar value and business impact (or supply challenge and business impact). For low value, low impact events, you’re not going to use a process that requires a lot of time and effort, because you need that on high-value, high impact categories. Similarly, you’re not going to use an automated e-Auction for a high-value, high-impact category and essentially throw the category to the wind. As Andrew notes in the first example in his post, if the process is set up for large, high-value, multi-stakeholder process, it’s not going to work for small, low-value, single stakeholder processes as it will be too cumbersome and your buyers will do everything they can to bypass or ignore it.

In order for your solution to work, it needs to support multiple project configurations that can be defined by the client. For example, the client should be able to configure simple, automated e-Auctions for low-value, low-impact categories; automated e-RFXs for low-value, high-impact categories and high-value, low-impact categories where Procurement personnel only need to get involved in final review and award; and full-fledged multi-round RFX and Decision Optimization for high-value, high-impact categories. (Now, every category should run a baseline optimization scenario before an award is made, but extended analysis does not need to be done for all categories.)

And, further more, it needs to be easy for a Director or CPO to grant exceptions to the process when they are appropriate. For example, as per Andrew’s 3rd example, it should not take months of back and forth to remove a “mandatory” automobile insurance provision when no automobiles are being used! So make sure your solution is configurable, or it might not last long in your client’s Supply Management department.

Some Good Advice from Hackett on Building a Better Procurement Scorecard

Supply Management is about more than cost. Much more. But it’s hard to make the point if all that you’re measured on are (soon to be very elusive) cost savings. So you need to be measured on a scorecard, preferably one that’s balanced. But what should it contain? A recent Supply Chain Brain article indicated it should focus on service. CPO Rising indicates that you should focus on categories. And SourceOne authors Bill & Joe say to focus on the balanced scorecard.

Hackett indicates that the following considerations are important

  • innovation
  • supply assurance / supply risk
  • regulatory compliance
  • working capital
  • P2P process efficiency
  • supplier diversity

and I would agree that they are all relevant to Supply Management, but what I really like is their 10 key considerations to keep in mind when developing your next scorecard that should help ensure a more holistic level of success that starts off:

  1. Align with the Business
    While most organizations have still failed to realize this fact, Supply Management is the business. Now that companies no longer make what they sell, supply management now serves the most critical function – as there is no product without it. So its critical that supply management closely align with the business and provide the business what it needs.
  2. KISS (Keep It Simple Stupid)
    When creating a scorecard, its critical to consolidate to a manageable set of metrics. Otherwise, the complexity becomes overwhelming and the utility of the tool becomes increasingly diminished . While it’s important to include all of the key contributions that supply management makes, the scorecard should only measure the key contributions that provide the organization the most value. Your organization might do 101 things, but probably only needs to report on the top 11 or 21.
  3. Compare Externally
    While not all measures need to be externally benchmarked, the organization does need to understand what the measures mean.

Check out this article on My Purchasing Center (on building a better procurement scorecard) for their other seven key considerations for developing a scorecard that will help your Supply Management organization achieve a holistic level of success.

Iasta: Smart Source-Style! Part II.

To the tune of Gangnam Style.

Sourcing Smart-Source Style.
Smart-Source Style.

Sourcing platform for users and bosses too. Sweet.
SaaS on the cloud, always on, real-time reporting complete. L33t.
Analyze this. Auctions, Performance. Real time data.
Optimize It. Contracts, and vendor schema.
One. Two. Smart-Source Success!

In Part I, we covered the first three significant changes to the Iasta platform since we last covered Iasta in depth on SI three years ago. Today, we cover the remaining significant changes.

Extensive Support for Third Party Data Feeds
Realizing that no analytics platform is complete without the ability to enhance the data with supplementary data that makes it meaningful (like index data for raw materials / components, inventory cost data from an ERP, services spend from a third party management [3PM] system, etc.), Iasta has developed native in-house capabilities to pull in data from a plethora of ERP/MRPs, e-Procurement/P2P systems, and third-party data feeds (like D&B, etc.) as well as custom feeds from sources you already use.

P2P Integration Capabilities
Iasta knows that the best sourcing event is all for naught if the sourcing plan, ultimately embedded in a contract, is not properly implemented and followed through and 40% of the negotiated savings leaks and goes down the drain. Thus, they have developed powerful P2P integration capabilities in-house and can suck in all of the transactional data from your e-Procurement and/or P2P systems, map it against your contracts, and let you monitor spend in near-real time as the contract progresses. This way, if the contract is being neglected, the buyer can detect that after the first or second purchase, and not three years down the road during the re-sourcing event when all of the negotiated savings have been lost due to maverick spending or dishonoured discounts and/or rebates on the part of the supplier.

Customizable Reporting and Dashboards for Users and Executives
While Iasta, like other (e-)Sourcing and (e-)Procurement providers has always had sourcing dashboards, by module and by suite, it has developed the ability for users to create their own dashboards using pre-configured reports and widgets, custom reports (which can be created by its custom reporting engine), or existing dashboard templates. Most clients don’t, choosing to have Iasta do it for them, but the extensive reporting and dashboard configuration capabilities allow Iasta to create extensive summary dashboards to meet any need or desire in a matter of hours. Buyers can see what they need to see to be most effective on a daily basis, supervisors can see what they need to see to make sure all of their buyers’ programs are progressing appropriately, and high-level executives can get their traditional 6-gage 30,000 foot view dashboard and see that everything is, or is not, under control.

A Broader Services Offering
Iasta is finding what many other software and services providers are finding, that most organizations that (still) don’t have a (modern) (e-)Sourcing platform don’t have the resources to manage one, the skills to fully apply one, or the support to acquire either. The fact that an average organization still is not hiring or putting money back in the training budget means that a new supply management software acquisition is not beneficial to an organization without vendor or third party support. Due to the lack of talent, and training, most of the advanced functionality ends up being shelf-ware unless it’s used by an appropriately knowledgeable third party. So, like BravoSolution, Iasta has extended their suite of services and are now doing as much, or more, services work than software support. In addition to being able to fully manage events, they can fully manage sourcing programs, spend analysis efforts, integrations with P2P or ERP systems, and training efforts.

Other changes include enhanced category management and sourcing pipeline management capabilities, built-in trend reporting and variance analysis, geographic reporting, enhanced project management with milestone-level tracking, and built-in supplier scorecards.

It’s an extensive suite, and exemplative of why Iasta is now a clear-leader in the e-Sourcing mid-market.


We are the Priests of the Temples of Syrinx
Our great computers fill the hallowed halls!