Category Archives: rants

Just When We Thought M&A Had Peaked … WorkDay Tries for the Win with Scout!

Now, while I thoroughly agree with the acquisition, as I quoted in Spend Matters’ initial coverage … because it does make perfect sense for Workday and for Scout … I have to admit that the valuation is incredible and the multiple almost non-sensical at first, second, and even tenth glance.

So let’s take a step back. One of the rules that investors follow is the rule of 40, which means that, in 5 years, the company revenue should be 5X what it is today. It might be a bit less, but if growth stays steady, revenue should at least be 3.5 to 4X what it is today, and that’s enough to justify a 7X investment as the investor should be able to “sell the company up the chain” to a bigger investor at 3X what they invest today. And if the deal is just right, maybe a 8X to 10X if there is a lot of cross-company application synergy with another company in the portfolio and they can quickly market and sell to a larger customer base than either company could on its own, but that’s about it. (And of course, assuming the revenue is focussed entirely on license/subscription fees and not services.)

But, as far as can be fathomed, Workday payed a 20X+ multiple for Scout, and that, on the surface, is usually beyond absurd. Even at aggressive growth, it will take Workday at least a decade to make their investment back if we follow the rule of 40. And a lot can change in the market in ten years. But it’s more than just an application and another market for Workday. It’s a strategic acquisition that will give Workday much more than a key component missing in its B2B wheelhouse. Why?

Whatever the reason the acquisition team came up with internally, Workday has to contend with the fact that not only was it’s suite lacking in S2P, and significantly lacking in upstream capability, but that in order to move upstream in the ERP world, and contend with the likes of Oracle and SAP (and fend off any efforts of SAP and Oracle to poach Workday’s customers as the customers grew and matured), Workday needed a good S2P offering, tightly integrated with their Finance and HR applications, and Workday needed one fast. Scout, with which they already have a few integrations with, fits the bill and has a track record, like Workday, of rapid development. It is Workday’s best shot at building and integration an 80% S2C solution for the mid-market quickly.

Also, Workday also has to contend with the fact that some of its earlier interfaces, while more modern than many of Oracle’s and SAP’s older interfaces, are not as modern as some of its newer applications and even some of its newer applications could use a facelift. And Scout has the interface customers like.

Finally, if the mid-market is moving towards a combined Procurement/Finance suite, Workday is going to need to have a true cloud-native S2P platform integrated sooner rather than later. (It’s not a party that Workday, with its ambitious growth plans, wants to miss.)

So while a deal like this would usually be absurd and one that any investment firm should run from as fast as they can, this was a very strategic acquisition investment for Workday and the sooner they got started on the S2P path, the better their chances of actually becoming a serious player both in the ERP market and the S2P market before it’s too late to make a difference.

(This is just a high level analysis. If you really want to understand all of the nuts and bolts behind a deal such as this, I recommend checking out the prophet‘s 4-part deep analysis over on Spend Matters Nexus [membership required]: Part I, Part II, Part III, and Part IV. In addition, the prophet and the maverick teamed up for a customer recommendation piece over on Pro [membership required]. Note that the prophet‘s views may not entirely correspond with the doctor‘s.)

However, the end result is that they’ve just taken the M&A mania up a notch, and now firms that don’t have a solid grip on the models, but want in on the action, will be making mad men bids and all hell is sure to break loose. So buckle up, the ride’s about to get rough!

Reuse, Recycle, Re-manufacture … Now! (Updated)

Sourcing Innovation has been promoting sustainability since the beginning and design for recycle since the very early days, which is essentially what you are doing if you are designing for remanufacturing, which is taking way too long to take hold in the manufacturing sector, with even fashion poised to overtake it (considering H&M and Zara are not only taking back clothes, but working on technology to create fabrics that can be more easily reused in the future).

When you think about the average complexity of today’s consumer products, especially in electronics, it becomes clear that when a product breaks, it is typically only one component that is broken and a replacement of that component makes the product useable again. That’s why a lot of computer, tablet, and phone manufacturers have entered the refurbishment business — once the damaged or defective part in a product that was returned under warranty or reclaimed upon disposal by a customer, it can be reused and, more importantly, resold.

But the concept doesn’t end with electronics, and doesn’t end with refurbishment. Electronics can be designed more modularly with re-manufacture in mind, so that parts can be upgraded en-masse when the products are returned en-masse in a regular upgrade cycle. For example, if laptops were designed for easy replacement of not only memory and drives, but processors and peripheral connectors (in anticipation of USB 4, Thunderbolt 2, etc.), the previous generation models could become the next generation models and resold as either lower-end offerings in the same market or new offerings in a foreign, emerging market.

And automotive suppliers, who not only know that parts wear out, but when parts are likely to wear out, and which parts wear out together, could not only design their engines to make it easy to replace parts, such as spark plugs, batteries, belts, filters, and pumps that wear out quickly, but also the engine block as a whole, that is going to wear out in 7 to 15 years, depending on the average annual mileage, if the rust-proof frame can last for 15 to 30 years. Given the choice, many people on a fixed income (who don’t live by the ocean and have rust to worry about) would rather replace the engine for 3,000 to 5,000 and keep the car for another 7-10 years if the frame is fine than pay 25,000 or 30,000 for a new car. And while this may not look as attractive from a bottom line perspective to a manufacturer, it significantly reduces the chance of the customer migrating to a different car company, which is very common if a competitor is offering a significantly better deal on a comparable car.

Plus, if the components are themselves designed for remanufacturing, it will be relatively easy for the manufacturer to reclaim the raw materials from the damaged or defective components, which is where a lot of the cost comes in, especially if we are talking rare earth metals. For example, the price of praseodymium-neodymium oxide exceed 1.70 an ounce and prices of terbium oxide (a semi-conductor that is used as an activator for green phospors in colour TV tubes) exceeded 112.00 an ounce this summer, and it keeps rising!  Gold, a metal used in many electronics products, is now hovering around $1500 an ounce. And while there is not much gold in a single laptop, when you put fifty of them together, you’d likely get an ounce. And given that there are roughly 100 Million PC laptops and computers sold a year, that’s close to 2 Million ounces of gold that need to be reclaimed!

And, as per a now classic green & clean article, remanufactured products offer cost savings in the 45% to 60% range! So if doing the right thing isn’t enough, that should be enough of a justification to invest in remanufacturing! This goes double if you are in electronics (for some of the reasons given above) or automotive, where the global market for remanufactured auto parts is projected to reach $91 Billion by 2026. (Source:
Persistence Market Research)

So, regardless of what you want to call it, it’s time to do it. It’s not just good environmental stewardship, it’s good economics.

Futurists are Still Stuck in the Past! Leave them there!

And the reasons are the same as they have always been.  (And the doctor just wishes they’d stop speaking at the events he has to go to.)

  1. They Have No Knowledge as they come from different backgrounds which offer them no education or experience in Supply Management.
    Just because you can get high, have psychedelic visions, white them down, and spin a good yarn doesn’t mean you can be a futurist. A poet, sure, but not a futurist …
  2. They Have No Vision beyond what the rear view mirror (or the hydrocarbon gas from the bituminous limestone) offers them.
    When Meatloaf said “it was long ago and far away and it was so much better than it is today“, he was referring to newly discovered young love, not business processes identified 30 years ago …
  3. They See Too Many Organizations Stuck in the Past and a few organizations (in the Hackett top 8%) ahead of the pack and they think they can peddle these best practices as future vision.
    This is not 1914 (which was 12 years before the first transatlantic telephone call) where good ideas take years to spread (and the first person to bring a new idea or technology from a different continent can make millions on someone else’s work) and a career can be built on one single improvement — this is 2019 where it only takes a few seconds for a story to be spread around the world. But I guess if you can’t look beyond the rear-view mirror …

So, why are so many organizations still stuck in the past (and fueling the flame that powers these fantasy futurists spinning the same yarns they spun five years ago and driving the doctor mad)? There’s a few reasons, and they include:

  • Lack of Education
    Many Supply Managers were simply thrust into the role, with no training or background for the role. And despite the fact that they have some competence or experience in other areas, they are so ill-equipped and ill-prepared for the role that they might as well have been dropped in The Lost World.
  • Lack of Resources
    Most Supply Managers are overworked (and underpaid, but who isn’t these days) and resource-constrained, with no time for training and no budget even if they had the time (or would sacrifice their few remaining free hours to get better and more efficient so that maybe someday they can take a whole weekend off).
  • Lack of Clarity
    With no formal education, no training, and no resources to make sense of the barrage of BS being thrown at them by futurists and analysts alike, how can they differentiate between current and past processes and technologies and what they need to embark on a path that will ready them for what comes next?

And the third reason is the most crucial. Until they get some clarity, Supply Managers are going to continue to be taken in by modern con-men (who include 2nd rate analysts, consultants, and salesmen of outdated technology) selling them silicon snake oil when they just need modern sourcing and procurement tools that fit their workflow and daily needs.

That’s why SI is here – and why the doctor co-invented (and single-handedly developed the sourcing, supplier management, and analytics) Solution Maps which grade a platform on functional capability only — not subjective vision, market size, arbitrary inclusion parameters, and other factors that are easily embellished or hidden behind a smoke screen.

So if you want a vendor who can help you, chose one based on solid capability.  And if you want an analyst that can help you, choose one that bases recommendations on real data.  Then you will make progress.

7 Sourcing Secrets Everyone Should Know By Now … Part II

… but don’t, because if they did, Source-to-Pay would be ubiquitous across the space.

As we noted yesterday, if you’re a long-time reader of SI, you can skip this post because you already know it all. But if you are a new reader, and haven’t scoured the archives yet, this post is for you — to help get you up to speed fast on what you may not yet have discovered in the extensive archives you can find right here on SI.

Yesterday we covered the first four “secrets” that shouldn’t be secrets anymore. Today we cover the last three.

5. Contract Management is just a new name for document management with integrated monitoring, it’s not a replacement for contract managers — and definitely NOT a replacement for lawyers!

Lately I’ve noticed how contract management is coming into vogue … again. And while that’s a good thing, it’s important to understand what contract management is and isn’t because it seems that some vendors, and some publications, are promoting the new offerings, with automatic clause identification and suggestion, as the latest and greatest tools to solve all your contract woes when the reality is that these tools are nothing more than document management tools with monitors, alerts, and contract templates that can swap out versions of a clause based on industry, geography, spend level, and identified risk.

We won’t deny the importance of having a good contract management tool that can monitor expiration dates, contract pricing, and, most importantly, invoiced pricing against contracted rates, but these tools, even if they contain sophisticated contract creation and clause identification capabilities, can’t replace a contract expert, a master negotiator, a trained legal professional, or a good spend analysis tool that can uncover devious work-arounds by less-than-reputable vendors looking for a way to make back that buck they gave up in negotiations. (For example, we still hear from consultants to this day who tell us how, ten years later, they find that some office supply management vendors still regularly changed SKUs to bill you twice as much for that pen as it’s really worth — as most of their customers still haven’t caught on.)

6. e-Procurement is tactical, and not a substitute for e-Sourcing

There’s still a lot of confusion in the marketplace between what is e-Procurement (and how it relates to I2P, P2P, EIPP, and the other new acronyms old players are coining to differentiate their new, streamlined, offering) and what is e-Sourcing, even though it should be fairly clear cut (as the doctor outlined over a decade ago in this post on why it’s sourcing and procurement). A few of the e-Procurement vendors are even claiming that you don’t need sourcing at all if you use the wisdom of crowds (which is not the case because there’s a big difference between a great deal on a commodity office supply and a great deal on raw cocoa or custom circuit boards, which are not commodities), market intelligence, and automation. Sourcing is the strategic part of the purchasing cycle, procurement is the tactical. You need both, and one is not a substitute for the other.

7. It’s not what you know, it’s what you can learn!

Plain and simple,

  • it doesn’t matter if you’ve been doing it that way for 20 years if it’s not optimal,
  • shift happens, and
  • whatever happens, the world of tomorrow will not be the world of today.

You have to keep learning. That’s why this blog is here to help you.

7 Sourcing Secrets Everyone Should Know By Now … Part I

… but don’t, because if they did, Source-to-Pay would be ubiquitous across the space.

If you’re a long-time reader of SI, you can skip these posts because you already know it all. But if you are a new reader, and haven’t scoured the archives yet, these posts are for you.

Even though most of the time the doctor gets to interact with people who’ve been there, done that, probably failed because they were using an older, insufficient, product, sometimes someone comes along who’s never really had real tech in one or more areas and the obvious is new. And since new readers still stumble on SI, it’s important to get them up to speed … fast. So, here goes — because you really really really should know the following “secrets” that, after more than a decade, should not be secrets anymore.

1. e-RFX is electronic support for the full information and quote gathering cycle, not just bid collection

If all your e-RFX does is allow you to collect bids, it’s not e-RFX. It’s e-RFQ, and a poor e-RFQ at that. It should allow you to create questionnaires, surveys, and entire RFX packages with closed and open-ended questions, allow you to compare responses side by side, and allow you to collect not only all of the pricing, but all of the discounts, rebates, and promotions the supplier offers. It should help you manage the process, guide you through it, engage with your entire team, and support data import and export in open formats so that you can also use analysis, optimization, and contract management tools.

2. A Reverse Auction is simply an online auction event, it’s not a substitute for proper sourcing project management

We follow the space closely and not a month goes by where we don’t see an article on how Company XYZ is now refusing to participate in online auctions or company ABC no longer wants to use them because they got poor results or inflated costs after the award. When you dig down, this is because the supplier had a horrible experience or the buyer didn’t properly qualify the supplier or the product/service requirements. When you dig deeper still, you find out it is typically either because Company ABC simply threw an auction tool at the supplier and told they had to bid through the tool or lose all their business or Company ABC threw up an auction tool and said they’d award to the lowest bidder and either bought a product that wasn’t qualified to meet their needs or ended up ignoring the auction result and going with a different supplier, usually the incumbent, after the auction closed.

We find this appalling, because e-Auctions, like e-RFX, are not only a great time saver, but a great way to bring parties together from around the globe and allow them to participate in an e-Sourcing event that, when run right, is more transparent, educational, and profitable for all parties concerned than traditional methods of sourcing where you get bids by phone and fax until you find three bids you like and then meet in a room to “negotiate” until a deal is struck with a winner – especially for a commodity, low-dollar, and/or non-strategic category. (And we use the term “negotiate” loosely because old style purchasing methods usually boil down to the party with the most leverage beating up the party with the least leverage.) But this is only true if the event is run right. This takes proper project planning and management. Tools can facilitate the process, but they can’t replace it.

3. (Strategic Sourcing) Decision Optimization is for everyone, not just for math geeks!

We’ll admit this is the doctor‘s personal bandwagon, but having seen savings of over 40% and ROIs of over 400 on a number of projects, and average savings in the 10% to 20% range and average ROIs of 5X to 10X or more, the doctor knows he has a good reason for riding it. Despite the fact that true self-service decision optimization for sourcing has now been around for almost two decades, it’s still the “black sheep” that almost no one uses — and it’s a real shame because now is the time you need it most. Furthermore, the new tools coming out of the leading providers are not only a lot more usable than the first generation tools, but they are also more usable then second generation tools, and can be easily used not only by an college graduate who can build a cost model and specify some business constraints but by any high-school drop-out that can follow a workflow (as they allow the college graduates to build category and event specific templates that anyone can easily follow). In other words, if you have the pre-requisites for strategic sourcing, you can use these tools to save time, to save money, and make better, more informed, decisions.

4. Spend Analysis is flexible Data Analysis, not canned reports on a data warehouse populated via automated classification

Real spend analysis is the ability to dive into your data and find out not just where your true spend is higher than it should be, but why. This requires you to have the ability to slice, dice, and cube your data on any dimension you can think of, because you’re never going to know where the losses are until you find them. (After all, if you knew where your holes were, wouldn’t you have plugged them already?) Canned reports on a static data warehouse can only tell you how fixes you’ve already implemented are working, not where the holes are. Furthermore, “automated classification” (which is not the same as automatic classification rule suggestion) just doesn’t work. Any good consultant worth his salt can load your data into a real data analysis product and find two dozen mistakes in twelve minutes. You need the ability to define and redefine mapping rules on the fly as all automated classification can do is fix previously identified mistakes. It can’t identify new ones. Software isn’t intelligent (despite all the voodoo claims out there). People are (at least until we blindly trust the machine).

Come back tomorrow for Part II!