Category Archives: rants

E-Procurement Benefits … Fact … But …

Last week, Tony Bridger gave us a great two-part series which asked if e-Procurement benefits were fact or fiction because it has fallen out of favour with the academics over the last decade, with few toting its benefits as they did when it first hit the scene.

And Tony had some great points. E-Procurement was touted as the panacea for all Procurement woes, but the first generation of solutions did not deliver. Many Procurement teams use systems to negotiate great contracts, but great contracts don’t deliver improvements — execution against them does. The best spend analysis system delivers zilch out of the box — it takes an educated, trained, experienced, intelligent buyer to sniff out the true savings opportunities. And, most importantly, every single buy is just a tiny bit different. And buys that are far enough apart need different capabilities and solutions.

And, most importantly, the best platform in the world is useless if it is not adopted and use by all of the buyers all of the time.

e-Procurement platforms can deliver the benefits they promise, namely an end to maverick spend, approval control, workflow configuration, and spend under management. But only if they are properly implemented, properly adopted, and properly used.

You can search the archives here on SI and over on Spend Matters for a description of the benefits, as well as a description of necessary platform requirements to get those benefits.

But one thing that is not always clear in our past articles, and that should be made clear as a result of Tony’s posts, is that e-Procurement is more than just platform, it’s process. It’s the process of doing a proper event, recording the contract and meta-data in the e-Procurement system, issuing the POs against the contract, insuring the invoices — and shipments — match the POs, and getting approvals before payments. If there are no contracts, and the buy is not big enough for a sourcing event, but over a certain amount, then it’s critical to get proper approvals. All spend haas to go through the system, and, when necessary, get approvals, according to the organizational policies and processes. A proper e-Procurement platform automates that process, simplifies the m-way matches and comparisons and classifies the spend for easy analysis. It enforces a process that saves money, it doesn’t save money out of the box.

And maybe when the academics realized this, and that they were writing about a solution which had no inherent sorcery, they dropped it like a hot potato. Even though there are dozens of companies that have went on record saying they saved millions with proper platforms (which saved them millions because they implemented, and supported, proper processes).

Is Your Organization Serving the Right Market?

If your Supply Management organization is part of a global multi-national, chances are that it has been buying from China and selling to the U.S. for years. And, for a few of you (in heavy machinery, luxury goods, etc.), chances are that your Supply Management organization is producing Made in the USA goods and selling these to China. But should it be?

Ignoring the fact that rising costs in transportation and production (due to raw materials and the inevitable rise in labor wages) coupled with the decline of the US dollar often make sourcing close to home (in Mexico) or, when possible, at home cheaper than off-shoring, especially when quality and risk-related costs are taken into account, now that Trump has brought back the trade wars, much of those savings are flying out the window faster than a Peregrine Falcon diving for its prey. (If you’re not sure how fast it is, Google It .) So, as we have been posting recently, you really need to rethink your global supply chain (and possibly look to Russia, Turkey, etc.).

And, despite the headlines being made over the move, look to copy Harvey Davidson and shift production of certain goods (closer) to the primary markets they are being sold in. (Bureaucrats can threaten higher taxes all they want, but unless laws are passed through both houses and signed by the President for the tax category they are in, nothing can be done. And as long as the move doesn’t change the structure of the company, the only result will be a lot of hot air and wasted words and a temporary drop in stock price. In other words, don’t move all your production out of a market, especially if you are selling in that market, or even the majority, without checking with your accountant and lawyer first.)

Because, if you buy and sell in a market, there are no import or export tariffs, and the way the trade wars are going, this is a big savings and an opportunity to claim more market share if you can sell an equally desired, equal (or better) quality product for a lower price due to a smarter supply chain design that keeps your costs down. For example, I don’t think anyone in Europe would mind if Harley said it was staffing its European Facility with German and Austrian trained Engineers but keeping the authentic American designs. In fact, the bikes might even become more desirable as German and Austrian Engineers are often seen to be the best in the world.)

And if you’re selling overseas, especially to China, producing overseas, or in China, makes sense. We don’t often think about it, but, due to population and wealth (around 15% of GDP now), China is the world’s largest consumer of automobiles, motorcycles, mobile phones, luxury goods, and shoes and at least the world’s second largest consumer of home appliances, consumer electronics, jewelry, and the internet (based on data that is a few years old, but all trends were rising). Thus, if you are in any of these industries, why not produce in China for China?

Remember the facts. China, which is the world’s second largest economy, is approaching 1.3 Billion people and an emerging middle class flocking to urban areas. A recent McKinsey & Company study had over two thirds of the Chinese population as middle class and predicted three quarters would be by 2022. And about 56% of the population has internet access, with most of these individuals having broadband access in their densely populated urban centers. In fact, China is estimated to have close to 100 cities with a middle-class population of 250K or more. The US and Canada combined have less than 70 such cities.

And India is growing. It’s GDP is now almost half that of China’s. And while it’s middle class population isn’t nearly as large yet (as it has almost as many people as China), at about 21%, or 270 Million people, that’s still at least 50% more middle class than in the United States!

And South Korea’s GDP has more than doubled since the turn of the millennia. In fact, an article from 2015 predicted they’ll have a better standard of living than the French by 2020, with an adjusted GDP per capita (PPP-adjusted) heading towards 50K. Right now, the average annual household income is 48K, which is only 20% less than the median household income in the US! At presents, two thirds of their households are middle class, the average household has one child and dual income, and both earners University educated. Talk about consumer marketer’s paradise!

In fact, when you look at all of this, maybe you should just relocate your company to Asia, make the US a subsidiary, streamline operations to produce just what you need for NA in NA, and focus on Asian growth. Seems to make more sense, doesn’t it?

Not All Consulting Advice is Good, And Their Understanding of Tech Varies Wildly!

In yesterday’s post we pointed out you need to be very, very careful what advice you take from consultancies, large and small alike, who aren’t really expert in modern Supply Management processes, best practices, and technologies.

Yesterday’s post covered a recent piece (from a mere two months ago) on Sourcing and Purchasing Transformation that provided such bad advice for weathering the rough seas ahead that we were serious when we said the advice was equivalent to sailing right into the heart of the Bermuda Triangle in the middle of a category 5 hurricane! Maybe the advice was good in the 80’s when everything was home or near-shored, innovation was slow, the economy was more stagnant, and cutting cost to the bone was the only way to survive. But that was then. This is now. Three decades later. And anyone still peddling that advice in today’s fast moving, outsourced, global economy is seriously out of it (or trying to create more work than they can handle by putting in peril any supply management organization that actually takes that advice).

But we digress. Today’s rant is about the Big 6 / 8 and their dangerously low understanding of S2P technology and their unfounded (and unfathomable) belief that you can somehow measure capability and/or innovation based upon market value, customer count, or investment dollars.

For instance, the doctor was just sent a brand-new paper by ATK on The Future of Procurement Technology and how Mediocrity is No Longer Acceptable (and it is NOT) by the way, where they correctly noted that

  1. Today’s Procurement Technology is a Failure
    which it generally is as most solutions that have been implemented don’t give a full view of spend, don’t address many of the day to day needs, and, frankly, just don’t work
  2. Suites are Problematic
    as most are built through acquisition and all the components don’t really talk or sync
  3. Most solutions are archaic, rigid, and poorly thought out
    and push users into the wrong decision and
  4. A revolution is coming

… but not all fighters are created equal!

In particular, they name eleven (11) companies that represent the most current and advanced technologies, but their is almost no comparison between the extremes they represent.

For example, even though Scout has the fourth largest investment raise of all the companies listed, it’s one of the weakest offerings in the list. And even though LevaData is one of the lowest raises, it’s one of the strongest offerings.

And while you can barely compare the likes of Scout and Bonfire (traditional e-Negotiation based Sourcing with a much better UX than last generation systems), who have the lowest solution scores on the (deep) Spend Matters Sourcing SolutionMap, to the likes of LevaData, Suplari, Supplier.ai and Xeeva (who are bringing in the era of Cognitive Sourcing and Procurement), there’s just no comparison to the likes of tamr (with its advanced machine learning capabilities for which there are few equals) and Concord (which is in the field of contract automation).

Plus, when it comes to contracts, consider what the likes of Seal and Exari are doing. Moreover, when it comes to analytics, don’t discount Coupa AI-Classification (formerly Spend 360) or AnyData. And why are there no true optimization vendors on the list like Coupa CSO (formerly Trade Extensions TESS) or Keelvar, that is trying to apply AI to true optimization-backed Sourcing. And when it comes to Supplier Discovery, Supplier.ai is one option, but Tealbook is another.

In other words, they have some names. They have some investment figures. They have some insight that each is doing something different, that each is trying to revolutionize something about the industry, but no real insight into what the core of the difference is or the strengths they bring.

And while this may not seem too dangerous, as they aren’t really reporting each is equal, just that each is revolutionary, in the hands of a half-wit, or even worse, someone with an incomplete understanding of tech and best practice, they could take this as a guidebook to the best vendors, and, in the end, select the absolute worst vendor for them. One has to remember it’s not just about revolution, or even evolution, it’s about the platform that solves the Procurement department’s greatest needs. Today. And when the needs are met, the platform that offers the greatest flexibility and power for the organization with respect to their goals.

5 Sure-Fire Ways to Sabotage Your (Competition’s) Supply Management Operation

Sometimes the only way you can do better is if your competition does worse. It’s sad, but true. To this end, a colleague of mine forwarded me a great piece on Procurement Transformation on 5 surefire ways to devastate a supply management operation. All you have to do is convince your competition to take this advice, and down they go!

Clearly labelled “Step 3: Run down” at the end of the white paper, these tips and tricks will do exactly that … run down your (competition’s) operation straight to the ground. A tanker filled with kerosene wouldn’t get the job done any faster. These tips were so great we can’t help but share them.

1. Aggressively trim smaller vendors to consolidate the
supplier base by each category in order to increase
negotiating leverage and press for lower rates
.

Yes, increased volume and category consolidation can often extract better prices from the suppliers large enough to supply the volume and/or breadth of products needed to get the volume, but it comes at a price. Less suppliers to pick up the slack if the primary, or sometimes single, supplier fails due to a plant accident, natural disaster, or government shutdown. And failure will happen. Your chance of a major supply disruption not happening in the next 12 months is less than 10%. But hey, you always beat the odds. And you don’t need innovation, right? After all, if you wait long enough, the big bloated supplier will buy the little guy that comes up with the innovation if it is needed, right? (And it is always the little guy who comes up with the innovation, but that doesn’t matter, right?) The new economy runs on innovation, but your big clients are slow to move, and your suppliers should be just fast enough, right?

2. Institute a ‘champion/challenger’ model for all key
categories with 70 to 80% of the business going to
the champion and the remainder going to a single
challenger. This will keep both parties hungry. The
champion and challenger should also be rotated
periodically, though not too often as business
disruption is also costly
.

Well, this eliminates the risk of one supplier right? And flipping will definitely keep them hungry. And they won’t be p1ss3d that every few years you just snatch 60% of their business because “it will make them hungrier”. We’ll ignore the fact that they must have been pretty damn hungry to sharpen their pencil and submit the lowest bid even though that meant that their sales people probably didn’t get the commission they expected, and aren’t happy. So yeah, make them so hungry they’d rather eat your competition’s handout.

3. Search for new suppliers and give new suppliers a
chance to prove themselves if the pricing is better
than the incumbent. Potentially try a new vendor
as the ‘challenger’ (or as a second ‘challenger’) to
balance disruption with cost savings
.

This is probably the suggestion you share first when trying to discreetly bring your competition from the ground. Third challenger is a good idea, except when the challenger is brought in purely for cost savings. And then even less of a good idea when the category is one that doesn’t need much innovation. After all, why waste a good idea on a good implementation.

4. Execute a ‘cost-to-price’ initiative. Assemble a cross-functional
team to help quickly understand the
direct relationship between input-cost inflation and
necessary customer price increases to maintain or
improve product margins. For global companies,
this should be done on a country-by-country basis
with key performance indicator heat-maps to ensure
proper indexing of price inflation
.

It’s all about price after all. Who cares about quality, reliability, or even form and function that a customer actually wants. And who really cares about innovation after all — choose a supplier that lets someone else do it and then just copies it to the extent legally permissible. It’s good enough, right? And, of course, ignore the fact that all the lowest cost suppliers will be overseas and require complex supply chains to make your good and even more complex logistics chains to get your goods to your customers. That’s just details.

5. Hold a supplier conference in which the
suppliers are given indicative cost reduction targets
and asked to come and present to the company
their ideas. This demonstrates a commitment
to the relationship and working together to solve
pricing concerns
.

After all, every supplier loves a beat down, right? They love a hard-nosed negotiation customer who only cares about cost, cost, cost. Who doesn’t respect their innovation, quality, reliability, and overall effort to bring the product that’s the best overall value, not just the lowest cost.

Combined, it’s a sure-fire powder keg that, when lit, will burn your operation to the ground. It definitely is a run down …

Oh wait, it’s not run down, it’s run downwind and it’s step 3 in a course designed to sail through Rough Seas Ahead for Procurement … and it’s meant to help your organization sail in heavy weather!

EEEK!

I can’t think of any advice that would be worse. They’re basically telling you the only way to combat the rough seas ahead is to sail right into the heart of the Bermuda Triangle in the middle of a category 5 hurricane!

YIKES!

Do they truly hate their readership? Or, as a consultancy, are they trying to increase the number of companies that will be in dire need of consulting help? Because any company that follows this decades old advice, which might have worked in the 80s [when everything was home sourced, innovation was rare, and margins were fat] will definitely need help after trying this!

RPA: Robotic Process Automation or Redistributed Process Automation

RPA, ML, and AI is all the rage these days, with RPA being the most mature technology. But just because it’s a mature technology, that doesn’t mean it’s a mature technology offering from the vendor you are considering, as powerful as they are purporting it to be, or even as general purpose as you might expect (especially if it relies heavily on ML or AI techniques).

In fact, like early spend classification technology, which was usually 60% auto-class and 35% behind-the-scenes manual-class by the hundred interns in the backroom (in India, Poland, or another outsource locale with a relatively high percentage of English-as-a-second-language speakers), a lot of the RPA technology being promoted today is in fact supported by, if not done by, humans behind the scenes.

This is especially true when natural language processing is involved, and doubly true when interpretation is involved. And it even comes in to play with something as simple as calendar scheduling. For example “book me an appointment with John Russell” next Wednesday is not often straight forward. John Russell the person, or John Russell the company? And the next calendar Wednesday, or the calendar Wednesday in the next week? (English speakers typically refer to the next calendar Wednesday as this Wednesday and the Wednesday in the following week as next Wednesday, but certain European cultures always refer to the next calendar Wednesday as next Wednesday.)

So imagine how much human intervention is required behind the scenes if you want to do document analysis or contract interpretation! Quite a bit. When it comes to document and contract processing, it’s one thing to break it up into sections and annotate what’s in the document, it’s another thing to interpret what each section means, and yet another to determine whether or not its enforceable, or even allowable, against a regulation or law.

Advanced RPA / ML systems can analyze a document or contract and break it up into relevant sections, identify the constituent components of each section (party, address, obligation, description, explanation, etc.), and make it easy to determine whether or not a section, entity, or value is contained within. With sufficient ontological definitions, training, and tweaking, these systems can get highly accurate.

But when it comes to interpretation, that’s different. It’s easy to determine that a document contains the phrase “the receiving party is bound to provide the sending party with a hold payment to be applied against the obligation of the sending party upon transmission”, but harder to figure out precisely what that means if the hold payment, receiving party, sending party, and obligations are specified elsewhere in the document. And then if you want to determine whether or not that obligation is in line with organizational policies or contract law in the jurisdiction of choice, that’s yet another level.

Really good tech might be able to sift the document and make probabilistic guesses as to what the hold payment is, what the obligation is, and maybe even what transmission means (providing to a courier, being received by a local courier, showing up at the recipients door if its a physical good, or confirmed receipt / acknowledgement if an electronic IP deliverable), but chances are it will be wrong a good percentage of the time and require human confirmation. And when it comes to interpretation, frankly, unless a human is reviewing the clause and given the most likely scenario, a random number generator mapped to an outcome table is likely to be just as accurate. (In other words, trusting RPA means you are rolling the bones.)

Thus, any RPA system that performs an advance task is likely not true Robotic Process Automation but in fact Redistributed Process Automation, even if the vendor doesn’t advertise it as such. But if you are curious, there are tells. How long does the system take to perform the task? An hour or two to process a document? Definitely RPA of the second category. Fifteen minutes or more to schedule that appointment? If both sides were using true RPA of the first type, it would take seconds, maybe a few minutes if there was limited bandwidth and email delay. And so on. Look at service times, customer counts, and what’s being heavily promoted. The truth is under the covers.

But redistributed process automation is not necessarily bad. It’s probably the most efficient use of your organization’s time, especially if the vendor has RPA-lite algorithms that can quickly determine what needs to be done by a human and what can be automated. Anything that saves your organization time and money while improving outcomes is a step forward, and as long as the vendor continues to reinvest its profits into system development, the system should get better over time.

But don’t buy RPA with eyes wide shut. Otherwise, you might not get what you are expecting. Or put too much faith into the system.