Category Archives: rants

The Advanced Supply Management Phoenix …

… that rises from the ashes and replaces the modern Procurement organization that has one foot in the grave and one in the fire. But this is not just the advanced sourcing that SI has been preaching this year, not just enhanced category management, not even just enhanced supplier relationship management or supply base management. This is really the creation and implementation of design by sourcing. Not design for sourcing, which some extremely advanced organizations are attempting (which is akin to design for recycle, which is part of design for sourcing), but truly a significant evolution of the entire function — as the only other option is, as far as the doctor can tell, to accept that it’s in its final days and will soon die out of existence regardless of what future, described in our previous two posts, comes to pass.

The reality is that the word is changing and no one needs someone who’s only job is to find a source for a product or service. Thanks to the internet, anyone can do that … and have it delivered as early as the next day if needed as these sources generally integrate with multiple global logistics carriers which have extremely quick, air-ship, options for anything from small packages to entire cargo holds. Even if the worst case happens and we get with a mega solar storm produces a solar flare 5X as powerful as the Carrington Event and takes down every power grid on earth, and the internet with it, for weeks to months, it will still be possible to find sources of supply as, guess what, you’ll be going local … back to all the factories you used to know. And you’ll be paying local currency or, more likely bartering, and it will be sales guy vs. sales guy negotiating, because that’s what they do.

So Procurement needs to evolve, fast, or join the elephants in the elephants’ graveyard. Because, let’s face, it, without evolution, that’s the only place Procurement will soon be welcome. (It won’t even be welcome in the local cemetery. With real estate becoming scarce for every use, cemeteries will soon be reserved for the honoured dead. Procurement will not even be among the honoured dead.)

But it has to go beyond the natural evolution to an Advanced Strategic Sourcing function. While this will get it over the hump and extend it’s longevity by (at least) a decade, as it will be finding value that its peers will not (for all of the reasons covered in the many posts on advanced sourcing this year, and more, on why you need to adopt an advanced sourcing solution) and have the support of the CFO as long as the value increases (and superficial savings keep hitting the bottom line), it won’t be enough. At some point, there will be template models for all the categories, including the simple tail spend categories (that will have simple models for optimization-backed options) and anyone will be able to start with those models to source their own products and services, or just turn it over to a cognitive procurement solution that will do the sourcing on its own.

So where does it need to go? Stay tuned for our next post in the series.

The Procurement Wasteland …

… is well on its way, as we discussed in our last post. Buying is not difficult anymore. Thanks to the internet, anyone can find a dozen potential suppliers. Free RFX and Auction technology, alongside good old fashioned e-mail, allows anyone to solicit bids, do simple comparisons, and make a buy that’s not the worst buy one can make. Heck, three bids and a buy is still better than what a lot of buyers do. And with Amazon Business and about 200 different major suppliers online with punch-out, anyone who needs anything that’s not custom manufactured can just go out and get it.

It’s a Procurement wasteland because not only are (tactical) buyers unnecessary, but, as indicated in our last post, it’s easy to replace those (tactical) buyers with cognitive systems that, armed with a few rules and a bit of machine learning, can do just as good of a job as the buyers and, with huge databases of potential suppliers at their disposal, outdo the organizational representative who’d just punch-out to her preferred site and buy the first product she found. No need for buyers, and the work they do is replaced by systems.

The big question is, is this procurement wasteland going to exist in:

  • A Mega-Corporate World,
  • A Project Economy, or
  • A Barter Economy

Mega-Corporate World

While this option wasn’t (explicitly) mentioned in the KPMG report, it is one situation where Procurement could gain primacy if, and only if, it could prove more relevant than the machines. So what is the mega-corporate world? It is a world where the M&A Frenzy continues like crazy across all sectors, where the big get bigger and only a few companies dominate in each category, and you have a select few buying from a select few for the majority, but making sure that those that are bought from properly orchestrate further down the chain because even though mega-cos might own most of the little mom-and-pop shops that supply the raw materials, orchestration is still key to cost control, and these little mom-and-pop shops will be bought and sold like shares in the stock market as balance sheet adjustments appear necessary. And since there are only a few real suppliers, you just carrot-and-stick negotiate between the sales folk, as the corporate landscape is now so small they need what you produce too, until you get the deal you want and you’re done.

Project Economy

As more and more professionals go freelance, and more and more companies try to trim the fixed overhead on the balance sheet by outsourcing more and more to freelancers (who don’t come burdened with health care, retirement contributions, and other benefit costs), we switch to a project economy where mega-corporates still exist on paper, but the organization is primarily a balance sheet that orchestrates projects which are led by freelancers in a project economy. In this economy, the project manager is the purchaser, and she buys how she sees fit.

Barter Economy

A solar megastorm produces a solar flare 5X as powerful as the Carrington Event and takes down every power grid on earth, and the internet with it. All forms of instantly electronic currencies cease to exist, and global communication, and trade, status reverts to what it was in the early 1900s. After the initial panic, riots, and lootings, the power grid is restored in major cities and the global internet restored a few weeks later, but faith in any form of electronic currency crumbles. Especially since the global chaos makes foreign currency worthless for a short period of time and faith doesn’t come back.

In this situation, goods and raw materials are of the utmost value and trade is the name of the game. Failing that, payment in the local currency only is accepted. And unless a buyer can negotiate the trade of goods only, there is no need for a Procurement practitioner.

At the end of the day, there is no need for Procurement. it’s not only dead, it’s cremated. Only ashes remain. The only hope is …

Procurement Tomorrowland …

… could be here sooner than we think, but are we ready for it? For over a decade, everyone has been talking about Procurement 2020 and how advanced and great it would be, and 2020 is fast approaching. It’s less than two and a half years away. But what will it look like. The short answer is not much different than today. That’s why the new date is 2035, because we haven’t gotten to where every big consultancy, and vendor, proclaimed we’d be 10 years ago.

So, the big question is, what does Procurement 2035 look like? Well, last year KPMG said the future is likely going towards one of four scenarios:

  • Procurement Primacy where democratic co-existence between man and machine is common
  • World of Project Economy where companies become decentralized and most of the work is done by free-lancers and there is no central procurement department with procurement the responsibility of project managers
  • The Creative Agency where procurement becomes the primary source of business and finance model development and not only purchases for, but defines the organizational projects

or

  • R.I.P. Procurement because the age of cognitive procurement has ushered in fully automated processes that have replaced buyers

The most likely scenario now is the last scenario because the cloud has eliminated the need for tactical procurement people who buy on someone else’s behalf. Office supplies, janitorial supplies, and simple electronics? Amazon for Business. MRO — Grainger and Home Depot — punch-out online. Electronics, Best Buy, Dell, HP, Apple, etc. Point, click, and order. Custom uniforms, a few dozen suppliers can take your RFX, easily found on half a dozen procurement networks. And so on.

And if you think knowing how to set up an auction will save your job, you’ve got another thing coming. It’s not only very easy to setup and run an auction with a modern platform that makes it eBay easy, but with today’s platforms it’s just as easy to push a category to a platform with demands that can automatically invite all the approved suppliers, send them the specs, get e-Signatures on acceptance and guarantees, run the auction, make the award, send out the draft contract, get a response, analyze it, send it to legal, who can put the finishing touches and it’s off to the races with no human intervention whatsoever. Modern platforms can be set up to automate RFXs and e-Auctions with no human intervention whatsoever.

Similarly, your job is not safe if the extent of your analytics prowess is running the canned reports; identifying the top n categories, suppliers, and geographies; identifying those not under contract, and queueing those categories for sourcing and suppliers for contract negotiation. This can be easily automated too. Who needs a buyer?

In this scenario, not the organization! For Procurement, Tomorrowland is a wasteland …

Procurement Wasteland!

Down here in the crypt
I search for a script
I put my soul into my living

I constantly fight
To prove I’m right
Management is not forgiving

Don’t cry
Don’t raise your eye
It’s a Procurement Wasteland

Buyer, take my hand
We’ll analyze spend plans
Put out the fire
And don’t look past my shoulder

The exodus is here
Our downfall is near
Let’s band together
Before we get much older

Procurement Wasteland
It’s a Procurement Wasteland
Procurement Wasteland, oh yeah
Procurement Wasteland
We’re all wasted

Why Can’t We Get No Satisfaction?

A few days ago we lamented, in song, that we can’t get no satisfaction. Why? Because buyers rarely get satisfaction. Rarely. Why?

Stakeholders are never pleased.

You save them money, they moan and groan that you changed suppliers. You stay with the same supplier and work with them to improve quality, they complain and lay the blame on you for the cost increases. You split the demand across preferred suppliers across geographies to mitigate risk, they lament that now they have to work twice as hard with logistics. And so on.

Management is pushing for savings today at the expense of cost tomorrow.

As we indicated in our post on Once Upon a Time, Not So Long Ago … the primary goal of Procurement should not be short term savings but long term value generation as the name of the game is long term cost control. Besides, savings that are too good to true really are too good to be true and the savings that comes out of one budget category from chasing a pipe dream just inflates another budget category.

They are never enough tools for the job.

Let’s face it, almost 40% of Procurement departments still don’t have any modern Procurement or Sourcing solutions, and of those that have these tools, the number that don’t have a modern spend analysis solution is greater than 40% and the number that don’t have a modern optimization (-backed) sourcing solution is greater than 80%. And let’s not talk about a modern Contract Lifecycle Management (CLM) solution with contract analytics, a modern Supplier Relationship Management (SRM) solution with true relationship and innovation management, or a modern category management and planning solution.

The tools they have are often out of date …

Many companies that acquired on-premise tools last decade are still using the on-premise versions of those tools almost ten years later. While these first generation tools were great at the time, in many ways we are now entering the third generation of Sourcing and Procurement solutions with advanced functionality, advanced usability, machine learning, community intelligence, and other innovations that are the foundation of what will be required to take performance to an 11!

… or provide a bad user experience.

As you might have guessed from our recent onslaught of posts on UX, both in general and specific to e-Negotiation in general, e-Auction, and optimization, many, if not the majority, of solutions out there are lacking in UX to some degree (and many of the older solutions don’t have any semblance of a modern user experience at all!). The most significant barrier to adoption, which is critical to success, is the user experience, so if it’s bad, you would have been better off spending that money on beer-filled Friday pizza parties because at least then your team would be happy one day a week.

In other words, Procurement is a tough job which often offers little, if any, comfort to the seasoned professional trying to make the best of a bad situation. So the least you can do is get them some good tools, use your head and put long term success ahead of short term cash savings, and realize that everything is a trade off and that if you demand Procurement increase the value along a certain dimension, another dimension will diminish. It’s life. Just like you can only ever control two out of three when it comes to time, resources, and cost when doing a project, trade-offs are a reality of life. Procurement will do the best they can, but every hard constraint will hurt you. Remember that.