Category Archives: Software Buying Guide

The Sourcing Innovation Source-to-Pay+ Mega Map!

Now slightly less useless than every other logo map that clogs your feeds!

1. Every vendor verified to still be operating as of 4 days ago!
Compare that to the maps that often have vendors / solutions that haven’t been in business / operating as a standalone entity in months on the day of release! (Or “best-of” lists that sometimes have vendors that haven’t existed in 4 years! the doctor has seen both — this year!)

2. Every vendor logo is clickable!
the doctor doesn’t know about you, but he finds it incredibly useless when all you get is a strange symbol with no explanation or a font so small that you would need an electron microscope to read it. So, to fix that, every logo is clickable so you can go to the site and at least figure out who the vendor is.

3. Every vendor is mapped to the closest standard category/categories!
Furthermore, every category has the standard definitions used by Sourcing Innovation and Spend Matters!
the doctor can’t make sense of random categories like “specialists” or “collaborative” or “innovative“, despises when maps follow this new age analyst/consultancy award trend and give you labels you just can’t use, and gets red in the face when two very distinct categories (like e-Sourcing and Marketplaces or Expenses and AP are merged into one). Now, the doctor will also readily admit that this means that not all vendors in a category are necessarily comparable on an apples-to-apples basis, but that was never the case anyway as most solutions in a category break down into subcategories and, for example, in Supplier Management (SXM) alone, you have a CORNED QUIP mash of solutions that could be focused on just a small subset of the (at least) ten different (primary) capabilities. (See the link on the sidebar that takes you to a post that indexes 90+ Supplier Management vendors across 10 key capabilities.)

Secure Download the PDF!  (or, use HTTP) [HTML]
(5.3M; Note that the Free Adobe Reader might choke on it; Preview on Mac or a Pro PDF application on Windows will work just fine)

Five Best Practices for Buyers (when searching for software solutions)

Building on our piece on five easy mistakes source to pay tech buyers can avoid, here’s a piece on five (5) best practices to get the buy right. We’re even throwing in a bonus practice since we dove deep into the critical sixth mistake most tech buyers make in source to pay (who need to realize that No Tech Should Be Forever).

#1 Understand your core pain points

Don’t buy based on hype, buy based on need. Any good salesperson can spin you a good yarn on how much that sourcing solution will save, how that SRM will get your suppliers in line, and how that tail-spend solution will prevent your spend from going into a tail-spin. But there’s no guarantees that any of those solutions will solve your current problems, which might require e-Procurement or Spend Analysis.

Review your source-to-pay processes and determine where your pain points are. Is it in quote collection or analysis? Adequate supplier discovery, identification, or certification? Contract negotiation, implementation, or obligation management? Purchase orders and approvals? Invoice verification and matching? Opportunity identification? Supplier proliferation? If you don’t know where the majority of time is being spent and how much of that time is fighting fires, doing unnecessary tactical work, or taking too long to do something that should be quick, then you’re letting someone else identify your problems, which might turnout to be problems relatively small in the grand scheme of things.

#2 Understand which pain points can be best alleviated with technology vs. those that can be best alleviated with process improvements.

Technology can’t solve all of your ills. (And it especially can’t solve all of your ills if it is based on Automated Idiocy. Remember, that’s what the “AI” they are selling you is.) It’s important that you understand what technology can and can’t do before you look for a solution. This will help you identify honest providers offering honest wares and vapourware vendors selling silicon snake oil.

Consider the above pain points. If it’s quote collection, a good RFP system will help. If it’s quote analysis, maybe, maybe not. It may be the complexity of the ask, and not the complexity of the process, that’s the problem. If it’s supplier discovery, you will likely need a discovery platform or a large supplier network; if it’s supplier identification, possibly just a better process of identifying which suppliers you’re already using who can solve a new problem for you. Supplier certification, that requires manual review and sometimes tech can’t help at all. When it comes to contract negotiation, while platforms can shuttle contract drafts back and forth, negotiation is between people. Implementation and obligation management, that’s the kicker, and more than what you can accomplish with just an electronic filing cabinet, which is what many “contract management” systems are. Purchase orders are as much a process problem as a technology problem, most AP systems can generate them. Approvals, process problem to identify it, but often a technology problem to ensure that the process is followed. Invoice verification — manual approval is required but m-way invoice matching can help with the process by identifying the corresponding purchase order, any payments made to date, any credits accrued to date, any approvals required, and so on. Opportunity identification? Well, all of the pain points you identified represent opportunities, but beyond that, you’ll likely need spend analysis. Supplier proliferation — that’s a process and management issue. All the SRM does is track the suppliers.

If you don’t understand what the pain points are that tech can actually solve, you’ll never select the right tech.

#3 Identify your top 3 pain points that can be addressed with technology and the corresponding source-to-pay module(s) you need to address those pain points.

Once you’ve identified the pain points, whittled down to the subset of pain points that can be best addressed by technology, and then identified the three (3) that will have the biggest impact if addressed, you can continue with your quest for tech.

#4 Compile an appropriate shortlist of vendors.

Once you know what you want to address with tech, and why, you can start the process of identifying an appropriate short-list of vendors. This is not just three to five vendor names given to you, or three to five vendor names that come up first in a Google search — it’s three to five vendors that are confirmed to offer a module that will address the same (sub)set of problems you are looking to address.

This is not three to five vendors that claim to offer the same technology, as many vendors will purposely use, and sometimes abuse, the same terminology in an effort to sell completely different products. For example, sourcing, procurement, and purchasing are sometimes used to mean the same thing by three vendors, and sometimes mean completely different things by three vendors. There are vendors that call their sourcing systems procurement, purchasing vendors which just offer catalogs, and so on. You have to research their offerings carefully to determine whether or not they truly offer a solution to what you are looking for.

#5 Determine what you need in a partner before you start evaluating vendors and the RFPs they submit.

You don’t just need a vendor that can provide technology, you need a vendor that can provide a solution and work with you, offering as little or as much as you need in the way of training, implementation, integration, and services. You need a venture that will match your culture, get along with your team and make sure you are successful with their product. You need to identify everything that makes a good vendor before you start the evaluation, otherwise you will grade just on the tech, and the tech is not enough. (It’s a necessary part of the solution, but not a sufficient part on its own.) All supply chain problems have a human element. Never forget that.

#6: Bonus Get help with the shortlist and the RFP.

If you’re not familiar with the technology, the vendors, or the terminology, it can be difficult to determine which vendors might actually be able to solve your problems and what vendors will just bamboozle you into thinking they can* when you send them the RFP. Get help from someone who is an expert in the technology, the vendors, and the true capabilities the vendors offer.

* Not necessarily on purpose; a misunderstanding caused by different usages of terminology (see point #4) can cause a vendor to believe they have the perfect solution for you.

Per Year, How Much Should You Outlay for a Multi-National Enterprise Source to Pay? Good Question! Poor Answer. 500K+

Whereas we were willing and able to put a real, actual, number, or a very tight range, for mid-markets, the situation gets more tricky for a multi-national enterprise with 1 Billion + in Revenue.

Why? Aren’t they using the same advanced tech as a large mid-market, except using advanced capabilities across the board? And, because of this, shouldn’t it max out at 500K? Well, yes, but there are additional considerations you don’t have in the mid-market.

[01] If you are using a lot of decision optimization, semantic analysis, network modelling, etc., then you are using a lot of computing power — that’s driving up the vendors’ hosting costs well beyond the mid-market. Now, at some point, it maxes out at costs on a dedicated machine basis, but it’s still higher.

[02] As a true multi-national enterprise, you are going to need a vendor that has extensive multi-lingual and multi-currency support in the product AND at the help desk when suppliers and third parties have difficulties using the solution to bid, provide information, submit invoices, etc. And while it’s only a one-time cost for a a suite built for true internationalization to add another language pack and currency, an enterprise that offers support in those languages usually has to add more headcount to support that language, and that adds cost.

[03] You’re not only going to have a larger Procurement team using it, but you’re going to have a decentralized global team with a lot more differentiation in capability, with a lot less people capable of being full DIY. They’re going to need more support on a regular basis, and you’re going to need to contract for this up front.

[04] You’re going to need a lot more data. You’re going to be subject to a lot more regulations and you’re going to need to collect, and verify, a lot of data on your partners and suppliers. A LOT of data. You’re going to need a number of data subscriptions on business identifiers, (beneficial) owners, and credit scores for verification that they aren’t on any embargo lists, involved in any legal suits, and acceptable to your insurance provider. Then you need data on their human/workers’ rights practices, compliance, and third party assessments for those countries with laws enforcing compliance and putting you responsible for your supply chain actions. Then you need Carbon/GHG data for countries with reporting requirements or limits. Then you need other ESG/Risk data for your own internal risk assessments. And so on. These subscriptions add up.

So even though the suite itself should still be within that 250K to 500K per year range, when you add up the additional support needs, additional data needs, and dedicated computing power needs, you’re going to double or triple that cost. That being said, before you sign on the dotted line, especially if the quote gets close to 7 figures (one million), you need to do your expected ROI calculation. If you’re not going to see at least a 5X ROI a year on a conservative estimate, with an expected ROI of 7X to 10X a year by years 2 and 3, you need to step back and decide if you need all the functionality, all of the support, and all of the data subscriptions you’re asking for / being quoted, and if so, if you’ve included the right vendors in your RFX for (a) technology solution(s). The reality is that you should NOT be paying a million plus annually for an extended S2P suite unless you’re getting the ROI.

Also, be sure to build that model in-house or engage a third party that is not a reseller or implementer of the suite you’re considering. First of all, their savings averages are not guaranteed to be applicable to your situation. Secondly, their manpower requirements, and reduction, averages might not be appropriate for your business either. Thirdly, because they often build their savings model as a rollup of savings models across the different modules / functions, many of these suite models often end-up double-counting resource time or savings numbers by way of their design.

(Please note our choice of wording here — “end up“. Usually the provider or consulting organization is not trying to deceive you, and they often don’t realize that their roll-up model is double counting. What we’ve seen happen is they take the best calculators they have access to (through consultant or analyst relationships) in each area they are selling in the suite — sourcing, SXM, CLM, etc. — and then roll them up. But they fail to understand that the attributions of a savings percentage in each model always favours the solution/module being sold, which may also assume some baseline functionality of another module. As a result, especially since the savings opportunity often changes based on what technologies are available and applied together, all the estimates will be “Best Case” for the selected modules, and when you add those up across five/six modules, you will sometimes get a total “Best Case” that is as much as double what is actually reasonable. For example, you can have a category where if you just applied spend analysis on the RFX you could identify 6% savings, if you just applied supplier risk profiling to the RFX and eliminated the high risk suppliers and then took the low bids you could identify 4% savings, and if you just applied strategic sourcing decision optimization you could get 10%, but if you applied all three you only achieved 9% (since optimization finds everything spend analysis finds, but the risk assessment resulted in the manual elimination of a high risk supplier that optimization didn’t catch, lowering the initially identified savings opportunity). Rolling up 3 separate models, it would produce a 20% savings opportunity when it was in fact 9%. Now, in other situations, the rollup could be worse than the actual of combining all three technologies, i.e. the RFX is projected to only identify 3% on it’s own and the negotiation module to save 3% on overheads, but the application of both to a targeted subset of suppliers which are deemed to be most willing to negotiate based on volume could allow for an 8% reduction. But overall, these rollups don’t average out and usually over-count.)

[Also, most vendors feel they have to do it this way since most buyers don’t buy all the modules and they don’t have enough average savings data across the application of all advanced modules to all categories to have reliable numbers. So you really need to do your own models based on your own situation and come up with realistic estimates.]

Depending on your current state of affairs, current market conditions, and technologies available that your organization is actually capable of utilizing, that could be an overall, estimated, cost reduction of 3% against all spend expected to be put through the platform in the first year, or it could be 5% (or more, or less). Even 3% is good if you’re spending 1 Billion a year, 500 Million is addressable, and you think you can address 20% of that, or 100 Million, the first year. That’s an estimated savings of 3 Million, and if your year 1 cost was 750K, that’s reasonable with an ROI of 4X, especially if you think increased efficiency will come in year 2 with familiarity, that you will address 200 Million in year 2, and increases the estimated savings percentage to 4%, which would be 8 Million savings in year 2, and an 8X multiple even if you needed to add more data subscriptions and support, bringing the total solution cost up to One Million.

Probably not the answer you wanted, since the mid-market looks to be getting off cheap, but they are also spending less as an organization, addressing less of that spend, dealing with fewer volume or consolidation opportunities, fewer resources to tackle the mid-size categories, and losing on the tail since they can’t effectively manage it beyond catalogs, budgets, and hoping the 3-bids and a buy are fair (and not rigged through collusion). They might pay less for their S2P solution suite, but their total savings potential is also (considerably) less and, thus, their typical ROI is limited compared to yours.

But, well chosen, at least you’ll get an open, modern, usable solution for One Million dollars per annum — not something you can say in all areas of enterprise software.

The 39 Steps … err … The 39 Clues … err … The 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay

Figuring out where to start is not easy, and often never where the majority of vendors or consultants say you should start. They’ll have great reasons for their recommendations, which will typically be true, but they will be the subset of reasons that most benefits them (as it will sell their solution), and not necessarily the subset of reasons that most benefits you now. While you will likely need every module there is in the long run, you can often only start with one or two, and you need to focus on what’s the greatest ROI now to prove the investment and help you acquire funds to get more capability later, when you are ready for it. But figuring out how much you can handle, what the greatest needs are, and the necessary starting points aren’t easy, and that’s why SI dove into this topic, with arguments and explanations and module overviews, both broader and deeper than any analyst firm or blogger has done before. Enjoy!

Introductory Posts:
Part 1: Where Do You Start?
Part 2: Where Should You Start?
Part 3: You Start with …
Part 4: e-Procurement, and Here’s Why.

Part 5: Defining an e-Procurement Baseline
Part 6: There are Barriers to Selecting an e-Procurement Solution (and they are not what you think)
Part 7: Over 70 e-Procurement Companies to Check Out

Interlude 1
Part 8: What Comes Next?

Spend Analysis
Part 9: Time for Spend Analysis
Part 10: What Do You Need for A Spend Analysis Baseline, I
Part 11: What Do You Need for A Spend Analysis Baseline, II
Part 12: Over 40 Spend Analysis Vendors to Check Out

Interlude 2
Part 13: But I Can’t Touch the Sacred Cows!
(including Over 20 SaaS, 10 Legal, and 5 Marketing Spend Management / Analysis Companies to Check Out)
Part 14: Do Not Stop At Spend Analysis!

Supplier Management
Part 15: Supplier Management is a CORNED QUIP Mash
Part 16: Supplier Management A-Side
Part 17: Supplier Management B-Side
Part 18: Supplier Management C-Side
Part 19: Supplier Management D-Side
Part 20: Over 90 Supplier Management Companies to Check Out

Contract Management
Part 21: Time for Contract Management
Part 22: Contract Management is a NAG: Let’s Start with Negotiation
Part 23: Contract Management is a NAG: Let’s Continue with [Contract]Analytics
Part 24: Contract Management is a NAG: Let’s End with [Contract] Governance
Part 25: Over 80 Contract Management Vendors to Check Out

Part 26: Time for e-Sourcing
Part 27: Breaking Down the ORA of Sourcing Starting With RFX
Part 28: Breaking Down the ORA of Sourcing Continuing with e-Auctions
Part 29: Breaking Down the ORA of Sourcing Ending with [Strategic Sourcing Decision] Optimization
Part 30: Over 75 e-Sourcing Vendors to Check Out!

Invoice-to-Pay (I2P):
Part 31: Time for Invoice-to-Pay
Part 32: Breaking Down the Invoice-to-Pay Core
Part 33: Over 75 Invoice-to-Pay Companies to Check Out

Part 34: How Do I Orchestrate Everything?
Part 35: Do I Intake, Manage, or Orchestrate?
Part 36: Over 20 Intake, [Procurement] [Project] Management, and/or Orchestration Companies to Check Out
Part 37: Investigating Intake By Diving In to the Details
Part 38: Prettying Up the Project with Procurement Project Management
Part 39: Deobfuscating the Orchestration and Fitting it All Together

Stop Sanctifying Savings, Recognizing ROIs without Research, or Seeking Solutions Solely in Software

If you’ve been reading the doctor for any length of time, you’re probably a bit confused about the third part of this title — as the doctor is one of the biggest proponents of sustainable software solutions that cover the extended Source-to-Pay process and enable next generation Sourcing and Procurement. However, just because he believes you should have an appropriate software solution for every stage of the source-to-pay process, that does not mean he believes all of the solutions are in software alone. Some are in systems, which are composed of talent, technology, and transformation(al processes).

Sometimes the solution to a challenge isn’t (just) a better system, it’s a better process. Take invoice overpayments, common in large organizations due to over-billings, duplicate billings, and even fraudulent billings. The current “solution” is to use a recovery firm who will take 1/3 of what they “recover” for you as their fee, but they won’t recover everything (since anything off contract is hopeless, as is any fraud that slipped through — the perpetuators are long gone, and even if the authorities find them, by the time you get a judgement in court, they’ve spent, laundered, or transferred the money to somewhere you can’t touch it). This is not much of a solution, because if only 50% of the overspend is addressable, and you lose 1/3 of that in fees, you’re only recovering 1/3 of your overspend. Ouch!

The solution here is better process enabled by technology. When an invoice comes in, the system auto-processes it and auto-matches it a purchase order and a goods receipt. If there is no PO, and it’s not a pre-defined monthly billing, it’s marked as no-pay until manually verified by the buyer that a) the invoice is for goods that were ordered and b) all of the units / services are the agreed upon prices or rates. And even then it’s held for payment until the goods are marked as received or the services delivered. If there is a PO, it must match all of the yet unmatched units (if multiple shipments, and thus invoices, are made against the PO) and each unit must be billed at the approved (contracted rate). If not, it’s flipped back to the supplier for correction. If the supplier won’t correct, possibly because the order was expedited at managerial insistence and the supplier agreed only if a premium could be charged, then it needs managerial approval before a payment can be issued, and if that is not given, it needs to enter a dispute process. In other words, no invoice is paid until matched, verified correct, and, when necessary, granted managerial approval — and the entire invoice management function is governed by a well thought out, defined, and detailed process (with flow-charts that govern process flows) that ensures every invoice is processed correctly in every situation (based upon whether or not the goods and/or services are under contract, PO, cyclic billing agreement, ordered from a catalog, requisitioned at a defined rate scale, bought in an e-auction, etc. In other words, the process comes first, and the technology enables it.

This means that while the software should enable as much of the process as possible, you shouldn’t look to the software, or even the vendor, to define the process for you. The vendor should have best practices, and should provide you with sufficient configuration options to make it work for the process you need, but you need to understand what you need before you select a solution. Some solutions on the market will be really rigid, and others will expect you to configure it to your needs. In other words, software can provide you with what you need to complete the solution, but software alone is not a complete solution — you need the right process and the right people using it. So don’t look to a software provider as the solution, look to a provider to provide software that will provide the software part of the solution.

And, more importantly, don’t accept the promised ROI without doing your own research. Most providers will promise you an ROI of 5X to 15X in an effort to convince you that NOT buying their solution wold be the stupidest thing ever as every day you’re not using their solution you’re flushing money down the toilet. And if the ROI of a solution is that high, you should definitely have a solution — but the solution that gives you that ROI might not be the one that promises it. Remember, ROI is realized return / total solution cost, and depending on how good you were doing before buying the solution, the current market conditions, your industry, and the ancillary costs of the solution (implementation, integration, training, etc.), the ROI for your organization could be drastically different than their average ROI for their average customer. For example, while the vendor’s average customer might see an ROI of 5, you might only see an ROI of 2.5, and at a multiple of less than 3, it’s likely not the solution for your organization. (Unless it’s the only solution and you need a software solution, but it’s rare that there’s only one software solution that would work.)

If you’re given an ROI, ask for the calculation the vendor uses and how you would calculate it for your own organization and do it yourself. Add padding into the price, and when you have an expected range of savings and/or cost avoidance, err on the side of caution (the lower end). That’s the number you use when considering the value, not the vendor’s number. Every situation is different, and you need to understand how different your situation is from their average customer.

However, the most important thing to understand is that you need to stop sanctifying savings and believing that the savings numbers provided by a vendor are a result of their solution. Or that you will achieve anything similar. Remember, “savings”, which is usually just “unnecessary cost avoidance”, is a function of how much the organization is spending across its addressable categories, how much overspend is across those categories, and how much was able to be captured — and this is dependent on organizational size (annual revenue), industry, and spend profile. If your organizational spend is considerably smaller, your addressable spend is less than industry average (long term locked-in contracts, etc.), or your overspend in high volume / dollar categories is less than industry average (either because you had good negotiators, or you cut the contracts at the most opportune time), then your expected “savings” will be considerably less than their average customer savings they are presenting to you. In other words, like ROI, the advertised number may not be what you get. Specifically, your savings might not be anywhere close to their advertised number.

But that’s not the most important reason you need to stop sanctifying savings — the most important reason you need to stop sanctifying savings is that there is absolutely no correlation between the savings numbers and their software. Let’s repeat that. There is absolutely no correlation between the savings numbers and their software. Why? The same reason you should not seek solutions solely in software.

The reality is that, depending on the situation at hand, sometimes most of the “savings” or “cost avoidance” results from a better process alone and has nothing to do with the software solution whatsoever. Also, sometimes the solution that is needed is simply a workflow that enforces a process, a RFX solution that collects comparable information, an e-procurement solution that supports contracted rate catalogs and rate cards, etc. These standard solutions are offered by dozens of vendors and if the majority of the “savings” or “cost avoidance” comes from a baseline solution, it literally doesn’t matter what vendor’s solution you use! Literally. So if the vendor with the significant savings number is asking 1M annually in license fees and a smaller vendor offers a solution with all the necessary baseline functionality for 120K annually, you could get the same savings for 1/8th of the cost (which would significantly impact the ROI).

In other words, when you are given a savings number, you have to do your research and figure out

  • what percentage of those savings results solely from the fact that the implemented solution enforces a proper process
  • what percentage of those savings results solely from the baseline functionality that is available in at least 3 to 5 other solutions (at a lower annual license cost)
  • … and what percentage of those savings result from advanced features found only in that solution

For example, if only 5% of the savings results from advanced functionality and your estimated annual savings from addressable spend for the first 3 years is only 10M per year, are you really willing to spend 8X as much in license fees for an incremental savings of 500K? The answer here should be a resounding NO as that incremental savings is less than the incremental solution cost! But if you’re a multibillion dollar corporate, that could save 50M a year for three years, with a 10% incremental savings from the advanced functionality, then you would be saving an extra 5M per year at an incremental cost of 800K (which is a 6X ROI) AND have advanced functionality that could be applied to all categories that might squeeze out an extra percent here and there.

In other words, what solution you should buy depends on which solution you expect will give YOU the greatest ROI based upon YOUR calculation, not the vendor’s customer averages (or outrageous quotes from multinationals who spend 10X what you do). Furthermore, don’t misread the title — you do need software to enable your Sourcing, Procurement, and Supply Chain, but the software is not the total solution — which requires the right process driven by the right people. So don’t expect the vendor to solve all your problems, just the software portion (which you should only buy after identifying what you need, and the vendor you should choose should be that which has the greatest expected ROI for your organization, as calculated by you).