Category Archives: Sourcing Innovation

… And Advanced Analytics Should Be a Must in 2020!

Just like any vendor can claim to have a digital procurement solution because, as we clearly explained last week, email and spreadsheets technically count, any vendor can claim to have analytics. Consider the definition:

the analysis of data, typically large sets of business data, by the use of mathematics, statistics, and computer software

And then consider the common definition of analysis:

a presentation, usually in writing, of the results of this process

This means that any software that provides a canned report summarizing a data set (average, mean, etc.) qualifies. MRP software from four decades ago had canned reports that did this and qualify. Thus, since computers are modern in the grand scheme of human history, any vendor can tell you with a straight faced that they have a modern platform with a modern analytics solution if it runs on a computer, supports bid collection in a spreadsheet, and contains a canned report summary — especially if they were an English or Arts Major (especially since we are in the post-modern phase in their worldview).

DO YOU REALLY WANT TWO-PLUS DECADES OLD TECHNOLOGY?

Think carefully about this — because if you don’t ask the right questions and use the right measuring stick, that’s precisely what you might get if you don’t get beyond this “digital” and baseline “analytics” crap.

What you have to know is that there are levels to analysis. And while the number of levels might very depending on how granular you want to get, there are at least five in today’s technology platforms, and these are the seven levels the doctor likes to use.

1. Classificative
At this level, data is classified into buckets for the purpose of basic analytics.

2. Descriptive
At this level, basic statistics are run to compute summary, typically canned, reports on the data.

For decades, this is all you got, and many vendors still try to pass this off as sufficient.

3. Diagnostic
At this level, the user is either given the ability to define their own reports to drill in and find the potential root causes of issues identified in the reports or to run more advanced statistics (beyond just average and mean) to identify correlations between data to find potential root causes of issues.

Most platforms developed or upgraded in the last five years in S2P, Sourcing, and Spend Analysis have this capability. But this is not enough any more, especially when there are do-it-yourself software packages for under 1K that can allow you to get to the next level, which has been around in specialized demand planning and analytics for decades.

4. Predictive
At this level, the platform employs statistical trend analysis, advanced clustering, and/or machine learning to identify trends and predict future costs, risks, performance, etc.

A few platforms are starting to incorporate this, but this should be a baseline requirement considering ERPs, demand planning, and advanced BI tools have had at least some capability here for close to 2 decades

5. Prescriptive
At this level, the platform is not just identifying and computing future trends, but providing advice on what to do as a result of those trends.

Leading platforms are starting down this path, but given that the foundations of prescriptive analytics have been around for over two decades and that best practices in sourcing and procurement have been around almost as long, if a platform can’t provide not only insight and recommendations what to do with that insight, it will never even achieve 3.0 objectives … meaning 4.0 will never be a reality.

In other words, any platform without some prescriptive capability is behind and not one you should be investing in.

6. Permissive
At this level, the prescriptive analytics is used to power automatic actions based on embedded rules. If the platform determines a commodity that is typically on a one year contract is at an all time low, it might initiate the renewal event two months early to lock a rate in if a rule is defined that says events can be initiated up to three months early if prices drop below contracted rates and are projected to be within 2% of the projected low.

Few platforms are here, but you should be looking for a configurable platform with rules that permit simple automation based on both entered and derived data values from the application and the data it contains. Permissive analytics is a cornerstone of the Procurement 4.0 promise so make sure your chosen vendor is building in permissive analytic capability. It can be fledgeling to start, but something needs to be there or it won’t be there when you need it.

7. Cognitive
At this level, the platform embeds machine learning and advanced AI techniques to not only make good predictions but choose the right actions to take on those predictions without any user intervention for run-of-the-mill sourcing and procurement processes and events. When we reach Procurement 4.0, such systems will not only eliminate 98% of tactical work to allow buyers to focus on the strategic, but eliminate 90%+ of strategic work identified as relatively low value (at the time) and allow buyers to focus on strategic efforts that present the greatest opportunity to provide value … truly optimizing the limited Procurement resources available.

Insight is Good. Actionable Insight is Better!

In our last post we talked about how important insight is in a modern platform now that we’re in the third decade of the century and how any platform that delivers anything less should NOT be on your radar!

But you want more than insight. First of all, you want actionable insight. As per our last post, just knowing that an invoice doesn’t match a PO isn’t enough. You need to know why, and more importantly, what the typical action should be. Extra units? Over-billing? Unexpected Taxes? Higher-than-anticipated surcharges? Approve? Send it back for clarification? Send back a revised version for acceptance (that will result in instant payment)?

However, the ability to take instant action would even be better! If the platform gave you the ability to flip back with request for information, flip back with suggested alterations, or approve with one click, that’s good.

But this ability should be across the platform. When an event is selected, the platform should not only recommend the best set of suppliers, but allow them to be added to the event, and invited, with a single click. This recommendation should take all factors into account — incumbency, performance history, risk scores, environmental data, etc.

When the award is selected, the system should not only identify a template but automatically fill in all the relevant award data and meta-data, alter the clauses as necessary, and bring up an editable contract for buyer review with a single click.

Every insight should lead to one or more courses of action and the platform should provide a mechanism to immediately take the courses of action identified — with a single click if at all possible.

A modern platform doesn’t just provide insights in canned, or customizable, reports — it provides insights embedded in the platform that allow the right actions to be easily taken at the right time … without having to search for the way to make it happen deep inside the depths of the platform where few will ever have the patience to drill into.

Considering that this decade should see the emergence of Augmented Procurement Platforms based on Augmented Intelligence that not only provide insight into the right action to take, but learn to make better recommendations over time in more scenarios, the last thing a buyer should settle for is a platform that still provides “insights” in the form of one-off canned reports in a dark corner of the platform.

Insight. That’s What Marketers Should be Marketing in 2020.

Because that’s what you need. In this day in age, any platform should be capable of implementing a digital process that accomplishes a basic sourcing, procurement, catalog buying, or contract negotiation process … this technology has existed for almost two decades. So if an organization is going to spend money on marketing, it should be marketing something more than just basic digital process support as dozens of vendors have that (as evidenced by the participation of over 75 vendors in Spend Matters SolutionMaps with more in the wings). And if the organization doesn’t have anything more to market, then it shouldn’t be marketing at all — and investing those pesos in product development until it has something worth marketing.

Now that we are in the third era of Procurement, we should be looking for solutions that enhance our processes, not systems that just digitize them. And for systems to enhance our processes, they need to do more than digitize them or automate them with fixed rules. They need to provide relevant insights at key stages of each process to help a buyer make good decisions in an efficient manner.

For example, when a buyer selects a category or set of products / services for a sourcing event, the system should automatically highlight current and past suppliers, suppliers who responded to previous events, and new suppliers who have matching products or services. Furthermore, if there is any risk or environmental data associated with those suppliers, it should also be highlighted. When all the bids are in, it should automatically highlight the lowest-cost award, the incumbent award, the best award with a preferred number of suppliers, and any other relevant out-of-the-box scenarios.

During contract time, if there is an appropriate template, it should present that to the project lead as well as highlight any clauses that might be missing or any clauses that might need to be addressed.

When an organizational buyer needs to make a requisition, and logs into the catalog, the system should guide the buyer to the on-contract product for requisition. If that product is unavailable, then it should guide the buyer to the next preferred option. If there is no on-contract or preferred product, then the system should recommend the product that provides the best overall value to the organization (which balances cost, quality, volume requirements on general product/service contracts, etc.).

When an invoice comes in that doesn’t precisely match the purchase order, but is within what could be considered a reasonable tolerance or has an extra charge that could be considered reasonable under the circumstance, the system should immediately point out the discrepancy and whether or not an approval should be given or denied. For example, if there was an expediting charge because the order was shipped same-day (when the contract required three days notice) that is relatively low value, or extra units were shipped and received (and billed at agreed upon rates) (and needed anyway), the system can point out the discrepancy and recommend approval. If the surcharges exceed typical amounts or a significant number of units were marked damaged on receipt, the system can recommend rejecting with a request for more information or invoice reduction.

Similarly, before an order is placed, the system should highlight any suppliers that have become more risky in the past month or performing poor on OTD.

While the talk of Procurement 4.0 might be more autonomous systems that do more of our work for us, that’s at least five, and most likely, ten years away. Right now, what we need are systems that allow us to make good decisions efficiently. And that means presenting the right information at the right time. If the system can’t do that, then don’t bother. Seriously.

Is this the year CLM breaks the bank?

Or at least the deal?

Last year Icertis raised over 100 Million at a valuation that allowed it to become the next unicorn and Coupa bought Exari to fill the hole in their suite. Seal Software raised another 15 Million just to power contract discovery and a new startup, Lexion, raised 4.2M to bring AI to contract management.

Pure-play CLM, and its precursor technology, has been around for a long time. Exari was founded in 1999 and Selectica, which rebranded as Determine after it acquired b-pack and Iasta, dates back to 1996 when it offered a CPQ (configured price quote) solution. Not long after, Nextance (which was acquired by Versata) was founded in 2000. And the saga continued from there.

But we won’t bore you with a detailed recounting of providers that have come and gone over the past 20 years. The point was merely to make it clear that while CLM has been around for a long time, it hasn’t been very successful. The majority of providers have been acquired, acquired, and/or morphed into different solution providers in order to survive.

But this is the year CLM may finally come to the forefront. With risks increasing, costs escalating, and supply chains lengthening, contracts, and associated obligation and liability management, are becoming ever more important. It’s not just negotiating a good deal, it’s ensuring that deal is adhered to. That’s more than just loading the items into the catalogue with agreed to pricing and ensuring the invoices match the purchase orders, it’s ensuring the items are bought when they are supposed to be (so the company keeps its end), delivered when they are supposed to be, at the quality level they are supposed to be at, and free of the risks they are supposed to be free of.

This requires not only careful monitoring of execution, but careful construction and review (are there any clauses with ambiguous interpretations or would counter-party suggestions increase risk), and this is a capability most Source-to-Pay providers don’t have. When most vendors advertise contract management, what they really have are contract meta-data management — the system can track contracts, products and services, pricing, promised demands, and associated contract documents, but can’t suggest templates, analyze them, or intelligently determine when an obligation isn’t being met by either party. The systems can’t intelligently manage clause libraries or help with intelligent contract drafting, comparison, or exception management.

But if contracts are the only cure to the ills of risk and obligation management, considering the difficulty most organizations have in finding and getting a handle on them, then this might be the year that CLM finally comes into its own. It may not break the bank, but it may start being the differentiator in deals. And that may just be enough.

Platforms in 2020

Last week we talked about analyst predictions for analytics in 2020, most of which were just statements of the obvious, wishful thinking, or some combination thereof, but there was one prediction in particular that stood out … the one that was 100% correct. In particular, the prediction that companies will continue failing analytics and AI transformations.

Considering that most companies don’t have a good grip on analytics and an even worse grip on AI, what it really is, and how to judge if a company truly has some level of Artificial Intelligence — be it Assisted, Augmented, Cognitive, or Autonomous Intelligence — or if the company is just using Applied Indirection in their marketing.

But Analytics is just one aspect of technology that an average company is going to be interested, and if the company is not looking for a best-of-breed analytics vendor, it is looking for a platform. So what’s in-store for platforms in 2020?

Well, as usual, more of the same-old same-old, but their might be a few pinpoints of light in the near future. However, first, let’s discuss what’s going to happen for sure.

1) The M&A Mania is going to continue … and accelerate.
Workday’s (almost) ridiculous multiple for Scout (based upon current revenue) is going to make everyone hungry for acquisitions to keep up.

2) CLM and Analytics will be focal points.
Contract Management is the buzz, and while most organizations still don’t quite understand how to really extract value from it, no one wants to be left behind.
Similarly, AI is weaving it’s way into analytics, and while most vendors don’t have what the market thinks they have, it’s bringing analytics back into the limelight.

3) Mega-Acquirers (large companies and PE firms) will be all-in with suite mania.
If they don’t have a sourcing, supplier management, contract management, analytics, e-Procurement w/ Catalog Management, Invoice Management, and Payment management capability, they will be out to acquire any of those pieces as fast as possible to check all the major boxes and claim equivalency with Coupa, Ivalua, etc.
If they have the main pieces, they will be looking for ancillary pieces to increase the value and differentiate from the competition along the lines of T&E Management, BoM management for direct sourcing, Quality Management for Direct, Optimization and What-if Analysis, Freight “Broker” platform integration for (near) real-time weights and accurate Total Cost bids, etc.

But this is no surprise … it’s just an acceleration of what we’re seeing now.

So will anything be new?

1) “Chat-bots” will be put to work.
They will slowly transform from interactive help systems to actual assistants that will take commands and implement standard actions across the application. “Create an RFP for all off-contract products and products that will be off-contract in 90 days in the office supplies category” will find the template, find the products, identify the minimum information needed (release date, initial supplier pool, etc.) and ask it, and create a RFP ready to be finalized and sent out (using naming conventions, standard definition of incumbents, etc.).

2) “Predictive” Analytics will start to be integrated cross platform.
But don’t get too excited … for the most part it will be traditional trend algorithms or open-source models that have been found to typically work on that type of data and little to no machine learning, but it will be a step in the right direction.

3) “MDM” will be bandied around like it’s the new acronym candy.
And while platforms will make progress in terms of managing all of the data that flow through them, their ability to push data back to source systems and manage master data across systems will still be a while off. MDM will stay in the hands of ERP and highly specialist vendors for a few years to come.

While not an in-depth discussion of the trends that will continue or the trends that will start, it’s a good start.