Category Archives: Sourcing Innovation

Take the Tedious out of the Tactical Tail and Autonomously Avoid Overspend with mysupply

The taming of the tail is tedious and that’s why it’s overlooked in many organizations beyond whatever a catalog can address. There are only so many strategic sourcing professionals, there are only so many projects they can handle, and only so much spend they can get under strategic management. After that, beyond what’s in the catalog, IF there is a catalog, it’s typically the wild wild west for Procurement — especially if it fits on a credit card or P-card. There just isn’t enough bandwidth to manage more than a measly modicum of the tactical tail in an average organization.

Many organizations believe it’s okay to ignore tail spend because it’s only 20% to 30%, and because they believe that overspend probably can’t be that high on small purchases. They’re wrong on both points. In most organizations, even when the strategic categories are defined to include 80% of spend, because products and services change all the time, organizational buyers and / or overworked sourcerers won’t always catch when new products or services should be included in a strategically managed category; and because p-card/T&E is never included in the initial estimate, tactical/tail spend that’s unmanaged is usually 30% to 40%. If it’s 40% that ends up being unmanaged when the expectation is 20%, that’s a lot. Secondly, spend analysts and tail spend analysts have regularly found that the average overspend in the tail is in excess of 10%, with some categories of spend routinely being in the 15% to 30% window because no one ever looks at it. And if your organization is losing out on 10% of 40%, that’s 4% that could go straight to the bottom line with a good tactical tail spend solution.

To put into perspective just how good 4% straight to the bottom line is, consider the fact that, in direct organizations, strategic events on carefully managed direct categories that are regularly sourced typically only net 2% as the categories have already been squeezed. It’s only the mid-tier categories where you will see higher savings rates, which will typically average in the 5% to 7% range at best as these categories at least go to auction or multi-round RFP regularly. So if you save 2% on the top 30% and 5% on the next 30%, that’s only a savings of 2.1% that hits the bottom line. In other words, if your organization has been actively strategically sourcing top spend for five or six years, your organization has twice the cost avoidance / savings opportunity in the tail. It may seem counter-intuitive, but it’s the truth. Let that sink in for a moment before you read on.

mysupply is the newest start-up that aims to tackle the Tactical Tail Spend space, which has been historically underserved since the first specialists popped up (and then disappeared) to tackle it in the early 2010s. Even today you can count the true tactical tail spend specialist solutions on one hand without a thumb, compared to the seventy-five plus sourcing providers, but the new generation of providers, and mysupply in particular, understands that no one wants their spend in multiple systems (as you can’t do integrated spend, PO, and invoice management otherwise, key for Procurement success) and are developing their system as an extension to current sourcing systems, not a replacement for.

mysupply, which is even available on the SAP app store for those that use SAP (Ariba) and want a quick-start into tactical tail spend management, was designed to integrate with, and feed into your existing sourcing / procurement platforms — and in the case of Ariba, will fully use the Ariba Catalog and Ariba PO system to manage all spend. mysupply allows for:

  • quick event definition for sourcerors short on time (though the App or ProcurementBot)
  • roll-out to organizational users who can do their own quick-hit RFPs/Auctions/Catalog buys (also through the app, if needed, or ProcurementBot)
  • integration with your intake platform of choice for event push to the sourcing team

While it’s not designed as a full intake (or intake-powered) platform, as it was built for tactical tail spend and not all organizational spend, it was built from the ground up with integration in mind (as their goal is not to replace any platform you might already be using, as they are going after the enterprise market) and has a lot of orchestration capability built in and could even serve as an intake platform if desired (and route requests that should be strategically managed spend to an existing strategic sourcing application or to mysupply, which can also be used for strategic sourcing if desired).

Event creation in mysupply can be super easy. Options include:

  • in-house LLM-assisted Event Creation and Management via API-powered ProcurementBot, that can be integrated through existing enterprise collaboration platforms (Microsoft Teams is in Production, further integrations are planned)
  • Existing event templates that define all of the items being sourced, data required for bids, and (pre) approved vendors (which can easily be augmented or removed) (any event can be saved as a template to kick off future events)
  • events from scratch, where the platform is very adaptive and you only need to specify as much information as is necessary to source the product/service, which, if already defined in the system, can simply be an RFP request and a due date

and, most importantly, all of these strategies can include

  • demand bundling, even if different products or services should be sourced using different strategies, which can be across buyers for a given timeframe (i.e. collect all requests for a week or a month and then source)
  • pre-selected, custom, or hybrid supplier lists
  • customized lots, as the platform allows sourcing by item (price) or lot (price)
  • multiple tender/go-to-market approaches (i.e. each lot can be designated for a different [type] of RFX or auction), where the approach doesn’t need to be selected until suppliers have confirmed interest AND initial bids are in (which is very relevant for tactical spend where you don’t know the market dynamics because you haven’t researched the market and/or don’t source the product or service regularly; it’s not like strategic spend where you know there are seven suppliers, and five will show up to a reverse auction)
  • automated negotiation via (lot-based) QuickBot or multi-line item QuickBot
  • multiple scenarios for negotiation award analysis (where the items can be broken up for further negotiation/award after an initial bid event based on total spend, number responses, etc.)

For the requester, integrated LLMs through ProcurementBot help the requester:

  • identify the product or service being requested
  • capture demand and critical requirements
  • select the category
  • be presented with the appropriate sourcing approach: catalog, self-service, or central sourcing (team)
    • for catalog, immediately make the buy by presenting the user with the available catalog options and allowing them to select one and complete the purchase (and then the bot completes the process in the source system)
    • for self service, flesh out tender specifics and select (pre-approved) suppliers and then ProcurementBot sends out the tenders and, when they are all returned, or a certain time has passed (as configured by the category manager in the mysupply platform) returns the quotes to the buyer through the initial chat channel (where they can select one)
    • for central sourcing, it collects the request and, if appropriate, bundles it with others that are then rolled up into a managed tender that is then put into a central buyer’s queue for management, which may happen before or after initial quote requests are sent to suppliers (if an event template has already been pre-configured)

Let’s dive into some key sections / capabilities for the sourcing professional.

Demand Management / Bundling

As above, the system can be pre-configured to bundle demand over a period of time for all requests for the same product or products in a pre-defined lot, but for the rest of the requests that come in, there is the demand management/bundling section. In this section, the buyer can see all of the requests, have mysupply suggest a bundling, and either pick a suggested bundle or create her own bundle. She can quickly search and filter to create custom sourcing project bundles and then immediately kick off a workflow to define a new sourcing project bundle.

When a new sourcing project is kicked off, the user is taken to a screen where they can select starting pre-defined supplier groupings that are relevant for each item requested in the demand bundle (and, of course, the system will not include duplicate invites if the supplier is in multiple supplier groups, so the sourcing organization doesn’t have to create intersection groups, just groups for each commonly requested item).

Standard Sourcing Process

Once the buyer defines a basic event through one of the workflows (kicked off from a single request or request bundle), the platform takes the user to the event summary. From there they can:

  • define the automation and starting strategy — the event can be setup to automatically select all approved suppliers, send the request out at a certain time, remind suppliers, automatically advance to evaluation when all starting bids are in or the deadline is reached, kick off automated negotiation rounds (where suppliers are given a chance to update bids based on rank information and built-in game theory negotiation strategies), and basically free the buyer until it’s time to evaluate the first round of bids and either award, or kick off another round — at this point, the buyer can change the negotiation strategy, and even split the event up into multiple parts; this is different from most platforms where the entire event structure, and strategy (single round, multi round, Dutch action, etc.) has to be defined up-front and cannot be changed — something which makes no sense in tactical tail spend sourcing where you don’t know the supplier interest or current market dynamics; note that the starting strategy can be multi-pronged based on event value (if the award can be done under 10,000, then just award the lot to the current lowest bidder; if under 25,000 use autonomous QuickBot negotiation and award to the lowest bidder on an item basis; if over 25,000, do a 2nd round RFP with the three best suppliers and more negotiation/bundling to motivate better pricing; etc.)
  • flesh out the request — quote breakdown (while it is tactical tail spend, you may still want shipping, handling, taxes, service fees, etc. broken out), basic information required, documents required, delivery and payment details that must be accepted, compliance requirements, etc.
  • invitation of the selected suppliers (where you can add or remove suppliers that were pre-populated from supplier groups appropriate to the items in the request)
  • the evaluation of the bids that come back – manually, autonomously, or a combination thereof;
    the platform supports best price strategies, threshold strategies (which allow the strategy to be dependent on the amount of the bid, i.e user-driven negotiation above a range, best price negotiation within a range, and best-price auto-award below a range), QuickBot single lot auto-negotiation, Multi-Item QuickBot, English auction, Dutch auction, ranking (based on weighted responses and costs), buyer awards (no auction/negotiation); it supports lot strategies (best distribution by single-item award or all split); it also supports multiple rounds if desired with pre-scheduled negotiation windows (for RFQs and auctions); and, finally, it supports automated awarding if strategies that permit automated awarding are selected (subject to conditions that can restrict auto-award based on LDO — Least Desirable Outcome — or MDO — Most Desirable Outcome — scenarios; however, note that this is just the starting strategy;
  • select one or more bids for negotiation and make an award (unassigned/unawarded items are summarized and the user can see, through color coding, the lowest cost among all offers, select one, and send it to the e-Procurement system; the user can even dynamically kick-off new rounds of the RFP/auction, which may have a smaller supplier set or introduce new suppliers if the responses weren’t acceptable )
  • manage Q&A with the suppliers

A great feature of mysupply is it is not built to replace your current strategic sourcing platform (which most organizations have), your existing catalogs and catalog management applications (they integrate with them through their extensive API support), or your ERP/MRP/AP system which manages your purchase orders (as they integrate with those too). It’s meant to fill the tactical / tail spend sourcing hole in most organizations and, in particular, help organizations with tactical sourcing teams and help desks become considerably more efficient so overall savings can be increased though effective category management practices that capture and encode organizational knowledge so the end users can make the right buys on their own as often as possible, ensuring that the tactical team can focus on higher spend tail spend categories and new categories (and develop the right strategies to manage those going forward).

If your organization does a lot of tactical / tail spend sourcing, mysupply is definitely a platform you might want to check out, especially since its ProcurementBot allows it to do intake through third party platforms organizational users are already familiar with (such as Microsoft Teams).

Does Your Procurement Process Take Too Long, Maybe You Need to Zip Through It!

Zip is an interesting player. Started in 2020 to innovate the (lack of) intake in the Procurement world, they managed, through sheer ease of use and organizational friendliness, to embed themselves in a number of large organizations, get major investor attention, and, in less than four years, catapult themselves to a unicorn valuation.

However, as a result of those investments, they’ve been hiring good engineers as fast as they can find them, beefing up the orchestration, extending the product footprint (with baseline source-to-contract as well as some procure-to-pay capability), and launching a new integration platform, which is essential for source-to-pay-plus orchestration. They are making quite rapid progress in a space where many (but not all) larger companies have considerably slowed in their introduction of new innovation.

Marketing itself as procurement orchestration, Zip was founded to address the facts that:

  • purchasing is now distributed across numerous departments, and individuals, in today’s organizations,
  • (significantly) more cross functional approvals are required to control cost and risk, and
  • the ERP is not enough, and the plethora of apps and systems a modern organization needs are disconnected.

Now that they have powerful workflow creation capability, integration capability, and overall orchestration capability that can enable whatever you have (including Workday, Ariba, and Coupa), they now address the core problems they were formed to solve.

With the Zip platform, you can:

  • connect all individuals who need to purchase with all departments that need to be involved and vice-versa,
  • integrate all of the departments that need to review and approve purchasing (related) decisions, and
  • get visibility into each stage of the process across ALL of the organization’s systems (and even complete some tasks in the Zip platform where it has the corresponding Source-to-Pay capability).

On top of this you can:

  • integrate third party data feeds as well as applications to get insights and power analytics you need at any step of the process,
  • run cross-platform reports across performance and timelines as well as all spend, risk, and related data in the system,
  • manage your vendors and their data (which could be spread across a dozen systems) from one central viewpoint, and
  • manage your organizations (and subsidiaries) by department, category, etc.

The two-fold reason that you can do all this is because the Zip platform is really good at:

  • workflow management and
  • platform, and most importantly, data integration.

We’ll start with workflow management.

In the Zip platform, workflows are incredibly customizable. Workflows can:

  • have as many steps as required
  • which can be defined as sequential or parallel … and the workflow will not advance until all parallel steps are completed
  • have as many states as is needed (though most will only need a few states: locked, ready, in progress, approved, rejected (and sent back), rejected [and process terminated], etc.)
  • have as many sub-tasks and/or associated approvers as needed (so if the Legal Review needs two sign offs due to different policies that have to be met or the Finance Review needs two sign offs to ensure transparency, no problem)
  • have as many conditions as necessary for workflow selection / triggering (so you can have different procurement workflows by sub-category by geography if need be)
  • have as many triggers and dynamic data pulls defined as needed to instantiate a step once unlocked (e.g. bring up all vendors associated with a product, all approvers associated with a role, etc.)
  • link to as many external systems as required, with each (sub)task associated with the app/system in which the integrated party may perform his or her task
  • have as many details and associated documents as necessary
  • for Procurement, link to associated products, vendors, and / or contracts
  • etc.

And this is why the Zip Platform is so easy to use by, and attractive to, the average purchaser / requisitioner in an organization.

When an average user wants to buy, all they have to do is

  1. log into Zip via SSO (which can be configured to orchestrate organizational workflows beyond Procurement),
  2. indicate they want to purchase something
  3. select what they want to purchase
  4. make a few category/specification sub-selections to help the platform narrow in to the appropriate workflow (e.g. Facility Services, Janitorial; Computing and Electronics, Laptop;)
  5. if there are pre-approved vendors and/or products, the vendors/products; if not, they can select their own vendors/products
  6. answer a few [sub]-category dependent associated questions on the contract type, corporate or personal data that will be shared, etc.
  7. indicate the budget (amount) they wish to use (if appropriate)
  8. and submit the request …

The process is kicked off, the requisite data / document / survey collection is begun, those involved in the process are notified (and have visibility into the tasks they (potentially) have (coming), and the requester has full visibility into where the process is at all times (as the system will synch with external systems on predefined intervals between 15 minutes and 24 hours, usually depending on how often the external systems are used and what restrictions there are on access [e.g. some systems don’t have an API and do daily exports, and for systems with real-time APIs, the user can force synch anytime they want). But, most importantly, events that used to take hours to create and weeks to coordinate, can be created in minutes and the coordination effort is non-existent — the system handles everything for you.

When a user logs in, they can go to their (task) dashboard and see all the projects they are involved in, all the tasks they are assigned in those projects, and drill into all of the open tasks they need to work on now. They can also see how long the task has been open, when it is/was due, the average time taken on a task of that type, and the average time the user takes to do the task (if they drill into the appropriate report).

Moreover, if vendors are involved, vendors are invited and taken to their own portal where they see the event and only see what additional information is required (as anything requested upon onboarding is already available.

It’s also very easy to setup and administer, which is also critical for a modern platform. At any time, a user with appropriate authority can:

  • define, modify, and even inactivate workflows, as appropriate using a very easy to use no-code workflow builder where the users visually define the steps; select the actions; define the rules, actions, and triggers, etc.
  • define or modify (approval) statuses
  • define or modify the organization’s category hierarchy
  • define or modify new or existing survey templates which allow the user to add sections, questions, selection lists, etc.
  • create new system fields and documents and associate them with the appropriate system objects
  • create or modify the lookup types
  • add or modify user access rights, down to geographies, departments, workflows, function access rights
  • define or modify the organizational hierarchy (subsidiaries, departments, queues, locations, GL entities)
  • define roles, users, and permissions
  • define bank accounts and vendor (virtual) cards
  • add (out-of-the-box) or modify integrations, or launch the new low-code Zip Integration Platform that allows customers to build their own connector to any system with an Open (REST) API
  • define the default reports (vendor, spend, performance, etc.)

While we’re not covering them in this post, we should note that Zip has a P2P module (that 42% of its customers use) and a new Sourcing Module, and that Zip is actively working on new capabilities and module(s).

The new capabilities we can discuss now, on the Q1/Q2 roadmap, are:

  • NLP-based intake for even easier usability and up-front integration of Slack, Teams, and other collaboration platforms to allow workflows to be kicked off in those platforms
  • predictive analytics — the analytics module is being upgraded and it will include recommendations for spend management and process improvement using trend analysis, machine learning, and other techniques that can be used to provide the user with additional insight

In other words, Zip, which has well over 300 enterprise customers, is zipping along and intends to keep doing so. The great thing is that you don’t need to replace any of your enterprise systems, including any best of breed systems you have for sourcing or procurement, but instead connect them together to maximize the value you get out of them. Zip is an(other) I20 — intake to orchestrate — system that is certainly worth being aware of and checking out if system, process, or stakeholder orchestration and collaboration is a challenge in your enterprise.

COUPA: Centralized Optimization Underlies Procurement Adoption …

… or at least that’s what it SHOULD stand for. Why? Well, besides the fact that optimization is only one of two advanced sourcing & procurement technologies that have proven to deliver year-over-year cost avoidance (“savings”) of 10% or more (which becomes critical in an inflationary economy because while there are no more savings, negating the need for a 10% increase still allows your organization to maintain costs and outperform your competitors), it’s the only technology that can meet today’s sourcing needs!

COVID finally proved what the doctor and a select few other leading analysts and visionaries have been telling you for over a decade — that your supply chain was overextended and fraught with unnecessary risk and cost (and carbon), and that you needed to start near-sourcing/home-sourcing as soon as possible in order to mitigate risk. Plus, it’s also extremely difficult to comply with human rights acts (which mandate no forced or slave labour in the supply chain), such as the UK Modern Slavery Act, California Supply Chains Act, and the German Supply Chain Act if your supply chain is spread globally and has too many (unnecessary) tiers. (And, to top it off, now you have to track and manage your scope 1, 2, and 3 carbon in a supply chain you can barely manage.)

And, guess what, you can’t solve these problems just with:

  • supplier onboarding tools — you can’t just say “no China suppliers” when you’ve never used suppliers outside of China, the suppliers you have vetted can’t be counted on to deliver 100% of the inventory you need, or they are all clustered in the same province/state in one country
  • third party risk management — and just eliminate any supplier which has a risk score above a threshold, because sometimes that will eliminate all, or all but one, supplier
  • third party carbon calculators — because they are usually based on third party carbon emission data provided by research institutions that simply produce averages for a region / category of products (and might over estimate or under estimate the carbon produced by the entire supply base)
  • or even all three … because you will have to migrate out of China slowly, accept some risk, and work on reducing carbon over time

You can only solve these problems if you can balance all forms of risk vs cost vs carbon. And there’s only one tool that can do this. Strategic Sourcing Decision Optimization (SSDO), and when it comes to this, Coupa has the most powerful platform. Built on TESS 6 — Trade Extensions Strategic Sourcing — that Coupa acquired in 2017, the Coupa Sourcing Optimization (CSO) platform is one of the few platforms in the world that can do this. Plus, it can be pre-configured out-of-the-box for your sourcing professionals with all of the required capabilities and data already integrated*. And it may be alone from this perspective (as the other leading optimization solutions are either integrated with smaller platforms or platforms with less partners). (*The purchase of additional services from Coupa or Partners may be required.)

So why is it one of the few platforms that can do this? We’ll get to that, but first we have to cover what the platform does, and more specifically, what’s new since our last major coverage in 2016 on SI (and in 2018 and 2019 on Spend Matters, where the doctor was part of the entire SM Analyst team that created the 3-part in-depth Coupa review, but, as previously noted, the site migration dropped co-authors for many articles).

As per previous articles over the past fifteen years, you already know that:

So now all we have to focus on are the recent improvements around:

  • “smart scenarios” that can be templated and cross-linked from integrated scenario-aware help-guides
  • “Plain English” constraint creation (that allows average buyers & executives to create advanced scenarios)
  • fact-sheet auto-generation from spreadsheets, API calls, and other third-party data sources;
    including data identification, formula derivation and auto-validation pre-import
  • bid insights
  • risk-aware functionality

“Smart Events”

Optimization events can be created from event templates that can themselves be created from completed events. A template can be populated with as little, or as much as the user wants … all the way from simply defining an RFX Survey, factsheet, and a baseline scenario to a complete copy of the event with “last bid” pricing and definitions of every single scenario created by the buyer. Also, templates can be edited at any time and can define specific baseline pricing, last price paid by procurement, last price in a pre-defined fact-sheet that can sit above the event, and so on. Fixed supplier lists, all qualified suppliers that supply a product, all qualified suppliers in an area, no suppliers (and the user pulls from recommended) and so on. In addition to predefining a suite of scenarios that can be run once all the data is populated, the buyer can also define a suite of default reports to be run, and even emailed out, upon scenario completion. This is in addition to workflow automation that can step the buyer through the RFX, auto-respond to suppliers when responses are incomplete or not acceptable, spreadsheets or documents uploaded with hacked/cracked security, and so on. The Coupa philosophy is that optimization-backed events should be as easy as any other event in the system, and the system can be configured so they literally are.

Also, as indicated above, the help guides are smart. When you select a help article on how to do something, it takes you to the right place on the right screen while keeping you in the event. Some products have help guides that are pretty dumb and just take you to the main screen, not to the right field on the right sub-screen, if they even link into the product at all!

“Plain English” Constraint Creation

Even though the vast majority of constraints, mathematically, fall into three/four primary categories — capacity/allocation, risk mitigation, and qualitative — that isn’t obvious to the average buyer without an optimization, analytical, or mathematical background. So Coupa has spent a lot of time working with buyers asking them what they want, listening to their answers and the terminology they use, and created over 100 “plain english” constraint templates that break down into 10 primary categories (allocation, costs, discount, incumbent, numeric limitations, post-processing, redefinition, reject, scenario reference, and collection sheets) as well as a subset of most commonly used constraints gathered into a a “common constraints” collection. For example, the Allocation Category allows for definition “by selection sheet”, “volume”, “alternative cost”, “bid priority”, “fixed divisions”, “favoured/penalized bids”, “incumbent allocations maintained”, etc. Then, when a buyer selects a constraint type, such as “divide allocations”, it will be asked to define the method (%, fixed amount), the division by (supplier, group, geography), and any other conditions (low risk suppliers if by geography). The definition forms are also smart and respond to each, sequential, choice appropriately.

Fantastic Fact Sheets

Fact Sheets can be auto-generated from uploaded spreadsheets (as their platform will automatically detect the data elements (columns), types (text, math, fixed response set, calculation), mappings to internal system / RFX elements), and records — as well as detecting when rows / values are invalid and allow the user to determine what to do when invalid rows/values are detected. Also, if the match is not high certainty, the fact-sheet processor will indicate the user needs to manually define and the user can, of course, override all of the default mappings — and even choose to load only part of the data. These spreadsheets can live in an event or live above the event and be used by multiple events (so that company defined currency conversions, freight quotes for the month, standard warehouse costs, etc. can be used across events).

But even better, Fact Sheets can be configured to automatically pull data in from other modules in the Coupa suite and from APIs the customer has access to, which will pull in up to date information every time they are instantiated.

Bid Insights

Coupa is a big company with a lot of customers and a lot of data. A LOT of data! Not only in terms of prices its customers are paying in their procurement of products and services, but in terms of what suppliers are bidding. This provides huge insight into current marketing pricing in commonly sourced categories, including, and especially, Freight! Starting with freight, Coupa is rolling out a new bid pricing insights for freight where a user can select the source, the destination, the type (frozen/wet/dry/etc), and size (e.g. for ocean freight, the source and destination country, which defaults to container, and the container size/type combo and get the quote range over the past month/quarter/year).

Risk Aware Functionality

The Coupa approach to risk is that you should be risk-aware (to the extent the platform can make you risk aware) with every step you take, so risk data is available across the platform — and all of that risk data can be integrated into an optimization project and scenarios to reject, limit, or balance any risk of interest in the award recommendations.

And when you combine the new capabilities for

  • “smart” events
  • API-enabled fact sheets
  • risk-aware functionality

that’s how Coupa is the first platform that literally can, with some configuration and API integration, allow you to balance third party risk, carbon, and cost simultaneously in your sourcing events — which is where you HAVE to mange risk, carbon, and cost if you want to have any impact at all on your indirect risk, carbon, and cost.

It’s not just 80% of cost that is locked in during design, it’s 80% of risk and carbon as well! And in indirect, you can’t do much about that. You can only do something about the next 20% of cost, risk and carbon that is locked in when you cut the contract. (And then, if you’re sourcing direct, before you finalize a design, you can run some optimization scenarios across design alternatives to gauge relative cost, carbon, and risk, and then select the best design for future sourcing.) So by allowing you to bring in all of the relevant data, you can finally get a grip on the risk and carbon associated with a potential award and balance appropriately.

In other words, this is the year for Optimization to take center stage in Coupa, and power the entire Source-to-Contract process. No other solution can balance these competing objectives. Thus, after 25 years, the time for sourcing optimization, which is still the best kept secret (and most powerful technology in S2P), has finally come! (And, it just might be the reason that more users in an organization adopt Coupa.)

Sourcing Success in these Turbulent Times Require Long Term Planning and Cost Concessions

In a McKinsey article a few months back on How medium-size enterprises can better manage sources, McKinsey said that small and medium-size enterprises often struggle to find Procurement cost savings. Yet there are ways to do it while still pursing growth and providing a superior customer experience. The article, which concluded with an action plan for procurement cost savings, recommended:

  • establishing CoE teams
  • improving forecasting
  • expanding (the) use of digital procurement tools
  • gaining greater market intelligence
  • establishing a culture of — and process for — continuous cost improvement
  • incorporating supplier-driven product improvements

which, of course, are all great suggestions, and mostly address four of the five reasons that McKinsey give that prevent companies from reining in spending, which included

  • a lack of spending transparency (which would have to be corrected to improve forecasting)
  • talent gaps (which can be minimized with the right tools, market intelligence, and CoE teams)
  • underused digital tools and automation (which is directly addressed by using more of them)
  • exclusion of procurement and supply chain in business decision (which would hopefully be a byproduct of a corporate culture for continuous cost improvement that only happens when procurement and supply chain is not involved higher up)

but the fifth is largely unaddressed — the myopic focus on the short term which McKinsey claims could be addressed by putting more effort into planning and forecasting. But that doesn’t solve the problem.

Better forecasting will allow for longer contracts to be signed for higher volumes, which can lead to long term strategic supplier relationships, and better planning can allow this to happen, but this does not completely address the need for long term planning.

Supply Chains today are not the supply chains of the last ten to twenty years.

  • rare earths are even rarer
  • many critical raw materials are in increasingly limited or short supply
  • transportation can be unpredictable in availability and cost; even though most of the world declared COVID over in mid-2022, China still had mandatory lockdowns, ocean carriers scrapped many of their ships for insurance (and in some cases, post-panamax ships that had never made a single voyage), airlines furloughed too many pilots who found other jobs or just flat out retired, and the long-haul trucking in North America (the UK, and many first-world countries) has been on a steady decline for over a deacde
  • ESG/GHG/Carbon Requirements are escalating around the globe and you need to be in compliance (both in terms of reporting 1/2/3 and ensuring you don’t exceed any caps)
  • human/labour rights are escalating and you have to be able to trace compliance down to the source in some jurisdictions; you need suppliers who insist on the same visibility that you do
  • diversity is important not just to meet arbitrary requirements for government programs or arbitrary internal goals, but to ensure you have the right insight and expertise to solve all types of problems that might arise

And you can’t effectively address any of these problems unless you think long term AND accept that some of the solutions will cost more up front.

  • In mid November, the trading price for Neodymium (a rare-earth that is critical for the creation of strong permanent magnets, which makes it possible to miniaturize many electronic devices, including the [smart]phone you might be reading this on) was over $87,000 USD/mt. In comparison, hot roll steel was around $850 USD/mt. In other words, Neodymium was 100 times more expensive than steel. And while you can still buy steel for about the same price you could 10 years ago (it was around $900 USD/mt), Neodynmium is almost $20,000 more (as it was around $69,000 USD/mt in November 2013). It’s not the only rare earth to increase about 26% in 10 years, with further increases on the horizon. You need to have a strategy to minimize your need (which could include product redesigns that use more sustainable alternatives or recycling strategies that use recovered materials from older phone models). And when it comes to recycled materials, due to a historical lack of recycling efforts, or research into technologies to make recycling efficient and cost effective, recycled materials are almost always more expensive at first. Always. But as adoption increases, plants, technologies, and processes get more efficient, and the cost goes down (while, at the same time, raw material prices for materials in limited supply continue to go up). In other words, if you want to mitigate the ever-increasing costs for rare earths and other materials that are in limited supply, you have to incorporate the use of recycled materials, and maybe even invest in your own plants (and recycle your own phones you buy back because it’s cheaper just to buy them back and extract the rare earths yourself than buy the recycled rare earths from someone else).
  • Global trade is costly and unpredictable. Supply assurance is finally dictating near-sourcing and home-sourcing (which SI has been advocating for almost fifteen years, as inevitable disaster was the logical conclusion of outsourcing everything to China as eventually a pandemic, global spat, natural disaster, or other event would send shockwaves through the world when it severely disrupted the trade routes [because even though the chances of a pandemic, natural disaster on the scale of Krakatoa or the Valdivia earthquake, or another catastrophic event is minimal in any given year, over the course of a century, it becomes very likely]), and that is going to require re-investing in those Mexican factories (that worked just fine, by the way) you shut down twenty years ago, training appropriately skilled workers in low cost North American (or Eastern Europe) locales, and paying a bit more per unit (and even transportation until the carriers rebuild those routes). But in the long term, as global transportation costs continue to rise, and the local-ish resources get much more efficient (using the best technology we have to offer), your costs, and transportation risks, will go down while your competitor costs continue to go up.
  • if you don’t insist, and ensure, up front that your suppliers can report the data you need, how will you get it; chances are those suppliers need help and modern systems, which temporarily increase their operational costs as they install, integrate, and learn the systems; not more than a few cents here and there per unit, but a noticeable blip on the overall costs none-the-less
  • if you want suppliers that monitor their supply chain and insist on no slave/forced/child labour, appropriately treated and well paid labour, and, better yet, a community focus throughout the supply chain (so that the humans who mine the materials, harvest the food stuffs, weave the silk, or otherwise do the foundational work have a reasonable quality of life, health, and safety), you’re going to have to put the effort in to find them and the extra money to support them in their humanitarian efforts; since most of these workers in remote low-cost locales are paid pennies on your dollar, it’s another blip on the total cost to ensure they are paid every penny they deserve, but it’s still a blip; but you can’t afford not to do it if your jurisdiction has laws making you responsible for slave labour that later gets discovered in your supply chain
  • and while diversity shouldn’t cost more, since it’s the same number of employees, the reality is that the supply base embracing it could be a minority, and if these minority suppliers suddenly become in demand, market dynamics may kick in and they may charge a premium that your competitor will pay; but, as new challenges continue to arise, you will need the diversity to solve them; so, another blip in the cost you need to absorb

In other words, you need the long term focus to guarantee success, and you need to understand that, up front, it may cost a bit more. However, done right, your costs will decrease over time while your competitors’ costs skyrocket. So if you truly want success, in any high dollar, strategic, or emerging category, plan for the long term. And you will truly succeed.

For Successful Sourcing Sometimes You Have to Listen to a Lawyer

the doctor is always on the look-out for good articles on (strategic) sourcing and its importance to overall procurement performance in today’s stressful supply environment. Especially if the article isn’t yet another seven steps to sourcing success article. This article by Chris Eastham of fieldfisher was really close, as it provided nine tips to improve sourcing efficiency after telling you that

  • Sourcing is a Live Wire
  • Geo-Political Drivers cause Chaos
  • Technological Drivers cause Complexity

and these collectively compound your struggles, which are exacerbated enough due to organizations taking approaches that don’t serve their overall strategic objectives such as:

  • an insufficient focus on business drivers
  • only seeking piecemeal advice from Legal
  • a lack of project management (that results in key activities happening out of order)
  • a lack of early stakeholder engagement
  • an unsuitable project team (that doesn’t have the right subject matter experts)

And the author is dead on here. These are common mistakes. The author, as noted in our introduction, also had nine tips that included the following six:

  • early engagement of all stakeholders
  • realistic (not overly ambitious unrealistic) plans
  • core team with (enough) subject matter experts from day one
  • the desired results and a business case up front
  • do multi-round tenders that include detailed RFIs
  • define rules of engagement for stakeholders and vendors

But it was the following three that need to be highlighted because the doctor doesn’t see this advice enough in seven steps to successful sourcing articles.

  1. document all key requirements for the project in advance
  2. document all key product and service requirements, including any necessary terms and conditions that must be agreed to for the vendor to engage with the business
  3. get the right Legal team on board before the event is launched

Why are these three tips so tantamount to triumphant sourcing events?

  1. multiple reasons to document all key requirements for the project
    • if you don’t document all key requirements, you can’t be sure you know them
    • you can’t get the project right if you’re missing key requirements
    • you need to make sure you don’t invite any vendors that can’t even meet the key requirements
  2. multiple reasons again to document all key product and service requirements
    • if you don’t document all key requirements, will you buy the right product or service for you and, more importantly
    • you can’t share all the key data with vendors, which is important to ensuring they quote on the right products or service and
    • they can’t self select out if they can not meet any of your core business requirements, which means you could waste time analyzing their bids, optimizing the perfect award, only to start over when they figure out they’re not right for you (or, even worse, when they deliver the first order and nothing works)
  3. multiple reasons to get the right Legal team (which might just be one in-house counsel, or might be three hot-shots from an external firm for a complicated, 100M purchase that can make or break the company)
    • they know the key requirements that need to be addressed and in the contract to minimize internal risks
    • they know the risks of the dealing with companies in other geographies and what you have to consider for the suppliers you are planning to invite to the event
    • they know what should be in the contract, and communicated as such up-front, what should be in an appendix, and what is not crucial
    • they know the data you have to collect to meet the different regulatory (reporting) requirements that your organization has to adhere to, and which requirements you have to communicate with suppliers to make sure they can, and agree to, give you the right data

In other words, Legal, especially for any buy that is financially significant, strategically significant, or risky, is key to get involved in the right aspects up-front. (And note that if you build a team with the right stakeholders, and document the right requirements, Legal will be able to work quickly and efficiently, and even more so if you are willing to use standard templates and insist that vendors agree to your standard contracts and standard terms.)