Category Archives: Sourcing Innovation

Let’s Get Ready To Rumble!

While these words may have suited Michael Buffer well in his role as the exclusive ring announcer for WCW main events in the WCW heyday, these are not the words you should be uttering as you begin your quest for a new Supply Management Technology Solution. However, when one considers the way that many organizations go about their new technology acquisition process, it’s the words that ring loud and true in our ears.

Consider what typically happens:

  1. Teams scour analyst and consultant reports, sometimes constructed almost entirely on impressions based on PowerPoint presentations and customer reference calls, for potentially relevant vendors and build a starting list.
  2. They do a few Google searches, followed by one or two (Bada-)Bing(!) searches just for completeness, and add a couple more names.
  3. They do a few website reviews to narrow down to half a dozen vendors that look good.
  4. They send out RFIs (requests for interest).
  5. The first three respondents are invited to an all out winner-takes-all Battle Royale.

And that’s what it is. The vendors fight it out until there is only one left standing, and then that vendor gets the deal.

Do you know what’s wrong this picture?

Besides the fact that it shouldn’t be a battle but an effort to illustrate who solves your problem best?

First of all, Step 1. Relying on analyst reports that are often based in large part on “expert” interpretation of providers, their products and users, rather than objective and transparent analysis expert of features and data (a Nobel Laureate has some curious things to say on this very topic — i.e., ask an expert his opinion on a topic, and it’s often no more accurate than a non-expert, but ask the same expert to rate a capability against a defined scale and you get a far better result)

Last year one of the big analyst firms literally said “we’re not doing demos anymore, just overviews and customer references“. That’s scary! Get a few customers where the blush has not yet faded from the rose to say “this is the greatest thing since sliced bread” and you can literally shoot decades old tech and vapourware to the top of the rankings!

Second of all, assuming all providers of a certain tech that score equal on an arbitrary ranking scale are equal for your organization needs. Every organization is different and requires different levels of technology, process, service, and focus.

So what’s the answer? Better insight. What’s the form? Spend Matters SolutionMaps.
These are different, and that’s why the doctor has been collaborating on the development, scoring, and delivery of the Strategic Procurement Technology SolutionMaps Suite (designing and co-leading Sourcing, Analytics, and SRM and supporting CLM) for the past six months.

These maps rank vendors not on subjective impressions of an analysts’ predilection to the colour scheme used in the PowerPoint, but on hundreds (and in the case of Sourcing, thousands) of technical requirements, each of which has a hard scoring scale (from 1 to 5) that is rigorously defined (by the doctor in the majority of cases) to at least 3 (if not 5) with hard and fast “must have” requirements that leave no wiggle room.

And then, instead of combining these scores into one-size fits all scores for all vendors, they are combined in different ways (and weightings) into five different scores (and in the case of Sourcing, six) that map to the different persons that are representative of many of the Procurement organizations out there, namely:

Nimble: The need for speed

Dynamic, results-focused, limited IT department involvement, risk-tolerant of new approaches and providers; Often decentralized, rapidly growing, and/or middle market

Deep: A best practice team that demands the broadest and best tools

Highly sophisticated, rigorous, somewhat complex, risk-tolerant, happy to push limits of tech to create more value

Configurator: We are unique

Moderately to highly sophisticated; Unique process requirements from unique, often complex supply/value chains

Turn-Key: We care about results … not software

Outcome-focused; TCO approach to implementations; Often risk-averse and skeptical based on previous experiences

CIO-Friendly: We need to get IT on board

Strong IT backbone, high IT influence and investment for buying decisions; Big focus on security, standardization, control, and risk/compliance

Optimizer: We eat complexity for lunch.

Large, complex, and/or sophisticate organization with truly strategic SCM and Procurement functions which has already achieved all easily attainable improvements.

Plus, instead of assuming we know all, we also get deep feedback scores from customers across a variety of dimensions, which are not only weighted to the persona, but constitute half of the ranking as the final quadrants for each persona are analyst score vs. customer score (which are not co-mingled, and this is a key point).

And the end result you get is entirely different from a typical analyst report where the A(riba), B(ravoSolution), and C(oupa) suites always take all. For example, in Sourcing, EC Sourcing (yes, EC Sourcing) comes out on top as the most Nimble sourcing platform and Keelvar (yes, Keelvar) has almost caught up to the market leader (Coupa Trade Extensions) in the Optimizer persona. And you (more-or-less) get the expected A, B, C results when you go Deep. And rankings aren’t static across the Configurator, Turn-Key, or CIO-Friendly personas either. (And similar ranking shifts exist across Analytics and SRM too.)

In other words, in SolutionMaps, we’ve done the rumbling* for you and identified not only which vendors have which solutions, but which personas they best suit to help you identify the right vendors to invite to your RFI so you can focus on figuring out which one can provide you with the most value, not which one can survive the longest in a Battle Royale.

* And when the doctor says rumbling, trust him. Some vendors who participated in multiple SolutionMaps are as weary as he is, after multiple rounds in the ring.

Sourcing the Day After Tomorrow … Part XVI

In this series we have been reviewing sourcing today, the primary phases and sub-steps, and how they look strategic on the surface but often hide a lot of tactical work underneath. Moreover, sometimes “strategic” is simply a decision that is entirely based on the results of a sophisticated analysis that can be encoded in a very complex rule.

What does all this mean? It means that systems can do more of the work and with next generation sourcing systems, the strategic decisions will be made by expert buyers who know the market in ways designers of systems can’t. Expert buyers who can identify external stimuli that occur, and impact, the market once every five to ten years (that a new system wouldn’t know). Expert buyers who can better judge the impact of a new supplier on the market that the system doesn’t have the history on. Expert buyers who know the best way to handle unexpected demands or change requests in a negotiation process.

Strategic will change from data gathering to data analysis to knowledge evaluation where the analyst first learns to analyze the data gathered to better train and correct the system to knowledge evaluation where the analyst learns to identify the gaps in the analysis or the weightings that need to change. It’s going to become primarily an intelligence exercise, not an analysis exercise. Computers can do considerably more analysis and number crunching than we can in an exponentially smaller amount of time. As a result, more and more analysis will be given to the computers, and more and more intelligence will be expected of the user.

And the entire sourcing process will be affect. How much? In the beginning, more and more of each step, and then of each phase will be automated. But then, in the longer term, the sourcing process will change and adapt to one that is more suitable for the knowledge-based endeavour that it is. What will this look like? Time will tell, but we have our ideas. And we will address them in at a future time.

Sourcing the Day After Tomorrow Part XV

In this series we are doing a deep dive into the sourcing process today, and, in particular discussing what is involved, what is typically done (manually), and whether or not it should be that way. We have already completed our initial discussion of the initial project request review phase, the follow up needs assessment, the strategy selection phase, the communication phase, the analysis phase, and the negotiations phase. Now we are in the final contracting phase. At first glance, it looks like this is the second most strategic and human-driven phase there is, second only to negotiation, as it is humans (and lawyers in particular) who typically define standard terms and conditions, humans who identify risk and mitigation strategies, humans who define obligations, and humans who analyze the contract for compliance to goals. But is this the case?

So in this final step, the contract step, we have these final sub-steps:

  • Standard Terms and Conditions
  • Modification & Risk Mitigation to Supplier & Country
  • Key Metadata definition and obligation specification
  • Contract Analytics

If all of the standard terms and conditions are in existing contracts and the contract clause / template repository, there’s no reason that a system cannot automatically scan the contracts and repositories, identify the standard organizational terms in every contract, identify the standard terms for the category, and identify any terms, often not included, that would be relevant to the category. Probabilities can be applied and contract terms organized by weight. The buyer can then just bulk select or bulk reject the relevant clauses.

In the modification and risk mitigation step, a contract analytics engine can be applied to determine how well a particular clause addresses a certain risk of relevance to the organization based on context models and differentials. It can then compare that clause to the clauses that best address the risk and identify the necessary modifications, and do so specifically from a supplier or geographic context.

In the key metadata definition and obligation specification step, the goal is to identify the right metadata that needs to be tracked against the contract. This will be dependent on the terms and conditions, the goals, the obligations, and other key information that will be specific to the contract. However, contract analytics can identify, or at least suggest, much of this as well automatically based upon similar contracts, similar terms, similar goals, and similar obligations. This can greatly reduce the effort required by a buyer.

In the final step, the contract analytics step, the identification of risks, variances from a norm, and non-standard clauses can often be better identified by a contracts analytics engine that can cross-compare potentially risky clauses and variant clauses across hundreds, if not thousands, of contracts and identify deviations from the norm. A user just has to decide whether the variance is enough to be of interest to them, and properly setting a threshold can eliminate the majority of those variances that are not.

In other words, at the end of the day, contract analytics identifies the majority of standard terms and conditions that are of interest, the majority of standard clauses that will need modifications to address supplier and country risk, the relevant metadata and obligations associated with the contract, and any clauses that can be considered variant enough to warrant special consideration.

The majority of the work can be automated with a good contract analytics engine — the role of the buyer is to apply their intelligence to determine how accurate and effective it is. As the buyer trains the engine, it will become more and more accurate over time and the strategic work will be reduced to hours, sometimes minutes for simple contracts, compared to days or weeks.

In other words, the more we explore the sourcing process, the more we find out how truly tactical, or at least automatable, the majority of it is.

Sourcing the Day After Tomorrow Part XIV

In our series to date we have recapped Sourcing today and taken a deep dive into the key requirements of the review, needs assessment, strategy selection, communication, analysis, and negotiation phases. In each of these six steps to date, we found that while some steps were critical for a sourcing professional to undertake, others, while necessary, were a complete waste of skilled talent time as the majority of the tasks could be automated. And while we’re still at the point where some tasks have to be done by humans whereas no matter what, we’re almost certain that this is true across the entire sourcing cycle, but until we complete our analysis, we can’t be 100%, so that is what we’re going to do today and tomorrow.

So in this final step, the contract step, we have these final sub-steps:

  • Standard Terms and Conditions
  • Modification & Risk Mitigation to Supplier & Country
  • Key Metadata definition and obligation specification
  • Contract Analytics

In the standard terms and conditions step, the buyer identifies all of the organizational standard terms and conditions that are relevant to the product and services in question. This involves reviewing the standard conditions proffered by legal, previous contracts, and standard contracts put forward by competitors and selecting those that are relevant.

In the modification and risk mitigation phase, the buyer identifies which standard terms and conditions, prior contracts, and suggested terms (defined during the early phases) need to be modified to address risk on a supplier and/or country basis and makes some suggestions as to what needs to be done.

In the key metadata definition and obligation specification phase, the buyer needs to define the metadata that needs to be tracked against the contract, how it needs to be tracked, where it needs to be used, and even how to generate value from the metadata.

Finally, the user needs to analyze the contract for risks, variances, and clauses that are non-standard, identify, catalog, and track them over time. Plus, the user needs to determine the relative risks, variances, and clauses relative to other contracts to determine overall priority.

This sounds pretty buyer intensive and strategic, right? Not much room for automation, right? Well, we’ll find out in our next part!

Sourcing the Day After Tomorrow Part XIII

In this series we are doing a deep dive into the sourcing process today, and, in particular discussing what is involved, what is typically done (manually), and whether or not it should be that way. We have already completed our initial discussion of the initial project request review phase, the follow up needs assessment, the strategy selection phase, the communication phase, and the analysis phase. Now we are in the negotiations phase. At first glance, it looks like this is the most strategic and human-driven phase there is — as it is us who do the negotiations, figure out our BATNA (best alternative to negotiated agreement), and determine what facts we will use in our negotiations, but we have been fooled before.

We are now discussing the negotiations step, which has the following steps that have to be completed every time (and not just sometimes):

  • Format Selection (online, offline, hybrid)
  • Fact Prep
  • BATNA fallback
  • Audit Trails

Let’s start with format selection. Sure, it’s the buyer who selects the format, but, like strategy selection, the selection of negotiation format also depends on should cost analysis, market costs, supply vs. demand market trends, and previous performance of options in similar situations — all of which could have changed since the initial event was kicked-off. Depending on the expected savings or value expected, it may not be worth the in person negotiations. And who’s better at computing the costs, computing the trends, computing the variance of current supply market context against previous contexts, extracting the differential savings between contexts, and generally at doing hundreds, thousands, and millions of calculations. The machine. In this phase, the platform could do all of these calculations, apply a few probabilistic models, and come up with a ranked list of the best options under a well-defined set of assumptions. Most of the time, especially when market costs and trends change slowly, the buyer will be able to review the options, validate the assumptions, and choose one of the best options and have the system automatically generate a report that validates their format selection. It’s a strategic human decision, but one that can often only take a few minutes after the machine takes days (or weeks) of work away.

Now let’s move onto fact prep. In this phase, once the senior buyer has selected the format for the negotiation, and revised their expectations, they need to gather all of the facts in one place that they expect will assist them in their negotiations. Besides deciding what they need, this is a very tactical phase of information gathering and consolidation — which is something the machine is best suited for. In addition, based on all of the decisions made to date, if previous events were captured as well as materials selected and used, the machine can also apply probabilistic models in this step to determine which facts will likely be most useful to the buyer and auto-generate a suggested “fact-book” (outline) that the buyer can update with minimal effort. Then, with one press of the button, all of the information they want in the negotiations is at their fingertips.

Before negotiations actually begin, the buyer will finalize their BATNA. While the best buyers will actually start outlining this during the strategy selection phase (as it will need to be executed as soon as the strategy fails, which typically won’t be until negotiations, but if the event tanks in the communication phase (not enough suppliers respond to the RFQ, prices don’t decrease from initial bids in the auction, etc., it may be sooner — and if its sooner, the phases between failure and BATNA get skipped), they won’t finish until just before the first volley of negotiations get underway (as market dynamics can change significantly between the start of a complex project and the negotiations, even with a lot of machine assistance, because the need to involve a lot of stakeholders can draw an event out and the reality that an unexpected mine or factory closure can happen at any time can flip market dynamics on a dime).

So how does one determine a BATNA? One way is to select the next best strategy (extend the current agreement, spot buy — possibly with an auction, use an alternative product design that would allow for a new event, etc.), and as we know from Part VII, the machine can help greatly in this step as it is capturing all the knowledge to run probabilistic models to rank the next-best alternatives under current assumptions.

And last and not least we have unalterable, secure, always queryable audit trails. We all know most modern enterprise systems were made for this. Nuff’ said.

In other words, the more we explore the sourcing process, the more we find out how truly tactical, or at least automatable, the majority of it is. But we’re still not done, so in our next two parts we will explore the last phase — creating and signing the contract.