Category Archives: Sourcing Innovation

2020 is Fast Approaching – What Have You Accomplished? Part I

It was just five years ago that all of the big consulting houses — PWC, Accenture, Deloitte, etc. — were talking about the future of procurement in 2020 and how it was going to be nothing like what it was then, or should I say, what it’s like today because, to be frank, it really hasn’t changed that much in the past five years.

Despite all the recent talk about Cognitive Procurement and AI hitting the mainstream, Procurement platforms haven’t changed much. There’s only a few offerings outside of very point-based Contract Analytics offerings, like Dhatim, LevaData, and Xeeva, that have anything that’s truly cognitive-borderline, but even these platforms only work on a very narrow range of categories in one or two industries.

And sourcing platforms haven’t changed much either … very few have any capabilities whatsoever that didn’t exist five years ago. The biggest change is that you have more S2P suites, partly as a result of the M&A frenzy and partly as a result of PE firms investing deeply in platforms with the capability to be leading S2P platforms. Whereas a few years ago you really only had Ariba, Emptoris and Jaggaer (known as SciQuest) — although, five years ago, Jaggaer was more a collection of applications that would eventually become a platform; Emptoris was much stronger in Source to Contract than Procure to Pay; and Ariba was just acquired by SAP, which stagnated development for a few years.

But today, we have eight major S2P platforms, which are included in Spend Matters Q4 Solution Map: Coupa, Determine, GEP, Ivalua, Jaggaer, SAP Ariba, SynerTrade, and Zycus. Coupa, which was a leading P2P platform, acquired Analytics, Optimization, and Risk; built out contracts, and now has a complete S2P platform using a classic definition. Determine, which resulted from Selectica’s acquisition of Iasta and b-Pack and replatforming of everything on the b-Pack platform. GEP, which acquired Enporion in 2012, integrated, built up, and built out and now has S2P. Ivalua, which just acquired DirectWorks (formerly Co-exprise), has been building out end-to-end since the early days and now has pretty much everything except optimization from a classic S2P perspective (and is getting deeper in direct capability as a result of DirectWorks). Jaggaer integrated everything through a common data layer and had S2P, and then acquired BravoSolution last year (which also just achieved S2P from its Puridiom acquisition), and now has 2 complete S2P platforms as well as deep direct sourcing capability (from its Pool4Tool acquisition). SAP Ariba (which acquired Procuri years ago) has been developing extensively, replatforming its analytics on SAP Hana, simplifying implementations and supporting the mid-market through partners with SNAP, deepening its risk management to go head-to-head with best of breed, and so on. SynerTrade, like it’s counterpart Ivalua, has been developing an integrated platform for almost two decades, which started out as a collection of “apps” (like Pool4Tool started out as a collection of modules), and has everything one would expect as well as integrated optimization — it’s the best platform most of you haven’t heard of. And then we have Zycus — once the “dollar general” of S2P platforms, it’s come a long way and is starting to hold its own with the best of them (and with it’s new iRequest module, it’s bring S2P visibility to the masses).

But when you think about it, what do they have that past platforms didn’t have?

We’ll let you dwell on this for a day …

If you still think you don’t need to get with the program … Part II

So, if you’re still reading, you don’t believe that you are losing:

  • opportunities,
  • time,
  • innovation, and
  • value

by sticking with your 2nd (or, even worse, 1st) generation S2P platforms without program management. That’s fine. Maybe you have a crackerjack analyst team that is exceptional and finding opportunities. Maybe you have very well designed processes and your team, with experience, has actually become very efficient at using the platform. Maybe you R&D team is already using a cloud-based innovation platform. And maybe you actually got a good deal on the older platform you are using and actually realized value. It could happen. But, that’s not all you are missing by not getting with the program. You’re also missing:

Opportunities

… you don’t find. Let’s face it, no matter how great your team is, they can only analyze so much. And only on the data they have. An integrated S2P platform / process with integrated program management can allow all parties to not only do analysis to identify potential opportunities, but provide data, insight, and research the team didn’t do.

Relationship Building

Maybe you have SRM, and it contains functionality to manage your supplier relationships, but supplier relationships aren’t the only important relationships. Relationships with your extended team, especially the team members who manage your supplier and third party relationships, are critical. And without a platform to keep tabs on where they are, and how things are going, are you really maintaining the right relationships with the extended team across the global organization?

Process Innovation

Maybe you have an innovation platform that helps R&D with product innovation. And maybe it works great. But if you really want to maximize value, you have to optimize process efficiency. And if the process is disconnected across multiple BoB platforms, and only the core Procurement team is on the platform, you don’t get the full perspective, which means you don’t get enough perspective on how to possibly innovate the process. Which is another loss.

Enhanced Collaboration

If your platform is disconnected, your team is disconnected. Yes, you can do a lot over the phone and video conferencing, but that’s disconnected from the process. And where’s the record of it? And how do you know what’s been collaborated on, and what hasn’t? You don’t. Collaboration without program management is, whether you want to admit it or not, limited.

And this is just the tip of the iceberg of benefits you are missing without program management. So why don’t you get with the program?

If you still think you don’t need to get with the program … Part I

… maybe we should ask why?

Earlier this year, SI authored a paper, sponsored by Synertrade, on The importance of program management for savings and value realization (registration required), that laid it bare as to why you need to get with the program.

And then, over the past few months, over on Spend Matters Pro [membership required], the doctor, with the help of the prophet, the maverick, and the revolutionary, has been penning a series on Program Management and how you might go about actually doing it across the Source-to-Contract cycle. For those who might have missed it, here are the links:

But, of course, the how to is irrelevant if you don’t accept the why. Without getting into too many details, as you can download The importance of program management for savings and value realization for free upon registration, the main reasons we pushed you to get with the program were:

  • lost opportunities,
  • lost time,
  • lost innovation, and
  • lost value

But maybe you think you have all the answers with your current non-program based S2P platforms and systems. Maybe you think your processes are sufficiently refined such that you can identify all the opportunities, attack them efficiently, and still innovate acceptably without program management. And if this is the case, you’re probably quite happy with an easy to use, adoptable, second generation S2P platform(s) and see no need to modernize again. But you need to. Why?

Come back for Part II.

Maybe It’s Time You Go Direct … Part II

In our last post we noted that most sourcing platforms were designed for indirect sourcing, commonly described as the sourcing of finished/consumer goods and services, because it was easy, quick, and allowed an average organization, even a manufacturing, pharmaceutical, or Oil & Gas company, to get big savings — at least initially. After a while, the savings dry up, and unless an organization acquires an advanced optimization-backed sourcing platform, they’ll disappear entirely. (And even with such a platform, the returns will shrink over time.)

The organization will hit a brick wall, unless it goes direct. Why?

Because going direct is the only way an organization can get true insights into the costs, and opportunities, associated with each product it sources. Because, when you get right down to it, there is no indirect sourcing from a product perspective — your indirect is someone else’s direct. And if it’s indirect for your provider, you’re just paying a handling fee to a third party to handle purchase from the source and transportation to a locale closer to you (because you don’t want to deal with import / export, remote suppliers, etc. etc. etc).

And, more importantly, as direct manufacturers know well, up to 80% of product costs are locked in during design finalization and/or product selection. So the only way to take costs out is to understand what costs are going in. But when you go direct, you create detailed should cost models. You tie them to material costs and component costs defined in a bill of materials and roll up the costs with overhead production costs and understand precisely what a product should costs and whether a bid is in line with expectations. This way you know when quotes are higher than they should be (possibly due to collusion), when they are inline with expectations, or when they are lower. If they are inline with expectations but higher than you need them to be, you can understand what the cost drivers are. Then you can ask suppliers to identify designs with alternate materials, or at least less of the high cost materials, and then select those suppliers who will work to bring costs down. If the costs are lower, you can interrogate the suppliers to find out why. Do they have a lower cost source of raw materials? Are labour or energy costs significantly lower than usual? Or is the specification the supplier is quoting toward not up to snuff? The latter is extremely important — it can prevent a purchase of a poor product that could cost the organization dearly.

The power of a direct platform for continual cost insight, and cost saving, is incomparable, especially when compared to an indirect platform. And there’s nothing a direct platform can’t source. It’s the harder sourcing project — indirect is just a bill of material with one entry. And a service project is just a roll-up of service line items.

So why don’t you have a direct platform? Sure, most platforms, including the one you’re using, don’t make the cut, but some of the newer up and coming platforms do, even the S2P platforms. For example, Synertrade has been able to do direct since day one. Ivalua acquired DirectWorks and is integrating direct into its native end-to-end code base. Jaggaer acquired Pool4Tool and has been working on a universal data model (& bridge) to link it to its indirect platform. And even Zycus can suck in a BoM (although it can’t do BoM management) for sourcing purposes.

So go direct. Finance will thank you.

Maybe It’s Time You Go Direct … Part I

Most sourcing platforms were designed for indirect sourcing, commonly described as the sourcing of finished/consumer goods and services, because it was easy, quick, and allowed an average organization, even a manufacturing, pharmaceutical, or Oil & Gas company, to get big savings (as most of these organizations spent all their time and effort on direct sourcing). Why? These were typically the least well managed, and the most bloated, categories and simply inviting more suppliers, who had to complete a pre-defined RFX that allowed for apples-to-apples comparisons, pushed prices down, and if the market conditions were right, auctions pushed prices down further and it was not uncommon to find a number of categories where 20%, 30%, or even 40% savings could be found during the first event simply by squeezing the unnecessary fat out of the margins.

But this is the very reason why the first generation sourcing platforms boomed and busted, and why auctions rose and fell in an average organization during the noughts. The organization would save a huge amount the first auction, typically at least 15%. They’d then save a respectable amount during the next auction, say 5%, because all the suppliers came back with their pencils sharpened ahead of time. But the third auction would fail miserably, and most of the time prices would increase. Once all the fat is squeezed out of the margin, competitive RFX or auction will not save any more and, in fact, over time, inflation will creep in, the supply/demand imbalance will shift, and, without something new, costs will rise.

The next step, if the organization is analytical, is generally to bring in analytics, identify the categories with the best opportunities due to market price trends, supply/demand imbalance, or sheer volume leverage the organization had. Careful picking, even if the category was sourced twice, or thrice, before will still lead to some savings. At least once.

And when those savings run out, then you look at optimizing TCO when all costs, discounts, transportation costs, discounts, and associated lifecycle costs are modelled. You build your risk mitigation rules and by splitting the award, choosing the carriers and lanes carefully, and just being smart, more savings materialize. Typically over a few events as your volume leverage increases, your sophistication improves, and your events get bigger.

But there’s always another brick in the wall, and you’re always going to hit it. Unless you go direct. Why? Guess you just have to come back for Part II!