Category Archives: Technology

Procurement is Still in the Technology Dark Ages

A recent post over on Deal Architect discussed how, despite claims to the contrary by recent analyst firms, most organizations are still in the technology dark ages, and this goes double for Sourcing and Procurement.

Not only is it the case that most organizations do not have modern e-Sourcing and e-Procurement platforms, but many are still stuck on outdated MRP and ERP systems that actually hinder, instead of help, Supply Management.

Consider the plethora of problems with ERP systems that often make it worse than not having a system at all:

There is generally little requisition management and no sourcing / tender / RFX support. In an ERP the process starts with a purchase order, flips into a goods receipt, and, maybe, just maybe, correlates with an invoice for payment.

There is generally little support for any type of real analysis. There is usually a built-in report library that has a few standard reports on suppliers, products, bills of materials, invoices, and payments.

There is only one schema, and it generally doesn’t lend itself to any particular form of analysis, reporting, or inquiry beyond the built in reports and any sort of global trade analysis, import/export analysis, tax analysis, or tariff analysis is just a pipe dream.

There’s a reason that Sourcing Innovation recently blogged about how hose that still rely on ERP could end up in the supply chain disaster record books and that is because ERP systems are not a supply chain management platform. But it, and maybe a few free web tools, are the best many organizations still have, and that has to change.

Especially when many organizations still pump millions of dollars into these platforms that don’t adequately support Procurement, don’t adequately support Sales, and don’t adequately support modern logistics and inventory management in the age of 3PLs (third party logistics) and VMI (vendor managed inventory).

Investments need to be made in the right products and platforms that serve the core needs of each department, starting with Sourcing and Procurement.  And there are plenty out there.

Contract Lifecycle Management VII: Do You Know What The Nice-to-Haves Are?

In Part I of this series, we argued that CLM, short for Contract Lifecycle Management, while arguably one of the most humdrum acronyms in the Supply Management space, is also one of the most important. This is because, as summarized in Part III of this series, it overlaps S2C, P2P, and, as a result, S2S/S2P as well as intersecting with risk management, performance management, change management, and supplier (relationship) management. In other words, CLM touches almost every aspect of Supply Management and is taking a central place in your Supply Management organization.

However, as noted in previous posts, up until now, CLM has not been well defined and the best definition, which could arguably be that given by Gartner (see Part I), has been, more or less useless, because you already know proper CLM is a good process supported by a great platform. What you need to know is what that platform is as vendors, analysts, peers, and even professional organizations don’t, or won’t, tell you. That’s why, in a landmark effort, Sourcing Innovation and Spend Matters, as the two leading independent authorities on Supply Management, led by the doctor, the maverick, and the prophet, have joined forces to define, publicly and openly, the core Supply Management platforms, starting with CLM.

In prior posts we elucidated the need for a core CM (Contract Management) platform because traditional Supply Management platforms aren’t enough, in Part V we outlined the must-have core capabilities of a CM platform, and in Part VI we discussed the should-have capabilities that should be mostly present in any market-leading contract management platform.

Today we are going to outline all of the nice-to-have capabilities of a contract management platform, discuss a couple of them, and then refer you to “The Extended Contract Management Platform”, part seven of the landmark ten-part series co-authored by the doctor, the maverick, and the prophet over on Spend Matters Pro [membership required], for an in-depth discussion of each nice-to-have capability.

To make sure there is no confusion, a nice-to-have capability is a capability that, while not present in most solutions, can greatly increase the power, usefulness, and even the value of a Contract Management solution to your organization.

The following capabilities are defined as nice-to-have:

  • Contract Negotiation with Complex Pricing Support
  • Budget Management
  • Asset & Resource Management Tracking
  • License Management
  • Discrepancy & Sanity Checks
  • Violation Detection
  • Full Analytics
  • Contract-Based Project Management
  • Multi-Tier Contract Management
  • Process Integration with Sourcing, SRM, & GRC Platforms

As with the set of core and should-have capabilities listed in our previous posts, most of these you probably expect, and for some of these you probably have a fairly good idea why (even if you are not sure exactly what functionality is required for a proper implementation), but one or two of these are probably unexpected, including budget management and integration to 3PM/SRM (Third-Party Management / Supplier Relationship Management) & GRC (Governance, Risk, and Compliance) platforms. We’ll discuss budget management in this post, but refer you to The Extended Contract Management Platform, part seven of the landmark ten-part series over on Spend Matters Pro [membership required] for complete details on the other capabilities.

Budget Management is important because while spending should be against, and is supposed to be measured against, budgets, budgets are typically entirely disconnected from the Sourcing and Procurement process as they are created in the Finance system and typically not captured in most Sourcing and Procurement systems. However, once a contract is created, all spending on that contract needs to be tracked against the budgets that are impacted. Performance from Finance’s view is that not only is all spending covered by the contract made on contract at contracted rates, but that the impacted budget categories are also respected. If the contract is for office supplies, computing equipment, consulting services, etc., then just because all of the orders and invoices are compliant against the contract, it does not mean that the budget is being adhered to. If a department’s budget for office supplies is $10,000 and the department orders $20,000, it doesn’t matter if the savings was 20% if the department spent 100% more than they were supposed to. And since Contract Management naturally overlaps Finance, it’s a perfect place for budget management capability.

However, every other nice-to-have capability listed above could be just as valuable to an organization, and to understand why, and what the platform has to support with respect to those nice-to-have capabilities, check out The Extended Contract Management Platform over on Spend Matters Pro [membership required], part seven of the doctor, the maverick, and the prophet‘s landmark ten-part series fully defining CLM.

In Sourcing, B2C cannot replace B2B, but B2B can learn from B2C.

As long as it doesn’t go app crazy. For years the doctor has been hearing about how mobile is the next big thing in Procurement, and even though mobile hasn’t really caught on, now a handful of vendors are staring to talk about how apps are the next big thing in Procurement. This is a bit ridiculous. When it comes to Procurement, there’s not an app for that. Can you really get market intelligence from an app? Can you really do spend analysis in an app? Can you really do should cost modelling in an app? Think about what “apps” on your “smart”phone really do. Take a few notes. Convert a few units. Play a simple game. Check your bank balance. Store your boarding pass. Simple, discrete tasks. Nothing about strategic sourcing or enterprise Procurement is app friendly.

But enough ranting. Today’s post is about how B2B can learn from good B2C technology. In particular, how B2B can learn from B2C for:

  • total purchase cost calculation
  • order and requisition management
  • collaboration management

These days, thanks to a number of web sites, consumers are becoming smarter when it comes to analyzing the total costs associated with big purchases like cars and houses as a number of sites, including AAA/CAA and BoA/CMHC, have calculators that allow the buyer to understand the total cost of buying, and maintaining, the vehicle or house they are considering including taxes, insurance, and other incidental costs. These consumers, who are not experts in car or house buying are using templates built by people who are experts to do total cost calculations.

B2B Procurement can learn from this and create sourcing and procurement platforms that come with built-in cost model templates for common categories of direct goods and RFX templates that can be used in sourcing common indirect categories to ensure that the organization asks the right questions, collects the right costs, and makes the right decision. The reality is that across an industry, indirect spend categories are common and there’s no reason that an organization can’t source a solution with pre-built templates for the common indirect categories it sources, which will likely constitute 90%+ of indirect spend. Unless the category is high-dollar, there’s not much point paying a large amount of money to a third party organization, even if the third party is an expert, because it is not likely that the savings will be enough to justify the cost. For most indirect categories, this is likely to be the case.

In 2009, AMR did a study that found that, in an average organization, 30 cents to 40 cents of every negotiated dollar of savings never hit the bottom line. There are a number of reasons for this which include, but are not limited to expedited shipping, volume increases, and maverick spend. In many cases, the biggest culprit is the latter — maverick spend. Maverick spend typically happens because a purchaser is unaware of a contract, unaware of how much it costs to buy off contract, or frustrated with the difficulty of buying on contract with current systems. (It can also be the case that the purchaser doesn’t care because they’re not in Procurement, but this usually isn’t the case.)

This situation can easily be rectified by incorporating some features of best-of-breed consumer shopping technology, such as that employed by Amazon.com, that not only allow a buyer to find the product or service they need, but see which of those are on contract. In other words, just like a search on Amazon.com can find all instances of that book you want, and, if you desire, only show you those eligible for Prime, a Procurement platform that enables a buyer to find all instances of a product they are searching for in an integrated catalog that contains all products and services available from approved vendors — whether in a punch-out site, an online database, or an offline catalogue (maintained by Procurement) — and see which of those are on contract can enable on-contract requisitions and purchase orders. Plus, since it will be easier to buy on-contract than to buy off-contract, there will be a lot less circumventing of the system.

And when it comes to collaboration, B2B can actually learn from best-of-breed professional, and even social, networks and communication platforms. For example, Linked-In not only allows a user to post their resume and connect to fellow professionals, but it also allows them to join discussion groups that allow them to post relevant information on a topic and comment on it. And sites such as join.me and Webex allow for real-time virtual meetings and collaboration.

Incorporating these types of technologies into a Procurement Project Management program allows for collaboration to not only take place on line, but all collaborative communications to be maintained and archived in the platform. This not only helps with conflict resolution, but it goes a long way to preventing disputes in the first place as the platform captures all communications and allows each party to see what it agreed to.

B2B technology can be improved by taking the best B2C innovations and appropriately incorporating them into B2B platforms, but it has to be done intelligently. Not all consumer technology is B2B appropriate, especially if it was designed for C2C purposes, and apps are prime example. However, as it has historically been the case that many innovations start in the consumer space, it’s no surprise that B2B can be improved by appropriating appropriate consumer technologies. It just has to be the right technologies appropriated in the right way and put to the right use.

Technological Damnation 80: The Cloud

Where to begin with this one? How about a review of just about everything Sourcing Innovation has written to date on the subject:

Software was good. Hosted ASP was better. True Multi-tenant SaaS was better still. And “Cloud” is the one step back that follows the two-steps forward. (And unless you want to be a frog in a well, you’d best steer clear of it.)

The Cloud is not a white fluffy cloud full of day dreams, it is a gathering storm cloud that will soon erupt and flood your operation while the hail pummels you to a bloody pulp.

Not only, as per the linked posts, will you:

  • lose your mail, and all the confidential IP it contains, then
  • lose your data when you find out your Cloud provider put your data in a data center with no backup, then
  • lose your platform, when the FBI or NSA confiscates the servers in the data center that was powering the Cloud, and
  • lose your customers, when your loyalty program fails and they take their loyalty elsewhere.

But you will also

  • lose your supply chain visibility, and your ability to assure supply, when the Cloud explodes,
  • lose your revenue stream, when you can no longer book those customer orders and process payments, and
  • lose your bank accounts, when the (class action) lawsuits hit.

So next time a provider offers to take you on a trip through the Cloud, SI recommends you take them for a walk out the door.

Contract Lifecycle Management VI: Do You Know What The Should-Haves Are?

In Part I of this series, we argued that CLM, short for Contract Lifecycle Management, while seemingly one of the most bromidic acronyms in the Supply Management space, is also one of the most important. This is because, as summarized in Part III of this series, it overlaps S2C, P2P, and, as a result, S2S/S2P as well as intersecting with risk management, performance management, change management, and supplier (relationship) management. In other words, CLM touches almost every aspect of Supply Management and is taking a central place in your Supply Management organization.

However, as noted in previous posts, up until now, CLM has not been well defined and the best definition, which could arguably be that given by Gartner (see Part I), has been, more or less useless, because you already know it’s a good process supported by a great platform. What you need to know is what that platform is as vendors, analysts, peers, and even professional organizations don’t, or won’t tell you. That’s why, in a landmark effort, Sourcing Innovation and Spend Matters, as the two leading independent authorities on Supply Management, led by the doctor, the maverick, and the prophet, have joined forces to define, publicly and openly, the core Supply Management platforms, starting with CLM.

In our previous posts we elucidated the need for a core CM (Contract Management) platform because existing Supply Management systems weren’t enough, and then, in our last post (Part V), we outlined the must-have core capabilities of a CM platform, as discussed at great length in “Core Contract Management” over on Spend Matters Pro [membership required], Part V of the doctor, the maverick, and the prophet‘s landmark ten-part series fully defining CLM.

Today we are going to outline all of the important should-have capabilities of a contract management platform, discuss a couple of them, and then refer you to “The Standard Contract Management Platform”, part six of the landmark ten-part series co-authored by the doctor, the maverick, and the prophet over on Spend Matters Pro [membership required], for an in-depth discussion of each should-have capability.

To make sure there is no confusion, a should-have capability is a capability that, while not absolutely required, significantly impacts usability and performance by the absence of these features and most industry leading contract management solutions will support the majority of these capabilities to some extent.

The following capabilities are should-have:

  • Clause Library
  • Full Text Search & (Legacy Contract) Discovery
  • Collaborative Creation
  • (Fine-Grained) Roles Based Security
  • Contract Workflows
  • Rules Management
  • Contract Authoring via Rules-Based Contract Builder
  • Schedule & Rate Card Support
  • e-Signatures
  • Task Management / Tracking
  • Event Monitoring & Issue Escalation
  • Corrective Action Management
  • Dashboards and Contract Analytics
  • Native Integration to MDM Platforms

As with the set of core capabilities, most of these you probably expect, and for some of these you probably have a fairly good idea why (even if you are not sure exactly what functionality is required for a proper implementation), but a few of these are probably unexpected, including Corrective Action Management and Native Integration to MDM Platforms. We’ll discuss these two capabilities, but refer you to our in-depth piece on “The Standard Contract Management Platform” over on Spend Matters Pro [membership required] for coverage of the rest. (But the must-have, should-have, and nice-to-have function lists will be made, and remain, public as they are the common measuring stick that both Spend Matters and Sourcing Innovation will be reviewing and measuring vendors against going forward.)

Corrective Action Management is critical because issues will always arise during contract execution and they will not always resolve themselves or be resolved by the supplier. And while the organization may have a process for dealing with issues, and even a platform for doing so, those actions have to relate to, and be mapped back, to a contract to not only insure that both parties meet their obligations and performance hits necessary levels, but that resolutions are tracked and performance, pre-and-post issue resolution, is tracked and measured appropriately. After all, not all value in a contract is in the price list — sometimes it’s in the value-add, sometimes it’s in the staff augmentation, and sometimes it’s in the innovation.

Native Integration to Master Data Management (MDM) platforms is important because contracts are with approved suppliers on approved items and services under a well-defined categorization for agreed upon prices and delivery dates. All of this data is defined in existing systems, and much of it (with the exception of agreed upon prices and delivery dates) can come from the Master Data Management [MDM] system (which is generally the ERP, but could be a Sourcing or SRM platform with MDM capabilities). If the integration is not there, then a lot of information has to be manually rekeyed, which introduces considerable opportunity for error that can result in agreements for higher-than-negotiated pricing, slack delivery arrangements, or data miscategorizations that will result in erroneous spend analysis down the road. (Approximately one in one hundred keystrokes is erroneous, and this is one of the reasons that 88% of Your Spreadsheets are Garbage.)

However, every other should-have capability listed above is just as critical to usability and performance, and to understand why, and what the platform has to support with respect to those should-have capabilities, check out “The Standard Contract Management Platform” over on Spend Matters Pro [membership required], part six of the doctor, the maverick, and the prophet‘s landmark ten-part series fully defining CLM.