In our first post we noted that inflation is back with a vengeance, anticipated savings is leaking faster than a bald spigot, and most organizations are in cash crunch as a result of down sales during the pandemic (and now due to a lack of core inventory to sell), and they need to update their procurement tech stack fast. And they needed to do it yesterday …

We also noted in our first post that no company can do all of Source-to-Pay at once (it’s not as easy as the SaaS vendor just flipping the switch and giving you access to the 10+ modules you need to exhaustively cover Source-to-Pay and related processes) and noted in our second post that, if you ask, everyone will have a different opinion, based on a reasonable (and often valid) argument, as to where you should start, but you need a definitive answer. Not all technologies are created equal, especially when the top four reasons you can’t do it all at once are considered. You need a clear starting point, but it’s not easy to figure it out when every vendor and consultant and analyst has a different opinion, and the right answer only comes with considerable experience.

Then, in our last post, in Part II , we covered eight (8) of the ten (10) upstream, downstream, and cross-stream technologies in detail in an effort to try and understand the right starting point, and started off thinking it might be strategic sourcing. But then we dived into downstream, and after reviewing e-payment and order management, realized that e-Procurement is extremely critical and could be the starting point. So today we dive into both and tell you which one you start with, which will be, for many of you intuitive, counter-intuitive, or both after yesterday’s post.

e-Procurement: makes the order for the good or service you need, it’s certainly critical, but strategic procurement is all about getting costs under control and not just finding a product or service, but securing it at market price and keeping costs under control, which means you need to identify the suppliers, the products and services you’ll accept, based on the price they agree to, which means that …

We need to return to upstream because

Strategic Sourcing is obviously the answer to where you start after looking at each application and realizing it is what you use to identify what you need, from who, where it will come from, at what price, and allow you to start without much data (just get the requirements and bid in, satisfying requirement #1), or training (as it’s a process a senior buyer will understand, it’s just learning the tool, satisfying requirement #2), while identifying value within weeks (satisfying requirement #3), in a manner that allow users to see the value they are getting (satisfying requirement #4). So we have our answer, right? Wrong!

Even though many experts will say this is the right starting point, especially all of the strategic sourcing / upstream providers that started building their solutions with this belief, and the consultancies that use them, it’s only the second best starting point.

The best starting point is plain old e-Procurement.

Why? The goal is not identified value, but realized value, across all spend, not just some of your spend. When you dive into the situation in detail,

1) Strategic sourcing does not realize value out of the gate, if it does at all. First of all, there can be a long time delay between award, contract, order, receipt, and payment — which is where the value is realized or not. Secondly, the value is only realized if the organization orders against the contract at the contracted value, only accepts the invoice if it is for the contracted rate, and only pays at the contracted rate when the goods are received. Sourcing applications don’t ensure any of this, but e-Procurement applications can be populated with the contracted products and services at the contracted rates, be referenced when the invoice comes in for invoice verification, and will allow goods to be marked as received (even though it won’t manage the physical location of the inventory or what happens to the goods after they are initial received).

2) Strategic sourcing only address high-dollar or strategic categories, but the organization needs to realize value on ALL its spend categories. e-Procurement can be used for all product and services being purchased, not just those sourced (or under contract). The organization can typically integrate allowed catalogs/vendors, force approvals for products/services not pre-approved or above a threshold, and make sure the spend going out the door is, where there are contracted/approved rates, at those rates (and eliminate the considerable overspend from lack of management).

e-Procurement gets all of your out of control spend under control the day it’s implemented, prevents overspend on existing agreements, and allows your buyers to focus on ensuring high-dollar orders are not only for approved products / services at approved rates, but also for products and services that are actually needed. While it may not identify any new savings opportunities, when you consider the fact that organizations without e-Procurement only ever realize 60% to 70% of potential savings identified in a sourcing project, that’s an immediate 30% to 40% improvement on savings realization. If the average savings identified was 6%, that’s 2% straight to the bottom line before a single new sourcing project is executed.

When it takes most large organizations three years to do spend projects on the majority of their high-dollar / strategic spend categories, that’s three years to address 80% of the opportunity, with “savings” going down the drain every day there isn’t an e-Procurement system in place. So start with e-Procurement, and then do (optimization backed) strategic sourcing (with advanced analytic capabilities) next. The day e-procurement is up and running with the majority of organizational spend is the day you start getting the strategic sourcing platform up and running. No exceptions, no delays. That’s the one-two punch you start with, and how you realize the greatest value potential as soon as possible.

(Spend Analysis, one of the only two advanced technologies that has consistently delivered savings and cost avoidance of 10%+ for two decades [and a specialty of the doctor‘s], sadly, comes third because most senior buyers who know their spend categories can identify 8 of their top 10 spend categories, 6 to 8 of their initial top opportunities, and 4 to 6 of their top categories not under contract that should be analyzed to determine if they should be analyzed, or the organization should continue to spot buy. They’re not very good at identifying wave 2 opportunities, and even worse at identifying wave 3, and, as we just pointed out, will miss some biggies, but they generally know where to start so until they are going [and efficient with the sourcing application], they can hold off on spend analysis for a bit [but not too long]. And this really should be the third module/technology that you implement, because the longer you wait, the less likely the buyers are going to select the next best opportunity.)

So that’s it. And if you need help identifying the right e-Procurement vendor for you, feel free to reach out to the doctor for a list of vendors you can look at and some insight into them, and if you need deep expertise, these are the analysts that focus heavy just on e-Pro/P2P/Procurement that the doctor recommended in his recent post on who he recommends when asked:

And then, when you’re ready for advanced sourcing (which should immediately follow), remember that’s one of the doctor‘s particular areas of expertise (as an expert in optimization, modelling, analytics, RPA, ML, and Advanced Tech in general, including “AI” to the extent it actually exists and is not BS).

On to Part IV!

In our last post we noted that inflation is back with a vengeance, anticipated savings is leaking faster than a bald spigot, and most organizations are in a cash crunch as a result of down sales during the pandemic (and now due to a lack of core inventory to sell), and they need to update their procurement tech stack fast.

And they need to do it yesterday! But, due to the four primary (but not the only) reasons I listed in our last post, they can’t do it all at once. Big Bang software implementations always end with a big bang (and some have been responsible for the biggest supply chain disasters of all time, search the archives). So organizations need to start with one or two core modules/capabilities, and work their way outward over time. But where should they start? Which of the 4+ upstream, 3+ downstream, and 3+ cross-stream technologies should they start with?

Everyone you ask will have a different opinion, based on a different (and usually valid) argument, and the doctor can see the rationale for most of them. But not all technologies are created equal, especially when you consider the top four reasons you can’t do it all at once, and numbers alone don’t tell the story, only experience does (which is necessary to see, and understand, the big picture that needs to be considered). For example, what the doctor would have typically recommended a decade ago is not what he’d recommend today. But once you have the right mix of education, experience, and realism, the crystal ball, that was cloudy for so long, finally begins to clear.

Let’s start with cross-stream.

Inventory Management: very important; if critical inputs are not available for production, not only are end products not available to sell for the life-blood cash of the company, but production lines can shut-down (which can amount to massive losses in industries where re-start costs are high, or where a large work-force scheduled for the shift and/or on salary have to be paid regardless); if critical MRO products are not available when needed, some people in the company won’t do their job; if backup parts aren’t available, internal servers can go down and anyone who needs them to do their daily jobs (let’s face it, not everything is SaaS, and not everything should be!), will be ground to a halt; that being said, inventory optimization only saves so much in a TCO calculation, and if you can’t get the goods in, who cares, so you should not start here

GHG/Carbon Tracking: important if you have reporting needs, or sustainability goals, but lets face it, as long as your purchase data is somewhere, you can always hire a consultancy once a year to Git-R-Done if you need to, and this doesn’t do much to control your procurement costs or your risks … so you do it when you have core procurement capabilities under control

Risk Management: this is becoming critical with so much uncertainty around everything these days; we’ve went from the probability of a major disruption occurring at least once a year in one major category being almost 100% to everything being uncertain thanks to the ongoing turmoil caused by the pandemic; this capability obviously has to be high on any list, but, the reality is, if you can’t even find the goods to order, it’s probably secondary … but this doesn’t mean we know the answer of where to start yet …

So let’s move to upstream since we probably have to secure the goods first, and that’s usually upstream, right?

Contract Lifecycle Management: now, considering you should have a good contract for any high dollar or strategic category, this sounds like a fairly important starting point, especially since a contract theoretically secures supply, but the reality is, not everything needs a contract, and if you need the goods, you’ll spot buy on the open market if you can get the goods, so while it should be very high on the list, it is still a secondary need

Supplier X Management: goods come from suppliers, so strong supplier management should reduce your risk and accelerate your delivery, and, moreover, you don’t get goods at all unless you can find a supplier, so discovery is probably high on the list if you don’t have a sufficiently strong supplier base — but you don’t need a solution for discovery, there are still marketplaces, GPOs, your own database, consultancies, etc. so this is mid-weight priority (at most, possibly even lower if you have a lot of internal process problems to fix)

Spend Analysis: you need cost control, and fast, and nothing finds opportunities for cost reduction (by identifying overspend, opportunities for supply base amalgamation for potential economies of scale, by identifying unused contracts/opportunities, etc. etc. etc.) faster, but, again, identifying opportunities doesn’t realize them, so … it sounds like it might be Strategic Sourcing but first …

Let’s visit downstream to see if we’re missing something there.

e-Payment: this obviously isn’t high on the list, first you get the good or service you need, then you pay for it … so this definitely should not be high on the list, especially since you already have an AP solution, even if not optimal and considerably more manual than it should be

Order / Invoice Management: this should be a bit higher on the list than e-Payment, but, again, first you need to place the order, then you manage it, accept the invoice, and process it for payment, so you should not start here either

This takes us to …

e-Procurement: and this could be it, this could be the starting point, because, whereas strategic sourcing identifies the supplier, e-Procurement is where you place the order for the good or service you need …

To be continued … in Part III .

Even though all core sourcing and procurement technologies have been available for twenty (20) years (although it is debatable just how good the initial versions of many of these applications were), there are still many mid-size or larger organizations that don’t have any modern applications to support Procurement, and the majority of organizations still do not have what any modern analyst would consider reasonable support for the full, core, source-to-pay process.

Given that inflation is back with a vengeance, anticipated savings is leaking faster than a bald spigot (see last Friday’s rant), and most organizations are in a cash crunch as a result of down sales during the pandemic (and now due to a lack of core inventory to sell), they need to update their procurement tech stack fast.

But they can’t do it all at once. Even if your organization selected a SaaS suite platform where the provider can enable a full end-to-end solution with the flip of a software switch, your organization still can’t do it all at once. Why?

1) these applications don’t work without data … and they don’t work well without LOTS of data … most of which is either historical data, which has to be located, cleansed, transformed, and enriched … or supplier / market data, which has to be requested, collected, verified, transformed, and loaded

2) these applications don’t deliver without user training … and I don’t care how much “AI” is included, how “autonomous” the vendor claims they are, or how “intuitive” the UI is supposed to be … everything’s obvious to an expert (who designed the system), but nothing is guaranteed to be obvious to someone without the same education and experience in Procurement and Technology

3) you need value out of the gate to justify the purchase and the continual license fees (SaaS isn’t about utility, it’s about being a utility which locks you in for life)

4) your users need to see results for them to want to continue using it, which is key for not only value out of the gate but value over time

So the reality is, even if you decide to go for a suite solution, you should implement it piecemeal over time (on a realistic schedule), as well as ensure that you don’t start paying for anything you can’t realistically use until you can start using it regularly and with value.

But where do you start?

Upstream? Here you have, at a minimum:

• Strategic Sourcing, which can include RFP, e-Auctions, and hybrid multi-round events, with and without strategic sourcing decision optimization
• Spend Analysis, where you can analyze your spend and find opportunities to address
• Supplier X [Information / Relationship / Performance / Risk / etc.] Management, where you keep track of, interact with, manage, collaborate with, or eliminate suppliers
• Contract [Lifecycle] Management, which can, depending on what you get, help you negotiate, create, analyze, and manage contracts

Downstream? Here you have, at a minimum:

• Catalog Management / e-Procurement which allows your employees and buyers to order what they need, when they need it, off of contracts or pre-negotiated price sheets
• Invoice and Order Management, which allows you to track your orders, manage your invoices, ensure you get the appropriate reviews and approvals, and make sure you get the right OK-to-Pay
• e-Payment, which ensures the inventory/service is received, the appropriate ok-to-pay(s) has(/have) been received, the payment is appropriately scheduled, and made at the appropriate time and generally manages your AP from a Procurement perspective

Cross-stream? Here you have, at a minimum:

• Risk Management, which allows you to track supplier, carrier, and other risks that could prevent you getting your stuff or getting it to your customer
• GHG/Carbon Tracking, which allows you to be compliant with (coming) reporting requirements, and supports Scope 1/2/3 as appropriate
• Inventory Management, especially in direct where you are doing build-to-order and need to ensure that product doesn’t get released just because it’s in stock (when it is part of an urgent build waiting on another product for a customer that ordered three months before anyone else);

Not an easy decision, eh? So where do you start? Stay tuned for Part II .