How Can Indirect Spend *NOT* Be Well Managed in 2023?

the doctor gets a lot of press releases. Some of them contain a lot of BS (which is good, he writes best when he’s on an angry rant), others contain a lot of “findings” that, if true (and the findings usually are for the right for the right subset of the market), are simultaneously scary and ridiculous. In this particular case, as the doctor writes this, he received a press release that said the research finds that 82%+ of procurement leaders say their indirect spend is not well managed, leaving substantial cost savings on the table.

The question is, how is that number so high? We’ve had source-to-pay suites for a decade (which were originally designed to source indirect products and services, create catalogs of those sourced selections, support purchase orders only for items in the catalogs, and ensure invoices matched the item prices in the catalog. And for those willing to do custom integration, it was possible to integrate a best of breed sourcing solution and a best of breed catalog management solution and a best of breed e-invoicing solution and achieve this in the late 2000s.

Now, in a mixed solution, there was no guarantee that the sourcing event would choose the best mix (since early solutions generally didn’t support optimization or advanced analytics), that the catalog would force the lowest cost (or even preferred) selection when there were multiple options, or that the invoice management could detect when shipping costs were too high or handling fees shouldn’t be there, but there was still management and any overruns were not substantial (at least compared to pre-solution overages in indirect; an organization could easily cut out 80% of the fat, which could be as high as 30% in some categories; so if the overage went from 30% to 6%, that was well managed — and solutions have only become better over time).

What’s even worse is when the expected reality is put into hard numbers. According to the press release “two-thirds of suppliers (68%) report increased demand for their offerings compared to the past year and nearly half (43%) are planning to increase prices in 2023“. Thanks to global inflation, prices are going up as demand does (which is still pent-up post-pandemic), and we know it, but knowing costs will be uncontrollable to an extent is a tough one.

Of course the press release says that the key to cutting cost is to implement (autonomous) technology that saves on day one, which you should know by now, but the question is why have so many companies not yet implemented basic S2P functionality, either as a suite or as BoB integrations, as such technology would have ensured indirect was well under control, and reduced a likely organizational overspend by (85% of 15% of 35% =) 5% (est. realization * avg. savings * avg. indirect spend) of total spend, which would go straight to the bottom line! No autonomous tech needed!

For those interested, the press release came from a third party PR firm and was based on Globality’s 2023 Research Insights for CFOs.

Do You Have a Data Foundation?

Last week we asked Where’s the Procurement Management Platform as the future of procurement is a platform that allows Procurement to build up, maintain, and evolve the solution it needs to be successful over time, over time. Such a platform needs to be the foundational data source for Procurement, but not necessarily the data hub that is used to integrate all of the organizational and external data into the core data source (which is either the internal data store or the data store supported as the platforms foundational data source).

While a procurement management platform could be the data foundation, since it’s primary purpose is process based procurement solution integration, it isn’t necessarily … after all, an API / Integration Engine focused on process doesn’t need to support every data source out of the box, nor does it need to make integration with arbitrary data sources easy, and, most importantly, it doesn’t need to support advanced data processing and transformation features, which is key when trying to integrate multiple data sources into a foundation that can be universally processed by the platform and support true end-to-end spend, and risk, analysis.

Like a Procurement Management Platform, which we may see four (4) of by year end, Data Foundation solutions are also quite few and far between. The reason? Most “data” solutions are focused on BI [Business Intelligence], Spend Analysis, or Contract/Document management, etc. and most “data” feeds on risk data, supplier data, catalog data, etc., which means they are built for certain data types and processing operations. This means that they will support a straight-forward integration for any data source with similar data types, or data types with compatible processing operations, but not any others.

When you look across Source-to-Pay and the broader Supply Chain spectrum, there are a lot of different applications that support a lot of different processes that need a lot of different data requirements of different types and formats. You need a modern MDM [Master Data Management] solution that works on web and cloud data, can pull in and process data on the fly, and push it back out enriched as needed. And support any data format and standard, not just flat files or relational tables in text (like old school MDM).

This capability is a lot rarer than you think. Most suites are built on transactions, most supplier networks on relational supplier data record, and contracts on documents and simple, hierarchical, meta-data indexes. But you also need models, meta-models, semi-structured, unstructured, and media support. And that’s just a start. But there are possibilities emerging. Just watch this space.

It’s Not Just Beds Burning Anymore, it’s the Planet. What Impact Are Your Efforts To Stop it Having?

Four decades ago, when sustainability was only a concern for the environmental extremists because, thanks to industrialization and burgeoning globalization, we had other disasters to deal with (hunger in Africa, aboriginals being forced from their land [sometimes with fire], the global AIDS epidemic, etc. — see Billy Joel’s We Didn’t Start the Fire, which took us through 1989 [the year, not the 2014 Taylor Swift release], and the doctor chronicled the next 20 years here in an unofficial Part II). And even though we still have all these disasters, and many more, the planet is in upheaval with every type of natural disaster occurring everywhere all the time. In fact, climate-related disasters have tripled in a mere 7 years. 7 years! We’ve gone from disasters increasing over the span of thousands of years during natural planetary cycles to disasters increasing in the span of mere years due to global warming thanks to the rapid increase in carbon and GHG emissions as a result of 150+ years of industrialization and rapid deforestation and wetland destruction. (Forests and wetlands have historically acted as carbon sinks for all of the carbon released by life, it’s historically primitive actions, and traditional disasters that resulted in the destruction of forests [and when trees die or get burned, all the carbon they captured is released]).

Now it’s true that, on average, even the largest of corporations on its own could only make a small dent when the depth of the problem is considered, but if even ten of the largest corporations in an industry teamed up, they could make quite an impact. (And if the largest retailers teamed up, think Amazon and Walmart and Target, and insisted on a maximum carbon footprint per product — think of the impact that would make.)

For details on the impact that can be made today, you should download the new Ecovadis Network Impact Report, 3rd Ed. which points out that Industry-level collaboration is one of the best levers available to companies looking to build more sustainable value chains and scale their positive impact. EcoVadis Sector Initiatives (SIs) are a highly effective vehicle for this. Six initiatives spanning a diverse range of sectors — from chemical manufacturing to health — are using the EcoVadis solution to share best practices and collectively address sector-specific challenges across their often highly interconnected supply chains. Our data shows that participation in an SI helps buyers improve their supplier engagement and enables rated companies to improve faster than their network peers.

More specifically, companies engaged in a Sector Initiative outperform the [Ecovadis] network average by 5.3 points — not only do companies that try to better than those that don’t, but companies that work with peers on the right objectives do better still.

But this is only one reason you should read the latest Ecovadis Network Impact Report, 3rd Ed.. Another reason is because, if you don’t, you won’t see how Ecovadis, which in 2022 officially became a “purpose-driven” company under French Law, has continued to grow at a rapid rate and how it is starting to make a global impact. When your customers represent 4.8 Trillion in global spend, you are starting to get somewhere. That’s 4.5% of GDP, and if Ecovadis could grow 30% year-over-year for nine years, that 4.5% could become 49%, close to the tipping point where we’d finally start making significant progress. (Which means if we can survive until 2032, we could start making real progress on sustainability and environmental stabilization. Not as fast as we need to, as parts of the planet will literally start burning by then, but Ecovadis and its peers may still save some of us.)

And, even if you don’t think Ecovadis is the answer for you (even though 945 organizations do and the number increases every year), the report will still educate you on the five key pillars of a sustainable procurement platform. And once you understand those pillars, you can assess, monitor, improve, report, and continue the wheel.

Seeking an Analyst? Who does the doctor recommend?

In our last two posts, we asked how relevant is the analyst firm and then answered that it’s not the analyst firm that’s relevant, but the senior analysts in its rank that are relevant. (And if the firm doesn’t have any in your Source-to-Pay/Supply Chain (related) area, it doesn’t matter how many employees it has, how many countries it is in, how many Billions or Trillions its customers spend, etc. because it won’t be able to help you get your message right, hit your market, or enhance your strategy.)

So, in their honour, here are forty analysts (even if they didn’t work for analyst firms and mainly did behind-the-scenes analyst work as a consultant/advisor) that the doctor has trusted and often referred inquiries to over the years, past and present, and (some of) their (former) areas of specialty:

Present (note that many [14/25] are independent and NOT with a big firm):

Andrew Bartels Back-Office Tech-Driven Business Transformation Forrester
Andrew Karpie CWM/VMS/HCS Independent
Bertrand Maltaverne Source-to-Contract Spend Matters
Bob Derocher SC/Procurement Process Transformation Digitization Independent
Bob Ferrari Supply Chain, Manufacturing, Digitization Strategy Independent
Brian Sommer ERP, HR, & Finance (Transformation) Independent
Chris Sawchuk Metric-Based Procurement Modernization Advisory Hackett Group
Doug Smock Supply Chain Evolution Independent
Garry Mansell Entrepreneurship and Business Growth in S2P and SC / Global Supply Chain Design and Management Independent
Jason Busch Broader Source-to-Pay Market Strategy Spend Matters
Katie Evans AI Ethics Independent
Kelli Coviello Business Growth, Diversity, Work/Life Balance Independent
Lora Cecere Supply Chain Supply Chain Insights
Mickey North Rizza Sourcing, Procurement, Commerce, SRM, Risk IDC
Navroop Sahdev Digital Economy Digital Economist
Noha Tohamy Logistics, Supply Chain Digitization, Analytics Gartner
Patrick Connaughton (Ecosystem) Enterprise Applications Gartner
Pete Loughlin Purchase to Pay / Procurement / Coupa & Ariba Independent
Peter Smith Best Practices, Sustainability, Procurement with Purpose Independent
Phil Fersht Emerging Technologies, Automation, Outsourcing, Global Business, and Horses HFS Research
Pierre Mitchell Procurement and Services Benchmarking & Transformation Spend Matters
Robert Rudzki Strategic Advisory and Procurement Transformation Independent
Sigi Osagie Business Growth through Personal and Team-Based Growth Independent
Vinnie Mirchandani Enterprise Applications and Outsourcing Independent
Voitek Szewczyk Strategic Sourcing, Procurement Transformation, Eastern Europe Independent
Xavier Olivera Procure-to-Pay/LATAM Market Spend Matters

Past ([semi-]retired, out of the analyst world, and/or working for a vendor; 4 independent):

Charles Dominick Procurement and Procurement Training Independent
Debbie Wilson ERP & Finance Independent
Dick Locke Operations, Strategic Sourcing, and International Trade Independent
Doug Hudgeon Back Office Integration & Modernization / Australasia Market Managed Functions
Duncan Jones Procurement Independent
Gerraint John Sourcing, Procurement, SRM, and Risk Interos
Jon W. Hansen Procurement Independent
Magnus Bergfors Strategic Sourcing, Strategic Procurement, SRM Keelvar
Mark Perera Procurement and SRM Vizibl
Nick Heinzmann Procurement, CLM, Sustainability, Fraud Risk, and Startups Zip
Sudy Bhardadwaj Direct Supply Chain, Source-to-Supply, Entrepreneurship SAP
Tim Minahan Procurement & Supply Chain, Business Performance Benchmarks, Best Practices Citrix
Tony Poshek Strategic Sourcing Simfoni
Vance Checketts Supply Chain, Operations Built for Teams
Viktoria Sadlovska Anshu Supply Chain, Trade Finance, Analytics RepTrak Company
Vishal Patel CLM and P2P Ivalua

It’s not the Analyst Firm. It’s the Analyst!

In our post on Friday that asked How relevant is the Analyst Firm?, we noted that, these days, I’m hearing far too often from new companies or smaller companies that weren’t acquired in the M&A mania that their [marketing] strategy is to “get on Analyst Firm Map XYZ” or “get in front of the big analyst firms as fast as possible and, hopefully get written up“.

And this scares me because,

1) as pointed out in our last post, they think “the firm” is the answer, when, in fact, it’s not the firm but the analyst because “the firm” will only get it right IF the analyst gets it right (and, if you get a junior analyst, you may find that they over-promote a competitor with great marketing and misleading AI claims but limited capability over a unique solution you offer that, due to the subtlety of the power at the solution core, the analyst isn’t able to grasp what he’s unable to see)

2) for an analyst to get it right, that analyst needs, at least, a dozen skill sets that, combined, require
a) an education that sometimes goes beyond an average PhD and includes
i) the equivalent of a bachelor’s in mathematics
ii) the equivalent of a bachelor’s in computer science or engineering
iii) the equivalent of a Master’s in Procurement or Supply Chain or
Advanced Operations Management (a Bachelor’s in business ain’t enough)
b) at least a decade of experience in the space to understand the breadth of technology, industries, and current capabilities
c) exceptional analytical skills (and questioning skills)
d) great writing skills (in a day where it seems no one can write anything without AI, but AI is only as good as the content sources fed into it, and those raw sources have to come from … that’s right … a human!!!)

3) the number of senior analysts we’ve had with the right education and experience has always been few and far between (with even the biggest firms never having more senior analysts in our space than you can count on the fingers of one hand at any one time), but with the departures / retirements of the majority of the best analysts in our space from Gartner, Forrester, and Hackett*2 over the last few years, and almost half of the senior analysts from Spend Matters …

that’s not leaving many senior analysts, or viable analyst firms, left, and, at least in the doctor‘s view, all of the firms except Spend Matters have been gutted*3 in our space at least once over the last few years, and, given the breadth and depth of requirements to be a good analyst, where’s the next generation of senior analysts going to come from?

[Unless another visionary in our space with a strong tech background, a couple of decades of domain experience, and great analytical and writing skills is willing to jump the fence to the analyst side, we’re not going to be getting many new senior analysts that we can rely on. They’re not at other analyst firms (outside our space), they’re not at consultancies, and the reality is that there’s only a handful of visionaries left that didn’t make their millions and retire already or who are still thrilled by the space and want to stay in it as long as possible.]

It wouldn’t be unrealistic to say that Bertrand Maltaverne could be the last great analyst in our space.

In other words, if you want to be sure you’re getting the right coverage, review, or feedback, you need to STOP assuming the analyst firm is the answer and start looking at the analyst inside, or outside, that firm (and further remember that many of the senior analysts who are still in the game are on our own for various reasons), find the right analyst for you, and make sure you get in front of that analyst (or don’t bother with the firm at all). And you need to further realize that it’s not possible for every analyst to be an expert in every technology in the Source to Pay space. You need the right review and guidance from the right senior analyst, or the end result is that it will be worse than no review and guidance at all.

 

*2 but, in fairness, we will point out that Gartner and Forrester have been aggressively working on replacing them, although this has often required poaching from other peer firms, so the number of senior analysts hasn’t increased by much 🙁

*3 one has to remember that, in addition to vendor poaching, there was M&A in the analyst space too, and this wasn’t always for the better! Especially when the acquirer worked to a beat or a model that was different then the acquired firm that itself was only successful because it was different and had the right people who worked well under their own unique beat or model.