Source-to-Pay+ Is Extensive (P4) … And No Matter How Great The Arguments Are … It’s e-Procurement First!

Every company is different. Every situation is different. And, as a result, for every 10 organizations, the greatest need in S2P will be different, and for the 10 in 100 organizations where it is the same base need, the specific requirements for the solution needed will be different. That cannot be argued.

But that still doesn’t mean you start with any solution other than e-Procurement first (unless, of course, you have “good enough” e-Procurement, in which case you already started with e-Procurement, and can now move on toward fulfilling the greatest organizational need).

the doctor has had some great conversations around this series (Part I) since it started early last week, and some great minds have brought up some great points, and in each case they have managed to convince the doctor of multiple situations where their solution should be the second to be implemented, but none have convinced the doctor that it shouldn’t be e-Procurement first — because in each case he’s been able to find the one assumption, or flaw, in their argument. (But, in fairness, a few great minds have convinced the doctor that the definition of what the “baseline e-Procurement” capability is for an organization can be even murkier than just industry, high-level spend breakdown, and organizational size … but we’re not going to go into that in this post, and possibly even this series, as it’s not an article, but a treatise, and the point here is to get you on your way and educated enough to figure that out with the right expert advisor, not to drown you in confusing hypotheticals that likely aren’t relevant for your business — although we will overview the typical baseline at some point.)

The three best arguments the doctor received were for

  • Spend Analysis
  • Supplier (Relationship) Management
  • Contract (Lifecycle) Management

We’re going to focus in on these one by one, as they came from great experts who had great points (and who were right in that the “baseline” e-Procurement need could sometimes be weakened as it really is different for every organization, although usually just a small +/- to generally agreed upon core capabilities), and because you should not be lead away from pouring the foundation first (because you can’t build an apartment complex without a solid foundation, or at the very least you can’t build an apartment complex that would stand for very long without a solid foundation!).

Spend Analysis

The argument, summarized: If you don’t cleanse, classify, and homogenize the AP information, how do you know what you need the e-Procurement system for — catalogs, 3/m-way match, payment approval (chains), spot-buy quote capability, etc. — and where the opportunities are.

It’s a valid argument, but the counter point came from the admission that sometimes it takes 3-4 months to locate, access, synthesize, and verify all of the data you need to make this decision, and by the time you finish the analysis, design the implementation plan, and get going with e-Procurement, it’s six months. By that time, because you did not have an e-Procurement system in place, when the baseline is finally implemented three months later, you have to repeat the entire spend analysis process to collect, synthesize, verify, and load the next 9 months of data you didn’t process the first time.

the doctor is a very strong proponent of spend analysis, and you should kick off a project (even without getting a system into the hands of everyone) as soon as it is feasible (and it can be congruent with implementing the e-Procurement system if that is feasible), but any delay in getting a system in place that captures all of the spend just leads to repeated effort and incomplete analyses.

Supplier Relationship Management

The argument, summarized: For most big companies, especially in direct, the majority of the spend, and opportunity, is with (at most) the top 20% of suppliers, and management of the relationship is key to achieving the savings as the product/service has to be quality, on time (without expediting), supported, and invoiced at the agreed upon rates or the value never materializes. Furthermore, e-Procurement should be with those suppliers first, so it’s good to identity them.

This is undeniable. And if you don’t have the right relationships, collaboration, interaction, and management of the core supply base, especially in direct or service-driven industries, it’s true that e-Procurement won’t help you. But what’s overlooked is not having e-Procurement will hurt you. Why?

Here are a few reasons:

  • Not a single individual in any large organization will be able to name even the top 10 suppliers by spend, volume, or criticality. In divisions / categories, the experts/leads might get the top 7 or 8 right, but until all the data is captured and properly analyzed, no one will know definitively.
  • Collaboration and management is good, but you still need to send them the PO, get the ack, get the ASN, get the invoice, confirm the receipt, match and confirm the invoice, approve it, pay it, and, if at any point, something is late, detect it and act on it … that’s e-Procurement!
  • Relationship Management should be based on data … SRM systems only track interactions, not spend data, and, at the end of the day, the CFO and CEO only want to know how the relationship improved the bottom line

Contract Lifecycle Management

the doctor actually received multiple arguments here, which, summarized, were: “It’s an inflationary time, and without contracts with price protection, your costs could be out of control.” “Good contracts are key to ensuring both sides understand their obligations and what is to be delivered when.” “Contracts define what is in the catalogs and/or who the preferred suppliers are.” “Risk is at an all time high, a good contract is the best protection you have.” (And the last one was more extensive, and probably the best, but still not enough. But let’s leave risk to a different series.)

All valid statements, but none override the importance of having an e-Procurement core or address the entire picture. For example:

  • yes, costs are still going up, but they are not going up equally across all spend categories, and if there is sufficient supply available, a simple spot buy in response to a quick bid can keep costs under control, delivering significant value without an extensive (and sometimes expensive) contracting exercise
  • obligations are critical, but you don’t need a CLM to hammer out a good agreement and, in fact, if a solid understanding is key, that education and discussion is going to take place outside of the CLM and the crafting of those responsibilities on (e-)paper done by project leads, not ML-assisted auto-assembly of standard clauses into a contract template
  • you don’t need a contract to integrate a catalog, set preferred suppliers, or set restrictions on who can buy what in an eProcurement system … all of which can be changed as new contracts are negotiated later, and you don’t need a CLM to negotiate the contracts
  • risk is key, but just because you take every contractual step to protect against risk doesn’t mean you won’t have a disruption, that an earthquake won’t destroy the supplier’s plant, that unforeseen embargos will prevent them from fulfilling their responsibilities to you, etc. — you will still need mitigation plans, risk monitoring systems, etc. — and a simple absence of PO acknowledgements, late ASNs, etc. in the e-Procurement system will raise flags of issues that need to be investigated faster than a CLM will

For many companies, one of more of these applications are critical, and they will need to be implemented as soon as possible, but all require a baseline e-Procurement system in place to deliver the full extent of value you want to realize — spend analysis requires the data, SRM requires the data for ongoing monitoring and management, and the e-Pro is what captures the spend-related obligations and can be among the first of the internal systems to provide clues that there might be a problem.

So start with e-Procurement. But whatever you do, don’t stop there … don’t even slow down. As soon as you get a baseline and it’s useable, work on addressing your greatest need from a cost control/value generation perspective. e-Procurement is just the beginning … and the best way to think of it is the forge you use to craft better tools and processes that need the data e-Procurement captures and produces to deliver their full value.

On to Part V!

Dear Build-to-Order / Make-to-Order — Dumpster Dive if you want to Survive!

A big thanks to Lora Cecere, the Supply Chain Shaman, for inspiring this post as a result of her recent Thoughts on Thriving. I’m sure she had zero intention of doing so, but when inspiration strikes … it’s time to write!

One of the advantages of working with a LOT of engineers (and I mean a LOT of traditional engineers, not code junkies who may or may not have a formal, accredited, education), is that you get to talk to a lot of engineers in build-to-order / make-to-order direct (reliant) industries, and even three years after COVID started, and a year after the majority of the world proclaimed it over (and secretly accepted its endemic and we just have to live with it), manufacturers with build-to-order / make-to-order divisions are still having significant issues which primarily focus around:

  • a 12-to-24 month wait for (critical) parts (despite getting orders in early, and often being told they are a “priority” or a “customer of choice” [which pretty much only means the supplier chose to take your money])
  • a lack of a modern order management system that can make sure that the parts are properly allocated when they come in to the customer they were for (and not auto-allocated in a group as soon as any “build” can be completed, often allowing a smaller customer to jump the queue over a larger one that’s been waiting six months larger — and, FYI, even SAP installations don’t necessarily solve this)
  • a lack of engineers qualified to maintain / refurbish existing systems until the parts arrive to allow the replacements to be built and …
    as Lora pointed out
  • inventory glut in their pre-manufactured systems divisions as inflation curbs demand from those thinking twice about an unnecessary purchase, or one that can be delayed.

These divisions are usually separately run on different P&Ls, and often entirely different, fully owned, companies, which use different, non-complementary, and often destructive, strategies to deal with their problems.

The inconsistent, wrong, and often destructive, decision by the pre-manufactured consumer / (small) business division, seeing a monthly increase in inventory (storage) costs in conjunction with a decreased market value (as competitors announce newer “better” products), is usually to just find a very large retailer or distributor who will take them at a (massive) discount, especially if, across all units produced, they can break even or minimize the loss, and move on. (And if the organization gets desperate for cash, sometimes fire sale the inventory in a reverse auction.)

Why is this wrong and destructive? In many cases, the products, and more specifically, the parts they contain, have value well beyond what the organization ends up getting and, in fact, with a little re-engineering could often be used to solve the make-to-order / build-to-order crisis in the other division, at least in the short term. Even if the systems say it can’t be done or the engineers don’t tell you that it can.

What you need to understand is that the problems we are facing are exacerbated by business models that are typically built by business people with limited engineering knowledge and often no understanding of a real engineering mindset. Couple this with the reality that most engineers have limited to no knowledge of the larger business, limited knowledge of how to communicate alternative business solutions to a crises in business terms, and usually no willingness to do anything that would rock the boat. (You need to understand that some of the lies in the engineering stereotype are true. [Cue Huey Lewis.] Understanding this helps with effective communication.)

More specifically, the business models that dictate:

  • complete separation of divisions
  • using outdated systems, because there’s still x years on the amortization
  • never deviating from the initial design and bill-of-materials because that’s what was sourced/agreed-to-contracted, or whatever and/or
  • rigid separation of duties between product lines and divisions, even when the engineering team is qualified to work across them

And, ultimately, prevent creativity, re-use, and, most importantly, creative destruction where this could be the only solution to current problems. These business models and systems work(ed) well in predictable normal operating conditions when there was always sufficient, or excess, timely supply, but those days are gone and might never come back. (The next pandemic could be tomorrow, wars are still raging and having global impacts, multiple countries are amidst various levels of political upheavals, inflation and/or recessions are rampant globally, and supply chain disasters that used to be once a century are now more frequent than once a decade.)

Adaptability is key. The control system needs a processor? Who cares if the one in that pre-built unit in inventory not selling is based on a two year old design — it’s probably still more powerful than is needed and more than likely to survive the lifespan of the unit. Or, worst case, you over ordered the high-end model and need to rip out a more expensive component. If you’re talking a multi-million build-to-order contract with a key (strategic) customer, what’s a few margin points vs. not fulfilling the contract at all and possibly losing the customer?

In other words, if you’re going to treat excess inventory like trash, it’s time to dive into your inventory dumpster, find the diamond parts, and send the rest for recycling — individual business unit / P&Ls be damned. At the end of the day, it’s the overall health of the business, and transferring inventory from division A to division B at cost (to keep the accountants happy) so that a unit that would otherwise take a big loss prevents that loss and even makes a profit for the business is the right decision!

And if you let the engineers out of the tiny cubicle you forced them into, you’ll realize that the one thing a typical engineer is really good at, and the one thing a typical engineer wants to do, is solve these types of systems problems. Real engineers love the challenge! It’s the one thing that excites them more than any business process or perk you can offer them (with the possible exception of more pay, but even that is temporary joy because the smarter engineers realize if you’re offering them more pay without them asking, they must be worth way more to a competitor … and if they’re going to work in a box, they might as well be paid handsomely for it).

So, don’t be afraid to be creative, flexible, and dumpster dive! (And don’t tell me the customer won’t accept any variation on the order … if their business is being held up or seriously impacted by your delay, and they know they can’t get what they need any faster anywhere else, they’ll work with you on a modification they can get next month that will do the job versus having to wait another year.)

And if you don’t have a pre-manufactured division, this advice still applies to you. Except, instead of dumpster diving in your organization’s own inventory, do so in pre-manufactured systems being sold at heavy discount (for the purposes of dumping), local suppliers with excess inventory of products with usable components, and even consumer electronics stores (where deep discount computers can yield perfectly good processors and memory that can be worth as much as the entire system to you).

The 60 Minute Due Diligence Trend is Disturbing!

the doctor posted this on LinkedIn yesterday as a follow up to yesterday’s rant on how a 60 minute call is NOT due diligence, but is reposting it here because it’s something we should all be aware of and thinking about as progressive thought leaders (and while LinkedIn posts may get buried under the electronic sands of time, it will remain here).

Is anyone else disturbed and fed-up by the simultaneous trends of

  • “crowd-sourced due diligence” in 60 minute chunks from
  • the onslaught of new “global” consultancies that just connect you with “experts”
    … where these consultancies are staffed by recent graduates with literally no expertise in any of the areas they are finding the “experts” in and no capability to judge whether or not the “expert” they are connecting the client with has any real “expertise” in the area or not?

I’ve personally stopped responding to such firms altogether because

  • they’ve done nothing but waste my time in the past
    … (pestering me for days, and then when I finally relented, telling me the client, who apparently was insisting on me, was no longer interested — likely because I refused to drop my standard hourly rate for what was nothing but an interruption*)
  • they’ve done zero research as to what my expertise is
    … and when I’ve replied asking for more details beyond “supply chain” or “procurement”, I never received any relevant details beyond “these sample companies”, where I could often figure out that I was the last person they should be contacting if they wanted the true expert (I am a leading expert in Sourcing, Optimization, ML, and other advanced S2C tech [which coincides with my academic background], not in P2P [even though I know it very well, there are those, in this list, that know it better]; and in SC, it’s modelling, not the ins-and-outs of WIMS or Plant Management) …
    which forces one to conclude they are not doing any research on anyone else they recommend because they don’t have the skills to
  • given that they are essentially matching their clients with random people, there is zero reason to believe they are providing their clients with the quality insight that they’re promising
    … the doctor doesn’t care if they match a F500 with a dozen geniuses, if those geniuses have no relevant experience in the particular domain of interest to the client, how will the client learn anything. I know sometimes its “company x / product y” market research, but user experience is not deep insight into anything beyond *that* user’s experience — and if that user wasn’t trained, doesn’t have the right educational background to be using the tool, or was one stepped removed (the manager, and the team used it), it’s incomplete or second hand information.

It’s disturbing, and in some ways disgusting. What these firms should be doing is

  • finding and vetting a true market expert database against an appropriate taxonomy,
  • finding the right (leading) expert for the client (and, if no one expert can satisfy all of the client’s inquiries, identifying a team that will work with that leading expert)
  • having the leading expert put together an education session that covers the core information the client wants, possibly with the support of one or more other experts in related areas, and
  • ensuring the materials are delivered after the course is presented.

That’s worth a finder’s fee and a project management fee, and a rather large one at that given that an expert is worth more than gold, as obviously the client isn’t equipped to do this, and is thus reaching out to the “global” consultancy because of this.

But the model now is, to be blunt, sh!t as a client’s chances of getting what they need when they need deep insight are less than getting the toy of their dreams from a rigged arcade claw machine. It should not be accepted and true experts should disdain it!

* it’s hard to deliver real value in an hour, which is why the doctor typically contracts in a large multiple of days, and, yes, you will get a better rate if you contract for the amount of time needed to do the job right 🙂

A 60 Minute Call is NOT Due Diligence!

It used to be the doctor would only get a request once every month or so for a “call with a client looking for some insight into the space from an expert“, but now it’s the case he’s getting these every week, often multiple times a week, from yet another firm that “specializes in connecting clients looking for insight with experts” or some other such meaningless gobblydygook from a knock-off Dilbert Mission Statement Generator.

Maybe it wouldn’t be so bad in the grand scheme of events except,

  1. You can’t learn anything meaningful in 60 minutes. (We’re talking enterprise software solutions, not the results of an investigative whodunnit.)
  2. These requests are now coming from kids so young the doctor is wondering if they are still high school (despite the fancy LinkedIn titles their firms give them) … and not to be ageist, but there’s no way these kids have any deep understanding at all of any industry domain or what makes an expert (and how to judge if that expert has the right education and experience).
  3. It seems companies are using a handful of these calls as “due diligence” on a space or a company.

And a 60-minute call is NOT due diligence. the doctor does product and technical due diligence, and even a high-level due diligence on a company (which is just looking for potential red-flags and yellow-flags that will have to be watched) takes weeks of man power (as the team he worked with did market, strategy, product, and technology, and even though the doctor can do an entire product and technical diligence in S2P on his own — no team of 6 to 10 needed — it’s at least a week of effort on a single module to get enough certainty that there are no red flags and the important yellow flags have been identified). This is because a due diligence involves process reviews, document reviews, code reviews, focussed interviews, etc. etc. etc. and comparisons to standards, best practices, and market norms.

Given this, just what are you going to learn from a few call with external “experts” who don’t have any access to documents, processes and practices, and the internal stakeholders who make the decisions? Opinions. Maybe. But most likely, absolutely nothing!

In other words, if you need deep insight, find an analyst, diligence, or strategy firm that knows the space and, if you are interested in a company in particular, find an analyst, diligence, or strategy firm that that knows that company AND that company’s peers. And go with them. Don’t pay for the privilege of paying for the privilege to talk to someone who won’t end up being that useful to you. Especially if you need to be able to back up a(n investment [related]) decision that involves the company and prove you did your homework and the stars were aligned as well as they could have been when the decision was made (since no one can predict the future, just play the odds).

In other words, these firms, which the doctor will have nothing to do with, need to go away. A consultant who has the expertise to find the right analyst / diligence / consultancy for you and introduces you to the right individual in that firm deserves a finder’s fee, but doesn’t deserve a fee for the privilege of hooking you up with a random yahoo who can’t help you at all. (And even if that individual is an expert in their area, if it’s not the area you need, and they know next to nothing of relevance in the area and company relevant to you, they’re a yahoo from your perspective.)

And as you probably figured out by now, if you reach out to the doctor and he’s not the right expert for you, he’ll pass you on to someone he believes can (which could be one of the 40 experts he explicitly mentioned, and linked to, in yesterday’s post). It’s not about “sign the contract at all costs and hope to figure it out later“, it’s about helping your prospect because, even if they don’t become a client today, when their need is appropriate, they will become a client tomorrow.

Source-to-Pay+ is Extensive (P3) … This is Where You Start!!!

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:

 

Pete Loughlin Purchase to Pay / Procurement / Coupa & Ariba Independent
Xavier Olivera Procure-to-Pay/LATAM Market Spend Matters

 

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!