The Category Sourcing Scorecard – Still An Essential Tool for Category Sourcing

As we noted when we discussed this topic seven years ago, if you want a successful event that generates significant savings, you have to select the right category — and the best way to do that was often to evaluating them with the right scorecards that could predict savings opportunity.

But success requires more than just selecting the right category, it also requires executing a successful event, and this requires:

  • selecting the right sourcing event and
  • adapting quickly if market conditions change

However, today, to be successful, a sourcing scorecard is more than just a point-in-time snapshot of market factors, buying factors, supplier factors, internal factors, and category-specific factors. It’s historical data, even if anonymized, on past events with respect to size, savings, geography thereof, relevant market conditions, and event type.

This way a buyer not only knows the potential savings associated with a category at a particular time, but what type of event will be needed, and what market conditions need to hold throughout the event to maximize the chance of success. And if there are good projections as to how long conditions will hold, the buyer knows how long he or she has, or doesn’t have, to complete the event to maximize chances of success. And if conditions change unexpectedly, the buyer can halt the event and decide what to do next.

Plus, sometimes you can’t just select the category with the greatest sourcing potential, you have to select the category where the contract is going to expire in 60 days and you can’t be without a contract or risk a production line shutdown. Even if the market conditions are the opposite of what you’d need for best results, you still have to proceed — so having the best information possible on the option likely to give the least unsatisfactory outcome is still a positive. And having a platform that can use a modern category sourcing scorecard to enable the right workflows to drive the right events is most likely to minimize a less-than-ideal event as well as maximize an ideal event when it comes.

Two Hundred and Twenty Nine Years Ago Today …

The first foundations were laid for the patent pirates with the introduction of the first U.S. patent to Samuel Hopkins for a potash process. While patents are a necessary evil to protect the investments of real inventor and corporations that have to spend millions upon millions (sometimes to the tune of hundreds of millions) to produce a truly new technology, software patents are an unnecessary evil that allow the pirates to plunder millions upon millions of dollars from rivals with fundamentally different products (but covered under an interpretation of a sufficiently abstract description) and prevent true innovation in our space.

It’s been a downhill trend ever since the first software patent was issued 51 years, 3 months, and 8 days ago as it was a mere 4 years before the software patent pirates saw an opportunity when the first software patent case went before the courts a mere four years later.

That’s right, we’ve had almost five decades of pirates in cyberspace, and you thought malware was the big problem?

Knowledge is Power

So why would you want a platform that doesn’t embed any knowledge?

There is not a product or service in existence that cannot be made more valuable with information, and in technology, there does not exist a solution that cannot be made more valuable through embedded information. So why would you ever want a platform without it?

In fact, if the platform has enough embedded information, and can use it to power adaptive workflows built on top of robotic process automation, you’ll find that you might not even need any AI at all (especially if all it equates to is Applied Indirection). If the platform comes embedded with leading market knowledge for the majority of your categories, and you can define, and embed, rules with the help of experts to cover the rest, then you have the majority of what you need.

Because, at the end of the day, the best value comes from not only getting Spend Under Management, but making the best Sourcing / Procurement decision possible for the organization — and that can only be done if the organization has the right information. No organization has expertise in more than a few categories, and it definitely doesn’t have all the information. So having a platform that comes equipped with the best should cost models out of the box, integration to current market data feeds, and historical data on previous events (anonymized if necessary) to help organizations select the right type of even tfor current conditions is very beneficial — versus just a piece of dumb software that executes a canned one-size-fits-all workflow.

At the end of the day, the more you know about your raw materials, your components, your assembly / manufacturing options, your products, your shipping, the import and export restrictions and costs, and the inherent value of each product versus your other options, the more accurately you can model your options and make a good decision. The more accurately you can model your options, the better chance you have of determining the solution with the lowest cost, the lowest risk, the highest value, and the best value (defined as risk reduction, profit generation capability, etc — whatever makes sense) to cost ratio.

This is how leading Supply Management organizations can save 12%, off-the-top, in an optimization-backed information-enabled sourcing event — and even more if they collaboratively work with their peers to identify all of the options that may be available and all of the associated tradeoffs.

Plus, good, timely, information allows an organization to:

  1. constantly improve products and services by way of the fact that they are able to
  2. collect more relevant, timely, accurate, detailed, and integrated data.So get an information enabled platform – at the end of the day, it’s better than all the platforms with the fake “AI” that do nothing more than automate static, dumb, one-size-does-not-fit-all, workflows!

How to Get Past Applied Indirection

As per our recent series here on SI, when most vendor sales rep start to claim they have AI, they are really just telling you to your face that they are trying to mislead you into thinking their trivial automation, simple fixed ruled-based workflow, and/or classic statistical projection capabilities are much more advanced than they really are, hoping you won’t ask what AI really stands for when they use the acronym.

Given that your number one priority is to get more spend under management (SUM) and that this priority is only realized with the help of modern platforms, you’re going to be dealing with a lot of sales reps for years to come, especially since, at best, you’re on a generation 2 platform (and, to be honest, if you have anything, odds are it’s really generation 1), and that just doesn’t cut it anymore. So you’re going to have to find the right platform for you.

Now, the good news is that you have help narrowing down that shortlist with the help of Spend Matters Solution Map, co-designed and, in core areas of platform technology and Strategic Procurement Technology, scored by the doctor, and that as part of this narrowing down, we can help you identify vendors with the foundations for real AI, as well as, if we’re lucky, select capabilities that fall in the domain of assisted intelligence.

But just because we can give you a partially pre-qualified short-list (which can be tailored to your specific organizational needs by way of the Customer Map offering), that doesn’t mean that the vendor sale reps still won’t try to stretch the truth or, in some cases, even lead you astray on aspects of the solution we don’t score. So you will still have to deal with some level of applied indirection even if you’re proactive enough to take our advice and start with the right short-list. (Which can also be based on unbiased customer scores as well as in-depth analyst scores across up to 700 discrete platform capabilities to make sure you start off with the best candidates, among which will be the right solution for your organization.)

But if you’re not one of the lucky supply managers able to convince your boss to let you spend the money on this exercise (which can be carried out by your favorite consulting partner who will help you properly weight the various capabilities given your organizational maturity and need), then you’re going to not only get hit with quite a few sales reps stretching the truth, but a few outright lying (because they know you don’t have any validated data points to go off of), and not feeling a tinge of guilt because they told you up front they were selling you with AI (which you didn’t ask them to define) that really stood for applied indirection, and not the assisted, augmented, or artificial intelligence that you mistakenly assumed it stood for.

So how do you spot it? And get past it?

Here are some tips and tricks to do just that.

1. Ignore their claims, get a demo and ask them to walk through through how it supports your organizational process, which you will lay out the day before

Yes, some vendors have become quite good at combining (robotic process) automation, rules-based workflows, and statistical algorithms to fake AI, to the point that you might think there is actually some machine learning under the hood and, at the very least, they have assisted intelligence technology in the worst case, and probably augmented intelligence that will take your team to the next level. But not very many vendors fall here (and in the grand scheme of things, the reality is that very few vendors fall here), and very few demo masters can pull off a faked end-to-end process demonstration.

2. Have your own data files ready to go!

If they are claiming auto-contract parsing and clause extraction, have some contracts in the correct format (PDF, Word, etc.) ready to go at demo time, that you did NOT give the vendor advanced knowledge about, and ask them to upload and walk you through the process live. Or if it’s a 3-way invoice match process, have matching POs, goods receipt, and invoices in whatever standard they support (cXML, EDI, indexed PDF, etc.) ready to go as well and ask them to suck them in and process them in front of your eyes.

If they survive this, even if it’s not real AI, it’s very advanced automation and an extensive knowledge-base supporting the rules-based workflow, which may be all your organization needs to advance its SUM and get success.  (For example, you don’t need AI for spend categorization – an expert can map your spend to 98% accuracy in 3 days with the right tool even if you are an F500 and then as exceptions come in, you have an expert create overrides, which get fewer and further between over time. Plus, unless we are far, far into the tail, 2% of spend in the category doesn’t even make a dent.)

3. Get a real data scientist / tech expert in on the demos.

Someone who has utilized real AI technology to ask tough questions about algorithms, platform foundations, data stores, and so on. If the provider can’t furnish good answers, there’s probably not too much under the hood.

4. Talk to mature customers.

You want customers who have been with the provider 3+ years, implemented and worked through the full platform offering, executed difficult Sourcing / Procurement projects, had a few failures the provider needed to respond to quickly, and so on. They can give you an idea of how advanced the system has been in practice and how good the provider has been on improving it. And if they give you a good recommendation, even if the system is not as advanced as the vendor claims, there’s probably something there.

It’s easy to not get fooled if you remember that the proof is in the pudding, and if the pudding is good, there are repeat, happy eaters of it.

The Supply Management Paradox

The best supply chain is invisible, but an invisible supply chain gets no recognition in your average company.

This is the one lesson they don’t teach you in Operations Management or Supply Chain 101, probably because they don’t want to discourage you given the upward battle we still face in our chosen discipline of Supply Management.

The sad reality is that your average employee in your average company, and even your average C-Suite executive in too many companies, has no knowledge of this paradox. Just like your average person is unaware of Bernoulli’s Paradox or even the Birthday Paradox.

At an average company, the majority of the supply chain function is invisible from most employees. Good show up at the warehouse, then get shipped to the office / store locations. When an employee needs a new laptop, tablet, or phone, s/he logs into the company portal and selects one of the pre-approved options and the item is on her desk within 2 business days. The sales guy places the order, and the customer gets it when promised. No one knows how much research and time goes into identifying appropriate suppliers, negotiating contracts, signing contracts, placing purchase orders, negotiating change orders, receiving goods, performing quality spot-checks, receiving invoices, matching everything, making sure the right goods get to the right locations, coding restock alerts / automated orders, handling returns (and ensuring credits are received and replacements arrive on time), handling switch overs when a new source of supply needs to be brought on, ensuring industry regulations are not violated, ensuring sustainability goals are met, ensuring there is no third party child labour in the supply chain (or anything else that could tarnish brand image), and so on. Hundreds, if not thousands, of hours have to go into making that “one click laptop replacement” work as desired.

Plus, in a well researched, planned, and smoothly executed supply chain, raw materials and components show up almost just-in-time (JIT) at the plant that is producing your goods. Then the boxes are waiting at the other end to package them, and as soon as the boxes are filled, the palletizer is there to pallet them. As soon as the pallets are full, the pallet jacks are waiting to load them unto the truck that just pulled up to take them to your distribution centers. Etc. Etc. Engineers don’t have to worry about raw materials or components being late or in insufficient supply. Loading dock personnel don’t have to worry about needing extra temporary storage as the trucks are there when the order is complete. Etc. Etc. Not only do they not have to worry about supply chain functions beyond their jobs, but your job looks like it’s the easiest job in the world because, like magic, everything (and everyone) is there when they need it. As a result, the better your supply chain runs, the less respect you get in an average company for doing a “hard” job because you make it look so easy.

That’s the supply management paradox, and one of the reasons many of us still don’t get No Respect.