It’s Been Four Years Since I Told You About The Procurement Damnation of Project Management …

… but what has your vendor done to abate it? There’s a reason that the new iteration of Spend Matters’ Solution Map, designed by the doctor, has two subcategories dedicated to Workflow and Project Management (and two other sub-categories dedicated to Data and Document Management) … and that’s because of the importance of project management to your sourcing and procurement efforts.

Remember, while project management works good with the physical world, it doesn’t work so good with the virtual world. For example, where software development is concerned, there is a rough definition of what is desired, but the beginning and end is a best estimate that is no more accurate than a wild guess in some cases, the resources required (while defined as software architect, developer, network specialist, etc.) are not well understood (as a non-skilled software architect cannot define what makes, or identifies, a good software architect), and the amount of money required is relatively unknown (due to uncertain work effort requirements, unknown support requirements, etc.). And that’s just software.

When it comes to supply chain, the difficulty is intensified. There’s the management of the sourcing, the management of the negotiation and contracting cycle, and the management of the procurement. But before that, there’s identifying the right supplier, which requires detailed understanding of the product technical requirements and the supplier production capabilities. There’s identifying the expected costs, based upon understanding material costs, labour costs, energy costs, tariffs, and overhead. There’s managing the supplier relationship. There’s dealing with disruptions and disasters. And taking corrective actions.

Most supply chain projects don’t have well defined beginnings, or endings, or static workflows. There’s no one-size fits all and the platform needs to be able to adapt.

But even before we get to workflow and adaptation, we first need the ability to define a project and a workflow to support it – be it a full strategic sourcing project with supplier discovery, supplier selection, multi-round RFI, and online negotiations; a simple 3-bids-and-a-buy RFI for a services engagement; an automated auction for regular MRO purchases; a deep optimization project for multi-national transportation or services; a regular catalog buy for a regularly occurring purchase; etc.

How many platforms can define an appropriate project? They all have the capabilities, but in many platforms that’s it. You can’t define a workflow. You can’t capture basic category intelligence. Everything is one step at a time, where the steps can only be performed by an experienced platform master. You can create an event, and then do stuff in the event, but you can’t abstract the workflow, just copy it and edit it for next time.
And if you need a new workflow, you need to create a new event.

Even four years later, only a few platforms have any real semblance of project management, and that needs to change. But will it?

(If it doesn’t, at the very least the platform should integrate with a project management workflow tool like Per Angusta which was built to do precisely this and integrate your disparate best-of-breed Sourcing and Procurement modules into a unified platform with workflow and project management.)

Don’t Forget The Big Four Questions to Ask During Any Mega-Acquisition

Four years ago, during the last big M&A Frenzy, SI published a post on The First Four Questions to Ask During Any Mega-Acquisition, that is still just as relevant today as it was four years ago.

And while it was direct, it’s a good idea to be direct because sometimes you need to let the vendor know you’re not in the mood for any shenanigans and if they bought your former vendor for the sole purpose of playing such shenanigans with you, you’re ready to walk (and execute that change of control agreement in your contract tomorrow).

1. How will you screw us over on price?

As we said before, every acquisition brings with it the promise of economy of scale and lower price, but it typically takes years to understand and take advantage of platform overlap, redefine responsibilities and organizational boundaries, and identify staff re-assignments. And since, in the interim, change management experts, process consultants, and other resources need to be brought on board, overhead goes up and costs go up accordingly.

Or, the mega vendor bought your vendor just to retire its solution and migrate your vendor’s client base to its more expensive solution. Even if the solution is superior, it’s not necessarily superior for you and you don’t necessarily want it or the higher price tag.

2. How will we get screwed over on quality of service?

As we said before, the biggest fish in the combined company gets the best resources. And even if your current organization was a big fish in the old company, that does not mean your company will be a big fish in the merged company. Your company might just be a medium sized fish that gets the “B” Team, if it is lucky.

The fact of the matter is your current support team could be re-assigned or let go, the new team might not know anything about your solution, and without the current team your service levels might not be met. And make sure to point out the service levels the new vendor is committed to during the conversation so both parties can be on the same page about expectations from day one.

3. How will we get screwed out of innovation?

As per our last post, will the merged company continue to develop the platform your company is dependent on or will you remain locked in to a multi-year deal as the technology platform you bought withers and dies?

If the company is not going to support the platform, make sure that they are aware of the “full data export in standardized format” clause you included in the contract (and that you expect it to be honoured when the time comes) and that you expect full integration support so you can augment what you have where your platform is lacking.

4. What new and interesting ways will we get screwed in the future?

What additional layers of complexity and confusion will the new, combined, legal team try to weasel into the contract renewal and how will that bite your organization in its backside down the road?

Longer contractual terms? Non-disparagement clauses? No ability to discuss platform shortcomings when trying to find a best-of-breed solution to plug the holes. No ability to buy a non-vendor module when the vendor has one. And so on.

Not every mega-vendor is out to screw you, but make sure from day one that they’re not and that you are on the same page.

And yes, this is confrontational.  But sometimes you have to stand up for yourself.

How Much Unmanaged Tail Spend Should You Have?

It’s hard to say, but it should be a lot less than you do. In most organizations, “Tail Spend” is 20% to 40% of total spend that should be managed by Procurement, but isn’t for various reasons.

It includes a whack of spend that includes, but is not limited to:

  • one-time buys for a new hire
  • short term buys to replace supply lost to a supply chain disruption
  • temporary services
  • one-time buys for a trade-show or event
  • one-time MRO buys for replacement parts
  • “small” purchases for recurring orders under a certain volume or cost
  • etc.

But how much of there really deserves to be there? In theory, none of it, but in practice, some of it will always be, but it should be less and less as time goes on … and certainly a lot less than 30%.

Why?

Let’s start with the above:

  • one-time buys for a new hire should be a standard kit, which shouldn’t change more than once a year, and since volume can be projected based on hiring patterns, any significant spend is good fodder for, and should be, either a sourcing event or a pre-negotiated catalog-based buy
  • if proper sourcing was done for a critical part or item, then it should be easy to switch supply to the secondary supplier with only a minor disruption
  • temporary services that recur should also be on a master contract that should be strategically sourced
  • trade-shows and events costs tens of thousands these days; if you’re holding the event, you should have an RFI to select the most cost effective venue and most of the items you buy are in bulk and should be auctioned or 3-bids-and-a-buy sourced
  • replacement parts could be put on a master contract when you buy the equipment that you know will need replacement parts; you can define a max price and have the option to buy or go to a third-party if a third-party alternative comes along in the future and have the spend at least partially managed
  • just because volume is only a few thousand or spend is under 100K or 1M does not mean the category shouldn’t be sourced; if there’s 15% overspend that’s 15K that could be captured even in a simple event that might only cost 5K of resource time or 150K that could be captured only in 15K of resource time; and if 2/3 rds of that could be captured by automation (automated auctions, etc.), why not?
  • etc.

The reality is that you should not have very much tail spend.

Twitter (Repost)

Originally posted eleven years ago today.  Nothing has changed.

To the tune of Strutter by KISS.

I know a thing or two about it
I know it’s only for the brief
It lets you send texts to the masses
As long as you can speak in tweets

Everybody says its looking good
But I know they’ve misunderstood
Twitter

It claims to be web 2 point zero
But I know its just web point one
You send a text and it says maybe, Nero
Then the next one causes Rome to burn

Everybody says its looking good
But I know they’ve misunderstood
Twitter

I know a thing or two about it
I know that it’s not for the wise
Spend your whole life speaking sound-bites
Like celebrities high as a kite

Everybody says its looking good
But I know they’ve misunderstood
Twitter
Twitter
Twitter

Visibility is Key to Managing Suppliers

For the first part of this week, we have been talking about the significant overlap between sourcing and supplier management and the necessary platform elements needed to support both. Key elements included performance, relationship, and risk management, because all are necessary for sourcing and supplier success.

Spend Matters recently ran a 3-part series on a sub-set of the issue, based on a recent interview with Ecovadis, that talked about how Visibility is Key to Managing CSR Risks in Indirect Spend (Part I, Part II, and Part III). But visibility is needed for more than just addressing risks in indirect spend. It’s also needed for addressing risks in direct spend.

Direct spend has all the same risks, they just aren’t one step removed through an intermediary. And you have to trace all of the products down to the raw materials to identify not only in your supply base, but your supplier’s supply base, their supplier’s supply base, and their supplier’s down to the mine, the farm, or the harvester.

But it’s not just the suppliers you need visibility into, it’s the environment that surrounds them. After all, a natural disaster can cut them off. An economic downturn can render them bankrupt if the currency they do business in (and keep the majority of their cash on hand in) crashes. A geo-political uprising can cut them off at the border. A port strike can cut off their primary shipping routes. And so on. You need a full 360-degree view around the supplier to ensure success.

But how do you get that? You can’t watch everything everywhere, and when you consider the extent of the global supply chain, you almost have to.

That’s why it’s key to have a platform that can integrate with 3rd party sources as you will need to integrate dozens, if not hundreds, of data sources to keep on top of all of the data you need to populate the models to evaluate and track the risks.

And that’s why two of the key elements we look for in a platform are integration and dynamic data model extensibility. You never have enough data. Without the right data, you don’t have the visibility, and that’s key to success. Or at least to preventing major unexpected disruptions.