Precision is Contextual, But How Can You Get Precise?

Late last year, over on the public defender‘s blog, Pierre Lapree penned a post that asked how many decimals of π does Procurement really need? In short, the answer was, it depends on the context — some situations don’t need very precise calculations, and others need precision down to 1/100th of a decimal point. In his post, Pierre notes that in some situations, like savings, rounding can be to the closest power of 10. In others, like RFP, rounding to the dollar is more than enough, sometimes the closest hundred or thousand is enough. But in spend analysis, sometimes you need to match those financial statements down to the penny to get it right.

But how do you do that?

Your data is a mess, across multiple systems, in multiple formats, with varying levels of detail.

The financial reports are typically created from spreadsheets, which, even though they were output from the organization’s accounting systems, are typically riddled with errors.

And any hopes of matching, despite the fact that each system should be the checksum for the other, are as fantastical as J.K. Rowling’s beasts.

So how do you get precise?

You get out of the data and into the real world. When you don’t know where you are in the real-world, you geo-locate. How do you do that? In today’s world, you tri-angulate your position by taking measurements with respect to cell phone towers and/or satellites and using mathematics to estimate your position as close as possible – the more readings, the more accuracy.

In other words, you take measurements. Lots of measurements. And correlate them. The financial statements are just one set of checks.

Another set of checks are inventory levels. You’re paying for physical goods — you should have payments and invoices for the majority of physical goods and vice versa.

A third set of checks is the accounts receivable system — every part or good that was bought for (re)sale should not only have a corresponding inventory entry but an invoice, and vice versa.

In other words, every enterprise system that tracks goods and services is a data point for correlation, and should be used as such. Don’t just focus on the dollars and cents, as trying to balance erroneous totals can lead you down the wrong path — use all the data at your disposal to get it right — and precise.

Seal Software: Breaking the Seal to Identify Contract Value

Seal Software is a provider of contract discovery and contract analytics software that is different than your standard CLM (contract lifecycle management) module built into your e-Sourcing or e-Procurement suite (which is designed to negotiate and track contracts, awards, milestones, and related documents). And unlike many CLM providers that just focus on Procurement, Legal, or Sales, Seal Software is designed to support Legal, Procurement, Sales, M&A, and IT — making it a fuller enterprise CLM solution than many of its peers. In fact, in large organization with tens of thousands of contracts, Seal Software is often used in conjunction with a traditional CLM solution.

This is because Seal’s strengths of contract discovery and contract analytics are quite unique. Seal’s contract discovery capability can automatically locate existing contractual documents wherever they may reside, automatically extract key contractual terms and clauses, and automatically populate other corporate solutions including Customer Relationship Management (CRM) and Contract Lifecycle Management (CLM).

The discovery engine can handle multiple file format types (text, doc[x], PDF, jpg, etc.) and work across local hard drive, network drives, file shares, and even cloud-based repositories — anything with a UNC path or API is accessible. It then uses advanced semantics and machine learning to analyze the contracts and identify the clauses and critical information that the organization has deemed to be of interest.

It does this by comparing all files discovered to standard contract templates and identified organizational contracts to find contracts. It then determines the type, category, and whether or not it is a (potential) duplicate. Finally, it runs all (unique) contracts through descriptor templates that identify and extract the clauses, terms, and date elements of interest.

But the power of Seal only starts at discovery. Once the contracts and elements are identified, the analytics solution not only allows the user to access all contracts that meet a specification or search; filter down based on timeframe, search, or other elements of interest; and create reports, but to also identify all contracts that contain clauses or terms of interest that were not previously of interest. If all of a sudden a new regulation comes into effect and the organization now has to determine whether or not all of its contracts are compliant with a new privacy requirement or contain clauses to ensure compliance. All the organization has to do to find all contracts with a relevant clause, paragraph, etc. is find a few contracts with clauses and sentences of interest, define any additional phrases or terminology of interest, and tell the system to re-process all contracts and it will find all contracts, structured or otherwise, that contain associated phraseology. The semantic engine can learn from examples and key-phrase definitions.

And the analytics can be used during negotiation and review too. The platform allows for the definition of policies that will auto-detect clauses and phrases in suggested revisions that can alter the intended meaning of the actual contract and bring them to the attention of the reviewers. It can also highlight contract areas using non-standard language or language identified by legal to be (high) risk. And this review can be done in the contract creation platform of choice. Seal’s newly released Analyze this Now capability allows links to be embedded that send the contract to seal which sends back a marked-up highlighted docx file that highlights everything of interest and concern. (In Microsoft Word, it’s a simple plug-in.)

It’s a very powerful solution for large (global) organizations that often have well over 10,000 or even 100,000 contracts that need to be tracked, analyzed, maintained, and negotiated in accordance with a plethora of business rules and industry (and government) regulations. When you consider that even enterprises with revenues below $250M have an average of 8,000 Procurement contracts (as per Aberdeen Group), most of which are not in the e-Procurement system (and not effectively managed and tracked), the importance of discovery and analytics cannot be underestimated.

For a deeper dive on Seal Software, and its capabilities, see the recent Pro series by the doctor and the prophet over on Spend Matters (Part I, Part II, and Part III) [membership required].

Swegways for Smegheads this Valentine’s Day!

Despite the fact that more and more natural resources are becoming scarce, there are still quite a number of smegheads that haven’t adopted the 3Rs.

Up until now, it’s been quite perplexing as to how we can deal with this problem.

However, after catching up on the public defender‘s blog and reviewing the 10 cautionary supply chain tales of christmas, we think we have a solution!

Since these smegheads often feel entitled (after all, they are taking the environment for granted), play to that entitlement and give them a free Swegway hoverboard and tell them they deserve it, that they shouldn’t have to use their own two feet to get around. And when the Swegway goes up in smoke, chances are, one way or the other, they’ll get the message. ;-)

the public defender’s five principles of sourcing … (Part II)

… and why you need to understand them if you want to source better.

Over on Spend Matters UK, the public defender recently gave us the fifth in his Five Principles of Sourcing. Designed to mimic the philosophies that underpin many of the biggest and best firms in the world, the public defender‘s five principles were designed to inform good practice that is fundamental to procurement success, regardless of vertical, region, or category.

Yesterday, we discussed the first three principles: Coherence, Openness, Rigour. Today we continue where we left off.

Alignment

Alignment covers both alignment to stakeholders and to the market. Sounds obvious, and there will be few procurement professionals (we hope) who don’t understand the need for stakeholders to be signed up to and involved in critical sourcing and procurement activities. But on the market side, how often do we try and source something that isn’t really what the market can best supply?

True success is not saving money, consolidating SKUS, consolidating the supply base, or increasing supplier performance measures — true success is meeting the needs of the stakeholders *while* doing all of the above. Remember, Supply Management’s job is to support the organizational goals, not it’s own … and true success is satisfying stakeholders (and helping them satisfy end customers).

Commerciality

Everything we do must come back to being “commercial” — looking to achieve benefits and competitive advantage for our organisations through putting in place and managing effective “commercial” deals.

Even non-profit organizations are in business to generate “profit”. The only difference is “profit” is defined as excess revenue (beyond what is needed to cover expenses) that can be put towards the intended purpose of the noon-profit (such as researching a cure, sheltering the homeless, or spreading the word). Thus, the end goal of the event is to minimize the cost necessary to achieve the stakeholder goals and have money left at the end of the day to do “more”, whatever “more” may be. That’s how competitive advantage is achieved, more value for less outlay.

In other words, if you fail to embed one of these principles in your sourcing event, you are not going to extract the value you should … and may even do worse than just spot buying on the open market or leaving every organizational user to fend for herself. For example:

If the process is not coherent, you might get the best possible deal on ink cartridges, but not realize that IT has included free replacements of all the inkjet printers with laser printers as part of their big server buy that they did internally because your team just didn’t have the technical chops to digest the overly convoluted specs provided by the potential vendors.

If the process is not open, you might save 2% on the same old, same old steel parts buy, but not realize that 40% of the cost is in the overhead because the supplier is still using bending and punching and not new laser cutting techniques that the supplier down the street is using to reduce overhead to 20%, which means that 1/5 of the cost is up for negotiation!

If the process is not rigourous, incumbents can be allowed to negotiate away awards that were fairly awarded to new suppliers in return for shady promises of cost reductions on future events, free trips to vendor learning days, and so on. This takes you down a slippery slope that not only puts your ethics in questions, but the value you delivered, as maybe the incumbent lost because they were charging more for what has become an inferior product or service (as competitor offerings improved since you first picked the incumbent).

If the process is not aligned, then you’ll get a great deal on a great product and deliver a huge value … no one wants. As a result, the stakeholders will just buy off contract at higher market prices because there will be inflated demand (as a result of contracts not being adhered to which reserve inventory). Without alignment, no one wins. Ever.

If the process is not commercial, you’re missing the point. Supply Management is about more stakeholder value for less outlay than would otherwise be made without Supply Management. (Not necessarily less than last time. If market prices increased 10% but Supply Management kept increases to 5%, that’s less outlay than the org. unit would have done without Supply Management’s involvement if it was historically buying at market.)

In other words, heed the five principles well. And download the public defender‘s white papers (registration required) for more insight.