Spend Rappin’ … The Sequel

Now don’t you give me all that JIVE about code I used before you’s alive
Cause this ain’t nineteen ninety five — ain’t even two thousand and five
Now I’m the guy named Lamoureux and Spend is the one thing that I know
So every year, in summer time, I’ll celebrate it with a rhyme!

Gonna save it, gonna shave it, gonna make it good,
Gonna take it all down through your neighbourhood.
Gonna wring it, gonna sling it till it’s understood.
My rap’s about to happen, like the knee you was slappin;
Or the toe you been tappin’ on a hunk of wood.
‘Bout a two fisted dude, with a friendly attitude
and a sack full of savings for the people on the block.

He’s an old grey beard, maybe looks kind of weird,
and if you ever seen him he could give you quite a shock.

Now people let me tell ya about this guy
the dude who’s still slicing spend through July
Now his wit is out, his gloves on the ground,
best you stay to watch him cut it down.
When this dude gets to work on your spend block,
you will be glued to just one spot,
as the master works at a solid pace,
…
get a taste of the waste thrown in your face.
…
this old spend slayer will lay down a heavy layer
of his spend mapping rhythm to a cross-mapped beat
he don’t need no database, just a chunk of spend to trace
and a family of vendors that will roll up neat

I was in a quiet mood, which was good for a brood
as not a sound did abound as he ploughed through the mound

and you will utter a gasp as he slices through the past
lays your mav’rick spend bare faster than a white hare
while you’re up in the attic dealing with the static
that your current spending tool is programmed to give
he’s got an all new app that don’t give a cr@p
about where your data’s from or what form it is in

It’s quick, it’s sharp, and always on the mark
Delivering success on his chinny, chin, chin
it does away with “cubes”, and OLAP attitudes
and treats the spend as a set to be mapped on whim
He’s cool for a fool throwin’ out every rule
every hour of the day when the hot sun shines
Though the beard was-a cleared, I still have never cheered
like I did on that day when he discovered cloud nine

You know I’m right, your spend’s a fright
you need a guide to help you lay it out right
So if you ask him nice, once or twice
he might just show you the hand of sleight
How he syncs disparate data in real time
Whether ERP, Flat File, or API
Without AI or one hundred thousand rules
At a speed that’s so fast, no time to drool

When he gets down to work, this fine old gent
Whips up live reports that are heaven sent
Built on cross-linked filters that stay in sync
As he cross-drills down through multiple data sinks

There are just no words that are fit to describe
How this expert makes your data come alive
The tricks he employs are out of the realm
Of what you will get unless he’s at the helm
You’ve just never seen spend insight like this
When you map your data with his clever twists
Your old Ford engine is now a Mercedes AMG F1
The power at your fingers is second to none

This old spend dude never left the keys
up late till all’s where it should be
But if he were posting here today
he’d say Truthful Spending and to all a good day!

Long time readers know that Sourcing Innovation used to have a Spend Rappin’ holiday tradition until Opera Solutions Acquired BIQ. But even that couldn’t stop the old spend dude, who, after some time off and some contemplative thought, got back to the keys and came up with a whole new approach for do-it-yourself spend analysis that is really so easy your grade schooler could do it (and, sadly, probably do it better than you).

If you haven’t checked it out yet, check out Spendata. As per the doctor‘s deep dive over on Spend Matters (Part 1 and Part 2, registration required), it really is a leap forward in D.I.Y. Spend Analysis. Easy creation and propagation of views using a new concept called filter coins, no more static reports (as every view is a report that can be exported at any time), and no more traditional time-consuming ETL — map, cleanse, enrich on the fly, in real time, in any sequence you like, across any data sets you like, and cross-join and sync ’em all using whatever scheme makes sense to you. Nonsense you say? All we can say is this isn’t grandpa’s spend reporting tool.

It’s Christmas in July. Hence our new Spend Rappin’ tradition begins!

Is Your Organization Serving the Right Market?

If your Supply Management organization is part of a global multi-national, chances are that it has been buying from China and selling to the U.S. for years. And, for a few of you (in heavy machinery, luxury goods, etc.), chances are that your Supply Management organization is producing Made in the USA goods and selling these to China. But should it be?

Ignoring the fact that rising costs in transportation and production (due to raw materials and the inevitable rise in labor wages) coupled with the decline of the US dollar often make sourcing close to home (in Mexico) or, when possible, at home cheaper than off-shoring, especially when quality and risk-related costs are taken into account, now that Trump has brought back the trade wars, much of those savings are flying out the window faster than a Peregrine Falcon diving for its prey. (If you’re not sure how fast it is, Google It .) So, as we have been posting recently, you really need to rethink your global supply chain (and possibly look to Russia, Turkey, etc.).

And, despite the headlines being made over the move, look to copy Harvey Davidson and shift production of certain goods (closer) to the primary markets they are being sold in. (Bureaucrats can threaten higher taxes all they want, but unless laws are passed through both houses and signed by the President for the tax category they are in, nothing can be done. And as long as the move doesn’t change the structure of the company, the only result will be a lot of hot air and wasted words and a temporary drop in stock price. In other words, don’t move all your production out of a market, especially if you are selling in that market, or even the majority, without checking with your accountant and lawyer first.)

Because, if you buy and sell in a market, there are no import or export tariffs, and the way the trade wars are going, this is a big savings and an opportunity to claim more market share if you can sell an equally desired, equal (or better) quality product for a lower price due to a smarter supply chain design that keeps your costs down. For example, I don’t think anyone in Europe would mind if Harley said it was staffing its European Facility with German and Austrian trained Engineers but keeping the authentic American designs. In fact, the bikes might even become more desirable as German and Austrian Engineers are often seen to be the best in the world.)

And if you’re selling overseas, especially to China, producing overseas, or in China, makes sense. We don’t often think about it, but, due to population and wealth (around 15% of GDP now), China is the world’s largest consumer of automobiles, motorcycles, mobile phones, luxury goods, and shoes and at least the world’s second largest consumer of home appliances, consumer electronics, jewelry, and the internet (based on data that is a few years old, but all trends were rising). Thus, if you are in any of these industries, why not produce in China for China?

Remember the facts. China, which is the world’s second largest economy, is approaching 1.3 Billion people and an emerging middle class flocking to urban areas. A recent McKinsey & Company study had over two thirds of the Chinese population as middle class and predicted three quarters would be by 2022. And about 56% of the population has internet access, with most of these individuals having broadband access in their densely populated urban centers. In fact, China is estimated to have close to 100 cities with a middle-class population of 250K or more. The US and Canada combined have less than 70 such cities.

And India is growing. It’s GDP is now almost half that of China’s. And while it’s middle class population isn’t nearly as large yet (as it has almost as many people as China), at about 21%, or 270 Million people, that’s still at least 50% more middle class than in the United States!

And South Korea’s GDP has more than doubled since the turn of the millennia. In fact, an article from 2015 predicted they’ll have a better standard of living than the French by 2020, with an adjusted GDP per capita (PPP-adjusted) heading towards 50K. Right now, the average annual household income is 48K, which is only 20% less than the median household income in the US! At presents, two thirds of their households are middle class, the average household has one child and dual income, and both earners University educated. Talk about consumer marketer’s paradise!

In fact, when you look at all of this, maybe you should just relocate your company to Asia, make the US a subsidiary, streamline operations to produce just what you need for NA in NA, and focus on Asian growth. Seems to make more sense, doesn’t it?

Not All Consulting Advice is Good, And Their Understanding of Tech Varies Wildly!

In yesterday’s post we pointed out you need to be very, very careful what advice you take from consultancies, large and small alike, who aren’t really expert in modern Supply Management processes, best practices, and technologies.

Yesterday’s post covered a recent piece (from a mere two months ago) on Sourcing and Purchasing Transformation that provided such bad advice for weathering the rough seas ahead that we were serious when we said the advice was equivalent to sailing right into the heart of the Bermuda Triangle in the middle of a category 5 hurricane! Maybe the advice was good in the 80’s when everything was home or near-shored, innovation was slow, the economy was more stagnant, and cutting cost to the bone was the only way to survive. But that was then. This is now. Three decades later. And anyone still peddling that advice in today’s fast moving, outsourced, global economy is seriously out of it (or trying to create more work than they can handle by putting in peril any supply management organization that actually takes that advice).

But we digress. Today’s rant is about the Big 6 / 8 and their dangerously low understanding of S2P technology and their unfounded (and unfathomable) belief that you can somehow measure capability and/or innovation based upon market value, customer count, or investment dollars.

For instance, the doctor was just sent a brand-new paper by ATK on The Future of Procurement Technology and how Mediocrity is No Longer Acceptable (and it is NOT) by the way, where they correctly noted that

  1. Today’s Procurement Technology is a Failure
    which it generally is as most solutions that have been implemented don’t give a full view of spend, don’t address many of the day to day needs, and, frankly, just don’t work
  2. Suites are Problematic
    as most are built through acquisition and all the components don’t really talk or sync
  3. Most solutions are archaic, rigid, and poorly thought out
    and push users into the wrong decision and
  4. A revolution is coming

… but not all fighters are created equal!

In particular, they name eleven (11) companies that represent the most current and advanced technologies, but their is almost no comparison between the extremes they represent.

For example, even though Scout has the fourth largest investment raise of all the companies listed, it’s one of the weakest offerings in the list. And even though LevaData is one of the lowest raises, it’s one of the strongest offerings.

And while you can barely compare the likes of Scout and Bonfire (traditional e-Negotiation based Sourcing with a much better UX than last generation systems), who have the lowest solution scores on the (deep) Spend Matters Sourcing SolutionMap, to the likes of LevaData, Suplari, Supplier.ai and Xeeva (who are bringing in the era of Cognitive Sourcing and Procurement), there’s just no comparison to the likes of tamr (with its advanced machine learning capabilities for which there are few equals) and Concord (which is in the field of contract automation).

Plus, when it comes to contracts, consider what the likes of Seal and Exari are doing. Moreover, when it comes to analytics, don’t discount Coupa AI-Classification (formerly Spend 360) or AnyData. And why are there no true optimization vendors on the list like Coupa CSO (formerly Trade Extensions TESS) or Keelvar, that is trying to apply AI to true optimization-backed Sourcing. And when it comes to Supplier Discovery, Supplier.ai is one option, but Tealbook is another.

In other words, they have some names. They have some investment figures. They have some insight that each is doing something different, that each is trying to revolutionize something about the industry, but no real insight into what the core of the difference is or the strengths they bring.

And while this may not seem too dangerous, as they aren’t really reporting each is equal, just that each is revolutionary, in the hands of a half-wit, or even worse, someone with an incomplete understanding of tech and best practice, they could take this as a guidebook to the best vendors, and, in the end, select the absolute worst vendor for them. One has to remember it’s not just about revolution, or even evolution, it’s about the platform that solves the Procurement department’s greatest needs. Today. And when the needs are met, the platform that offers the greatest flexibility and power for the organization with respect to their goals.

5 Sure-Fire Ways to Sabotage Your (Competition’s) Supply Management Operation

Sometimes the only way you can do better is if your competition does worse. It’s sad, but true. To this end, a colleague of mine forwarded me a great piece on Procurement Transformation on 5 surefire ways to devastate a supply management operation. All you have to do is convince your competition to take this advice, and down they go!

Clearly labelled “Step 3: Run down” at the end of the white paper, these tips and tricks will do exactly that … run down your (competition’s) operation straight to the ground. A tanker filled with kerosene wouldn’t get the job done any faster. These tips were so great we can’t help but share them.

1. Aggressively trim smaller vendors to consolidate the
supplier base by each category in order to increase
negotiating leverage and press for lower rates.

Yes, increased volume and category consolidation can often extract better prices from the suppliers large enough to supply the volume and/or breadth of products needed to get the volume, but it comes at a price. Less suppliers to pick up the slack if the primary, or sometimes single, supplier fails due to a plant accident, natural disaster, or government shutdown. And failure will happen. Your chance of a major supply disruption not happening in the next 12 months is less than 10%. But hey, you always beat the odds. And you don’t need innovation, right? After all, if you wait long enough, the big bloated supplier will buy the little guy that comes up with the innovation if it is needed, right? (And it is always the little guy who comes up with the innovation, but that doesn’t matter, right?) The new economy runs on innovation, but your big clients are slow to move, and your suppliers should be just fast enough, right?

2. Institute a ‘champion/challenger’ model for all key
categories with 70 to 80% of the business going to
the champion and the remainder going to a single
challenger. This will keep both parties hungry. The
champion and challenger should also be rotated
periodically, though not too often as business
disruption is also costly.

Well, this eliminates the risk of one supplier right? And flipping will definitely keep them hungry. And they won’t be p1ss3d that every few years you just snatch 60% of their business because “it will make them hungrier”. We’ll ignore the fact that they must have been pretty damn hungry to sharpen their pencil and submit the lowest bid even though that meant that their sales people probably didn’t get the commission they expected, and aren’t happy. So yeah, make them so hungry they’d rather eat your competition’s handout.

3. Search for new suppliers and give new suppliers a
chance to prove themselves if the pricing is better
than the incumbent. Potentially try a new vendor
as the ‘challenger’ (or as a second ‘challenger’) to
balance disruption with cost savings.

This is probably the suggestion you share first when trying to discreetly bring your competition from the ground. Third challenger is a good idea, except when the challenger is brought in purely for cost savings. And then even less of a good idea when the category is one that doesn’t need much innovation. After all, why waste a good idea on a good implementation.

4. Execute a ‘cost-to-price’ initiative. Assemble a cross-functional
team to help quickly understand the
direct relationship between input-cost inflation and
necessary customer price increases to maintain or
improve product margins. For global companies,
this should be done on a country-by-country basis
with key performance indicator heat-maps to ensure
proper indexing of price inflation.

It’s all about price after all. Who cares about quality, reliability, or even form and function that a customer actually wants. And who really cares about innovation after all — choose a supplier that lets someone else do it and then just copies it to the extent legally permissible. It’s good enough, right? And, of course, ignore the fact that all the lowest cost suppliers will be overseas and require complex supply chains to make your good and even more complex logistics chains to get your goods to your customers. That’s just details.

5. Hold a supplier conference in which the
suppliers are given indicative cost reduction targets
and asked to come and present to the company
their ideas. This demonstrates a commitment
to the relationship and working together to solve
pricing concerns.

After all, every supplier loves a beat down, right? They love a hard-nosed negotiation customer who only cares about cost, cost, cost. Who doesn’t respect their innovation, quality, reliability, and overall effort to bring the product that’s the best overall value, not just the lowest cost.

Combined, it’s a sure-fire powder keg that, when lit, will burn your operation to the ground. It definitely is a run down …

Oh wait, it’s not run down, it’s run downwind and it’s step 3 in a course designed to sail through Rough Seas Ahead for Procurement … and it’s meant to help your organization sail in heavy weather!

EEEK!

I can’t think of any advice that would be worse. They’re basically telling you the only way to combat the rough seas ahead is to sail right into the heart of the Bermuda Triangle in the middle of a category 5 hurricane!

YIKES!

Do they truly hate their readership? Or, as a consultancy, are they trying to increase the number of companies that will be in dire need of consulting help? Because any company that follows this decades old advice, which might have worked in the 80s [when everything was home sourced, innovation was rare, and margins were fat] will definitely need help after trying this!

Can we stop calling cost avoidance “soft savings”?

Today’s guest post is from Torey Guingrich, a Senior Consultant at Source One, a Corcentric company, who focuses on helping global companies drive greater value from their expenditures.

I’ve heard it time and time again “we don’t count soft savings” — which at times translates to “we don’t consider value beyond unit cost and volume reduction“. In recent years, many companies seem to have taken an overly broad definition of soft savings to include cost avoidance, budgeted-cost reduction, and other ways that Procurement adds value to the organization through their sourcing and negotiation efforts. Much of the work that Procurement does isn’t just reducing costs on recurring purchases, and what we consider a strategic partner from a sourcing and procurement standpoint, is helping business units to source and put in place solutions that meet their evolving needs.

So should Procurement not get any “credit” for this work?

Below are a few scenarios where Procurement professionals may struggle in quantifying savings/impact and where the bottom line cost may actually see an increase (gasp!)

New Recurring Purchases: When a new need arises for a department, Procurement can add value by helping to support the requirements definition, RFI and eventual RFP process — this is where Procurement’s role is to help business users understand the options in the market and make the best-fit decision based on their needs. Consider an organization that is growing and needs to implement an applicant tracking system to better manage their recruitment process. This is certainly a process improvement measure to better the recruitment process for the HR department, hiring managers, and the applicants themselves — but one that is not going to yield a tangible cost reduction result (and is going to add a new expense to total cost).

Should Procurement not support the RFP to put the solution in place because they cannot quantify the process improvement or completely offset the new expense?

Capital Purchases: Organizations typically define a capital plan for the year based on upcoming large-scale purchases. For instance, within the Facilities spend category, there are a number of systems that get replaced infrequently, but that represent a large financial outlay. Say an organization is looking to replace the HVAC system at a given facility or perhaps changing the doors at a warehouse — these are both scenarios that should have some degree of competitive bid associated to ensure the project is cost competitive.

Should Procurement really be comparing proposed pricing to the cost paid 10 (or more) years ago or not support the effort because there are no “hard savings”?

Increased Volume: As organizations grow, or most obviously, as they increase production, their volumes associated with direct and indirect goods will scale to some degree. Procurement may have negotiated a great deal on electricity price per kWh in the deregulated market, but once production ramps up your total electricity cost is going to increase.

Should Procurement not bother negotiating a price reduction because the total cost will increase anyway? Note, this is probably the most extreme view of “soft savings”, but is something that Procurement should align on with Finance to ensure savings are being calculated based on unit cost reduction against actual volumes!

Dynamic Requirements: Plenty of categories are driven by constantly changing requirements or where similar services may be required, but the specifications drive the cost. Commercial print is a common area for this — the print needs of an organization may be driven by their specific campaigns, events, or one-off marketing needs. Print costs don’t get broken down into the cost per coloured pixel — they are made up of various specs that come together for a complete need.

Should Procurement not support an RFP for a large scale print campaign because they can’t count savings or be forced to measure outcomes against different specifications?

Market Changes: Certain products and categories within direct and indirect spend are more prone to price fluctuation due to the raw materials that make up the final product. Take packaging for example — due to some of the extreme weather scenarios in 2017, we saw many packaging suppliers pushing increases on final product given the rise in the pulp and paper costs as the supply market was impacted. Many times these increases were mitigated or minimized through negotiation, but that did not actually result in reduced unit cost.

Should Procurement not negotiate with these suppliers or in these markets because the mitigated increases “don’t count” or wait for the cost increase to be billed just to show tangible savings?

I hope you’re all yelling a collective “no!” to these questions, but so often ideas like cost avoidance or reduction from first proposal are written off as “not real“. Understandably, as a Procurement organization looks to build its credibility within the organization and invest in new talent and solutions, hard-dollar cost reduction tends to be a big focus. But once the group moves from a tactical to strategic approach and supports business units in managing their suppliers and sourcing events, the way value and results are measured needs to reflect this changing dynamic. For the scenarios above, maybe it’s measuring impact/value from the average of bids received, or from first proposal to final value, or coming up with a NPV for that HVAC system from 10 years ago — Procurement should define the methodologies for these common scenarios and define for finance and leadership how they will be capturing value and what it means to budgets and bottom lines.

If we expect Procurement to support the evolving needs of the organization, then we must also evolve the way that Procurement and the broader organization as a whole sees and communicates the value of the sourcing and negotiation outcomes from the Procurement team.

Thanks, Torey.