So You Need a Sourcing Platform That’s Next-Gen To You. Where Do You Start? Part II

In our last post we noted that there’s no single right answer or easy answer here. It’s very situational. We also noted that some consultants will always tell you to start with Sourcing, while others will tell you to always start with Procurement, even though it will often be a chicken and egg situation. You need to score big wins, and that requires Sourcing. But to pick the right categories, you need good data to analyze, and that requires Procurement. But that doesn’t take into account that sometimes the best starting point is SRM or CLM for an organization where the most benefit can come from supplier development (because the organization is locked into strategic suppliers) or CLM (because compliance is key to cost, and brand, control).

So where do you start?

It’s very situational dependent, but your biggest issue should drive it. So if you think your biggest issue is that:

  • you can’t do enough sourcing events

    start with e-Sourcing

  • you’re events are generating limited returns

    use decision optimization with extensive models that factor in all known direct & indirect costs and even costs of capital

  • you can’t find the right suppliers

    start with a modern SRM platform that integrates with a true supplier network for granular supplier discovery that takes a plethora of business needs into account

  • you have to (quickly) ensure compliance with a newly introduced regulation

    start with a CLM platform with embedded semantic-based / deep learning analytics that can quickly scan thousands upon thousands of contracts and determine those in compliance, those not, and those that need to be manually reviewed (due to the presence of non-standard clauses, enforcements that appear to be country specific, etc.)

  • your over-spend, and need for audit recovery, is too high

    start with an I2P solution with m-way matching (contract, PO, Goods Receipt, etc.)

  • your maverick spend is too high

    start with e-Procurement / P2P with an embedded catalog (with visual-guilt driven guided buying), flexible requisition & approval processes, and no-PO / no-Pay enforcement capability

  • you need to get your services spend under control

    start with a Sourcing platform with a VMS/CWM module or a VMS/CWM solution that can integrate with a BoB S2P solution

  • you are unsure of where your best opportunities lie

    start with a modern spend analysis solution with integrated prescriptive analytics that can go deeper than just top N

In other words, you let the issues drive the starting point. After all, we all know what happens if you try a big bang implementation and take on the entire extended S2P process at once … the project goes up in a big bang and you risk ending up as one of the top supply chain disasters of all time (especially since everything will need to talk to the ERP)!

So You Need a Sourcing Platform That’s Next-Gen To You. Where Do You Start? Part I

There’s no single right answer or easy answer here. It’s very situational.

Some consultants will always tell you to start with Procurement because:

  • you get manpower and transactional savings immediately
  • you will get the majority of your spend properly categorized in ONE system (which will enable better spend analysis and opportunity selection later)
  • you will stop overpaying and duplicate paying invoices with 3-way matching and reduce recovery requirements
  • you will reduce cycle times and be able to take advantage of early payment discounts
  • and so on …

Some consultants will always tell you to start with Sourcing because:

  • you can invite and compare more supplier bids with modern RFI tools
  • auctions are a great way to realize a quick category price reduction
  • timeline reductions allow you to source more spend
  • portal-backed SIM makes it easy to keep track of suppliers and contacts with up to date information
  • etc.

But this doesn’t take the chicken and egg situation into account.

  • you can’t identify significant savings without a modern optimization-backed platform-backed sourcing solution that allow you to identify new opportunities, which means you need to start with a Sourcing platform if you need savings fast
  • but you can’t identify the best categories without good data, which is captured in a good e-Procurement/P2P system, which means you need e-Procurement to capture the data you need to identify the right opportunities (using spend analysis in the sourcing platform)

Or the fact that the biggest savings opportunity for your particular organization might be a best-of-breed niche SRM or CLM solution due to your biggest savings opportunities lying in supplier development or compliance.

So where do you start? Stay tuned for Part II.

For Those Who Recently Adopted Sourcing, Start Thinking About Next Generation Sourcing Now!

SI has been about next generation sourcing since the day it began. No matter how good you think you have it now, it’s not good enough. Why? Most of you are still on last decade’s sourcing platforms which, especially if you never had anything like them before, is a great start (and maybe beyond your wildest dreams if you were in e-mail and spreadsheet world), but not good enough. What you are going to find out, as SI told the Procurement leaders seven years ago today in its post on Next Generation Sourcing, all good things come to an end.

As we noted for those of you with first generation and early second generation systems,

  • Once you institute RFX, the manpower savings from automating bids can only be claimed once.
  • By the time an organization gets to the third auction, there are no more savings to be had as the fat from supplier margins has been squeezed out.
  • Once the allocation has been optimized across the supply base in a way that minimizes unit costs, transportation costs, (interim) storage costs, etc., re-running the optimization won’t lower costs further unless something changes — such as the identification of a new supplier, an alternate material (that is cheaper), additional demand (that increases the economy of scale), or a more powerful optimization model is provided.
  • Once contract management and monitoring is put in place and no invoices are paid that are not for delivered, defect-free products, at contracted rates, there is no little on-contract leakage to be stopped.
  • Once controls are put in place to stop off-contract purchases that should be on-contract (through integration of the e-Procurement system with the Contract Management system), there is no little off-contract leakage to be stopped.
  • Once spend analysis has identified all the opportunities, the savings won’t actually materialize until something is done about them. This something cannot be appropriately identified unless the appropriate information is available to the knowledge worker

And, more importantly, for those of you with later second generation systems:

  • Once a SIM with a powerful supplier portal and information / (compliance) documentation monitoring and alerting system is put in place, there is no additional time savings from information maintenance offloading.
  • Once a SPM which automatically collects organizational data and metrics is put in place, there is no additional time savings from automating supplier scorecard production.
  • Once a SRM with proper corrective action requests / corrective action monitoring and integration system is put in place, there is no additional time savings from quick-and-easy semi-automated resolutions.
  • Once an audit recovery system is put in place that not only 3-way matches invoices but identifies when rebate or discount targets are hit and automatically applies the discounts to current and future invoices, there is no more savings from high-priced audit recovery services.
  • Once integrated contract negotiation and e-Signature is implemented, there is no more process time savings from being able to track all updates by both parties and do sign-offs quickly.
  • … and so on

At some point, your year-over-year returns will start to trail off … somewhere between the three and five year mark, depending on how much spend you are able to put through managed sourcing events every year and how much you are able to use the system to support it. So don’t stand still. Start identifying your biggest weaknesses and looking for the next generation system to address them when the opportunity costs of not taking advantage of the opportunities you are missing gets too high.

So where do you start? Stay tuned.

Today is a Historic Day for New York!

Three Hundred and Sixty Five Years ago today, the city of New Amsterdam (later renamed the city of New York), is incorporated.

One Hundred and Forty Two Years ago today, the National League of Professional Base Ball Clubs was formed in New York, and America’s favourite past-time was cemented. (It replaced the National Association of Professional Base Ball Players that was formed in 1871 and ceased in 1875, which succeeded the National Association of Base Ball Players, which was founded in New York in 1857 and was the first organization governing American baseball.)

One Hundred and Five Years ago today saw the opening of Grand Central Terminal.

Wall Street New York is pretty much the centre of American Finance, and there are no supply chains without money to fund the people who run them.

Recycling Efforts in Trouble due to the Political Climate?


Today’s guest post is from Brian Seipel, a Procurement Consultant at Source One Management Services focused on helping corporations understand their spend profile and develop actionable strategies for cost reduction and supplier relationship management.

There are plenty of opinions when it comes to the environment on both ends of the political spectrum. You can likely find thousands of posts across the internet on the topic, were you so inclined. I promise that this post doesn’t delve into either side’s take on the planet or our stewardship of it.

So where else might a post of recycling and politics go? More to the point, how does it align with news Procurement Pros may be interested in? As it turns out, plenty of Procurement pros have a stake in the fate of our collective trash.

And in terms of America’s biggest partner in the recycling process, China, we have a problem thanks to a ban set to take effect in Q1 of 2018.

Setting the stage

A good amount of paper, corrugated, and plastic packaging products can be recycled and reused to create new packaging materials. These same materials can also be transformed into other products and, likewise, other products can be turned into packaging. Plenty of packaging procurement initiatives touch upon recycled materials.

At the heart of this recycling transformation are the organizations who purchase these recycled materials so they can be remade into valuable products. Since the early 2000’s, these organizations have been overwhelmingly found in China. In terms of American exports of bales of scrap, China is our number one partner, with these facilities importing over $5.6 billion annually in American paper, metal, and plastic scrap.

It isn’t just the US that exports recyclable scrap to China – the International Solid Waste Association reported in 2014 that 56% of the world’s scrap was exported to China. Clearly, any disruption to China’s buying habits of this scrap material will have very real effects on recycling initiatives globally. In turn, companies involved in the purchase of products made from recycled materials should keep an eye on these import-export relationships.

So what’s the problem?

Recycling isn’t easy – a lot of work needs to be done to get scrap material in shape to recycle. It takes real resources to process scrap material. The cleaner and better sorted scrap is when it arrives at a Chinese factory, the easier, faster, and more lucrative it is to convert to recycled materials. As such, it isn’t surprising that China has been more and more interested in ensuring a quality scrap product in recent years.

This demand for better scrap material, and objection to what China is calling excessively contaminated shipments, have led the country to ban a number of solid waste imports.

This could potentially have a direct impact on the availability of “virgin” materials as we move forward into the ban next year. For example, fewer sources of recycled paper products could lead to a tighter pulp supply and higher costs.

How Will the Scrap Industry Respond?

Assuming China does, in fact, move ahead with plans to ban key scrap imports, American companies are going to have to come up with a response. Several are on the table:

  1. Forego recycling, and send scrap shipments to the landfill instead.
    This is not the greatest of solutions by any means, but if companies take no steps to change behavior, this will be the natural result of a “do-nothing” stance on the problem.
  2. Fight the ban on a socio-political basis.
    From the language of the ban, to the impact the ban will have on businesses both foreign and domestic, there is certainly opportunity to challenge China’s path forward in terms of viability.
  3. Add more quality controls.
    In terms of recycling, an empty soda can is both garbage and a product. If China’s main concern is one of quality control, then steps taken to improve quality levels (in other words, ensuring a process that removes contaminates before bales of scrap are sent to China) may alleviate China’s concerns, and help move the scrap industry back on track.
  4. Further develop and strengthen alternative markets.
    Local organizations may also benefit from building some diversity into their strategies. China put a very fine point on the issue with this waste ban, but their intentions aren’t new, either. China has been increasing their scrutiny of imported scrap bales for the last several years, leading to the rejection and return shipment of subpar bales – Some American exporters have used these intervening years to plan alternative outlets for their scrap. This may include finding other countries to export to, or finding local customers for this scrap material.

The Institute of Scrap Recycling Industries (ISRI) is a US-based trade association made up of organizations from 30 countries that represent the lifecycle of recycled materials; from processing to brokerage, to industrial consumers. ISRI released a nine page response to China’s ban, which provides a few key talking points – Essentially, ISRI’s opening response combines items two and three above.

The response opens by challenging the language of China’s ban, arguing that clarification is required on China’s end to better outline how the band will be enacted (ISRI suggests, of course, that China should follow guidelines developed by ISRI to achieve this goal. Simultaneously, the response calls China’s own capabilities into question in comparison to the United States’ recycling industry: “where it takes 1,150 tons of recyclable fiber to make 1,000 tons of new paper in the United States, it takes 1,300 tons of recyclable fiber to make the same 1,000 tons of new paper in China. As a result, Chinese manufacturers have come to rely on the supply of high‐quality scrap from abroad in order to stay competitive.”

Moving forward

It is too early to say what the true impact will be moving into 2018. The American scrap industry has set wheels in motion to fight the ban politically, as well as ramp up efforts to either improve scrap exports to China or find alternative destinations for the material.

One thing is certain, however. Moving forward, Procurement teams in markets that rely on recycled materials should keep their eyes open and attention focused on China’s next moves.

Thanks, Brian.