Where is the Procurement Innovation Today?

Last week, in They Terk Er Jerbs!, we noted that the age of robots (and software assistants) is here and there’s nothing we can do to prevent it now that they are roaming the floors of Walmart. We also said, especially in our follow up post on how they They Terk Er Jerbs! Good for them. that this can be a good thing since the jobs these robots are best suited for are boring, repetitive, relatively simple jobs that sometimes even suck your willingness to live.

And by doing these jobs, they can free you up to do more complex, creative, and value-generating jobs, including those jobs that couldn’t be done before.

Of course, we have the problem that most organizations only see the cost savings that result when you eliminate 20 paper pushers with automated invoice processing software that can automate 95% to 98% of the work, leaving only 2% to 3% of invoices that need manual intervention. Yes this is a savings, and yes it is significant, but it’s a one time savings. What do you the next year? Competition still increases. Costs still rise. Margins still fall. Not only is your place on the Fortune 1000, or Global 3000, threatened (or your possibility of ever getting there), but maybe even your business viability.

You get year over year savings by identifying value year over year. At the end of the day, it’s all about keeping a healthy profit, defined as Sales – Costs. You can only increase sales so much in a given market for a given product. At some point the market is saturated and your position is maximized. You can only decrease cost so much with just an RFX or Auction … all that does is take the fat out of the margin.

To find real savings, you have to figure out how to take cost out of the product — either out of the production process (lean initiatives or component substitution or design improvements), the transportation (through carefully amalgamated global shipping), the packaging (through package redesign), or even the margin through appropriate product consolidation with the right supplier (who can operate at a lower margin for higher volume). This doesn’t happen without a lot of investigation, analysis, exploration, and relationship building and management and the creative personnel to do it. Machines can’t do this. (While they can analyze the data and identify the best potential opportunities, they can’t realize them.)

The only way to truly find savings (and maybe even more value through better aligned value-added services) year after year is to have a team of people who can analyze the supply chain for them. This means that the best way for an organization to succeed is to employ invoice automation to free its people up from tactical invoice processing to, possibly after appropriate training, pursue more strategic opportunities and programs that will take identify additional value year over year without any additional overhead (since the invoice automation pays for itself and the team pays for itself).

So, the true Procurement Innovation today comes when organizations use automation not to replace headcount, but augment headcount to allow them to find more value than they would otherwise have time to find. And indirectly achieve an ROI from the software automation that is far higher than just the ROI from the automation alone.

And the great thing is that since these AI’s aren’t truly intelligent, they don’t mind doing the same mind-numbing task to infinity and beyond.
So let ’em take our mind-numbing soul-crushing jobs. We’ll keep our soul, and fly in the clouds while they dig in the mines.

They Terk Er Jerbs! Good for them.

Because, if they were intelligent, if they weren’t already insane, they would be! One definition of insanity is doing the same thing over and over and expecting different results. But an even better one is wanting to do the same mind-numbing task over and over and over again until anyone with a modicum of intelligence would go insane.

Like screwing the same rivet 10,000 times a day. Walking up and down the same 20 aisles looking for sold out products day after day. Or performing well-defined calculations millions and millions and millions of times. This last task is something good accounts payable and procurement folk have to do over their career without AI if they want to realize the savings they should.

I say let the machines do that. And then find ways to do more intelligent actions with the results that the machines can’t do. That’s Procurement Innovation. And if you were on the ball and set up your Google Alert and noticed that the doctor was in L.A. yesterday giving a talk on Procurement, and, more specifically, Procurement Innovation. Procurement Innovation that is going to arise when you let the machines do the tactical drudge work and focus on the more strategic aspects of product acquisition. And give yourself time to get innovative … and creative … instead of just pushing virtual buttons all day. (In some P2P systems, it takes 15 clicks to actually get a product delivered when it should take 0. And how many products do you need? It’s amazing you aren’t insane! Someone should calculate the mental strength and willpower of a Procurement professional. That would be an interesting study.)

One needs to remember that AI is not I, but it is A. It is artificial, and it is extremely well suited to running lots of advanced calculations against expert defined models, well-defined variables, and big data sets to identify opportunities, outliers, and options for pursuit even the smartest of us couldn’t see because our mental calculation powers stop in the ones per second while a typical laptop’s calculation capacity is in the millions per second. Even if the best algorithms we have are, relatively speaking, dumb, the machine will outperform us in evaluating data against models and desired outcomes and identifying the best directions to pursue (which is different than being able to evaluate the perceived best options and actually pick the best ones).

And because of this, it is extremely well suited to checking invoices against POs, goods receipts, and contracts — which is one key to making sure the savings that are negotiated are actually captured. The best I2P systems today with advanced OCR can reach invoice processing accuracy (IPA) levels of 98% with no human intervention, including automatic return to supplier if issues are identified, and the proper configuration of rules can enable up to 100% of these automatically processed, corrected, and confirmed invoices to be automatically queued for payment (and paid). Considering that the average invoice “error” rate in an organization is 10% to 15% and that this typically results in overpayments of 1.5% or more, automatically processing 98% of invoices and eliminating 98% of the errors is huge.

And it’s a key component of two of the innovations — true automation and overspend prevention — that the doctor highlighted in his talk that can be addressed today, and tomorrow, and change your work, and even your life. (When you work smarter, you will get smarter.)

They Terk Er Jerbs!


 

Now that the age of the robots are here (and this can’t be denied as the robots are in Walmart now [Source: Reuters]), will you be the next to join Darryl Weathers’ crew in screaming that they took your job?

Or will you welcome their entry into the workforce and their willingness to do the work you don’t want to do and take the opportunity to (learn to) do something better and more interesting and, frankly, more intelligent.

Face it. You don’t want to check inventory. It’s boring. You don’t want to apply the same rivet all day on the production line. It’s boring. And you certainly don’t want to harvest [as evidenced by the fact that most farms can’t find enough domestic workers during harvest season to do the same boring task minute after minute, hour after hour, and day after day during harvest season].

But you’re sometimes willing to actually stock shelves — organizing a display can be mildly creative, and you would probably rather help someone find a product and have some form of personal interaction than scan shelves for products people may or may not want. You’re probably also more willing to do quality testing on the outputs of the production line than construction, at least that’s verification of quality and a bit of creative destruction, and you’d probably be even more willing to review design aspects and even assist in prototype development if the company gave you a bit of training. Etc.

Robots will take jobs, but the jobs these artificially intelligent machines take are not always the interesting jobs, and there are jobs they can’t take. They are not truly intelligent, and as a result they can’t truly anticipate what we will want, they can’t create new works of art without guidance, and they can’t always read our mood and feelings, especially if we are not being forthcoming about it. Yes they can predict based on trends and be right a lot, but this means they can also be spectacularly wrong. And when it comes to quality, they can’t test for anything they haven’t been programmed to test for. So if a product had a major usability design flaw, as long as it passed the material stress tests, the robot would never know.

There may come a day when they are almost as good at us at design, creative, and social jobs, but that’s still a ways off. For now, we can at least be content in the fact that while they take some jobs, they can’t take all aspects of those jobs and we can create new job definitions that expand upon what they can’t do. We will have to keep learning, and truly work smarter, but screaming They Terk Er Jerbs won’t get us anywhere (as it hasn’t since the dawn of the industrial revolution). So, for now we can take solace in the fact that we can create a two-tier society: us, and them, and relegate them to the lower tier, as long as we don’t grant them citizenship! (Even pretending to is too much!)

And use them, and advanced software, to do our jobs better! Even in Procurement. How? Stay tuned.

Sanguine Strategic Sourcing

Today’s guest post is from Jennifer Ulrich, an Associate Director and Category Planning Subject Matter Expert at Source One Management Services as well as a contributing author of Wiley & Sons “Managing Indirect Spend: Enhancing Profitability”.

It’s not just vampires that find themselves looking for blood. Healthcare procurement professionals also depend on a consistent stream of the stuff, though they’d define stakeholders quite differently than Dracula. All purchasing is important work, but they can honestly say that their sourcing operations are a matter of life and death. Imagine learning that you couldn’t receive a transfusion because your medical center couldn’t locate a reliable supplier, or failed to plan for a disruption in its supply chain. It’s a terrifying thought.

Human blood ($150 – $180 a pint!) is one of countless commodities Source One’s consultants and I have helped our clients purchase more efficiently. For one organization in particular, it amounted to eight million dollars of total spend. You might think that sourcing a product out of a horror film would present especially grim or bizarre challenges, but the initiative proved straightforward. It essentially came down to a question of vendor consolidation, a question that’s always essential in procurement: Would our client benefit more from a single, or multi-source strategy?

Whether it’s blood or Butterfingers you’re buying, your answer to this question will largely shape your strategy. It’s important to consider the potential drawbacks and benefits of both approaches.

The recent rash of natural disasters have not only underlined the importance of well-supplied healthcare providers, but they’ve also reminded procurement teams around the globe how important it is to assess and mitigate risk across the supply chain. When you’re dealing with a commodity as valuable as blood, the smallest disruption can have deadly ramifications. In theory, a multi-source strategy reduces the risk of shortages by broadening the supply base. Medical organizations that draw blood from a number of suppliers are unlikely to be completely drained if one should come up short.

A multi-source solution also presents the potential benefit of supplier competition. Leveraging this could mean a more agreeable arrangement or sustainable strategy. Though your average individual might know of just one blood supplier (you know the one), the field is actually saturated with a number of emerging regional businesses. Granted a seat at the table, they can drive more competitive pricing while partnering with one another to collectively manage volume concerns.

Sourcing from more than one supplier does not, however, eliminate risk or produce value in every instance. In fact, an organization might find that the strain and uncertainty of managing multiple supplier relationships outweighs its benefit. Consistent communication is essential for maintaining an amicable, respectful, and fruitful relationship with any provider. It’s obviously far easier to ensure open lines of dialogue with a single vendor than with a large group. The right SRM expert can make any arrangement work, but it’s often preferable to consolidate your supplier base for more personalization and collaboration.

In this particular situation, our client found that one trusted supplier could most effectively meet their specifications. With our help, they learned that a close relationship with this provider presented considerable value incentives. In addition to a tiered discount structure, they offered risk management solutions in the form of comprehensive training programs. By educating end users on the proper procedures for transporting, handling, and administering blood they helped foster a sense of teamwork while greatly reducing the chance of lost or wasted product.

There’s no O negative approach when it comes to assessing the market. One company’s life-saving cure could send another into convulsions. That being said, whatever your industry, whatever size your supply base, the same set of principles apply for effectively maintaining relationships and encouraging compliance. The most successful procurement professionals perform a transfusion of sorts. They supplement the foundational techniques of good sourcing with a healthy dose of innovation to determine the appropriate treatment.

In a future post we’ll dissect single and multi-source strategies and discuss which situations favor which approach. Happy Halloween!

Thanks, Jennifer!

The Procure to Pay User Experience Should NOT be Overlooked!

The history of enterprise software systems is fraught with implementation failures. This is especially true in the ERP and MRP space, which have contributed to some of the biggest supply chain failures in history (including Hershey Foods, Adidas and Foxmeyer). But not all failures are catastrophic. The majority are just the result of (significant) project overruns in terms of time and money or the inability to deliver critical features or functions in the original system specification. And this is more common than one may think. Some estimates put the rate of project overruns in IT as high as 85%. That’s problematic.

Why are there so many failures? The reasons are many. Some are the result of poor change management; others are the result of the selection of inappropriate process automation for the company; and still more are the result of limited or low-quality information. If one goes through the list of possible reasons, we see there is one commonality across the majority of failures: the user experience. Poor change management leaves users confused. Inappropriate process selection frustrates users as it increases time and effort (rather than decreasing it), and low-quality information makes users question why they are migrating to a new system at all. (And when significant system features or functions fail to be implemented at all, that’s the worst user experience.)

That’s why the user experience (UX) is important, and why the doctor has been writing tomes on it this year, starting with a number of multi-part series co-authored with the prophet over on Spend Matters on:

What Makes a Good UX? Part I
What Makes a Good UX? Part II “Smart Systems”
What Makes a Good UX? Part III “Mission Control Dashboards”

The UX One Should Expect from Best-in-Class e-Sourcing, Part I
The UX One Should Expect from Best-in-Class e-Sourcing, Part II

The UIX One Should Expect from Best-In-Class Auctions, Part I
The UIX One Should Expect from Best-In-Class Auctions, Part II

The UX One Should Expect from Best-In-Class Optimization … Part I
The UX One Should Expect from Best-In-Class Optimization … Part II
The UX One Should Expect from Best-In-Class Optimization … Part III
The UX One Should Expect from Best-In-Class Optimization … Part IV

The UX One Should Expect from Best-in-Class Spend Analysis … Part I
The UX One Should Expect from Best-in-Class Spend Analysis … Part II
The UX One Should Expect from Best-in-Class Spend Analysis … Part III
The UX One Should Expect from Best-in-Class Spend Analysis … Part IV
The UX One Should Expect from Best-in-Class Spend Analysis … Part V

… with SRM & CLM on the way …

But that is just the beginning. Now that we have fairly adequately covered the core Sourcing technologies, we need to cover P2P, and that, as we all know, is the domain of the revolutionary. So, starting last week, the doctor teamed up with the revolutionary and, in the months to come, we are going to bring you deep, deep insight into Procure-to-Pay, both from a UX and a FX viewpoint so that at the end of the day you have deep insight into not only what P2P has to do, but how it should do it.

Our first instalment of “The Procure-to-Pay User Experience” premiered last Thursday over on Spend Matters Pro (membership required), and more will be coming.

Stay tuned!