Logistics is the new Black, but Procurement is the Rodney Dangerfield of the corporation!

the doctor recently stumbled on a piece published last year by Jeff Ashcroft over on LinkedIn where he said Logistics is the New Black where he noted that the word “logistics” has subtly worked its way further and further into the common lexicon thanks to massive marketing campaigns of courier, rail, and forwarding companies. This is making it the new black.

However, while it was never the Rodney Dangerfield of the Corporate World, as that distinction is reserved for Procurement, it was the black sheep. Needed, but kept at arms length … just in case.

However, now that savvy merchants are realizing that in their logistics function may lurk the well spring of the truly exceptional customer experience they seek, and must now deliver, logistics is taking center stage. This is good, and bad.

It’s great in that good logistics is a necessary condition for supply chain success, and if it’s not successful, the supply chain will never be, but it’s bad in that it’s only one half of the coin for supply chain success, the other being good Procurement. But, as SI has been saying for years, Procurement is the Rodney Dangerfield that don’t get no respect in the average organization (otherwise, why would almost half of Procurement organizations be without modern platforms).

When there is no easy correlation to the average consumer, when organizations like the Dairy Farmers of Canada say they are supply management, when HR organizations say they do Sourcing, and when even Apple, which has been repeatedly recognized to have the best supply chain in the world doesn’t talk about it (with the closest they come being Supplier Responsibility, probably as a result of breathing all that California smug), how is anyone to be expected to understand what a modern Purchasing, or Procurement, organization does? Especially when the term procure is often used in stories about rebels procuring supplies from the government (and this is the example of procure used on the urban dictionary, the military procuring what it needs from the private sector, or, even worse, often linked to prostitution. And purchasing, that’s what the office manager (in charge of office supplies) does.

In fact, all things considered, Procurement is probably lucky to even be the Rodney Dangerfield of the corporate world. While it might not get any respect, at least it gets recognition.

Maybe someday someone will find a way to bring sexy back to Procurement and then it will get some respect, and take the first step towards becoming the new black.

Fifty Years Ago Today …

Great Britain gets one heck of an endorsement when the territory of Gibraltar, a 6.7 km2 region on the southern end of the Iberian Peninsula which shares its (only) northern border with Spain votes 12,138 to 44 to remain British (and not revert to Spain).

Gibraltar, which has a constitution that allows it to govern its own affairs on a day to day basis (while ceding power such as defence and foreign relations to the British Government), is strategically important as it essentially controls the entrance and exit to the Mediterranean sea (which is only 13 km wide at this naval “choke point”), where half of the world’s seaborne trade passes.

Gibraltar serves as a reminder that it’s not always who you share a border with that matters, but who you share a cultural bond with. That’s why sometimes your best trading partner is half a world away and you need to effectively manage your global supply chain to make it happen.

Fifty Five Years Ago Today …

Evsei Grigorievich Liberman published “Plan, benefit, and prisms” in Pravda, a dissertation which proposed new methods of economic planning based on democratic centralism.

Democratic centralism is a method of leadership in which political decisions reached by the party (through democratically elected bodies) are binding upon all members of the party. His main proposal was that profits should be made the index of performance for Soviet planning, as well as the basis for bonuses to the personnel and directors of Soviet enterprises. This article stimulated a large debate and two years later, the Supreme Economic Council of the USSR converted some of the resulting conclusions into law, after some enterprises began to functionally experiment “on the basis of profit”. (Source: International Socialist Review, Vol. 26, No. 3, Summer 1965, pp 75 to 82 as transcribed by Einde O’Callaghan and found on the Ernest Mandel Internet Archive)

How is this relevant? It seems that no matter what the political climate, or what the governing structure, in the world of business, profit always seems to be top of mind for at least one party, especially when that party believes it’s their key to personal profit.

This means that there’s always going to be a stakeholder interested only in the bottom line and what it means to him, and that if you don’t keep this in the back of your mind, and come up with a decision that increased profit at least slightly, you’ll have a hard time getting it accepted, even if it is the most sustainable decision, the most corporately responsible decision, or the best long term decision from a value, and cost, perspective.

If profit can rear its ugly head in an environment governed by communism mindset, it can rear its head anywhere. Even in procurement which is supposed to focus on value creation and cost reduction. Keep this in mind when trying to ascertain, and balance, the desires of multiple stakeholders.

Introducing LevaData. Possibly the first Cognitive Sourcing Solution for Direct Procurement.

Who is LevaData? LevaData is a new player in the new optimization-backed direct material prescriptive analytics space, and, to be honest, probably the only player in the optimization-backed direct material prescriptive analytics space. While Jaggaer has ASO and Pool4Tool, it’s direct material sourcing is optimization backed and while it has VMI, it does not have advanced prescriptive analytics for selecting vendors who will ultimately manage that inventory.

LevaData was formed back in 2014 to close the gaps that the founders saw in each of the other sourcing and supply management platforms that they have been a part of over the last two decades. They saw the need for a platform that provided visibility, analytics, insight, direction, optimization, and assistant — and that is what they sent out to do.

So what is the LevaData platform? It is sourcing platform for direct materials that integrates RFX, analytics, optimization, (should) cost modelling, and prescriptive advice into a cohesive whole that helps a buyer buy better when they use and which, to date, has reduced costs (considerably) for every single client.

For example, the first year realized savings for a 5B server and network company who deployed the LevaData platform was 24M; for a 2.4B consumer electronics company, it was 18M; and for a 0.6B network customer, it was 8M. To date, they’ve delivered over 100M of savings across 50B of spend to their customer base, and they are just getting started. This is due to the combination of efficiency, responsiveness, and savings their platform generates. Specifically, about 60% of the value is direct material cost reduction and incremental savings, 30% is responsiveness and being able to take advantage of market conditions in real time, and 10% is improved operational efficiency.

The platform was built by supply chain pros for supply chain buyers. It comes with a suite of f analytics reports, but unlike the majority of analytics platforms, the reports are fine tuned to bill of materials, component, and commodity intelligence. The reports can provide deep insight to not only costs by product, but costs by component and/or raw material and roll up and down bill of materials and raw materials to create insights that go beyond simple product or supplier reports. Moreover, on top of these reports, the platform can create costs forecasts and amortization schedules, track rebates owed, and calculate KPIs.

In order to provide the buyer with market intelligence, the application imports data from multiple market fees, creates benchmarks, compares those benchmarks to internal market data, automatically creates competitive reports, and calculates the foundation costs for should cost models.

And it makes all the relevant data available within the RFX. When a user selects an RFX, it can identify suppliers, identify current market costs, use forecasts and anonymized community intelligence to calculate target costs, and then use optimization to determine what the award split would be, subject to business constraints, and identify the suppliers to negotiate with, the volumes to offer, and the target costs to strive for.

It’s a first of its kind application, and while some components are still basic (as there is no lane or logistics support in the optimization model), missing (as there is no ad-hoc report builder, or incomplete (such as collaboration support between stakeholders or a strong supplier portal for collaboration), it appears to meet the minimal requirements we laid out yesterday and could just be the first real cognitive sourcing application on the market in the direct material space.

Cognitive is the New Buzzword. But what does it mean?

It seems that everyone is talking about Procurement these days. A Google search for cognitive procurement returns about 650,000 results that include news sites, analyst firms, and vendors ranging in size from Old St. Labs to SAP Ariba to IBM.

Definitions are varied as well. Quora defines cognitive procurement as the application of self-learning systems that use data mining, pattern recognition and natural language process (NLP) to mimic the human brain to around the processes of acquiring, buying goods, services or works from an external source. IBM’s Vice President of Global Procurement defines cognitive procurement as the use of systems and approaches that are able to learn behaviour, manage structured and unstructured data, and unlock new insights to enable optimized outcomes. Vodafone defines cognitive procurement as augmented intelligence capabilities that allow a category manager to make faster and smarter data driven decisions that deliver competitive advantage.

But what does this all mean? First of all, the only commonality is using systems to do a task better. Which systems? Which tasks? Who gets the benefits? And what precisely are the benefits?

To figure this out, we have to go back and define what makes for better Procurement. The first step is good Sourcing. What are the keys to good Sourcing?

There are a number of keys to good Sourcing. Some of the most important include:

Visibility. Who are your potential suppliers? What do they provide? Where are they? What do you know about quality, reliability, delivery, etc? What are the risk factors with dealing with them? What data can you get on finances and sustainability? You need good information.

Analytics. Once you get the information, you need to make sense of it. Roll up component and material costs across bill of materials. Amalgamate risk ratings into meaningful scorecards. Aggregate demand across categories. Determine what you need, when, in what quantities, and how much it should cost before you start a negotiation.

Modelling. The ability to define detailed should cost models based on components or materials, production costs that include energy and labour and overhead, and other relevant cost factors. To define how those costs change with market data or production volumes. And so on.

Optimization. Once you get the data, you need to figure out the baseline costs and what the optimal awards are assuming nothing changes. Then how those change as costs change as bids change. Also, what are the optimal logistics strategies and costs. How does logistics impact the award decision? How should the logistics supply chain be designed?

Negotiation Support. At some point, the analysis needs to turn to negotiation, because the goal of sourcing is to acquire the products and services the organization needs to support its operations and satisfy its customers. All of this capability needs to be brought to bear in a cohesive, assistive, fashion that can help a buyer make the right decision.

That’s what cognitive procurement is — presenting a user with the information they need when they need it to make the right decision. Not automated buying. Not artificial intelligence which doesn’t exist. Not trying to mimic the human brain, as we don’t even fully understand how that works now.

So, does any application meet these requirements?