Compliance – A Complex Problem with few Procurement-Centric Solutions

Why is compliance a complex problem with few Procurement-Centric Solutions? Because compliance goes well beyond the narrow view that many platforms take. At a high level, we have:

  • Regulatory Compliance
    which consists of government regulations at various levels that need to be adhered to and consists of requirements across organizational governance, workforce, materials, services, trade, and environmental considerations
  • Organizational Compliance
    which consists of adhering to the policies your organization puts in place for purchasing, inventory tracking, regulatory compliance, auditing, etc.
  • Industry Compliance
    which consists of adhering to industry standards and collective agreements
  • Governance
    which consists of ensuring that all governance requirements of the organization are met across the regulatory, organizational, and industry efforts

And when you look at the market, most of the solutions on the market are narrowly focussed on:

  • Environmental Compliance across environmental sustainability factors
  • Trade Compliance to insure that all trade regulations are adhered to (and appropriate paperwork filled out)
  • Tax Compliance to insure all appropriate taxes paid (or reclaimed)
  • Workforce Compliance to insure all workers are eligible, appropriately paid, and/or appropriately insured
  • Governance Compliance which makes sure appropriate internal processes are followed (and documentation maintained for audit trails)

… and, to slightly modify a common phase, never any two shall meet. And that’s why it’s a complex problem with few solutions in Supply Management. Will this change soon? We shall see …

Walmart: Still Running on a 56.6 baud Modem …

Walmart recently released a statement that it plans to use employees to do home deliveries, presumably to fulfill online orders, as recently reported on The Washington Post. the doctor couldn’t believe it at first … convinced it was an article from the Onion misposted on a real news site, but apparently it’s real.

Overlooking all the things that could go terribly wrong with this, and all of the new legal liabilities this could cause them to incur (which would give your average risk manager and Chief Counsel nightmares for months), this makes absolutely no sense from a supply chain perspective where the name of the game is cost control (unless, of course, Walmart is looking for a way to actually lose money as a tax avoidance scheme).

There’s a reason even Amazon uses third party carriers for its prime service, and the reason is that, as stated by the article, last mile logistics are costly. Very costly. And they can only be minimized by maximizing the number of packages delivered per hour by a driver. An employee who can only deliver a few packages due to space limitations in their car can’t maximize deliveries compared to a Fedex or UPS van driver that has a van built to maximize the number of packages that can be carried at one time and that is making deliveries determined by software that minimizes the delivery radius of all assigned packaged and delivery time using route optimization software (that eliminates left turns and backed-up routes).

Now, maybe Walmart is thinking that they can introduce a new kind of package assignment algorithm that minimizes the distance from an employee’s home route, and then just pay that employee for additional distance and time required (using google map calculations, etc.), but you still have the problem that the closest employee(s) may not be working that day, may not be able to do deliveries that day, or may not be able to fit the packages in their vehicle. Most of the time the software will have to re-assign and re-assign again until a viable sub-optimal match is found, and at the end of the day the cost would be more than just having a full time driver deliver everything according to route optimization software at a cost that is still more than negotiating a good volume-based outsourcing agreement with the dominant local carriers who can increase the delivery density even more.

The reality is that just because something sounds good (as in 90% of all customers live within 10 miles, where most employees are also located), does not mean it is good — and that’s why you need to perform analytics and optimization before embarking on major initiatives such as this. Because even if Walmart could get near-optimal assignments, it still needs volume, and as long as it takes 3 times as long to do anything on their site as it does on Amazon (and that is definitely true in Canada, where the outsourced development organization prefers to benchmark against sites for other real-world retailers and not Amazon from an online retail perspective), and as long as they continue to ship 6 (light) items on the same order across 5 boxes, their online volume growth is not going to be fast enough to make this idea anywhere as efficient as they hope in the next few years. This is one case where the doctor hopes their trials flop and they see the error of their ways and go back to investing in more hybrid vehicles, more efficient warehouses and inventory management methods, and other initiatives guaranteed to increase efficiency and sustainability.

Are BoB’s Days Numbered?

Today Jaggaer, formerly SciQuest, announced their merger with Pool4Tool, the world leader in direct (materials) sourcing (procurement) with the most extensive direct procurement suite and one of the largest manufacturer client bases in the Supply Management world. Hot on the heels of Coupa’s recent acquisitions of Spend 360 and Trade Extensions, Jaggaer appears to have rekindled the old SciQuest motto of buy it, don’t build it (as they acquired AECsoft for Supplier Information Management, Upside Software for Contract Management, Spend Radar for Spend Analysis, and CombineNet for advanced sourcing and decision optimization) as they haven’t really built anything new since they built their basic e-Procurement solution (originally for the Government and Education Sectors) last decade. Add the BravoSolution acquisition of Puridiom, the acquisitions of b-pack and Iasta by Selectica in the creation of Determine, and we are now in the situation where 6 of the top 9 Source-to-Pay providers got where they were through (multiple) acquisitions. [The big 9 Source-to-Pay providers that were invited to SpendMatters upcoming Strategic Sourcing Solution Maps are SAP Ariba, BravoSolution, Coupa (Trade Extensions), Determine, GEP, iValua, Jaggaer (Pool4Tool), Synertrade, and Zycus. All but Ivalua, Synertrade, and Zycus have acquired major BoB players as part of their growth.]

The BoB pool is shrinking rapidly. [Only 6 BoB providers were deemed critical enough for the first round of the SpendMatters Sourcing Solution Maps: Bonfire, EC Sourcing, Keelvar, Market Dojo, ScanMarket, and ScoutRFP. ScanMarket is already being used by Basware as their Sourcing portal and will likely be acquired in days to come, ScoutRFP is backed by VCs looking for a big exit, and Keelvar is the last BoB optimization-backed sourcing platform on the market. This list could shrink by half within a year.] This begs the obvious question, are BoB’s days numbered?

Let’s start by asking why are BoB providers being gobbled up like thanksgiving turkeys in meat-loving America? The answer lies in the fact that many older executives still believe that you can’t go wrong buying IBM, which, today, translates into you can’t go wrong buying from the biggest company in the space. So now all the big companies are trying to get bigger so that not only can they be the biggest game on the block, but also be big enough to not be crossed off the list as too risky. It won’t be long before any big procurement company wanting to be a big source-to-pay company merges or acquires the above (and any of the best-of-breed sourcing wanting to be a best-of-breed source-to-pay does the same).

It won’t be long before only a handful of BoB providers among the ones listed (and among the BoB invited to the initial SpendMatters e-Procurement Solution Maps) remain. But does this mean it’s the end for BoB?

Not necessarily. While larger mid-size and large enterprises will continue their quest for one-stop-shop solutions, mid-size enterprises will not be able to afford the increasingly large price-tags that these end-to-end suites (with all their bells and whistles) come with. As a result, while the current class of BoB providers will continue to shrink over the next year or so (as the M&A cycle peaks again), a new slate of best of breed providers will crop up to serve the mid-market, which is still a bit of a blue ocean as 40% of these companies still don’t have a solution at all!

So while it looks like BoBs days are numbered, BoB will rise again. (And then, a few years later, the M&A cycle will begin anew.)

A Supply Management Alphabet

Inspired by Edward Gorey.

A is for analysis, of data sets quite large.

B is for bid, which might leave out the surcharge.

C is for contracts to cover our backsides.

D is for demand ‘cross the customer divides.

E is for ethics, which often get overlooked.

F is for finance, where the books will get cooked.

G is for global, the world is our stage.

H is for hub, where our goods get waylaid.

I is for inventory, obsolete by the day.

J is for JIT, a difficult ballet.

K is for Kaizen, often mispronounced.

L is for labour, who strike unannounced.

M is for majeure, which suppliers will claim.

N is for negotiate, the salesperson’s game.

O is for optimize, as we’re lost in the woods.

P is for procure, we need our missing goods!

Q is for quote, where assumptions abound.

R is for requisition, for products unsound.

S is for supplier, our life in their hands.

T is for taxes, which cross many lands.

U is for upcharge, which blows up our cost.

V is for value, which always gets lost.

W is for warehouse, where our goods disappear.

X is for XML, held hostage by the code buccaneer.

Y is for yield, which is never as expected

Z is for zone, where trade is inspected.