One Hundred and Six Years Ago Today …

The United States Supreme Court declared Standard Oil to be an “unreasonable” monopoly under the Sherman Antitrust Act and ordered the company broken up. Given the constant M&A spree across the technology space as a whole, and not just the Procurement space, the concept of an unreasonable monopoly is again becoming relevant.

Alphabet (Google), Apple, IBM, Microsoft, and Oracle are all Fortune 100 companies, and all of these not only control massive amounts of data (that is now more valuable than gold), but massive amounts of software — and in most cases, back office software and, in a couple of cases, Procurement software. Now, only Oracle has a major Procurement offering, with SAP (Ariba), a Fortune 200, being the biggest in our space, and makes companies like Coupa (at a mere 1.67 B valuation, 1/70th of SAP’s) a drop in the bucket, but still, at the rate Coupa in particular is gobbling up companies and building a best-in-class S2P offering, it won’t be long before an Alphabet, Apple, Microsoft, or even a Salesforce take interest and gobble them up, offering an integrated inbound-outbound back-office management system at a 100B+ valuation like SAP.

At this point you gotta wonder if we’re soon going to have to worry about technology monopolies and our software companies being broken up — Alphabet has undue influence over the internet even compared to Apple and Microsoft; Microsoft has undue influence over the desktop even compared to Apple; and Apple has undue influence on the mobile market with its iPhones and iPads, and these companies all have a host of other offerings (subsidized by the insane profits their primary product lines offer) that are, or will, become hard to compete with. And if one of these companies ever gets the IBM back-office model or the Oracle one-instance model right, they will literally have an enterprise software monopoly.

And the sad thing is that while data, internet, desktop and software monopolies are bad, right now Fortune 500 / Global 3000 companies desperately need end to end solutions in order to be efficient, effective, and bring their laggard supply management programs into the modern era. We need a few apparent monopolies to define the space, get it recognized, advanced the laggards to the point where they are ready for best in class solutions, but then we need these monopolies hampered so that new best in class companies have a chance to take the space program. It’s a delicate balance that is needed, but will it be maintained?

Two Hundred and Thirty Years Ago Today …

… the British really, really got it wrong! Instead of sending their prisoners to a remote northern region (like the Russians did) or to work in the hot semi-deserts of India (that they controlled) and generally achieve the common goal (at the time) of making prisoners’ lives miserable (to deter crime), they instead decided to load a large number of their prisoners onto 11 ships commanded by Captain Arthur Phillip and send them to sunny, warm, newly discovered tropical Australia, while the majority of their population stayed behind in a climate which, for most of the year, is rainy, dreary, and just plain miserable.

Talk about messed up. Not only were they sending the message “commit a crime and get rewarded with a permanent, tropical vacation”, but they were saying it’s good to be wet and cold the whole year through! 😉

Oh well, I guess it paid off in the end. No other nationality can claim more stiff upper lips and reservation than the British, and few other nationalities are as able to endure pretty much anything. Still, I would have transplanted the British population to Australia, called it New Britain, left the prisoners behind, and controlled a landmass 30 times the size (even if 35% is unliveable, that’s still a liveable area 10 times the size of the UK).

What Makes a Sourcing Suite?

Good question, and one both customers and vendors must answer in the days ahead. Last decade, it was pretty simple. You could claim a sourcing suite if you had decent e-Negotiation support with some document management and reporting. And if, instead of document management, you had contract management and if, instead of reporting you had real spend analysis, then you were best of breed. And if, on top of all of this, you had some basic project management or category guidance, you were awesome.

But that was then, this is now. These days, if you don’t have basic S2C (Analysis, e-Negotiation, Contract Management) with decent Supplier Information Management, you’re not even a contender. Plus, given that many providers are offering some project / workflow management, expert driven category guidance, bill of materials support for direct sourcing, contract analytics (not the same as contract management), deep SRM (Supplier Relationship Management, Performance Management, Compliance Management, Risk Management, Optimization and other unique offerings that they expect to gain them market-share.

So what do you need? Hard to say because the real answer is whatever you need to successfully conduct and monitor a sourcing event that doesn’t belong in the complementary P2P suite. That varies based on the category and the industry you’re in, but there is some commonality. Specifically, while still not a mainstay of sourcing suites, every suite needs project/workflow management, every suite needs some performance tracking and management (as that should influence not only current, but future, events), a minimum of SPM (supplier performance management) and not SIM, some compliance requirement and documentation management, and better than average analytics. And any organization that does a lot of direct sourcing needs Bill of Materials Management, and while most organizations don’t know it, you’ll always find a lower-cost allocation with an optimization-backed sourcing solution. (And going back to Wednesday’s post, this isn’t savings, this is avoidance of unnecessary costs.)

In other words, you need a lot. But, fortunately, you don’t need best of breed for most of this. The only solutions that continually provide year-over-year value of 10% or more (through avoidance of unnecessary costs) are advanced analytics solutions and true optimization solutions. So you need best of breed here.

But not for most of the other components, although certain components should be better than average. The RFX in particular. It should not only be ridiculously easy to create and modify RFXs (which are typically the beginning of every sourcing event) but also to bulk upload attachments (as this can kill days in large projects when you have ten bill of materials with a dozen to a hundred items each and each component needs its own spec document), define a team for collaborative and distributed creation and scoring, and one-click integration into the analytics and optimization modules for detailed analysis.

Another component that needs to be better than average is the Supplier Portal — you need to make it as easy as possible for suppliers to provide information, response to events, create collaborative corrective action plans, offer innovation ideas, and so on. You want your suppliers to work with you and find it at least a reasonable, if not an enjoyable, experience. If the portal, and integration options, are sub-par and painful to use, and leave a bad taste in their mouth, this will eventually sour the relationship.

In other words, while the exact definition of a Sourcing Suite can be a bit nebulous, the requirements it has to fulfill, especially for your organization, are not. And a key requirement is usability and a good user experience for buyers and suppliers alike. Keep this in mind when selecting your new sourcing solution.

Strategic Sourcing Requires Strategic Suppliers Selected Through Strategic Sourcing Events

And this will generally mean you have to deal with a lot of pushback from those individuals in the company that don’t want to deal with anyone but their preferred supplier (which can be due to bias, laziness, or, in some cases, legal bribes). There will be a lot of reasons given, of various levels of validity, but you will need to bust through them all. To help, here are the standard categories of push-back and how you tackle them.

Our Process is Approved Suppliers Only

This is usually the first response because the individual knows the new supplier approval process is typically an onerous one and not one anyone typically wants to deal with and, thus, has a great chance of working (on anyone except a dedicated buyer). However, a response of “we know, that’s why we’re going to do a multi-round qualification RFI first and we simply need your input on the core requirements so we can get the right suppliers approved” will typically do the trick with this one. Of course, the stakeholder who wants the same (set of) supplier(s) will just move onto the next excuse, but you need to take ’em one by one.

The Supplier Couldn’t Meet our Requirements Last Time

If the supplier was invited, or even considered before, and the conclusion was the price was too high, the product unsuitable, or the overall capability to meet total organizational demand insufficient, the stakeholder might like to use past performance to simply deny the supplier again, even if it’s been two or three years and the supplier might have improved (due to a lean effort they mentioned they were starting last time, new equipment and processes, or other factors). Plus, this doesn’t consider the fact that the supplier (if there were cultural/language barriers) might not have appropriately understood the requirements and put the wrong foot forward.

The answer here is “we understand, but the supplier has been doing X plus we are going to force them to go through the pre-qualification RFI that all new suppliers are going through to make sure they are actually capable of performing better this time before inviting a bid from them“. This will elicit a “grumble, grumble”, but you will be able to press on.

The Cultural / Language Barriers are Too High

Cultural and language barriers are often high, especially if you are going to new countries, but if both parties want to succeed and are willing to work together to succeed, they are not insurmountable, as long as both sides make the effort. You can’t just through a spec in English over the wall and say “you translate and give us your best effort on your own” and expect great results. You need to engage one or more product/service experts who are bilingual (or even trilingual) in the native language(s) (and who has some cultural understanding) for each geography you want to do business in.

This effort will go a long way into getting new suppliers in different geographies who speak different languages to put their best foot forward. The best suppliers will appreciate and reciprocate your efforts and put their best effort into their proposals and might even surprise you. The answer here is “we know, and that’s why we’ve engaged these individuals to be our interpreters and relationship managers — it might not work, but if it does, it could open us up to a whole new array of cost-control and innovation capabilities“.

We Don’t Have the Bandwidth

Once you get through the knee-jerk responses above, a belligerent stakeholder who really wants that preferred supplier will resort to rationalizing that there just isn’t the time to evaluate too many suppliers or re-create all the requirements in a supplier-neutral fashion. This will be hard to dismiss, as chances are the stakeholder doesn’t have the bandwidth and you will need some input from that stakeholder. This is where your negotiation and reasoning skills will be put to the test.

You will need to start by indicating we know you don’t, that’s why we in Procurement are taking on the majority of the workload — all we need is your input and expertise and review before each key document goes out. We realize that there might be some extra work for you, but if this works, we will help you identify new sources of supply (which will increase stability in the event of a disruption or customer demand surge), potentially new sources of innovation, and keep your costs — and your budget, under control. And if it ends up that the best choice is the current supplier, at what appears to be higher than market average costs, you will be able to say in confidence that you made the right choice with all of our efforts to back you up next time the C-Suite decides someone budget needs to be cut. You’ll have hard data while your counterparts, who chose not to work with us, won’t. And since the CFO says all arguments must be data driven … .

In other words, while you might feel the urge to thump out the stupidity, if you take a rational approach, use your negotiating skills, and demonstrate that you are going to take on as much of the extra work as you can, with time, you will be able to convince most of the stakeholders that your way is the right way. (And we say most because if the incumbent supplier is paying for the stakeholders yearly Hawaiian vacation in exchange for a single “talk” at their user event, well, there’s no way you can counter that as it’s completely unethical to source for the best favours. But, fortunately, this will be a very small majority of stakeholders.)

Procurement Won’t Advance Until We F*CK SAVINGS!

… and, in the same breath, F*CK CONSULTANCIES THAT ONLY PUSH SAVINGS!

Recently there’s been a big push by some parties, including Procurious, to lead Procurement into the future, and in Procurious case, it was through an online Big Ideas Summit where they convinced a number of individuals to webcast to digital attendees on the same day on Procurement topics. But Procurement is not going to go anywhere until we first deal with the number one problem, and that is our continual focus on savings because of management’s continual mis-focus on savings.

the doctor is as appalled as the public defender (who blogged his dismay in “Bain Company Insights”) to find out that yet another big consultancy, in this case Bain & Company, recently published an article on Unearthing the Hidden Treasure of Procurement that classified the value of Procurement as the good old consultant’s snake-oil of basic spend aggregation, consolidation, and tough-negotiation to find savings.

Which is another crock of bullsh!t. (Seems we’ve been blogging about those quite a bit lately! But I guess someone has to!) The value of Procurement is cost-control (not savings), demand management, product-and-service-normalization, and overall value generation and maximization. NOT SAVINGS! First of all, there is no such thing as savings — “savings” just means you are paying more than you should. Secondly, anyone who applies proper Procurement principles to a category for the first time can quickly get prices down (near) to market pricing. Thirdly, and most importantly, as the public defender points out, there is no such thing as savings anyway as all savings, and especially those savings that resulted from bringing initial prices below market average, will be clawed back by suppliers, or the [the] new supplier / product [will] turn[s] out to be unsuitable, or oil prices [will] rise or something else happens (like a disruption from new supplier / carrier unreliability).

And this brings us back to our secondary thesis, not only do we have to F*CK SAVINGS but F*CK CONSULTANTS THAT ONLY PUSH SAVINGS! Only two types of consultants push savings, those that don’t know any better (and will not help your organization grow over the long term) and those that have learned the best way to make easy money is to just push the savings agenda because that means that you can re-source the same category every two or three years and if you split the categories appropriately, you will have re-sourcing work negotiating savings on the same categories forever more (because, as costs rise, new, fake savings opportunities will re-appear)!

The only way to move Procurement forward is to shift the focus from cost savings to value creation, with a focus on cost-control (and avoidance, but not savings), demand management, appropriate value-add selection, new supplier identification, and joint product/service innovation — where the real organizational savings will come from. And, as we indicated at the beginning of this post, the only way this will happen is if Procurement forces the conversation away from savings and towards value, regardless of the cost and how many big consultancies we have to tell off in the process!