Procurement Sustentation


It’s Procurement for the Damned
Our back’s against the wall
We turn into the light
We’re burning in the night

 

After our year-long series chronicling 101 Damnations and our warning that it will only get hotter, you know that, at least for the time being, Procurement is damned.

As we pointed out last year, the CPO is the Rodney Dangerfield of the C-Suite in the 9% of organizations lucky enough to have a CPO that sits at the table, and Procurement still don’t get no respect. But no respect is just the tip of the iceberg. When it comes to a day in your life, if no respect (and the perpetual kick-me sign taped to your back) was all you had to deal with, you’d have it easy. But from the time you get up in the morning until the time you pass out from exhaustion, it’s one emergency after another, one demand after another, and one impossible goal after another. You’re expected to perform eight miracles before breakfast, Monday morning. Demands get tougher after that.

And, in the interim, you have to deal with an amount of future sh!t being dumped on you that is greater than the truckload Biff Tannen had dumped upon his head in the original Back to the Future movie, way back in 1985. But, as SI has said before, echoing the great public defender Mr. Smith who said (on Spend Matters), all predictions will be wrong.

But the smug clouds that will be created by the futurists, and the vendors that will propagate their smug, will be smothering and when combined with the fires set upon you, you’ll hardly be able to breathe. And in the darkness you will find very little light, or help, as training budgets are still slashed, your platforms are still out of date, and your processes are still from the paper-age.

And that’s why SI is following it’s 101 Damnations series with it’s 100 Sustentations series that, for each damnation you are facing, gives you some tips and tricks to deal with the damnations thrust upon you. It won’t be perfect, but it will at least be something to help guide you through the darkness.

Thirty Years Ago Today …

The first meeting of the IETF, the Internet Engineering Task Force, took place. While not many people know about the IETF anymore, this is a very important body as it not only develops and promotes voluntary Internet standards, but it developed and promoted the standards that effectively created the internet, including the internet protocol suite and the TCP/IP stack.

While it started out with support from the U.S. federal government, it has operated as a standards development organization under the guidance of the non-profit Internet Society. While development of new standards are slow, as it uses a rough consensus guidelines and has to interact with a number of other global organizations and standards bodies, it continues to make progress and is a leading force behind IPv6, which is desperately needed if organizations continue to insist we need an “internet of things” on the global “cloud”. (We don’t, but you can’t stop the marketing madmen.)

The internet that we depend upon daily didn’t just happen by magic, it took the hard work and dedication of a number of organizations. The IETF was one of these organizations, and the internet might not have happened without it.

Is it time to Plus-size?

By now, you’ve probably noticed that the doctor has been contributing on a regular basis to Spend Matters CPO and Spend Matters PLUS, the first of which, like SI and Spend Matters classic, is free, and the second of which is paid (and costs 19.99 / month).

You’re probably wondering why, as SI has always been, and has always been free, as Spend Matters basic, and the doctor will not promote any blog that is not free, because of his belief that if you’re going to have a blog with the intention to inform and educate, you make sure its accessible to all.

However, Spend Matters PLUS (a subset of their PRO business offering) is not a blog, and, sometimes blogs are not enough. Why?

Unless a blogger has a large amount of sponsorship money, or is independently wealthy, (s)he can only spend so much time on the blog on a daily basis, and only impart so much knowledge and wisdom to you. (And if a blogger does generate such a significant income from sponsorships, you have to question how complete the material is as many sponsorships come with a high price tag*.) But, as SI has clearly explained over the past year, you are in Procurement hell, facing dozens of damnations on a daily basis, and the knowledge and wisdom you need to get smarter and more efficient is much, and the amount any one blogger can impart is minimal.

When it comes time to select a new solution, define a new process, or define the next challenge, you need a lot of knowledge and a lot of wisdom, and the chances that any single blog, or blogger, will have recently written everything you need is slim.

You could go to a big analyst firm or a niche consultancy to get a customized report or recommendation, but that costs a lot of money, and if you’re not sure what you need, it could be a waste of money. But if you have more knowledge and insight on the topic, you can narrow in on what you need and if you do need to hire an analyst or a consultant, you can focus them in on your needs, spend less, and get more.

Over on Spend Matters PLUS, the prophet has assembled a team of experts who are contributing detailed pieces on technology, process, and relevant topics that you as a Procurement professional will need deeper insight on, at some point over the next year, on a regular basis. In addition to the prophet, who is an expert on P2P, marketplace analysis, M&A, and solution evaluation, you have regular contributions from:

  • the maverick who is the top analyst and supply management framework developer in the space,
  • the anarchist who is one of the leading operations research, supplier management, and process evaluators in the space, and
  • the public defender who is an expert on procurement process and public sector procurement and an international correspondent

among other experts who chime in from time to time. And the articles are deep. The average length of the articles that the doctor has been contributing on are 4 pages. That’s about 3 times the average length of an SI post. And most of the articles are part of in-depth multi-part series that give you more information on a topic than most analyst firms will.

Now, is it right for you? That depends. If you are a lucky one who works for a progressive Procurement organization, then you might have subscriptions to analyst firm research and market intelligence firm publications or training academies that provide you with a wealth of knowledge and not need much more. But, if you work for an average organization which frowns on you taking the time to even fill out a subscription for a free publication, it’s more than you could ask for given the price.

SI’s recommendation is that it’s worth it. And the recent series the doctor has collaborated on, including multi-part series on Contract Lifecycle Management (platforms), Supplier Relationship Management (platforms), Marketing Spend Management, Direct Material and Commodity Spend, among others, are among the most in-depth and encompassing series on the subjects you will find anywhere. It’s not a replacement for SI or Spend Matters (CPO), but a resource that fills in the gap when your organization won’t pay for the knowledge you need and you’re forced to acquire that knowledge yourself. As this is only the second paid resource SI has ever recommended (the first being the NLPA for new Procurement professionals who still need the foundations), you know there has to be something there.

* It’s sad to say, but some companies won’t sponsor unless they get one or more of the following: final say over what is said about them, final say about what is said (or not said) about their competition, the right to guest post whatever they want on a schedule, the right to whatever marketing or registration lists you have, and/or the right to write their copy and have you stamp your logo on it (and both SI and SM have seen examples of this on “blogs” in the past — sometimes the copy wasn’t even edited and was clearly written by an internal PR person of the company the “brief” was about who couldn’t even run a simple spell check), etc. Finding sponsors who will support pure education, and not request anything more than a simple fact check on pieces on them, is a lot harder than a reader or aspiring blogger might think.

You Might Be Getting the Basics Right, but That’s Not Enough

Last November, the public defender ran a great post over on Spend Matters UK on how “Procurement [is] Still Not Getting the Basics Right – and it’s Happening Too Often” and that’s not only why Procurement is often getting a bad rap, but why Procurement is getting a bad deal.

Case in point, the example given by the public defender where a recent tender used a complex scoring mechanism that scored “price” and “discount” separately and, even worse, weighted early payment discount higher. As a result, a tender of 100 with a 3% early payment discount got weighted higher than a tender of 95 with a 1% early payment discount! In other words, a best case cost of $97 was preferred over a best case cost of $94.05 — an overspend of almost 3%! That’s outrageous.

Another case is point, suppliers of complex services get invited to participate in electronic sourcing events with no prior engagement, and a tick-bock procurement process with no scope to include references, case studies, or suggest site visits for creative discussion. How should such a supplier expect to be judged, if they even expect to be judged at all? This is the well-known classic three-bids and a buy when you already have the bid you plan to accept. A smart supplier will not bid.

Now, as a regular reader of SI, that’s not the common practice in your Procurement department, but it doesn’t mean the common practice is good enough. Just because you know to weight all price factors in unison, that doesn’t mean that the weighting is right. If quality, reliability, delivery time, guaranteed delivery of supply, or another factor is critical, it needs to be weighted as highly. No point getting a 3% unit discount if you lose out on 20% of sales due to late shipments and stock outs. All of the critical factors need to be included and weighted, and, just as importantly, the suppliers must be made aware of the criticality of each factor so they can determine whether or not they even want to bid. If you need 15 days delivery, and a supplier can’t guarantee less than 21, the supplier needs to know that up front. Otherwise, they will get upset that they wasted time bidding on a tender they could not win.

Similarly, it’s not enough to do a proper, verbal, invitation over the phone, give the supplier a chance to include references, case studies, and suggest alternative proposals, if you know that one of the critical requirements of the bid or organizational preference (or prejudice) would preclude the supplier from getting the award. It’s not professional to invite the supplier unless you believe the supplier has an honest chance.

It’s not enough to do the process right if you want to be the BEST Procurement organization. To be the BEST Procurement organization you need the best process and the best ethics. You need to be known as the honest buyer who only invites suppliers who will be evaluated fairly and have a fair shot of winning the business if they are willing to tighten the belt buckle and make an honest effort of putting the best proposal forward. Then, when you make the award, no matter who gets it, chances are, you will be among the customers of choice from day one because you wanted to be both the best Procurement organization and the best customer.

So get the basics right. And then do one better.

Contract Lifecycle Management VIII: Are You Ready for the Journey?

In this series, we have defined and discussed contract lifecycle management (CLM) and the requirements for an extended contract management solution. In the first few posts we laid the foundations for the series by discussing the various processes and supporting solution elements that surround CLM as a way of bounding the CLM solution space. We subsequently detailed the requirements for a CLM system from a data and process perspective, as defined by our CLM wheel model.

However, in our series to date, we’ve largely ignored the commercial performance management aspects that CLM also needs to support. This goes beyond the strategic aspects, and the performance and obligation management aspects, to the competency requirements and the integration requirements necessary for an organization to not only use, but maximize the value from, such a system.

In particular, at a minimum an organization needs to consider, and obtain support for:

  • Procure to Pay
    because CLM encompasses everything that happens between a contract being signed, which is where traditional strategic sourcing ends, and the supplier being paid for goods delivered and accepted
  • Compliance beyond Invoice Matching
    because while this is critical to prevent overspending (and the need for expensive cost-recovery), there are also insurance requirements, regulatory requirements, and other requirements that, if not met, could be much more costly
  • Risk Management
    as one unexpected, and then unmanaged, event can result in a 20% overspend instead of a 10% savings

And this is just the beginning. Depending on the organization, the following could also be critical:

  • IP Management
    if it has a lot of intellectual assets
  • License Management
    if it uses a lot of software products (and instances) or licenses a number of works for publication and distribution
  • Inventory Management / System Integration
    if the organization requires a lot of assets to be purchases, leased, and managed during the contract term to fulfill its obligations

And, of course, other commercial aspects could be important as well for organizations in a specific vertical. To find out more about some of these areas, and why you can’t forget the commercial perspective when evaluating contract management systems and prioritizing the must haves, should-haves, and nice-to-haves, check out Part VIII of the doctor, the prophet, and the maverick‘s series on Contract Lifecycle Management over on Spend Matters Plus (membership required).