Cognitive Procurement is Coming …

But precisely what form will it take?

Over on LinkedIn, the procurement dynamo asks what is the role of machines in the future of Procurement? Why? Because, in some cases, machines are now, supposedly, threatening the knowledge workers because they can collect and process more information, memorize way more than we can, and enable us to do things that were previously impossible.

And that is true, but they are still not intelligent. They can emulate intelligence through (evolutionary) programming, they can make predictions (using advanced mathematical based algorithm) that hit the mark much more often than the average analyst, and they can find connections we miss. But at the same time they can emulate grave stupidity when they decide to direct you to the camping supply store when a Brit asks for a torch, make false predictions when they just compute the trend without taking into account supply and demand, or connect carpentry to stock trading because both deal with floors. All algorithms have breaking points, especially near untested boundaries. But you don’t know where they are or when they’ll be hit.

The reality is that even though some knowledge workers are being displaced, the need for knowledge workers to create, maintain, and improve these algorithms … and find new areas in which they can push capability forward. Every time an algorithm or machine displaces someone out of an existing job, a new job is created, even if it’s not that apparent. True, a good software solution can replace 10 to 100 workers doing brute force tactical or grunt work with one or two drivers, but someone has to build the software, sell the software, maintain the software, and start a new initiative to build the next generation. Plus, when a company isn’t focussed on non-value add activities, they can dedicate teams to identifying and chasing value-add activities — who might even create new lines of business, and new jobs, in the process.

So yes, the procurement dynamo is right, the future will be man and machine, in a delicate dance, and the focus will be on cognitive activities, but mainly on the human side … finding ways to properly apply, and verify, new technology. Weeding out the false positives with intelligence, identifying the false negatives with insight, and finding new applications the machines themselves will not.

Thus, the true form of cognitive procurement is smarter Procurement Professionals with more TQ than they have today.

Are You An Idiot? Stupid? Dumb? Oh, and Happy New Year to You Too …

Today’s guest post is from Dalip Raheja, President and CEO of The Mpower Group, and is reprinted with permission (as it originally appeared on The Mpower Group Blog. (Dalip provides us guests posts as well.)

Obviously that’s a rhetorical question and not one that I’m asking but it was in an article that stated:  ”Any idiot should be able to work out that publicly-quoted advertising holding companies (whose margins are public knowledge) have to make their money somewhere…..” (Stephen Foster) and I’m pretty sure that the idiots he was referring to are the procurement departments of various advertising agency’s  clients.  What the author is referring to is the practice of extremely low priced contracts from the agencies but who then get compensated from the media owners (where ads are bought) in the form of rebates.  Think of it as the rebate that car dealers get from auto companies thus muddying up the price you actually pay for your car.

Almost all the major advertising holding companies and reportedly a few others are under investigation by the Department of Justice for taking rebates (kickbacks?).  Stephen points out that this is a result of overzealous procurement departments squeezing the last penny out of contracts thus forcing the agencies to make up margins through rebates.  Another article goes on to say, ”Procurement has triumphed in commoditizing marketing, and its tentacles are deepest in media. Blind e-auctions and a general policy of letting agencies know the cheapest bid will win have stripped out nearly all the visible profit from media.”  Not only has this led to the rebate conundrum but also in agencies directing business to sister companies within the family and also led to the recent scandal of getting third parties to submit high bids so that in-house production units would end up winning the business (also under investigation and resulted in jail time in 2002).

For those that have followed this blog and our work over the years, this should sound a bit familiar – all the way from “Strategic Sourcing is Dead” to the more recent “Back to the Future – Strategic Sourcing is Dead – or It Should Be… ”.  We have long argued that the over-the-top focus on lowest price by procurement was actually destroying value and this would be a perfect illustration of that.  While procurement drives results that deliver to their own metrics, the marketing department suffers as they are not getting the service levels they need and are still paying higher prices – except on a different set of invoices.  Here are some additional comments from different authors: “If brands continue to turn everything into price, if they continue to screw cost so tightly ….then they would be stupid not to realize there will be mission (scope) creep.”  “If brands can’t see how reducing everything to cost at first saps the big agencies….. then they are dumber than anyone could have ever thought.”  Seems like everyone wants to call us idiots, stupid and dumb!!!

Google recently announced a formal “rebate” program where they are paying the agencies for placing ads with them accompanied by this gem, “If you hit certain thresholds and depending on the market, a check is paid back to the agency, which the agency should theoretically pass back to the client,” said a Google source with detailed knowledge of the program. “The agency will then divvy it up by client. P&G gets X and Visa gets Y.”  So procurement feels great that they negotiated a great contract with their agency but are willing to pay more for the actual ads and let marketing then fight to get some share of the rebate from the agency!!  Only in Strategic Sourcing does that make sense .  It’s almost similar to buying lots of things in a store because they are on sale and you can document huge savings – even though you don’t need half the stuff you bought?

The good news is that more and more of the conversation at various conferences is starting to get away from cost and much more into value (TCO=Value Destruction??). Unfortunately, the relentless focus on price/cost is not losing a lot of steam with procurement in most companies.  In the above example, it has changed the way the entire industry operates and is in fact lessening the options and competition for procurement by forcing a lot of independent agencies out of business – all brought upon by strategic sourcing practices.  Perhaps those calling us idiots, dumb and stupid may have a valid point?  I leave that up to you to decide.

Thanks, Dalip!

It’s Time to Go Beyond Supplier Management, But Where is That?

Supplier Management has been a thing ever since Aravo burst onto the scene back in 2003 and made it a thing with their Supplier Information Management solution. Since then we’ve progressed from just tracking contact information and associated documents to tracking and managing performance metrics to putting in place the foundations of relationship management.

But’s that just the beginning. As per a recent Primer on “What is Supplier Management” post over on Spend Matters Plus [membership required], the following overlaps Supplier Management:

  • Corporate Social Responsibility (CSR)
  • Supplier Information Management (SIM)
  • Sustainability Initiatives
  • Supplier Development
  • Risk Management
  • Compliance

But even this is just the tip of the iceberg. There’s also:

  • Contract Management
  • New Product Introduction
  • Maintenance, Repair and Operation (MRO)
  • Services and Service Management
  • Spend Analytics

Supplier Management is a difficult subject because it is key to Supply Management, and that’s what it’s all about. And we know where Supply Management is, and has been, but where does it need to go. It’s a hard call, but three things we can say for sure are:

Visibility. In order to manage your supply chain, you need to see beyond your supplier. Especially if you are buying contract manufactured goods and not taking the time to understand where your suppliers parts, components, and raw materials are coming from.

Value-Driven Design. These days, it’s not just the lowest cost product that wins the game. There is corporate social responsibility in making sure there is no slave or abused labour in the supply chain. Sustainability both in terms of materials used and in their production and harvesting. Carbon footprints. Reclamation and recycling laws. And so on. You need to go beyond design for supply and even design for three Rs and design something that captures value to each segment (supplier, consumer, and regulatory body) that the product touches. And that’s almost impossible to do on your own.

Verocity. Organizations these days need more than traditional historically focussed spend analytics that tell them, weeks or months after, what was spent, on what, from whom, by whom, from where, to where, and in what quantity. You need to know what is being spent, by whom, on what in real time … and where the dollars are trending towards. Is a new supplier taking all of the spot buy spend, or even worse, spend that is supposed to be on another contract? Are product and services tastes changing? Are market costs changing? The application has to not only be able to keep up, but identify the most pertinent trends and options for dealing with them … it has to have advanced predictive analytics that, at the very least, identifies the most relevant changes (and ranks them by value or statistics or outlier distance from the expected norm), if not offering prescriptive analytics on how to take advantage of changes, minimize losses, or control them in (historically) well understood situations.

More requirements will surface as markets move, but this should help you understand that supplier (relationship) management is not enough.

The Key to e-Sourcing Success (Free Webinar)

e-Sourcing has been touted as the key to Sourcing and Procurement success and savings for almost two decades, with many providers promising double digit ROIs from their platform. While it is possible for any organization to reach this level of savings with a good e-Sourcing process and platform, the reality is that only a fraction do. But why? Especially when this should be a mature technology, when over a dozen players seem to have all of the same foundation technology, and when the process is well known?

The answer: the platforms are bought, but not used. A little overlooked statistic is that even though close to half of modern Sourcing and Procurement organizations have some form of a modern platform, the average utilization of the platform is typically 25%. In other words, only 1 in 4 people are using it or only 1 in 4 events are being put through it. If the promised ROI depends on 90% utilization but the utilization is less than a third of that, of course the ROI will never materialize.

So why aren’t platforms adopted? It’s proven that they can deliver the savings, so they are effective. Their online nature means that you don’t need fax and e-mail, so there is some efficiency. So what’s the problem? Just because a platform checks the functional boxes, it doesn’t mean it meets the organizational need. And if a platform doesn’t meet the need, it will be avoided, not adopted.

The key to e-Sourcing success is platform adoption, which means that the most important characteristic in platform selection is adoptability — which is often the least evaluated characteristic when organizations are comparing feature function check lists, estimated ROI, value-add, etc. And the key to adoption is adoptability. What makes a platform adoptable? That’s what this webinar will focus on … because the reality is that even a mediocre platform that is adopted 100% will deliver a 3X return over a best of breed platform that is adopted 25%. So imagine the return your organization could see if it replaced its unused e-Sourcing with an adoptable best of breed platform. Curious? Join us next Tuesday, February 7, 2016 @ 10:30 Pacific, 12:30 Central, 13:30 Eastern, 18:30 GMT for our webinar on The Key to e-Sourcing Success.