Why Your Tech Selection Should be KPI, and not Bell-and-Whistle, Focussed If You Are Not Technical! Part III

If you won’t admit your TQ (Technical Quotient) is rock-bottom, you won’t spend (or aren’t allowed to spend) budget on an outside expert focussed on Project Assurance, and decide to go ahead with selecting your own ProcureTech solution, then you should make a point to focus your selection around your best practice KPIs. First of all, your management will be happy if you improve against them. Secondly, some of the best KPIs actually require you to have good platforms in place if you are to improve against them.

To demonstrate this, in our first two installments, we began, and continued, a discussion of the 21 Key Performance Indicators (KPIs) for Procurement that Tanya Wade shared because they are a good starting point (as you don’t want too many KPIs as THE REVELATOR pointed out in his analysis). Today, we’re going to continue with the final 7 KPIs, addressing the remainder of the 21 KPIs outlined by Tanya.

Category & Spend Analytics

   Top All Spend Categories

Your top spend categories are not static, and nor are your top savings opportunities, as those are a subset of the top categories NOT currently under management — and that’s what you care about. This necessitates a great spend analysis solution that tracks spend in real time and allows you to track your top categories, filter those out not under contract/management, analyze price variance/market price to find your top opportunities, and then you can pursue those for opportunities.

   (Top) Maverick Spend Categories

Building on all spend categories, this focusses on the categories for which there are contracts, and are classified as “under management”, but where there is a lot of maverick spend that is costing the organization money and even customer of choice reputation with key suppliers. This requires a great e-procurement system that tracks all the spend and a great spend analysis system that analyzes the spend against the contractual requirements.

   Tail Spend

Tail spend might sound insignificant, if it’s only 30% of the spend, but the reality is that, because it is completely unmanaged, the average over spend across categories is 15% to 30%, which gives a savings potential of 4.5% to 6.0% on the spend vs maybe an average overspend of 5% on the upper spend categories that are partially to fully managed (without strategic sourcing decision optimization and advanced analytics) for a savings potential of maybe 3%. Thus, an e-Procurement solution that tracks and manages tail spend is absolutely crucial to spend under management, cost savings, and (future) cost avoidance.

Sustainability & Diversity

   Diverse Supplier Spend

This may not mean a damn thing in the “anti-woke” USA, and even be a turn-off to those white-skinned men related to the boss who acquire their position based on “merit”, but in most countries in the world, especially where there are government programs and incentives for diverse suppliers, where diversity actually improves your brand value, and where people are smart enough to realize that diverse views can actually bring ideas you wouldn’t have thought of into your supply chain, the ability to track and measure (but NOT mandate) this matters. This requires a good supplier management platform with deep profiles and the ability to correlate performance with innovation so buying organizations can determine the right level of diversity to have in their supply chain.

   Sustainable Spend

Again, while this may not mean a damn thing to American C-Suites with the American Federal Government rolling back environmental legislation to the early modern era to the point that Sourcing Innovation had to pen a piece on the Chief Sustainability Officer: USA Edition, this is very important in Europe and the Rest of the Developing/Developed world which has, and is continuing to introduce, environmental legislation and critically important to anyone with enough forward thinking to realize that the production of goods and services that require scarce and dwindling non-renewable resources, too much energy, or too much freshwater is coming to end due to shortages of raw materials, energy, and freshwater globally and sustainability is the key to corporate survival. Thus, a GHG, carbon, energy, and (fresh) water tracking solution, either as part of the supplier management or analytics platform, is becoming key to sustainable (and continually profitable) sourcing and procurement.

Innovation & Collaboration

   Joint Supplier Projects

You need the ability to create, manage, track, and report on projects that require supplier innovation/joint supplier development, especially in direct supply chain as this is critical to gaining, and maintaining, an edge in an ever-evolving marketplace. Suppliers will often hear of new techniques and production technologies and options before you will. Plus, you want them to be figuring out how to give you the best product at the best quality and the best price, otherwise, why are they your strategic supplier? This will require a great supplier onboarding, collaboration, development, and management platform.

   Idea Implementation Rate

You need the ability to not only track the number of ideas a supplier submits for quality, delivery time, or cost improvement, but how many are determined to have potential and how many ultimately get realized. This is important for two reasons. One, you want your suppliers to be helping you improve over time. Two, you want to focus on strategic relationships with suppliers that give you workable ideas you can use and do use over time. This also require a great supplier onboarding, collaboration, development, and management platform.

In other words, all of these KPIs require not only good solutions to track them, but great solutions to improve them. While these KPIs don’t necessarily dictate the full, appropriate, breadth of Source-to-Pay tech that you should have (because the sourcing and contract management platforms could be minimal to non-existent, etc.), they do provide a way to help you judge the appropriateness of a vendor if you can’t effectively judge the underlying technologies.

When looking for new ProcureTech software, simply include ALL of your Procurement KPIs in your RFP and require that the vendor’s response:

  • indicate which KPIs it will improve,
  • by how much it expects to improve those KPIs based on other customers usage and experience, and
  • describe in detail how its solution will enable you to realize those improvements it is promising

while also requiring that the demo include an actual demonstration of the solution performing all of the indicated workflows and functions necessary to achieve the KPIs it promises. This will be much more appropriate than their typical bells-and-whistles show that, as per our recent series, looks great but, in actuality, is quite useless as those bells and whistles in the demo turn out to be cells and thistles in production.

Why Your Tech Selection Should be KPI, and not Bell-and-Whistle, Focussed If You Are Not Technical! Part II

If you won’t admit your TQ (Technical Quotient) is rock-bottom, you won’t spend (or aren’t allowed to spend) budget on an outside expert focussed on Project Assurance, and decide to go ahead with selecting your own ProcureTech solution, then you should make a point to focus your selection around your best practice KPIs. First of all, your management will be happy if you improve against them. Secondly, some of the best KPIs actually require you to have good platforms in place if you are to improve against them.

To demonstrate this, in our first installment, we began a discussion of the 21 Key Performance Indicators (KPIs) for Procurement that Tanya Wade shared because they are a good starting point (as you don’t want too many KPIs as THE REVELATOR pointed out in his analysis). Today, we’re going to continue with the next 6 KPIs, bringing our discussion to 14 total.

Compliance & Risk

   PO Compliance

This requires a good P2P (Procure to Pay) or I2P (Invoice to Pay) solution that can do 3-way match against the PO, the Invoice, and the good receipt to ensure that the supplier is honouring the contract pricing and the PO quantity, and ensuring this ensures that the cost savings you negotiate actually materialize.

   Contract Compliance

This requires a great P2P or I2P solution that can not only ensure the supplier is honouring the price and quantity, but also the lead time, quality, milestones and rebates that they promise. It also requires a great contract lifecycle management solution that can track the organizational’s obligations, such as hitting an order volume by a threshold to unlock a rebate or additional discount, reviewing a new product design or doing a quality test, or making investments/payments on time (to keep the supplier’s cost of capital, and your costs, down).

   Supply Base Risk

This requires a great SRM/TPRM or (spend) analytics solution that can build integrated risk cubes that allow you to determine your overall supply base risk by geography, category, or other relevant factor.

   % of Audited Suppliers

This will require a best of breed S(P/R/L/X)M+ / TP(R/C)M solution that tracks supplier audits and can tell you the percentage of suppliers who have been audited over the past quarter and year. This is especially important if you need to adhere to carbon/GHG regulations or there is a risk of labour exploitation in the supply chain.

Operational Efficiency

   Procurement Cycle Time

This requires a great P2P platform that tracks every action from requisition through RFQ through PO through acknowledgement through invoice through receipt (in the warehouse) through delivery to the requisitioner, can compute the average cycle time end to end as well as the average time in each step, because if the cycle time is longer than industry average, or not decreasing over time, it’s critical to understand which step is the problematic one.

   Automation Rate

This is key. Your automation rate for data processing and tactical tasks should be 90% or higher. There is no excuse today for anything less. And it doesn’t have to be new-fangled experimental Agentic AI that may or may not work. Classical RPA, finely tuned for various Sourcing and Procurement activities, is just fine, as long as you are not manually shuttling data from one system to another, setting up a sourcing event for something you’ve sourced before when the contract is coming up for renewal, manually doing that monthly PO to restock inventory when demand is steady/contracted and predictable, manually building those dynamic spend cubes and manually refreshing them, etc.

Come back tomorrow for the final set of KPIs that Tanya states you need to address and how they will help you select solutions that might actually realize value for your Procurement organization.

Why Your Tech Selection Should be KPI, and not Bell-and-Whistle, Focussed If You Are Not Technical! Part I

If you won’t admit your TQ (Technical Quotient) is rock-bottom, you won’t spend (or aren’t allowed to spend) budget on an outside expert focussed on Project Assurance, and decide to go ahead with selecting your own ProcureTech solution, then you should make a point to focus your selection around your best practice KPIs. First of all, your management will be happy if you improve against them. Secondly, some of the best KPIs actually require you to have good platforms in place if you are to improve against them.

To demonstrate this, we are going to take the 21 Key Performance Indicators (KPIs) for Procurement that Tanya Wade shared because they are a good starting point (as you don’t want too many KPIs as THE REVELATOR pointed out in his analysis). Today, we’re going to start with the first 8 (even though 8 is clearly not enough).

Cost Management

These KPIs will require you to have an e-Sourcing platform in place with good reporting, and/or a spend analysis platform in place with good category management (since, theoretically, if you like the extra work and headache, you can continue to source using e-mail and PDF/Excel templates and get good results if you are guided by a good category management solution and have a good analytics platform to compare the results).

   Cost Savings

You can’t compute, track, and present the cost savings KPI in real-time without an e-Sourcing solution with integrated reporting, or a modern spend analysis solution that updates the cube on every synch with the CLM and ePro system. Both improve your Sourcing focus!

   Cost Avoidance

This requires understanding the current market price vs. the price negotiated, which might be higher than the previous price. If the price paid under the last contract was $1.00 per unit, the current market price, due to supply shortages, is $1.30, but you negotiate $1.15 per unit, you have a cost avoidance of $0.15 per unit, which can be substantial if you need 100,000 units and would have to pay market price without a contract. Without a spend analysis solution that can pull in these market prices and your negotiated prices, it’s very hard to show the cost avoidance your team secures.

   Spend Under Management

This requires a top notch spend analysis system that can suck in all organizational spend across systems, categorize it against a sufficiently defined taxonomy, link each category that is under contract to the associated contract, and then compute spend under management vs. spend available to be managed vs. all organizational spend.

Supplier Performance

These KPIs will require you to have a good supplier management system in place that goes beyond simple onboarding and relationship management system (which even the suites have, even if clumsy), and allows you to truly track supplier performance and supplier ratings.

   Supplier Lead Time

In order to track supplier lead time, you need a good e-Procurement platform that tracks the lead time promised in sourcing, the date the order was placed, and the date the goods receipt was logged in the system. This way, you can track the average lead time across all orders as well as against the promise, and if the supplier is not meeting the promise, you know you need to order earlier and kick off a supplier development project.

   On-time Delivery

You need a good e-Procurement system to track both the delivery date vs. the expected delivery date based on the lead time, but the delivery date vs. the promised delivery date in the acknowledgement, because if a supplier indicates they need extra time for a larger than anticipated order, and you don’t cancel, they are on time if they meet the promised delivery date.

   Supplier Fill Rate

You need a good e-Procurement system to compare the order to the goods receipt to track the fill rate over time. This is critical because if the supplier keeps underdelivering, you risk costly stock-outs, which become more costly if they shut down production lines in a manufacturing or cause customers to start shopping at a competitor’s (online) storefront because the competitor actually has the stock they promise.

   Supplier Defect Rate

You need a good e-Procurement system or a good Supplier Management System to track the number of defects and compare that to the fill rate to track the defect rate, which is very critical, especially if you have SLAs that you are depending on when you make your orders (as a higher than allowed for defect rate could result in stockouts and even expensive production line shutdowns).

   Supplier Rating

This requires a top notch supplier performance management solution (which is a small fraction of the supplier management platforms); a top notch spend analysis system that allows you to build and analyze performance, compliance, and risk cubes; or a top notch SXM+/TP(R/C)M solution that allows you to build Supplier 360 ratings, which is critical to understanding how well your supply base is serving you and how well you are supporting your supply base.

Come back tomorrow for the next set of KPIs that Tanya states you need to address and how they will help you select solutions that might actually realize value for your Procurement organization.

What is a Strategic Supplier Relationship?

Simple question. Sophisticated answer.

This was posed by THE REVELATOR in a recent LinkedIn article referencing his recent post on Procurement Insights’ Influence on Walmart’s Supplier Management Transformation.

First of all, the supplier has to be strategic.

For it to be strategic, it should be a supplier that is strategically selected, strategically engaged, strategically developed, and strategically managed. The goal of all of this should be to identify, build, and maintain a stellar supplier, as per a series we did here on how do you identify a truly stellar supplier.

But it’s more than that. Because strategic is more than just identifying long-term aims and interests and the means of achieving them, it’s execution. And when two parties are involved, its execution on both sides.

This means that it’s also critical that you are a strategic customer for the supplier. And while it’s hard to completely define what that is, as every supplier could have their own definition, at a minimum, just like a supplier should be stellar for you, you should be a customer of choice for the supplier, a topic we’ve also covered in the past.

But that’s not enough, because you can classify a supplier who supplies high-volume components as strategic with stellar service based on a set of KPIs, and the supplier can classify you as strategic based upon spend threshold and the fact that you always pay your invoices on time, and there can be nothing strategic about the relationship.

Unless there is active collaboration, a mutual commitment to mutual development, a shared goal along strategic objectives, and trust, there is nothing strategic about it and the relationship will fall apart the minute a major disruption or event occurs such as a supply shortage two or more tiers down in the supply chain that forces a supplier to choose which customers get their orders and which don’t (because it cannot fulfill all its contracts due to a force majeure event), or a sudden bankruptcy from your customer that forces you to cancel a big order (which will result in them not bidding/accepting further business from you).

For a relationship to truly be strategic, there has to be regular communication and collaboration on the shared goal of supporting the upstream supply chain of your current and potential customers utilizing the same values (sustainability, quality, performance, etc.) and a commitment to work together to solve problems when the going gets unexpectedly (and almost catastrophically) tough. When there is a shortage of a critical material, you will get your supply first, or if that’s not possible, the supplier will work with you to design an alternative (that uses a different raw material) or find alternate sources. When your biggest customer goes belly-up bankrupt, you will work with them to find additional, substitute, business you can give them to maintain the relationship and the business until you find a replacement customer.

Strategic means dependable, and that the dependability is both ways.

Procurement And Supply Chain are Drowning in Wannabes

We see it daily on LinkedIn.

Twenty-something founders on LinkedIn claiming their Configurable Agentic Gen-AI Enhanced Systems (CAGES) (with marketing messaging coming straight from the A.S.S.H.O.L.E.) will solve all your problems, although they don’t have a clue what those problems really are, and even if you told them, they wouldn’t have a clue themselves how to solve your problems because they have no real knowledge of, or experience with, Procurement or Supply Chain.

New-Age Influencers barely out of college giving themselves nicknames like the Supply Chain Sovereign or Sourcing Sorcerer and promising you best practices and deep insights in your daily email but who have never stepped foot outside of the big consultancy and don’t know anything beyond the 7 year old playbook they were given.

Advertisements from the Big X Consultancies or “Next-Gen Analyst/Services Firm” promising to replace your workforce with AI Agents, despite the 95% failure rate (as only 5% of AI projects have led to a return, which is 2.5 times worse than a traditional technology project, where a whopping 12% are now delivering a return), and somehow do so cheaper (despite the soon to be exponentially rising costs of LLMs as compute costs go through the roof due to a lack of energy to power them and water to cool them).

As so astutely pointed out by Mr. Koray Köse’s in his recent article on how our supply chains are literally drowning in wannabes who mistake theory for expertise, when the gap between their theory and reality could never be wider!

In theory, Procurement is easy. In theory, Supply Chains are smooth well oiled machines where I order X from you, and you ship it to me. In reality, nothing could be further from the truth!

Nothing makes the point clearer than when Mr. Köse points out that most of these so called “experts” could not pass his Economic Order Quantity (EOQ) exam question, which is totally correct, as I will dive into in a future post. (This is because, among other things, 1. the classic “textbook” formula isn’t always right, 2. doesn’t understand volume breaks and supplier economies of scale, and 3. requires you to be able to do actual math and logic to figure it out.)

Mr. Köse’s excellent article reminded me, as Bob Ferrari and I pointed out in a joint series in late spring on how Legacy Sourcing and Planning Solutions Struggle with Supply Chain Challenges, Direct Procurement is Failing. There are three big reasons for this:

  1. Direct Procurement CAN NOT be cut off from supply chains, as we outlined in detail in our 7-part series.
  2. Everything Mr. Köse’s addresses in his post!
  3. Most Analysts and Consultants fall into this fake “visionary” and “guru” category as well! (They’ve never worked in supply chain or worked hand in hand with experts with decades of experience trying to build useful solutions for those experts to use. One of the best example of this is when these f6ckw@ds use third party analyst firm studies to tell you that your headcount is too low or too high or your tech investment too low or too high without having an actual clue what your company actually does or what your Procurement and Supply Chain personnel actually do. [These Masters of Business Annihilation believe they can manage off of a spreadsheet when, again, nothing could be further from the truth. There’s a reason that the first Gilded Age was ruled by Engineers, they actually knew how to run a company! All today’s financiers can do is take a company with stratospheric profit potential and have it come-apart mid-flight, with Boeing being a prime example — if Engineers were in charge, planes wouldn’t be falling apart in the sky AND the revenue and profits would be a lot smoother!])

Over the summer, Bob and I reviewed over 40 recent studies from the past 5 years from big analyst firms and consultancies on the state of Procurement & Supply Chain — and they all have the same two things in common:

  1. they all tell you about the same barriers/roadblocks, risks, concerns/priorities, and talent gaps that are facing Procurement and Supply Chain
  2. they don’t tell you what to actually do to solve these issues (except, of course, “drop Agentic Gen-AI in” because that will “auto-magically solve everything“) because they don’t have a clue how to address these real world problems!

(Right now we’re trying to figure out how to write our next series, or maybe book, on how you actually address the issues with real process and real supporting technology to get results, assuming, of course, you have real talent that’s been-there, done-that and not these tech-bro AI hipsters that literally can’t create a PO [or even read a contract without putting it through faulty AI first]. It’s quite challenging because, apparently, no one has actually tackled writing something truly helpful before in our joint space and we’re struggling on how to make it useful and digestible in the age of marketing sound-bites!).

The reality is that, just like Procurement has not changed since the first handbook was published 136 years ago, neither has Supply Chain! While Mr. Köse doesn’t explicitly say this, he does allude to the fact that we’ve had global trade for THOUSANDS of years and we’ve always had the same challenges (that revolve around geo-politics, risk, cash-flow, and trust) — it’s just that we’ve replaced paper with digital bits and found new ways to make it more complicated. However, the processes, goals, and realities are the same — and you’d know that if you ever actually worked in or supported global supply chains (and not just pretended you understood what they were to try and sell your shiny new tech toy)! If you don’t understand this, you’re going to continue the 25 years of project failure (where the technology project failure rate is now at an all time high of 88%) and possibly be the next great tech-led supply chain disaster!

Finally, Mr. Köse was right again! Orchestration really is just clueless for the popular kids, selfies included!

P.S. If you haven’t figured out yet that you should be following Mr. Koray Köse on a weekly basis, then figure it out now. You might think that some of his forays into geopolitics or broader supply chain is not all that relevant to your daily Procurement tasks, but the reality is that if you don’t keep up with what’s going on in the world and how that could impact your supply chains beyond tier 1, you’ll be in for a real shock to the system. This is because, when you least expect it, a critical product or component won’t show up, the supplier will be unresponsive, and you’ll have no notice that you immediately need to find a replacement (but because that supplier controlled a significant percentage of market share, there won’t be one). Unlike Billy Idol’s shock to the system, yours won’t feel so good when this happens. (But if you keep up with major events, you can identify those that may impact your supply chain, verify or disqualify, and then start working on mitigations for those that might impact you significantly before it’s too late.)