Procurement Is Dead! Long Live Procurement! Part II

Mr. Smith is right. Procurement is dead. It was doomed, entombed, marooned on a desert island, and passed away peacefully in the night long after everyone had forgotten about it. It’s dead and buried. (See: “procurious big ideas video peter smith and the death of procurement” on Spend Matters.) And you should thankful that the Romans closed the door on the Egyptian Empire’s burial chamber or you would have been buried with it.

Just like the industrial revolution laid waste to the armorer, blacksmith, glassblower, and dozens of other occupations (and just like Video Killed the Radio Star), the internet has killed the purchaser. (May he rest in peace with the radio star.)

Let’s face it. Why would a modern organization need a purchaser anymore? What did a purchaser do?

He could find the one product you needed in a wall of catalogs in a minute and have it expedited to you the next day.

But with Amazon for Business, Alibaba, and about a dozen vendors offering integrated and federated catalog search capability that will allow the organization to integrate the third party catalogs of all of their suppliers into a single interface, who needs a paper catalog? Who needs to even remember the supplier or the name of the product? Today’s catalogues are heavily laden with meta-data with full search capability and anyone, anywhere, and at any time can use them to find exactly what they need, order it, and get it. No catalog expert needed.

Create and fax 3 copies of the RFP to the top 3 organizational suppliers in that category and ensure there were timely responses.

Today’s RFX programs, which support not only RFX templates for supplier information, proposals, and bids, but also support mail-merge template capability for creation and electronic distribution, e-Fax, and portal access, allow a buyer to send the same RFP to 30 potential suppliers in the same amount of time as it takes to send to 3. Plus, since everything is online, all of the data is automatically collected into the same online spreadsheet for instant apples-to-apples comparison, and if offline is needed, formatted spreadsheet output is instantly available. No data (re) entry required.

He could shave 5% off a hard-nosed supplier’s bid with hard-nosed negotiating tactics.

With today’s supply market intelligence, cost modelling applications, and in-depth (predictive) analytics applications that can plot trends across different component and raw material factors across regions and timelines, even a junior buyer has a good idea of how much a product from a supplier should cost and knows when the supplier is quoting a 15% margin (when the industry standard is 10%) and when a simple explanation of facts will be enough to convince a supplier to get in line. Plus, with e-Auctions, open book costing, process analysis, and joint inventory and innovation initiatives, costs can be reduced without any negotiation at all. Who needs a hard-nosed negotiator who only knows the carrot-and-stick method (and always eats the carrot before going into the negotiation)?

Procurement is Dead!

To be continued …

While the Masses descend on ISM, the Masters will have the 50/50 in their Sights.

Today sees the beginning of the annual conference of the 101 year old Institute of Supply Management and the convergence of thousands of professionals upon Indianapolis to take place in the annual four-day revelry of the purchasing profession in the United State of America.

Recognizing that their audience is often more junior buyers than Directors and CPOs, this year the ISM has organized sessions into meaningful tracks to try and help the various purchasing team members understand the basics they need to do their jobs (as few people get any formal education in Supply Management before being thrust into a career, and training budgets are still slim to none in many organizations), with a focus on:

  • Dos and Don’ts
  • Direct and Indirect
  • People & Tools
  • Risk & Rewards

This is a great director for the ISM to go, as today’s buyers need all the education they can get. Unfortunately, there’s only so much that can be covered in a short talk on the critical subject matter a buyer needs to learn in depth to do her job efficiently and effectively (and run the Procurement Value Engine) and less still that can be absorbed, but we should at least applaud the effort of the ISM to make this event worthwhile for their average attendee (and possibly give her some fodder to go back and fight for an actual training budget).

Of course, as usual, the doctor won’t be there as the ISM conference, and the dozens and dozens of vendors with the big marketing budgets that converge upon it, really only represents the average state of Procurement today. As leaders of today and tomorrow, we are interested in the state of the art, what comes next, and what we have to learn — and do — to prepare for it to take our capabilities to the next level because, as we know it, Procurement is Dead and if we don’t redefine our job, and our capability, we will be buried with it.

As a result, in our niche, we don’t need to be bombarded with a dozen, almost equal, Source to Pay platform demonstrations (because we already know what the average platform does and minor UI differences and workflow tweaks don’t add much value) or last decade’s SIM solutions — we need to know which vendors are adding innovative capabilities like auto-correct and auto-suggest to m-way match to eliminate 90% of the “exceptions” that can be automatically handled, data analytics to let us do predictive trending and take advantage of prescriptive (expert-guided) strategies to maximize the value from each sourcing event, and modern SRM platforms that contain development and innovation management capabilities to extract value where the price is already as low as it can go with current materials, production processes, and supply chain designs.

That’s why we will be waiting with anxious breadth for the Spend Matters 50/50 list to find out who the 50 vendors to know are, and, just as importantly, who the 50 vendors to watch are. We need the next advance, and to get ahead of our competitors in tight markets without a significant increase in budget or support, we need it first. And where you are going to find that innovation is in the vendors on this list, and, surprisingly enough, not just the vendors in the “watch” list — some of the bigger vendors in the “know” list, having acquired some smaller companies and top innovation talent, have let their talent loose and there are some amazing innovations in the pipe this year — just not necessarily what, where, and from whom you’d expect.

While the doctor was consulted last year, this year the doctor was heavily involved in the discussion, including the final cut, and can honestly say that not only does this list represents the best cross-section of vendors in the global market, but it will surprise you. And you will be happy it did. And, better yet, there will be a continuation of the deep coverage of all of the vendors on SM (which will include joint coverage by the doctor, the prophet, and the maverick where it makes sense) and on the Sourcing and Complex Procurement vendors here on SI*.

Start the countdown!

* For the most part, SI will not cover the workforce, trade finance, or services providers in depth as SI will remain true to its core focus (which has kept you here for 10 years) on best practices and processes, technology, education, and topics that no one else covers in the Strategic Sourcing Execution Lifecycle (registration required). [However, this still leaves a LOT of vendors.]

Some Good Reading For Your Flight:

The majority of these are now available on the Classic Illuminations page.* (Once vendors are done adv

On Strategic Sourcing:
The Strategic Sourcing Execution Lifecycle e-book, authored by the doctor, sponsored by Trade Extensions

… and Adoption:
Higher Adoption is Where True Value Lies, authored by the doctor, sponsored by Keelvar

On Procurement Value:
The Procurement Value Engine, authored by the doctor and the procurement dynamo, sponsored by Pool4Tool

… and Invoice Automation:
An End to End Invoice Automation Framework, authored by the doctor, sponsored by Nipendo

On Spend Analysis and Visibility
Spend Visibility: An Implementation Guide, authored by the doctor and Bernard Gunther, sponsored by Opera Solutions

On Strategic Sourcing Decision Optimization
Optimization Backed Sourcing Platform … Or Bust, authored by the doctor

On Supply Chain Risk
Playing With Fire: Hidden Risks in Your Supply Chain, authored by the doctor, sponsored by Ecovadis

On Benchmarks and Trend Analysis:
The Dangers of Benchmarking, authored by the doctor, sponsored by Trade Extensions

On Overpayment Recovery:
Taking Capital Recovery to the Next Level, authored by the doctor, sponsored by Lavante

On Your Supply Management Journey:
Taking the First Step on Your Next Level Supply Management Journey, authored by the doctor, sponsored by BravoSolution

* (Once a vendor is done advertising a white paper, SI will generally make it available on this site.)

Procurement Is Dead! Long Live Procurement! Part I

Mr. Smith is right. Procurement, which was very recently Doomed! Entombed! and Marooned! on a desert island is dead. (see: “procurious big ideas video peter smith and the death of procurement” on Spend Matters) While it fought valiantly to survive, in the end, it passed away peacefully in the night after everyone stopped caring.

Your career is over. Just be thankful the Romans sealed up the burial chamber of the Egyptian empire and you will not be buried too.

Your ability to remember which catalog among the 200 on the wall contains the part that is needed, where it is, and what section it is in; instantly locate it, and place the order as soon as the request comes in has already been forgotten. With Amazon for Business (in America) and Alibaba (in China), anyone can instantly find the part they need and place an order for next day delivery.

Your ability to quickly create an RFP template, print out 3 copies, customize an opening for the top three suppliers the organization will typically do business with, and get them faxed out (and followed up on with a phone call) faster than most people can figure out how to copy a single page on the over-complicated copy machine is no longer appreciated. With a few clicks of the mouse, anyone can use a modern freemium RFP tool with integrated mail merge and e-Fax to create an RFP, send it to a dozen people, and print out a call list for the intern to follow up on. 3-bids-and-a-buy is reserved for tail-spend spot buys that would normally be done off-the-cuff with the first vendor that comes to mind.

Your ability to step into a negotiation with a contract manufacturer and, after hours and aggravating hours of hard-nosed carrot-less stick negotiation come back with an offer 5% lower than the Engineering team was expecting is remembered, but now that detailed cost models demonstrate that you are still overspending by 10% (and that the supplier always inflates their offer knowing you’ll be happy with a 5% reduction), even a junior negotiator armed with cost models and the facts can get the same result (and they only get half of your salary).

Your ability to manually process the mountain of requisitions, purchase orders, invoices, and goods receipts that come in everyday in a pseudo-timely manner, when everyone else fears to even enter the room, has been antiquated to the history museum as cloud-based m-way match systems can not only process 100 times the paperwork in near real time, but identify the errors in 90% of the invoices that come in with errors (which can be 15% of invoices in an average organization). Properly configured, this leaves a clerk only 2% of invoices (with more than minor errors) to be manually processed, and even the most junior of clerks can do this.

The reality is this: just like the industrial revolution put an end to the armorer, blacksmith, glassblower and other medieval occupations, the internet has officially put an end to the Purchaser.

Procurement is Dead!

To be continued …

Societal Sustentation 52: Project Management

Good project management is the key to success. After all, without good management, the chances of a project over-running its resource allocation (of time, people, and money), if not failing, increase significantly. So, despite the fact that project management is a sustentation, it can also be a damnation. Especially if you can not manage the project.

One has to remember that project management has evolved over the last six decades or so to manage traditional types of projects that produce structures and goods against well-understood designs and project plans, starting with the need to effectively manage complex engineering projects in areas that include construction, defence, aviation, and shipbuilding.

When project management was being defined, the ENIAC was still in operation, Procurement was placing an order against a printed catalogue, and a company imported a small number of commodities in which they had contacts and expertise. There were no complex software projects, no complex Just-in-Time supply chain projects, and no automated factory mega-projects (which resulted in some of the biggest supply chain failures in history).

Where software development is concerned, there is a rough definition of what is desired, but the beginning and end is a best estimate that is no more accurate than a wild guess in some cases, the resources required (while defined as software architect, developer, network specialist, etc.) are not well understood (as a non-skilled software architect cannot define what makes, or identifies, a good software architect), and the amount of money required is relatively unknown (due to uncertain work effort requirements, unknown support requirements, etc.).

And that’s just software. When it comes to supply chain, the difficulty is intensified. There’s the management of the sourcing, the management of the negotiation and contracting cycle, and the management of the procurement. But before that, there’s identifying the right supplier, which requires detailed understanding of the product technical requirements and the supplier production capabilities. There’s identifying the expected costs, based upon understanding material costs, labour costs, energy costs, tariffs, and overhead. There’s managing the supplier relationship. There’s dealing with disruptions and disasters. And taking corrective actions.
In other words, supply chain projects don’t have well-defined beginnings. Don’t have well-defined endings. Don’t have well-defined workflows. Aren’t limited to a fix set of resources. Don’t always have a well-defined team. And don’t always have a well-known cost (even if there is a target one).

But that doesn’t mean there is no hope. There are steps you can take to maximize project success.

1. Document all the steps.

For example, if it’s a sourcing project, outline a detailed process from needs identification, through sourcing plan, supplier identification, sourcing, contracting, and supplier management. Each of these steps have been done before, and, on a step-by-step basis, the complexity, necessary timeframes, and risks can be fairly well estimated. If the expected time-frame is more time than you have, then you have to either simplify the project, or increase the risk.

2. Crystallize and clarify all the risks — and mitigations.

What are the risks in the project from a supply disruption point of view? Liability point of view? Supplier point of view? Contract point of view? Make sure the risks are clear, the potential repercussions clearer, and the mitigations the organization can, is, and will take perfectly comprehensible.

3. Implement Effective Change Management

Document all the hiccups that occur (for future learning), and when something happens that requires a change in process or timeline, be sure to document it, the change, and work out the updates to the plan. Don’t play it by ear or wing it, because it’s easy to mis a beat against background noise or get caught on a wire. Make the effort to manage the project, and your project management skills will improve.

4. Get Training

There is a very big Project Management Body of Knowledge (PMBOK) offered, and certified, through PMI and a lot of organizations that are expert in project management, including a few niche consultancies well versed in best practice in best practice supply chain management in the areas of sourcing, procurement, contract management, etc. Engage one and get the knowledge your organization needs to manage better software projects.

5. Use a Tool

Some modern suites offer integrated supply management project management capability and if your suite, or custom assembled best-of-breed platform doesn’t, there are best of breed providers focussed purely on sourcing and procurement project management, like Per Angusta. Get a solution, and use it.