Why You Should Not Build Your Own e-Sourcing System, Part I

In a recent post titled “thinking of building your own e-sourcing system please don’t” over on Spend Matters UK, Mr. Smith (who went to Washington, as per Buy, Buy, Buy, Once Bitten Twice Shy) asks you to please, please, please not build your own e-Sourcing system because, apparently, a few public sector organizations have this crazy idea that they can build their own and that it can compete with best-of-breed solutions on the market today.

Wow! Today’s best of breed systems have been built on fifteen-plus (15+) internet years of development, implementation, integration, and customer support experience by seasoned professionals who have had numerous bouts with weariness and wisdom. (And since we all know that internet years are measured in cat years, that’s really ninety-plus years of experience.) How could any average organization, especially in the public sector which is typically behind in technology and running on the B-Team (since unionized pay scales typically mean that they can’t afford the A-Team that commands private sector pay scales) really think they can come up with anything close?

In addition to Mr. Smith’s arguments that, especially in the public sector, you are:

  • going to waste OUR money building it,
  • waste exorbitant amounts of money keeping the system up to date and compliant with ever-shifting legislation, and
  • only feed those dangerous delusions (until the Smug reaches critical mass and puts us at risk of a disaster of epic proportions),

there are dozens of reasons NOT to build your own e-Sourcing system, or to even think that there is the slightest of chance you could build your own.

In addition to the standard reasons of:

  • Lack of Sourcing Domain Experience
  • Lack of Software Design Skills
  • Lack of A-Team Software Development Talent

in Sourcing, you also have to deal with the traditional software challenges of:

  • Big Data
  • Real-Time Requirements in a Distributed System
  • Variable Workflows

as well as a host of challenges in each of the main, traditional, areas of:

  • Spend Analysis
  • e-Negotiation (RFX & e-Auction)
  • Decision Optimization

which, to make it abundantly clear that no public and private organization should even remotely consider building their own e-Sourcing system, will be discussed in detail in the next three posts. Unless your core business is a software development and delivery organization specializing in Sourcing or Source-to-Pay, when it comes to building a modern e-Sourcing system to meet the needs of the organization and identify savings and value, just don’t do it. Put those Nike’s back in the closet and break out those Carolinas.

Spend Analysis Solution Selection: What to Look for in Software and Services

As the author penned in Spend Visibility: An Implementation Guide,

“Almost any attempt by an organization to analyze spending patterns is likely to be fruitful, especially if there hasn’t been a serious prior attempt. It is easy to find thousands of breathless testimonials about a particular product or method — independent of the quality of the product or method — because almost any product or method will find savings if a spend visibility initiative has never been launched before. In the land of the blind, the one-eyed man is king“.

This simple fact has confused end-user organizations and analysts for many years. In fact, it has convinced most spend visibility vendors (and most analysts) that spend visibility is a fundamentally simple process of mapping Accounts Payable spend, and then drilling for dollars.

But Nothing Could Be Further From The Truth!

What is not so obvious is that this initial burst of savings is short-lived; and that many of the “quick saves” that result are unsustainable.

Especially if an organization does not select the right solution in the beginning that will allow it to define, and implement, a strategy that will allow it to identify continued savings year-over-year after the initial burst of savings are captured.

However, there’s no reason for an organization not to select the right software or services, because, it’s easy to select the right solution once you are informed. If you don’t know where to start, the next Next Level Purchasing Association (NLPA) members only webinar on July 28, 2015 @ 8:30 am PDT, 11:30 am EDT, and 16:30 pm BST, will provide you with a starting point as you evaluate software and services providers.

Specifically, this webinar will focus on helping an organization identify:

  1. key features of a spend analysis platform,
  2. critical requirements for successful services, and
  3. what to look for in a full-service solution

so that the organization may achieve spend analysis success. In particular, the kind of success that will generate a year-over-year average savings of 10%+.

Space is limited, and only NLPA members will have the opportunity to attend this webinar hosted by the doctor of Sourcing Innovation, but Basic Membership is Free, so there’s no reason to miss out. Sign up today, and very shortly you’ll receive the notice of the upcoming webinar that will allow you to register for this very informative webinar.

Two Hundred and Sixty Five Years Ago Today

Only one year and 20 days after its establishment as a town, the City of Halifax was almost completely destroyed by a fire 265 years ago today. Everyone remembers the great Halifax Explosion of 1917 when the SS Mont-Blanc, a French cargo ship loaded with explosives, collided with the SS Imo, a Norwegian vessel, caught fire, and burst in a cataclysmic explosion that devastated the Richmond District, killed 2,000, and injured another 9,000. But this wasn’t the first time Halifax was nearly destroyed by fire.

The first time was on July 11, 1750 when Halifax recorded the first fire of major proportion in Canada which almost wiped out the entire town. [Sources: Halifax.ca, FireHouse(.com) and Wikipedia] That’s probably why published fire regulations in Halifax date back to September 29, 1752 and
the Halifax Regional Fire and Emergency Service dates all the way back to 1754 and why Nova Scotia lays claim to a host of first in Canadian firefighting, including:

  • the first hand-propelled fire engine
  • the first steam-propelled fire engine
  • the first motorized pumper

And Halifax came close to being destroyed again in 1786 when a great fire raged in the woods on the outskirt of the city, a fire so great that the town was so enveloped in smoke for many days, as almost to impede business. (Source: History of Halifax City)

In other words, despite the fact that fate apparently wants to burn Halifax to the ground, we Haligonians are tough stock.

Correlations are Good, Causations are Better, but Models are Best!

the maverick recently penned a great post on “Spurious Correlations, 150% Cost Savings and How to Justify Your Next Procurement Project” on Spend Matters that expounded upon the classic problem of second rate analysts, who didn’t read the classic post where the Brain gives Pinky a lesson in Statistics, using correlation to infer causation. If you listen to these analysts, you’ll find yourself in the same situation Roy Anderson was in when he was former MetLife CPO. Namely, the situation where if I added up all the promised savings from vendors and Aberdeen Reports, I’d be saving over 100% and suppliers would be paying me money! Not very likely, is it, but definitely the conclusion you’d draw if you stacked enough Aberdeen reports end to end!

After all, with enough data, you can find all sorts of near perfect correlations between (almost) completely unrelated data sets. For example, Pierre points out that if you go to tylervigen.com and check out the spurious correlations on the site, you’ll find out that there’s a near perfect correlation between

  • the number of people who drown after falling out of a fishing boat and the marriage rate in Kentucky (r=0.95),
  • the total number of computer science doctorates awarded in the US and the total revenue generated by arcades (r=0.99), and
  • the annual number of automotive suicides and the number of Japanese passenger cars sold in the US (r=0.94).

And while you might believe that computer science doctoral candidates spend all their free time in arcades, do you believe that buyers of Japanese passenger cars buy them to commit suicide or that somehow the marriage rate in Kentucky has something to do with the number of people who drown after falling out of a fishing boat? (I hope not!)

As Pierre notes, it’s important to have a good ROI model that really looks at the “R” and the “I” realistically. A model that uses ranges that allows you, as an analyst, to play around with assumptions and adjust the results based upon modifications to the assumptions. Procurement might want to be aggressive, but management might want to be conservative. Procurement might assume an abundance of supply, but Engineering, knowing that only a couple of suppliers are qualified to produce the refined raw materials needed, might want to assume a lack of supply based on the fact that these refined raw materials are becoming increasingly sought after. And so on.

Without a detailed model that captures all the cost components and the assumptions they are based on, Procurement can’t be realistic in its projections or its project requests. Analyst reports with benchmark data are a great starting point to identify where to look for savings, but the savings still have to be validated before a proposal is put forward.

Ten Commandments of Procurement, Christian Style

On Canada Day, while LOLCat was proactively learning the pledge of allegiance, Mr. Smith asked what were” The Ten Commandments of Procurement” on Spend Matters that you adhere to that were absolutely, unarguably, true under all conditions (and offered a prize for the best set of commandments submitted).

Now, this is a challenge, because your commandments are, inevitably, going to depend on your Procurement religion. Just like a Buddhist is more concerned with the five precepts than the Christian ten commandments, a Procurement professional overly concerned with supply assurance in CPG is likely going to implicitly follow a different set of commandments than a Procurement professional overly concerned with risk management in Food and Beverage where contamination results in more than a costly recall. While someone is unlikely to get lead poisoning from a single model train covered in lead paint, someone is very likely to die from a severe salmonella contamination.

That being said, if you are a devout Christian Procurement professional, there is a set of Procurement commandments you likely follow on a daily basis, and to get this topic going, SI is going to define them.

10. You shall not covet status or budget you do not have.

While you may deserve the status and the budget, coveting it does you no good. Instead, you work to find ways to reduce costs and save money so that you can work out deals to jointly apply savings against against new tools and platforms to help both parties perform better in the future. By doing right, and succeeding, budget and status will come.

09. You shall not bear false witness against any supplier.

Whether the supplier performed well, performed poorly, or performed average — the truth is never obscured and all the data is laid bare, regardless if this is a supplier recommended or selected by Procurement. And Procurement works with the organization to lean why the supplier performed as it did, what the organization did well and what the organization could have done better, and what the supplier could have done better and uses that knowledge to improve its next set of supplier interactions.

08. You shall not allow or enable fraud.

Fraud costs an average organization 1% of its revenue, but some organizations lose even more. A recent study by Oversight in 2014 found that about 1% of 10 million transactions filed during a three-month period in 2014 on corporate expense reports proved fraudulent, amounting to $13.7 million in losses. Moreover, a study by the ACFE found that in 75.6% of their cases involving expense reimbursement fraud, the perpetrator was also engaged in at least one additional form of occupational fraud. Procurement will actively work with Accounts Payable to identify systems and processes to identify, and stop, fraud and will insure that no one in its organization is committing fraud to set an example.

07. You shall not support corruption.

Procurement shall not deal with third parties that engage in corrupt activities — including bribery, money laundering, or dealings with denied parties and terrorist organizations — and will do its best to identify systems and platforms that will prevent and detect any attempts at bribery and corruption within the organization.

06. You shall not allow unsafe working conditions or unfair worker treatment.

Not only will Procurement make sure that all of the organization’s workers (full time, contingent, etc.) are treated fairly, but that the organization only deals with suppliers who also adhere to the same principles. Every supplier will ensure that each worker’s rights are honoured and that its suppliers also do the same.

05. Honour the wisdom of your elders as the platform is the enabler, not the full solution.

Old timers that did Procurement before modern internet enabled platforms and actually succeeded at reducing cost and identifying value have a lot of wisdom about the right way to go to market, the right way to qualify a supplier, negotiation techniques that work, gotchas to look for, and processes that can be made even better with new tools and technologies and they should be listened to and respected.

04. Remember the organizational strategy, and adhere to it.

Procurement’s mission is to support the organizational strategy, not to set or change it (without consensus of the C-Suite). Everything it does should be aligned with the chosen, and agreed upon, strategy.

03. You shall not take the name of the Stakeholder, your Customer, in vain.

Without the Stakeholder and its needs, Procurement would not be needed and would not exist in the average organization. It is there to meet the needs of the Stakeholder, needs which are derived from the needs of the organization’s customers. It must respect those needs, no matter how strange, and not take the name of its reason for existence in vain.

02. You shall not make idols of preferred suppliers.

Personal feelings have no place in Procurement, only performance does. If the supplier performs poorly, it performs poorly — and Procurement will not hide that fact, even if it was Procurement’s recommendation. But more importantly, if the supplier performs (exceptionally) well, the supplier performs (exceptionally) well and that will be taken into account in the next sourcing event. However, Procurement will not give itself accolades or try to convince the organization of the supplier’s greatness. The supplier will be allowed to rise or fall on its merits (and performance).

01. You shall have no process before The process.

Procurement will have a process for sourcing organizational goods or services, and will always follow that process, even when sourcing goods and services for itself. Procurement is not above the process.