Procurement Needs to Expand its Horizons

On Friday, Pierre Mitchell published a great piece over on Spend Matters on how “Procurement Needs to Stop Benchmarking Itself Against Procurement”. According to the post, most procurement organizations know to benchmark themselves against others outside of their own industry, but they often don’t look to completely different functions, processes, technologies, techniques and even cultures to help them find and deliver new sources of value, of which there are many.

Some of the best ideas presented in the post are to:

  • use knowledge management to gather/store intelligence, catalog transformation projects for storyboarding, and model skill supply for resource planning like management consultants
  • get a grip on supply chain network design
  • master competitive intelligence and content/intelligence tools
  • predict model building using all data available to you
  • transition from quality control to supplier enablement and
  • manage the Procurement brand .

Taking these one by one, Procurement can definitely improve by:

  • documenting what it learns from every project and using that to define improved processes and transition management,
  • looking at the entire supply chain before defining the category and the bid,
  • making use of all of the market data available to it to determine how well it is doing and how well it could be doing,
  • building predictive trend models to understand likely order volumes for seasonal / limited life span products,
  • find new potential sources of innovation, and
  • improve the Procurement brand and the reach of Procurement.

We’ll discuss a few of these in upcoming posts, but for now check out Pierre’s post and remember, as we’ll also discuss in an upcoming paper series later this fall, improvement comes from reaching beyond Procurement’s current limited boundary.

Forty Five Years Ago Today

A mere 148 days after the troupe formed, the first episode of Monty Python’s Flying Circus airs on BBC One!

This is a historic day for Canadians everywhere as it was the Monty Python Comedy Troupe that first exposed the world to the inner mind of a Canadian lumberjack! 😉

Follow the link for the Monty Python Lumberjack Song.

It may not have been the image Canadians wanted to project, but at least the world knew that there were Canadian lumberjacks after its release! (Better to have a message with some impurity than to fade into obscurity.)

Now That We’re Done with The “Future” of Procurement …

I asked LOLCat if, in the end, our series on the “future” of Procurement was worth the effort.

However, he side-stepped the question and just told me that, no matter how horrendous they are, never, ever, flush analyst reports of any kind down the loo, no matter how tempted you may be to use them as toilet paper in a pinch.


DisIsWhatIGets
From now on, I guess we’ll just use them as fire-starter material*.

Don’t worry, we aren’t pyromaniacs. the doctor still uses a wood-stove for heat during the cold Canadian winter months.

When it Comes to an Event, How Big is Too Big?

1 Category?
5 Categories?
25 Categories?

10 Commodities?
50 Commodities?
100 Commodities?

50 Lanes?
500 Lanes?
5000 Lanes?

It depends. How much can you handle at one time?

If you’re sourcing with optimization, the bigger the better. Tackle as many categories at a time that overlap with at least one other category, especially if you are dealing with physical goods that are coming from common locations. The way you save on logistics costs is to minimize the number of trucks, which occurs when you can combine as many shipments as possible as to minimize the number of LTL shipments.

Or if you are dealing with multiple service categories that can sometimes be provided by the same contract or temporary labour agencies. For example, engineers and software developers are often offered by the same specialist agencies; warehouse, janitorial, security and other unskilled labour are often obtainable from the same agency; and certain others specialize in legal, accounting, and similar trade professions.

Tackling them all as one mega-project doesn’t mean that you have to negotiate with them all simultaneously or that you have to create massive RFXs, Auctions, or bid-sheets. There’s nothing stopping you from organizing your sourcing events so that each category is being sourced simultaneously by a different team member, co-ordinated so that all of the bids come in simultaneously for a round of global optimizations to determine if there is any overlap in transportation or supply base that would suggest a (temporary) combination of categories or a splitting of transportation into a separate project.

Optimization isn’t just doing the best job you can on the event, it’s defining the right event in the first place. Sometimes the best way to do this is to look at a number of categories simultaneously when they are each in the middle of a sourcing project and see if the definition and split really is the right one. If the mega-optimization suggests something different, re-define the categories and events and continue the right way.

Just make sure that, when the event notice goes out, that you inform suppliers / carriers that the bids will be multi-round and that the scope of the transportation requirements might be increased or decreased after initial bid analysis and further category definition; or, in the services case, that this is a preliminary request for information and rate cards and that the suppliers should inform you of other services they can offer and standard rates for those as you may, if the option exists, expand your requests during the final RFQ / negotiation phase (as you want to be above board during the entire process).

In other words, a project is only too big when it exceeds the ability of your current team to manage it simultaneously. If the numbers involved makes someone fidgety, then it’s time they shape up or you find someone with a stronger backbone. If the tool you are using says it’s too big, then it’s time to get a new tool. It’s not too big if it doesn’t exceed your current potential, which for many leading sourcing organizations is well beyond what they think it is (as a result of sourcing providers with limited skill sets assuming that just because they can’t handle it that their client can’t handle it). There are teams out there that can handle Billion Dollar sourcing projects and tools that supper them. That’s about as big as it gets.

So, as Big Data Promoters like to say, Think Big!

An Analysis of eSourcing’s Fast Growth and Predictions for 2015 & Beyond


Today’s guest post is by Jill Ivancich, COO of MM4, Xchanging’s procurement technology solution. Xchanging is a business process, procurement and technology services provider. To learn more, visit www.mm4.com or www.xchanging.com.

In a recent Market Overview report by Forrester Research, Vice President and Principal Analyst Andrew Bartels reported that the ePurchasing software market will see 10% growth in 2014. Additionally, Forrester and Bartels predict double-digit growth for Software-as-a-Service (SaaS)-based eProcurement solutions, under which eSourcing falls. This is a promising outlook for a market that saw global revenue growth of just 5.9% in 2012, according to research reports.

Big Demand, Right Now

The report compelled me to consider what’s fueling the demand now for eSourcing. Factors like its ability to provide risk reduction, transparency and expedited savings have been big drivers for growth based on my recent experience and customer feedback, along with the intelligence it provides. The continued need to drive savings is causing companies to review their entire sourcing process and bring the best in class tools to help execute. We’ve seen eSourcing become a trusted tool for the everyday buyer — one that combines components like company intelligence, market insights, and user and supplier support. These assets ensure that clients have the intelligence needed to drive real results quickly.

The bigger picture is this: the world of procurement has reached a peak in complexity. Exchange rates have never been more volatile, sourcing destinations are experiencing huge shifts as production and services move away from China and India to new and frontier markets, environmental disasters are massively impacting supply, and trading conditions and regulations are constantly changing. In response, some of the biggest companies in the world are turning to cloud-native, next-gen eSourcing solutions to empower procurement teams to know not just how to source, but also what to source, when to source and from whom to source.

What’s Needed for Increased Adoption

The Hackett Group reports that organizations that leverage the most out of technology see 27% overall better performance within their procurement operations. And that’s exactly where more procurement teams will be investing in the coming years. But right now, we’re seeing interest levels in eSourcing peaking, not necessarily adoption. There’s still progress to be made before we reach critical mass, and that will require addressing the specific pain-points of CPOs and procurement teams, and the ability to transform business as usual with an impactful suite of diverse tools that are intuitive and easy to implement.

For eSourcing adoption to continue on its current growth trajectory, addressing the issue of support and knowledge is imperative. Supplier risk will be critical, especially as new, low-cost markets to source from are being considered more heavily. Integration of third-party information sources, so customer’s workflow and intelligence levels are optimized, will also be key.

To address the challenge of market volatility, cost modeling modules will become more important as part of eSourcing solutions. Identifying key metrics that influence the company, such as exchange rates from current or potential trade regions and commodity prices for key inputs, will be increasingly critical. Focusing on trends and forecasts rather than spot data, which often has little or no direct value in eSourcing, can help to address this challenge.

In terms of competition within the market, looking ahead, acquisitions will lead. However, the acquired won’t necessarily be gobbled up. The technology companies with the right infrastructure in place can still thrive, and my business, MM4, is one example.

Closing Remarks

New technology and service innovation has drastically expanded the applicability of eSourcing, and it will continue to do so for several years to come. As leveraging technology effectively remains a goal for procurement teams, eSourcing will arm CPOs with the intelligence needed to drive real cost reduction, make smarter buying decisions and have deeper visibility into realized savings. Solutions that support the entire sourcing lifecycle will continue to grow in demand, become more refined and play an increasingly large role in driving sourcing success for businesses of all sizes.

Thanks, Jill.