Optimizing Your Procurement Technology Investments


This post originally ran on March 24, 2009.

The Sourcing Interests Group recently ran an interesting article on “optimizing your procurement technology investments in 2009”. Although it had some good suggestions, my top five suggestions would be the following:

  1. Get Visibility Into Your Spend (Spend Analysis)
    If you don’t know how much you’re spending on each category, sub-category, product, and service, who you’re spending it on, in what amount, by unit, you need to get this visibility. Get a good spend analysis solution and dive in!
  2. Take Your Strategic Sourcing up a Notch (with e-Sourcing)
    Start with the most attractive savings opportunities that were outlined in step 1. This is your best bet to negotiate big savings in this downturn.
  3. Focus on Contract Compliance (adopt Contract Management)
    You need to enforce hard-won savings by insuring that internal staff and suppliers are compliant with contractual agreements.
  4. Implement e-Procurement
    Done right, this will make it easy for your buyers to buy on contract.
  5. Get a Grip on Global Trade (adopt Trade Visibility solutions)
    Chances are your global sourcing endeavors are needlessly costing you more than you think! As per my recent Illumination on why you need trade visibility, you’re probably paying more than you need to on duty, using costly inefficient processes, paying unnecessary document preparation costs, and making costly errors that are costing you million of dollars a year.

Federalist No. 22

In Federalist No. 22, Hamilton continues to discuss other defects of the present Confederation.

He starts with a discussion of the regulation of commerce. He concludes that it is indeed evident, on the most superficial view, that there is no object, either as it respects the interests of trade or finance, that more strongly demands a federal superintendence. This is because the want of it has already operated as a bar to the formation of beneficial treaties with foreign powers, and has given occasions of dissatisfaction between the States.

He then goes on to note that in commerce, and other matters, the interfering and unneighbourly regulations of some States, contrary to the true spirit of the Union, have, in different instances, given just cause of umbrage and complaint to others, and it is to be feared that examples of this nature, if not restrained by a national control, would be multiplied and extended till they became not less serious sources of animosity and discord than injurious impediments to the intercourse between the different parts of the Confederacy. This not only prevents the creation, and adoption, of trade treaties but also lays the foundation for civil unrest, as discussed in previous essays.

Then we have the harsh reality that the power of raising armies, by the most obvious construction of the articles of the Confederation, is merely a power of making requisitions upon the States for quotas of men. This has resulted in a competition between the States which created a kind of auction for men where they outbid each other till bounties grew to an enormous and insupportable size. It should be clear that this method of raising troops is not more unfriendly to economy and vigour than it is to an equal distribution of the burden as it was a regular occurrence that States were delinquent in the supplies of men, the supplies of money, or both.

This in turn illustrates the absurdity of the right of equal suffrage among the states in the Confederation. Every idea of proportion and every rule of fair representation conspire to condemn a principle, which gives to Rhode Island an equal weight in the scale of
power with Massachusetts, or Connecticut, or New York. Its operation contradicts the fundamental maxim of republican government, which requires that the sense of the majority should prevail.

To give a minority a negative upon the
majority (which is always the case where more than a majority is requisite to a decision), is, in its tendency, to subject the
sense of the greater number to that of the lesser.

And to require unanimity is even worse. The necessity of unanimity in public bodies, or of something approaching towards it, has been founded upon a supposition that it would contribute to security. But its real operation is to embarrass the administration, to destroy the energy
of the government, and to substitute the pleasure, caprice, or artifices of an insignificant, turbulent, or corrupt junto, to the regular deliberations and decisions of a respectable majority. This is because, in those emergencies of a nation, in which the goodness or badness, the weakness or strength of its government, is of the greatest importance, there is commonly a necessity for action. The public business must, in some way or other, go forward.

And then there is the want of a judiciary power. Laws are a dead letter without courts to expound and define their true meaning and operation. Thus, the treaties of the United States, to have any force at all, must be considered as part of the law of the land. This can only happen if they can be submitted, in the lat result, to one SUPREME TRIBUNAL that is instituted under the same authority which forms the treaties themselves.

When all is considered, we conclude the necessity of laying the foundations of our national government deeper than in the mere sanction of delegated authority. The fabric of American empire ought to rest on the sold basis of THE CONSENT OF THE PEOPLE.

It Doesn’t Matter How Strategic The IT Vendor Is …

This post originally ran on April 1, 2010, which is ironic as this post was as serious as you can get. And, in case you haven’t figured it out yet, this is technology selection week as it’s that time of year when many of you will be renewing your technology solution provider agreements or looking for new ones. Since SI has already given you a lot of the secrets in these classic posts, I’m reposting them to set the foundation for my Technology Selection 2012 post. So be kind, refresh, and rewind.

It Doesn’t Matter How Strategic The IT Vendor Is … it matters how strategic the solution they offer is! I shouldn’t have to point this out, but after encountering a recent article in Intelligent Enterprise on the “10 most strategic IT vendors” which basically just tooted the horn of the usual suspects (IBM, SAP, Microsoft, Oracle, Cisco, HP, Teradata, VMWare, and EMC), I feel that I have to because most of their primary offerings — namely operating systems, hardware, networking products, and virtualization software — are not strategic to your business at all! Even relational databases and ERPs on their own are not strategic anymore. Everyone and their dog has a database these days, and ERP is open source software now (think Compiere). You can even get a professionally managed solution with unlimited records in the cloud for as little as €99 a month from providers like Erply.

And just because no one ever got fired for buying IBM, it doesn’t mean it was the right decision. The value isn’t in the name, it’s in the solution that is being delivered and the returns you are able to generate. If SAP or Oracle was everything you need, why would
BravoSolution, CombineNet, DecideWare, FieldGlass, Global Data Mining, Hiperos, Iasta, JDA, all the way through Wallmedien, and hundreds of other companies have successful businesses when they all have solution offerings that are fundamentally based on the analysis of transactional data stored in relational databases? Because the “strategic” is in the advanced analysis that the big-name vendors offering old-school solutions don’t have yet, or only have through acquired solutions (as SAP has acquired Ariba and IBM has acquired Emptoris since this post first aired).

So don’t get suckered by the name or the market size. What’s important is what the solution can do for you and whether or not the vendor is financially stable and will be around to support you on it. If the ROI is there and the vendor’s not going anywhere, after confirming that the solution meets your (global supply management) needs, you go for it. Simple as that!

Federalist No. 21

In Federalist No. 21, Hamilton returns to the helm to discuss other defects of the present Confederation. His goal is to proceed in the enumeration of the most important of those defects which have hitherto disappointed our hopes from the system established among ourselves.

The next most palpable defect of the subsisting Confederation, is total want of a SANCTION to its laws. The United States, as now composed, have no powers to exact obedience, or punish disobedience to their resolutions. There is no express delegation of authority to them to use force against delinquent members. As a result, the Confederation provided us with another example of an extraordinary spectacle of a government destitute even of the shadow of constitutional power to enforce the execution of its own laws. This puts it in a weak position relative to the powers of Europe.

The want of a mutual guaranty of the State governments is another capital imperfection in the federal plan. This is a rather sad state of affairs as, without a guarantee, the assistance to be derived from the Union in repelling those domestic dangers which may sometimes threaten the existence of the State constitutions, must be renounced. Usurpation may rear its crest in each State, and trample upon the liberties of the people, while the national government could legally do nothing more than behold its encroachments
with indignation and regret.

The principle of regulating the contributions of the States to the common treasury by QUOTAS is another fundamental error in the Confederation. Not only does this result in an inadequate supply of the national exigencies, but it can weaken the overall economy. IN addition, since the wealth of nations depends upon an infinite variety of causes, this implies that there can be no common measure of national wealth and, of course, no general or stationary rule by which the ability of a state to pay taxes can be determined. As a result, the attempt to regulate the contributions of the members of a confederacy by any such rule, cannot fail to be productive of glaring inequality and extreme oppression. The inequality would of itself be sufficient in America to work the eventual destruction of the Union. The reality is that there is no method of steering clear of this inconvenience, but by authorizing the national government to raise its own revenues in its own way.


The suggestion put forth is that these taxes should be levied on articles of consumption, as they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end proposed.

Why Your “Peers” Buy Stupid Products


Since we’re on the topic of technology acquisition, which for many of you translates into SaaS renewals, it’s a great time to dig this post up from the archives, that was originally posted on 6-Jan-2010, on why your “peers” buy stupid products because it’s a great education on the pitfalls you could fall into if you lose sight of the goal.

For a while, I was thorougly confused as why your not-so-enlightened peers (who aren’t the smart and sexy leaders and innovators that you are, as they don’t constantly educate themselves and read industry leading blogs like this one) buy stupid products. While there are a number of great products out there, which I attempt to profile here on Sourcing Innovation as often as circumstances permit, there are also a number of bad products out there (which fall into the “products I don’t cover” bucket, which, to be fair, also contains “products of vendors who still think new media is a fad not worth spending time on” [even though they should probably be covered on SI]). This mix includes some really bad (installed) products that, year after year for reasons that escape me, keep selling, often for obscene amounts of money — especially when you consider what these products actually do compared to what newer, leaner, meaner, SaaS products do for a fraction of the price.

After a few enlightening conversations with some old pros and highly intelligent consultants (who shall forever remain nameless to protect the innocent), I have realized it is either because

  1. the buyers are timid field mice afraid to make a mistake;
  2. the buyers are lazy and inept, they know it, and they don’t want anyone to find out; or
  3. the buyers are yes-men and work for managers who are morons and
    • way too easily impressed by flash without substance; or
    • way too easily impressed by name dropping; or
    • (real) good buddies with (a member of) the vendor management team (who they just happen to be sharing a hotel room with on a regular basis)

In the first case, the buyers often look for the biggest vendor in the space who currently has the “best” reputation and simply use the “Well, no one ever got fired for buying IBM” excuse, replacing IBM with the “big” vendor of the day. This isn’t always bad, as some of the current “big” vendors do have some pretty darn good solutions, but it often is a bad choice because not all products in their “big” vendor solution suite are equal, and, most importantly, even the best product the “big” vendor has might not be appropriate to a particular company’s situation. An MRP won’t solve your problem if what you really need is an on-line RFX and e-Auction tool.

In the second case, the 9-to-5 buyers — who give intelligent, hard-working, and successful procurement professionals like you a bad name — are pretty sure that a good product would quickly uncover the millions of dollars of waste from unmanaged or non-compliant spend, or quickly uncover the lack of process that allows maverick spend to run unchalllenged, or quickly uncover the sheer amount of work they are not doing but should be (like managing spend, sending out RFPs, doing post-bid briefings, etc.) and want to do everything in their power to make sure that they get a solution that is as inept and inefficient as they are.

In the third case, even if the yes-men identify, and want, a good solution, Maury the Management Moron steps in and strongly recommends the worst solution identified (and indicates the buyer’s job could very well depend on making the “right” choice) because:

     

a) it has a nice flash interface with (useless) dashboards and colorful graphics-rich reports that make his under-developed brain go “ooh” and “aah” (while failing to tell you anything that you didn’t know already, like you spent 800M and your top 10 suppliers included 8 of the suppliers you regularly send million-dollar purchase orders to)

b) the company has a lot of “big-name” competitors as customers and / or a number of “big-name” companies your CXO really admires and, therefore, must know what they’re doing and be the right choice (even if they haven’t upgraded their solution in 5 years).

c) the company “obviously has a superior product” even though the real reason is that the company has one or more senior managers that are your boss’ golf buddies and/or hotel room buddies.

And sometimes, it is a combination of these reasons. The buyer knows he is lazy and/or inept, isn’t overly concerned with improving himself, but desperately wants to keep his job (which pays very well considering the amount of effort he actually puts in). He also knows he works for Maury the Management Moron who is easily impressed by flashy dashboards and pretty reports and so chooses a solution that will simultaneously make Maury’s mouth moisten while failing to uncover anything that could be embarassing and jeopardize his job in anyway.

For example, for our timid buyer with Maury the Management Moron for a boss, it would be really bad if he acquired a modern contract compliance system when he recently spent Millions on the current EIPP system two years ago and just found out it contains a big gaping hole, that a few of his suppliers have been exploiting since it was installed, that allows the supplier to charge whatever they want on substitutions and holds, regardless of what contract pricing is in place. For example, he just found out that if:

  1. he punches out for a SKU and
  2. the vendor is out of stock and
  3. the vendor places the order in the “on hold” queue because they don’t want to reject the order then
  4. when the SKU arrives and
  5. the vendor brings up the “on hold” order to “fill” it
  6. the price field isn’t carried forward to the “active” queue so
  7. the vendor can enter any price it likes, which is usually “list” and
  8. the system doesn’t do an invoice-price-vs-contract-price comparison, allows the “list” price, and doesn’t even flag it as pricing that violates the contract.

So, because he thought a few million would buy him perfect software (and didn’t do his homework), he just assumed everything was wonderful, paid what the vendors asked, and lost millions over the last couple of years. He’s not entirely sure how many millions, but is fairly certain that 15% to 20% of purchases were made off of contract pricing. He can’t let the boss find out! (Even though there are specialist consultancies out there who are great at finding these overcharges and helping their clients recover their money.)

Finally, he knows that his boss, easily impressed by flash, is too dumb to realize that dashboards, static reports and “real time alerts” are — when you really think about it — incredibly stupid ideas at the core. For example, so what if the boss can instantly see that 90% of shipments are on time. All that tells you is that 10% of the shipments are not on time. It doesn’t tell you what shipments, to whom, why, and more importantly, what to do to fix the situation. A report that you spend 10M with Wesley’s Widgets isn’t very useful. If that’s all I have, here’s how the negotiation is going to go. “We demand a 10% discount because we spent 10M last year.” ‘So? The price of steel went up 20% … you should be thankful we only raised prices by 15%!‘ “Uhm … erm …” If I don’t know what % was on steel parts, and what % of cost was steel in those parts, I can’t negotiate anything meaningful. And how useful is a “real time alert” at 3 am in the morning that tells you that your container is stranded 500 miles from port because the 3PL forgot to transmit the manifest 48 hours in advance and the carrrier isn’t allowed to enter American waters. Not! You need a system that tells you what you have to do before the order is shipped.