I’m Getting Fed Up of all These “Thought Leader” and “Influencer” Lists. How About You?

As I stated in a response to Jon THE REVELATOR Hansen in his comment on my M&A Mania post,

How is a newly minted Procurement professional with no training, no support, and very little technical training supposed to find the educational resources she needs to learn what she needs to progress in the overwhelming tsunami of marketing sound bites and influencer dribble?

Especially when, every other day, you have some yahoo PR person at Vendor X picking 10 random people and calling them “procurement thought leaders” and telling you to follow those individuals when the PR person doesn’t even appear to have a real Procurement thought in his head to begin with and has no clue who the experts are and aren’t? And, more importantly, which of these “thought leaders” will actually try to educate you vs dribble influencer garbledy-gook at you in hopes of getting another subscribe.

For the majority of these people, it’s all about subscribers, and not about actually helping you.

At the end of the day, all that most of them care about is:

  • the ego boost when they can say that after only 2 years they have way more subscribers than you
  • the nickel and dime subscriptions they will convince you to sign up for (because those can apparently add up if you get thousands of them, but I’ll never know because I’ve never charged a reader and I never will)
  • the notoriety they get that will help them land a high profile job and a higher paycheck

And when that last one happens, say sayonara to them as their blog/site/newsletter will be shut down faster than a greased pig powered by greased lightening.

If they even last that long.

For those of you who only entered Procurement in the last decade, I know you probably don’t know who I am (as I ignored linked in while at Spend Matters because that was the job of marketing) and I’m fine with that (because I don’t want you following me or chewing up my site resources until you’re ready to stop chasing these 15-second-of-famers and start learning, but more on that later), but you need to know this:

Sourcing Innovation, only six months younger than Spend Matters, is the second oldest independent Procurement blog/site in the space [June 2006] (with THE REVALATOR‘s Procurement Insights being the third [May 2007]) and the one with the most FREE educational content sitting there for your perusal and consumption (with over 6,000 articles, which is now considerably more than Spend Matters since the great purge of ’23 during the site upgrade and 3 times that of Procurement Insights — but it wouldn’t be fair of me to not note that THE REVELATOR was one of the first to venture into regular podcasting for a while and has an archive of those podcasts that SI doesn’t have).

Over these past eighteen (18) years I have seen over a dozen dozen blogs / independent sites (that’s 144 for those of you who don’t like mental math) come and go, along with over a dozen major publications and “associations”, with a considerable majority of these influencer blogs/newsletters fizzling out within 3 years when the newly minted blogger / thought leader / influencer didn’t get the fame and fortune they expected and decided it was just too much work for too little, or, in most cases, NO, return. (And if they got noticed and got a nice job offer by someone desperate for some expertise, bye bye blog.)

Side note: For those without the long term memory, from ’07 to ’17 I maintained a resource site that tracked, among other things, all of all the blogs, publications, associations, annual events, webinars, vendors, and consulting firms, so when I say I’ve seen over a dozen dozen come and go, I mean it. (For those who don’t know the history, I stopped because I started working with Spend Matters in 2016, and thus suspended conflicting sponsorships and I wasn’t going to continue it for free because it was a massive amount of work that brought no value to me and little to my readers relative to other efforts I could focus on [especially when vendors couldn’t even be bothered to fill out a simple web-form for their events and listings] — but Spend Matters did have the Almanac, did track and advertise the important events (for a while), and did provide some of this service to the space.)

In short, most of these “thought leaders” or “influencers” aren’t here for the right reasons, and of those that are, most of them won’t stick around for the long haul when they realize the financial return is not here.

But this is not my biggest problem with these “thought leader” and “influencer” lists, because we’ve always had people out for fame and fortune, and always will. My biggest problem is that they don’t help you, even the well intentioned ones.

The average level of Procurement maturity today, unfortunately, is not much better than it was two decades ago when those of us in the space since the beginning (by 2000) started writing about it, along with what was needed process, training, and technology wise to make it better. As a result, you don’t need “thought leadership”, you need “executable advice” and “real-world education” that can help you improve your understanding, processes, and platforms (with proper selection) to get you to the next level, or at least through your job today. And you need no nonsense advice to help you cut through all the sound-bites, buzzwords, and marketing hogwash that you are linguistically assaulted with on a daily basis. Not some feel good life stories, fantasies, or divine prophecies that may never come to pass.

And not only do you need this education, you need it from someone who will still be here tomorrow, the day after, next month, and next year and will stay here until they are found dead hunched over whatever replaces the laptop writing yet one more article to try and help you be a better Procurement professional, which THE REVELATOR has stated is how he expects to be found. Furthermore, nless technology improves to the point where I trust AI dictation and editing software, it’s likely how I’ll be found as well.

And while there are again hundreds of want to be “thought leaders” and “influencers” (like there were about two years after I started), there are still very few I trust will still be here in two years after the next big market reset (which THE REVELATOR predicts will affect 3 in 4 companies), as there are very few now that have been around 4 or more years, who have been through good and bad times, and who have demonstrated they are here to stay, no matter what hardship is thrown their way.

But where’s that list?!?!?

Unfortunately, only in the heads of those of us who’ve been here since the early days and seen so many come and go, and that’s where it will stay because you can’t create a lot of regular bullshit PR posts when you can only make one or two ten educators to follow lists.

So if you truly want to learn, do your research and find those of us who’ve been around providing free advice for over a decade, while sometimes living like penniless artists, because we believe education is paramount for the space to progress and get the recognition it deserves.

Or if you just want entertainment, or a good story, go watch a TED talk instead. It will be more inspiring and more useful in the long run.

And unless you want education, direct advice, truth, and a constant attack on the massive levels of bullcr@p in today’s marketing that have reached peaks that have never been seen in the 29-year history of our space*, don’t follow me!

(As Bif Naked would say:
GET OFFA ME! AWAY FROM ME! GET ME OUTA HERE!
LET GO OF ME! DON’T FOLLOW ME! DON’T WANNA BE YOUR LEADER!

I want to educate, not lead. Besides, as I said before, I’ve been there and done that. #)

 

* FreeMarkets, the first Procurement company, was founded in 1995; it was later acquired by Ariba, which was later acquired by SAP as their Source to Pay platform that all of you who have had to use it love and hate today.

# Before Spend Matters in ’16 (to ’22), Sourcing Innovation (and vendor consulting) was my full time job, my goal was to pay the bills (though not necessarily live well) off of SI alone, and I did. From 2008 onward, I tracked the stats on the site and every third party ranking engine (there used to be five big ones: Alexa, Traffic Estimate, Quantcast, Compete, Ranking). Between 2009 and 2014 SI regularly took the top spot away from Spend Matters, even when THE PROPHET built out a small team and it was just me at Sourcing Innovation. So, yeah, been there, done that, held the top spot and it’s not as glamorous as this new generation of “influencers” thinks it is. And yes, if you go wayback through the archives, the stats are still there to prove it.

Is Your Potential Vendor a Dead Company Walking? Part 1

Not long ago we noted that our space is filling up with dumb companies and that this number, at least in the view of the doctor, is likely at an all time high.

the doctor believes that your favourite vendor likely won’t be around, or at least not in it’s current form, within two years (or less), with the doctor predicting a failure rate of 20% (or more); which, while it sounds pretty significant, is actually a mild prediction compared to THE REVELATOR‘s bold prediction that 75% of companies won’t be around, or at least not in their current form, within 18 months. Wow!

Why? First of all, as highlighted in the doctor‘s revised Dumb Company article, the companies that are (finally) starting to panic (internally) are starting to make the classic mistakes that signal the beginning of the end. (Considering the marketing madness, the buzzword overload, and the hogwash still coming from the firehose, you wouldn’t know it yet, but early warning signs are starting to appear.)

Secondly, they have been, or are starting to, make the Dead Company mistakes, first highlighted by the doctor in December, 2008, as well as some scary new mistakes that weren’t as common, or that were overlooked by the doctor, sixteen years ago.

While there are a large number of mistakes, often with individual nuances, that vary from company to company, and an exhaustive list would be too long to digest (if it could even be compiled by one person), there are still a number of common mistakes that can be identified and the elimination of these, or at least an immediate course correction (as some mistakes can’t be undone) with respect to these mistakes, will go a long way to making sure that their company is not the next dead company walking. If you see these mistakes in spades as a buying organization, it’s probably best to steer clear until the ship is righted. (You don’t want to go down with a sinking ship!)

The top 12 the doctor is currently seeing are:

Too Many Assumptions, Too Few Verifications

Too many founders didn’t do their research, assumed that just because tool X they were forced to use at their last job didn’t do something then no tool did it, or assumed that because they were a buyer buying a few categories at one company in one industry they know what every buyer wants. And, thus, they know enough to design the tool that is going to take the Procurement world by storm! This is rarely the case. Especially if they only ever saw three potential solutions of the 40 to 200 that were out there (depending on the module they were looking for, see the Mega Map).

While it’s hard to tell what is in someone’s head, the words, directions (to the marketing and sales teams), and outputs (in terms of product) speak volumes. They tend to focus on how they were a buyer and know all the problems (without even asking about your problem), focus on user experience more than actual process or solution (look how easy it is for Bob to make a request on his phone and see a virtual avatar of Alice receiving it — woo hoo), and direct their marketing and sales team to sell sizzle, not steak.

A shiny exterior is more important than a modern engine

As hinted in our last point, too many founders today are too focussed on the UI and the UX, the “user experience” and not on the processes that the users actually have to do on a daily basis. As a result, while it may taste great to the eyes, it’s significantly less filling as an actual solution and leaves users wanting more, sometimes to the point where they quickly abandon the solution. As such, it doesn’t matter how quick that shiny new intake-to-orchestrate solution can be implemented if there isn’t actually a solid procurement capability backing it up that does more than allow an employee to make a request and see a shiny avatar of Alice saying “your request has been received”. If Alice can’t actually do the Procurement in tool, what good is it?

So if the “intake” demo stops with the intake, run to the hills, run for your lives! Of if when you ask them about a competitive functionality, all they talk about is the experience their solution offers, they don’t actually have deep capability.

Shiny new tech is more important than a tried-and-true methodology

At least 6 in 7 vendors have jumped on the AI-backed/AI-driven/AI-enabled/AI-enhanced/AI-powered bandwagon, even if they don’t have any AI at all and/or any AI that actually solves a real problem in a predictable, valuable fashion. Too many vendors are popping up with “intake”, which the doctor prefers to call “fake-take” solutions that, as per above, can take a request in a shiny web-based UX and then … do nothing with it, or, in the best case, act as an overpriced pay-per-view on your data!

The sad part about this situation is that a number of real, modern Procurement 2.0+ (and esp. 3.0+) applications have had “intake” built in since day one, like Vroozi that has had it since launch in 2013 and Eyvo that has had it since the mid 2010s. Even Coupa had intake support for catalog-based purchases when it launched on Procurement Independence Day in 2006 (and still does to a large extent, although the user-based pricing model does make it prohibitive for many organizations)! And when it comes to AI, the doctor has yet to see any new “AI” play offer any new capability that hasn’t existed, or been in development, since the last decade! (When the doctor did his AI in X today, tomorrow, and the day after tomorrow series for Procurement, Sourcing, Supplier Discovery, Supplier Management, and Optimization in 2018 and 2019 on Spend Matters. These are all still in the Content-Hub archives, so if you have access, check them out.) (Now, while the doctor will admit that Gen-AI can do conversational interactions better, and summarize larger bodies of documentation as it is a bigger model, that is about it … as it cannot do any task that requires basic logic or math, and thus just about any real Procurement task. Moreover, we have had semantic technology that has done a good job since the early 2010s! Sure it might have sounded a bit robotic at times, but it worked just fine.)

So if all the vendor talks about is buzzwords, find one that talks about how they solve your problem. At the end of the day, it is command line code executing on a server somewhere that solves your difficult business problems, not fancy UIs.

Over-reliance on third party tech is a sustainable business, especially if it’s (Gen-)AI

If a lot of your potential vendor’s functionality is dependent on yet another a new third party vendor (or offering that will be pulled if it causes the company to bleed money), what do you think is going to happen when it goes away? Nothing good, and that’s for certain. That’s why you want vendors who build real applications in languages supported on multiple platforms that use data stores supported by multiple vendors and cloud service providers. You don’t want a single point of external failure taking down your entire business. Especially when the third party tech has limited use (on its own) in the first place.

But way too many vendors are building these Gen-AI or intake-plus solutions first, which are totally reliant on third vendor tech that can destroy their company in an instant. And it doesn’t matter if they only build on big company tech from companies like Microsoft or Google that you know aren’t going out of business, because even these goliaths can, and will, end support for tech pretty fast if it’s not profitable. (And, if it looks like one day an application will be very profitable, cut your access to it to prevent competition with their new, inferior, in-house tech.) The fact of the matter is, they are Goliath 2.0 with full armour plating, a helmet no stone is getting through, and a legal team who will bankrupt you if you even try to fight them. So if they decide the tech is done, or at least your access to it is done, you’re done, and there’s nothing you can do. (the doctor has seen this multiple time and experienced this firsthand. And it doesn’t matter if your vendor has a signed agreement in hand, the Goliath’s legal team will find an out clause and that will be it for your vendor.)

So avoid these vendors like the plague. A vendor with great tech can still fail, but it’s not as likely to do so without a lot of early warning signs if it owns the tech and employs the people.

An innovation burst is enough, especially if it is disruptive

Another increasingly common mistake these dead companies walking make is thinking that once they have a shiny new piece of actual tech that they don’t think anyone else has (which is rarer than you think), they can slow down the pace of development and rev up marketing and sales. That’s the exact opposite of what needs to be done. If you want sustainability as a vendor, you need a big lead, not a small one that can, and will, be quickly replicated by the next startup that has the same idea and gets too much money (and is smart enough to, or lucks into, hir[e][ing] the best). Success as a vendor requires consistent product development for years, and the only reason R&D becomes a smaller percentage of the budget as time goes on is because, one the core module(s) of the product (suite) is (/are) ready for prime-time, marketing and sales spending starts increasing from 0, not because R&D spend decreases!

Make sure your potential vendor has a concrete, detailed roadmap for the next year and vision for the next three. Significant function-spanning developments take time, and vendors in it for the long haul realize that — and they start with the foundations first.

Too much investment, too soon, against an overly ambitious plan

This is one of the worst mistakes, and one we’re definitely seeing too much of recently. Too many companies getting tens, or hundreds, of millions of investment just because they are building intake-to-orchestrate or Gen-AI solutions, neither of which do anything on their own, and neither of which do anything significant without a lot of solid tech (and data) to back them up (for the use cases where they are good). In some cases, the investment is at stupid levels an there is no way the company is going to deliver on the investment to the expectations of the investors, which means that the company will likely be dropped faster than a hot potato when the coffers start running dry as a smart investment firm would rather eat a sunk cost than have an ongoing investment sink their entire fund. In the best case, they’ll be sold off to a bigger VC or PE (at a loss) who can right the sails and extract some value as part of a larger solution suite. In the worst case, the company will just be folded entirely.

So, before buying from any vendor, research their investment to sales ratio at investment time and now, and if they took 100M on 0, and still only have a handful of customers, that’s not a good sign … unless they are building to a very specific niche need with the intent to get them scooped up by a bigger player who needs to fill that hole, their chances of long term survival are slim to none.

 

These are just the first six mistakes we’re starting to see too often. Stay tuned for part two where we’ll go over the next six.

Want Procurement Technology Success? This is Your Anthem!

Show Don’t Tell by Rush

From now on, when you are contacted by a vendor, the first thing(s) you do is

  • refuse to listen to (or read) any marketing material, especially if they use any buzzwords (and, in fact, point out the minute they say one that you will hang up on them if they say it, or a prepared list of buzzwords you keep beside your phone, because it’s all Hogwash)
  • refuse to review any “case studies” until you see the solution in action, and even then refuse them unless they contain hard numbers based on standard metrics that you can compute yourself pre- and post-implementation (a client stating they saw “significant” savings is NOT a case study, it’s hearsay)
  • refuse their pre-recorded / scripted 30 minute intro demo until they tell you, in plain English, what problems their platform solves and why they think it will help you (and maybe even ensure the contract they will ask you to sign is also in plain English)

Once the vendor tells you:

  • what procurement problems and pain points their platform solves
  • how it does it (no techno-babble bullcr@p, plain English; no mention of AI, and definitely no mention of Gen-AI [which is bad for Procurement] because if it uses real ML then they can tell you what algorithms they use, and what confidence you can have based on what level of data is available)
  • and why the vendor is the right vendor to deliver the solution to you

Then you agree to a demo that covers the specific pain points you want addressed, provided that, if you like what you see, you can take it for a test drive. Nothing stops a true multi-tenant SaaS solution provider from spinning up a sandbox instance for you to play with, at zero cost, as it should literally be the flick of a switch (or letting you run one real sourcing event at a trial cost). The only significant charge should be if you want to see it in action on your data, in which case you should be prepared to pay a standard daily consulting rate to load your data (but, to be honest, you shouldn’t do this until you are sure the vendor is going to be the finalist, or the runner up, in your selection process as a final step, since a test drive on standard dummy data will illuminate most of the functionality supported).

You need to see a platform in action to understand if you can, and will, use it to solve your problems.

So, if it isn’t already, your new mantra for procurement software solution providers is Show Don’t Tell!

M&A Mania is Coming Again … but will it be the same as last time?

the doctor agrees with THE PROPHET that M&A in Procurement, Supply Chain and Finance Tech is Back On For Q4 and 2025, because M&A Mania is part and parcel with the The Marketplace Madness that the doctor told you is coming back in May. The only question is, will this M&A cycle look like the last few during Covid (when every investment firm had to have an online collaboration platform, since they couldn’t do business in person, and an online e-Payment FinTech solution, since they still needed to make, and most importantly receive, payments) and in the late 2010s when companies were getting scooped up left, right, and centre. It was kind of like that first year in Chemistry where you were told to look to your left, look to your right, and look in the mirror and realize that only one of you would survive the end of the course (except the odds had worsened and there was only a 1/6 chance that any of you would be left standing at the end of the M&A cycle and less than a 1/9 chance that more than one of you would be left standing).

But first, let’s review THE PROPHET‘s reasons why:

Reduced interest rate climate coming
Not necessarily in your country, but in the US and a few other major investment markets, and for global funds, that’s enough.
Valuations back up (including a recent one)
the doctor is seeing a bit of this beyond just over-hyped fake-take and (now failing daily) Gen-AI, which indicates a return to value for real solution capability that solves real problems, and not just glam UX or tech buzzwords, could soon be coming.
Dry powder is the size of an ammo depot
And this is a rather conservative estimate. Broaden your definition of our Source-to-Pay space, and it could go well beyond the 666 providers in the mega-map.
Constrained target/asset pool to pursue
Too many providers not focussed on Gen-AI bullcr@p were not (well) funded and in need of funding to grow and too many providers who raised too much on Gen-AI bullcr@p blew too much on failed dev and marketing and need someone to infuse them with fresh funding while taking in the reigns and refocussing them on core problems.
No clear leader in many markets
Even if you constrain by target enterprise size, vertical groupings, and module, you’re usually looking at over a dozen vendors. Too many. By core module alone, you’re usually looking at over eighty (80) potential providers.
Counter-cyclical sector defensibility as a hedge
Most definitely. the doctor has always said the best time to develop/expand is on the verge of a coming financial or supply chain crisis, and it’s even better if it corresponds with the end of a hype-cycle (when everyone realizes that grandiose claims are just that, claims, and usually not realized and it’s time to return to the next generation of tried and true technology).
Times of increasing global uncertainty favours supply chain, supply and supplier risk management
Yes, and this will be constant for years. The outsourcing crisis the doctor and a handful of others have been predicting for over a decade (which is why he was telling you to near-source and home-source in the late 2000s) materialized during COVID, anti-globalization is at a high not seen in the remembered lifetime of most of the global population (and increasing by the day), we likely haven’t been this close to World War III since the cuban missile crisis of 1962 (since the Soviet radar malfunction of 1983 was caught by an alert Soviet air defence forces officer) putting global political tensions at a near all time high since World War II, ever increasing natural disasters and supply shortages are escalating costs at levels of inflation not seen since the 1970s, and in some markets, since the late 1920s (and the Depression era), and it’s just doom and gloom all around. Only our space has the tech to combat this.
Corporate spend flowing into tech, not new jobs
This is unfortunately true since

  • most executives don’t realize that tech only increases productivity and success in the hands of a human, it doesn’t replace them (since Aritificial Idiocy can’t even replace real idiocy, how can you expect it to replace Human Intelligence [HI!])
  • big companies don’t like high fixed costs, and the see people has the highest fixed cost
  • the dream of the new robber baron billionaires is to replace people with machines, which they think will help them realize their vision of constantly increasing profits from constantly increasing revenue (from a workforce that never needs to take a break) at a constantly declining cost to serve (not possible, but that’s their dream)
Nearly all big tech firms (ERP, business applications and stack) aside from SAP have not made any material moves yet — and will need to at some point
You can’t wait for a lumbering giant … by the time they buy someone, it’s ready for sunset. Remember IBM and Emptoris? A sad end to the APE circus! That means that the time to strike as an investor is before they awake!

Add add the following:

  • money has been idling in these funds from lack of investment over the last couple of years (as they got antsy last year with the predicted recession and the SVB failure and the fallout of both), and their investors aren’t happy
  • many of the more progressive funds have realized that fintech is useless if there’s no money moving through it, which means you have to look for broader business solutions that can assure the flow of money as well as information
  • companies are starting to realize that ridiculous 10X, 15X, 20X valuations are a thing of the past (or at least until we get a whole new generation of freshly minted investors who didn’t bother to study their history, like the new generation of founders that didn’t study theirs) and that if you can get a solid 5X to 7X valuation (which is the most a company can expect to realize at an aggressive 40% annual growth rate, which is the most they can hope to realistically support) for tech, that’s great, and this makes acquisitions a lot more attractive than during the last cycle when you’d have to bid 10X on something that might not scale as an investor just to get invited to the table

The M&A market is returning. But there will be some differences this time. The last two times it was valuation run up until the money ran dry or there were no companies left that were worth it. This time will be more reminiscent of the first M&A Mania to hit our space in the late 2000s and it will come with a little kiss, like this:

1. Valuations will be more realistic.

As simply stated, 10X, 15X, 20X growth doesn’t happen in five years for anything but a Unicorn, and even then it’s rare, and investors aren’t going to pay this any more. That being said, they will invest for value and firms who focussed on building real solutions, not slick UX with no substance, will be valuated quite well (at first).

2. The cycle will have 3 parts.

2A. Existing Growth Opportunities

Look for PE firms to buy suites or modules that can be sold and grown stand-alone or as complementary solutions to offerings in their stable. The market for these solutions could mature quickly as the Gen-AI and intake hype cycles crash and the global situation destabilizes and risk-focussed Sourcing and Procurement become paramount. This will be done at fair to very good valuations, depending on the offering and the financial situation of the firm being acquired … those that can wait and play the field will get better valuations.

2B. Fill the Gaps

As new competitors enter the scene, existing providers with aging tech are going to want to counter them and will start buying up point-plays to fill the gaps. This will take two forms.

  1. stable, stand-alone players who can survive without investment will wait for the right offer, get a very good to great valuation, and survive relatively unscathed in personnel and offering (and will continue to be available standalone for some time)
  2. cash-crunched desperate players who won’t survive long without a cash infusion will be bought in a fire sale, folded in quickly, and only key personnel will remain

2C. Liquidation Opportunities

Everyone loves a steal, err, deal. Investors included. As companies start to run out of money left, right and centre because they were underfunded (and struggled to compete with the overfunded overhyped companies) or overfunded and burned money like it grew on Central American fruit trees that produce two healthy crops a year, investors and buyers will be looking for companies with pieces of tech they can use to enhance their offering for pennies on the dollar. These companies will be broken up across talent and technology, with the acquirer keeping only what they want.

Questions to Ask Your Optimization Vendor

This is an update of a post that originally ran way back in 2007. Yes, two, double-o seven. Seventeen years ago. It is being updated because

  1. it needs a re-posting
    (as very few of you will find it that deep in the archives)
  2. most of the vendors originally mentioned are gone

However, if you read, and remember, the original, you’ll realize that, like my article where the doctor goes mental on optimization myths (which was recently shared on LinkedIn), it doesn’t need much updating and what was written seventeen years ago is still valid to this day. (When you write to inform vs. to create meaningless buzz, it really does stand the test of time.) Let’s begin.

Not all optimization vendors are equal … and, more importantly, not all vendors that claim to have strategic sourcing decision optimization (SSDO) actually have it (since the underlying algorithms and model needs to meet a stringent set of requirements to be true SSDO), with some systems, to this day, barely qualifying as decision support. Thus, since the need for optimization is as desperate as it has ever been with costs again skyrocketing, risks rising rapidly, carbon control being critical, and supply assurance necessary for sustained operations, it’s time to make sure you know how to qualify a potential provider. This means you need to not only understand the basics of what SSDO does (see the archives), but also how to distinguish between the relative strengths and weaknesses of the different offerings, as well as how much strength you really need.

You need to buy optimization at the strength, and usability level, that you need — especially if the vendor is pricing it according to its power, or computational requirement. And while there is no such thing as too much, the reality is that a 95% solution is often more than enough as the entire point is understanding the optimal solution against each dimension (cost, risk, carbon), the cost of compromise between the trade-offs, and the cost of going with a preferred, versus calculated, vendor award. And doing this for EVERY sourcing event. Once you factor in enough discounts and constraints, it’s almost impossible to calculate the best award in a spreadsheet, and the insight of what you could be spending, versus what you are, how low your risks could be, versus what they are, and how much you could alter your carbon footprint, vs what your footprint is today, is invaluable. Even if you never select a recommended solution, the key is understanding how good your (preferred) award actually is.

Before we get to the (starting) question list, it should be pointed out that it’s almost impossible to cover every question, as many of the questions you should be asking depend on the answers you receive to your first few questions, but the question list below is a good starting point.

1. Does the product meet the four criteria for strategic sourcing decision optimization?

  • Sound & Complete Mathematical Foundations : such as MILP solutions based on simplex, branch and bound, and interior point algorithms as many simulation, heuristic, and “AI” algorithms DO NOT guarantee analysis of every possible solution (sub)space given enough time, and, thus, are not “complete” in mathematical terms (and if they incorporate Gen-AI, they aren’t even “sound” in that they may not even compute an award that satisfies the constraints!)
  • True Cost Modelling :
    that supports tiered bids, discounts, and fixed cost components — the model must be capable of supporting all of the bid types being collected, as well as the cost breakdowns
  • Sophisticated Constraint Analysis : at a minimum, the model must be able to reasonably support generic and flexible constraints in each of the following four categories
    • Capacity / Limit: allowing an award of 200K units to a supplier who can only supply 100K units does not make for a valid model
    • Basic Allocation: you should be able to specify that a supplier receinves a certain amount of the business, and that business is split between two or more suppliers in feasible percentage ranges
    • Risk Mitigation: you should be able to force multiple suppliers, geographies, lanes, etc. to mitigate those risks without specifying specific suppliers, geographies, lanes, etc. to take advantage of the full power of decision optimization
    • Qualitative: A good model considers quality, defect rates, waste, on-time delivery, etc., and must support qualitative factors and minimum and average scores across the award
  • What-If? Capability : The strength of decision optimization lies in what-if analysis. Keep reading.

2. Does it support the creation of multiple what-if scenarios per event?

Furthermore, does it simplify the creation of these scenarios? The true power of decision optimization does not lie in the model solution, but the ability to create different models that represent different eventualities (as this will allow you to hone in on a robust and realistic solution), to create different models off of a base model plus or minus one or more constraints (as this will help you figure out how much a business rule or network design constraint costs you), and to create models under different pricing scenarios (to find out what would happen if preferred suppliers decreased prices or increased supply availability).

3. How fast is it for different average model sizes?

And can performance be tweaked? Optimization takes what it takes. That being said, if one solution takes an average of 1 hour for an average scenario, and another solution takes 10 minutes, all things being equal, if you have compressed sourcing cycles, the 10 minute solution might be better. Emphasis on “might”. This is only true if the faster solution is of the same quality – some models, and some solvers, sacrifice quality and accuracy for speed. The best solution will let you trade off “tolerance” and accuracy for speed. Sometimes it’s easy to get within 1% or 2% in a few minutes, even though that last 1% or 2% could take hours. On a model with low total savings potential, getting within 1% may be enough. And when trying to hone in on the right what-if scenario, it’s nice to get within 1% quickly and then allow the right scenario to run to completion over lunch (or if its a huge model, over night) after you’ve quickly analyzed half-a-dozen scenarios and settled on your preferred scenario. Thus, tweaking ability is very important.

4. Is it “true” real-time or “near” real-time?

Thanks to significant advances in processor and hardware performance as well as off-the-shelf optimizer technology (like IBM ILog’s CPlex), it’s now possible to rapidly re-build and re-solve even very large models using off-the-shelf modeling languages in seconds, allowing for e-auction tools that keep the model relatively moderate in comparison, and presolve with seed bids (current prices, market prices, last quotes), to incorporate decision optimization in real-time by simply updating a few parameters and re-solving the model every (few) parameter(s) update (depending on model-size) on a high-powered multi- core server with an appropriately configured and optimized solver (which can spin off copies and have each processor work on a different subspace). However, if the approach the product takes is to rebuild and resolve the model on every update, that’s not real-time, that’s near real time, and the slowdown could be significant for large models. (To clarify further, real-time optimization requires the ability to merge model construction and model solution in such a way that a new bid can be introduced as a parameter change that does not require the optimizer to rebuild the sparse model matrix and start the solution process over from scratch.)

5. Can you describe two or three scenarios you have encountered where you could not model the situation exactly?

And, more importantly, how did you work around the issue, and how accurate was the final result. The real world is messy, compared to models that are clean, only so much data is available, and math can only model as much as the minds who created the model could conceive. As a result, no optimization model can handle every real-world scenario 100% accurately. If a vendor representative says so, he’s either lying through his teeth or not competent enough to be selling the product. (Note that: I’ll have our optimization expert get back to you on that is a good answer from an average sales representative.) This is about the only way to get a decent idea of how appropriate the tool is for you. If the scenarios were complex and the constraints based on business rules you hardly ever, or never, use, then the solution is probably okay for you. If the scenarios were simple and the constraints based on business rules you use all the time, it’s probably not the tool for you.

6. Would you be willing to demo your solution to, and answer questions from, our consultant who understands both our needs and decision optimization technology?

Let’s face it -– just like the right decision optimization tool can deliver huge savings multiples on your investment (10X or more), the wrong tool will simply represent a six (or seven) figure cost that yields little return. If you can’t tell the difference, and there’s no shame in admitting you can’t if you’ve never used this type of technology before, then you should bring in a consultant who can to help you select the right technology, and ensure you are appropriately trained on it, until you are self sufficient and saving an average of 10% or more per project put through the tool.

7. Can we do a pilot project at-cost (or gain-share) before committing to a long term license?

If you like what you hear, but are still unsure, or are having problems getting the budget approved, a pilot is often the way to go! (Note that I did not use the word “free”!) If you’re not willing to sign a license, given the sophistication of this technology and the amount of effort the provider is going to have to allocate to support you through the pilot and ensure you are successful, you need to be willing to pay for services at a rate that is sufficient to cover the provider’s cost for the pilot -– especially considering that many of the companies that offer affordable optimization offerings are only able to do so because they keep their costs and overheads down.