Your Upteenth Reminder That Every Dollar Saved By Procurement Goes Straight to the Bottom Line!

… while 10 cents from every additional sale might make it, if you’re lucky!

A week or so ago, Joël Collin-Demers said COVID was the instigating event that pushed Procurement front and center in a comment to yet another post about the tariff crisis (to which, as I keep saying, the only solution is BTCHaaS), when it was really the (fist) elevating event in over a decade.

The first event that really put ProcureTech on the map was the 2008 financial crisis. This is because companies had to stop the bleeding, fast, and charged Procurement to get ‘er done. But once the markets settled, and the provider base stabilized, and companies willing to spend the money they needed to implement proper tech and get more efficient did so, Procurement kind of faded into the background again. That’s because, when markets rise, and sales rise, the C-Suite focusses entirely on revenue, almost to the point of irrationality, because the faster that revenue rises, the higher the valuation, and the more money they can make on the markets and trades.

However, the 2008 financial crisis is why the M&A and PE activity started to ramp up in ProcureTech in the early teens, because of the importance placed on cost cutting as a result of the 2008 financial crisis. And why, if something else had happened sooner, Procurement would have risen up the organizational chart faster, instead of falling back into obscurity at many organizations who returned undue focus to Sales and Marketing.

This, of course, belies the sad, sorry, state of affairs of North American business that still sees marketing and sales as the key to growth in a shrinking economy (and yes, with birth rates declining in almost all first world countries, it is a shrinking economy) when the real key is cost management. Remember your business 101 equation: Profit = Revenue – Expenses.

This says that every dollar of revenue you add is eaten up by the total cost to acquire that dollar — the total cost of that good or service, which is usually at least 90 cents of that dollar.

However, every dollar of expense you cut is gone in its entirety. Every dollar saved goes straight to the bottom line.

Thus, Procurement is 10 times as valuable as sales! But yet, the marketing madmen will try to hide that from you to protect their multi-million budgets!

So if you want to survive the crisis of the day, whatever that crisis may be, it’s not sales, it’s not marketing, it’s not finance, it’s not executive leadership or vision, it’s Procurement. Plain and simple. Maximize every dollar spent while eliminating those that don’t need to be.

Unless, of course, you are a ProcureTech vendor, in which case, as per a previous post, skip the fairy dust and buzzwords, focuses on your customers pain, and put together some educational materials (marketing and training) that will help them ease the bleeding. If you’ve forgotten how to do that, or never learned, there are those of us who can help you!

With Great Data Comes Great Opportunity!

In fact, it can quadruple your ROI from a major suite.

Not long ago, Stephany Lapierre posted that your team may only be realizing <50% of the ROI from your Ariba or Coupa investment, to which, of course, my response was:

50% of value on average? WOW!

Let’s break some things down.

A suite will typically cost 4X a leaner mid-market offering which is often enough even for an enterprise just starting it’s Best in Class journey (that will take at least 8 years, as per Hackett group research in the 2000s).

Moreover, even if the enterprise can make full use of the suite it buys for 4X, at least 80% of the “opportunity” comes from just having a good process, technology, baseline capability and automation behind it. That says you’re paying 4X to squeeze an additional 20% worth of opportunity in the best case.

On average, it takes 2 to 3 years to implement a suite (on a 3 to 5 year deal). So maybe you’re seeing an average of 66% functionality over the contract duration.

As Stephany pointed out, bad data leads to

  • increased supplier discovery and management times
  • invoice processing delays and errors
  • increased risk and decreased performance insight

As well as an

  • inability to take advantage of advanced (spend) analytics
  • inability to build detailed optimization models
  • decreased accuracy in cost modelling and market prediction

This is even more problematic! Why? These are the only technologies found to deliver year-over-year 10%+ savings! (This is where the extra value a suite can offer comes from, but only with good data. Otherwise, at most half of the opportunity will be realized.)

Thus, one can argue an average organization is only getting 66% of 25% of 80% of its investment against peers (based on 2/3rd functionality, the 4X suite cost, and the baseline savings available from a basic mid-market application that instills good process and cost intelligence) and 50% of 20% (as it is able to take advantage of at most half of the advanced functionality offered by the suite due to poor and incomplete data). In other words, at the end of the day, we’d argue an average company is only realizing 23% of the potential value from an opportunity perspective!

However, as one should rightly point out, the true value of a suite is not the value you get on the base, it’s the ROI on that extra spend that allows for 20% more opportunity than a customer can get from lesser peer ProcureTech solutions.

For example, let’s say you are a company with 1B of spend with a 100M opportunity.

If tackling 20M of that opportunity requires advanced analytics, optimization, and extensive end-to-end data, it’s likely that you’ll never see that with an average mid-market solution with limited analytics, no optimization, and only baseline transactional data. If the company paid an extra 1.5M over 3 years for this enhanced functionality, then the ROI on that is 13X, which is definitely worth it.

Moreover, if the suite supports the creation of enhanced automations, you could get more throughput per employee and realize the base 80M with half or one quarter of the workforce, which would lead to a lowering of the HR budget that more than covers the baseline cost.

However, ALL of this requires great data, advanced capability, and the in-house knowledge to use both. This is only the case in the market leaders. As a result, we’d argue that the majority of clients are only realizing about 25% of the suite’s potential — when sometimes the only thing standing in their way of realizing the rest is good data.

Get Verified Supplier Data with Veridion!

Veridion, founded as Soleadify (and still listed as such on Snowflake, Datarade, and Nomad Data), was founded to help companies access and maintain accurate and reliable data on their current and potential supply base. Like other supplier discovery / data companies, it is constantly crawling the web looking for suppliers, related news, and sentiment, but unlike some other supplier discovery / data companies, it doesn’t use third party data subscriptions and only includes verified B2B suppliers in its database.

Let’s drill into that last point as it is a differentiator between Veridion and some other supplier data / discovery providers.

  • First of all, it verifies every single supplier it includes is active in a(n open) government registry. Most countries in the world (with the exception of China) make all of their corporate registration databases globally available, and they use these databases as a foundation.
  • Second, key data points for that supplier are only retrieved from verified sources (including global corporate registries, the suppliers web site, once tied to a registration, or profile sites they are known to maintain on business and social networks).
  • Third, all key data points for every supplier in its database are verified on a weekly basis, ensuring that any critical corporate, financial, product, technology, service or ESG data field you pull from its database is at most a week old.
  • Fourth, for fields that can be / are estimated (like revenue, employee count, etc.), it will tag the field as such. (When explicit financial statements are not available, sophisticated modelling using benchmarks, industry comparisons, employee count, geographic location, publicized deals and associated revenue numbers, third party revenue estimates, etc. is deployed and tagged as such.)
  • Fifth, all source data it uses is cached for quick verification / full-text search for supplier discovery.
  • Sixth, it scrubs all B2C businesses that would never be a supplier. Many of it’s peers claim 2X, 3X, and even 5X the number of “vendor” records in their database, but they are not actually B2B vendors you would actually use as you need to remember that the coffee shop on the corner, the pizza joint on the next block, etc. are all registered businesses in the registry that these “supplier data” platforms suck in, but not suppliers you’d ever use! (And while a very small number of them might appear on the T&E registry, you don’t want these coming up in a supplier search you’re paying for, and you don’t need detailed data on them.) Veridion removes all of these B2C cafes, restaurants, grocery stores, retail stores, etc. etc. etc. from its database to ensure that searches bring back real business suppliers, not random entities. (And by limiting its database to just real B2B suppliers, it is able to validate all of the key data in its entire database every week!)
  • Seventh, it’s highly accurate. Most customers who use their supplier validation and enrichment services see a 90%+ match-rate with their current database. (One of their most recent projects saw a 97.2% match rate which included considerably more accurate Australian vendor mapping for a client whose last provider couldn’t identify almost 22,000 suppliers used by the business.)
  • Eighth, because of it’s validated data approach, it is able to maintain all parent/child/sibling relationships with high accuracy and give you a lot of corporate relationship insight into the supplier which might also include partners and resellers.

Moreover, all of this is available through the API. They are an API first company, as they expect to be plugged into your supplier management / ERP / sourcing platform for enrichment, validation, and discovery. (They are already plugged into Coupa, Exiger, Everstream, and Market Dojo and will likely be announcing more partners later in the year.)

That being said, they do have their own supplier discovery platform where you can do searches, preview results, refine, and then, when you are ready, accept, review, and export data for import into your sourcing platform(s) (or, if there’s a direct integration, push into those platforms). If you’ve been following SI, or keeping up with the supplier search and data market, you probably have a good idea how this works, but there’s one key difference between Veridion and other platforms that we want to drill into first — Preview.

When you do a search, which can be free text (and they will use semantic AI to parse your request) or a set of specified key requirements (location/proximity, product, size by employee base or revenue, NAICS, DEI, ESG, certification or other requirements expressible as keywords), it returns the results in preview mode which, in addition to telling you how many companies were identified, (provided you turn stats on) breaks down the geographical distribution, industry classification, tag frequency, supplier type (manufacturer, distributor, or services provider), and company size of the identified potential supply base in addition to giving you full details on the top two suppliers. At this point, you can accept the results and see the details on all of the suppliers or, if the stats look off or the top two matches don’t look anything like what you are searching for, revise the search or start a new one. It does this because it uses a consumption-based model where you only pay for the data you access, believes that you shouldn’t be charged for results you don’t want, and recognizes that, at least until you are familiar with the platform, it will take you a few tries to get the search right (as it typically does even when you use Google). Moreover, it knows that if you’re never going to send an RFQ to more than 10 suppliers, you probably don’t need to research more than the top 20 to 30 suppliers if you get a good match rate, so you don’t want a 300+ data set as a result, and want to refine that down until you have a high probability of good matches (and then if the number is still too high, you can simply just select the top X results).

We need to break down the search capability, but to do that, we need to breakdown the data records. Veridion is meant to be a corporate supplier data validation engine and higher level supplier discovery tool. It’s not meant to be a low-level ultra-specific manufacturer or factory discovery platform where you need very specific capabilities like Find My Factory or a 360-degree profiler where it looks at all third party information related to a supplier so you can build up a market profile like Forestreet. It was specifically designed to be an affordable, consumption based, supplier data enrichment and discovery platform for business who:

  • have a large, aging/not maintained, supplier master where they need to validate every entity in that master, normalize multiple entries, and remove inactive vendors
  • need to maintain data on currently active suppliers on registration, certification, and/or ESG (for example) on a regular basis
  • need to do discovery internal to their organization — when Veridion is integrated with the organization’s supplier master, it can restrict discovery to vendors the organization is currently doing business with (through another team at another location for a product in a different category) and help the organization understand which suppliers have more potential to the organization
  • need to do supplier discovery across a wide range or industries, requirements, markets and geographies — in addition to being strong in North American and European supplier discovery and enrichment, they are also very strong across AustralAsia/Oceania, Latin America, and the Middle East
  • need high level information to make decisions as a third party; for example, they have a product specifically for the insurance industry to help them quantify factoring and supply chain risk
  • need the right (location, etc.) data to identify the right data to use for Scope 3 calculations as well as data on statements/commitments the companies have made to ESG/Scope 3 (and have an API that supports ESG initiatives and can be integrated with players like carbmee)

Let’s dive into ESG. They have a few capabilities here to be aware of:

  • ESG Performance Evaluations by way of an overall ESG Score, ESG Pillar Scores and 26 granular Risk Criteria Scores along with corresponding ESG descriptions & score justifications
  • Regulatory Compliance Support to identify suppliers who comply with specific corporate ESG regulations such as CSRD, the EU Taxonomy, CBAM, and CSDD
  • Climate Resilience Support via data designed to identify physical assets for climate risk screening, support climate scenario modelling, and identify supply chain facilities at high risk for (climate) disruption
  • Ethical & Sustainable Sourcing Support through the identification of publicized commitments to sustainable practices, confirmed compliance with ESG regulations, and the ESG scorecard

Compared to some of the other discovery platforms, their generic approach to supplier capability tracking via tagging makes them especially suited for for companies that need to find distributors, CPG providers, and services providers, since you are always searching for these companies by (finished/consumption ready) product type or service type, and their semantic search capability will automatically search for all equivalent terms when you create a search.

For every supplier, it maintains key legal, ownership, location, technographics (technology known to be used by the company), sustainability information (commitments, news, metrics, and scores), and products (UNSPSC) and services, summary data, and tags. Summary data is an AI-generated description of the company, offerings, capabilities, and certifications and tags (for which they identify over 4M tag variations) represent key supplier offerings/features across products, services, technologies, certifications, or capabilities auto-identified using semantic technology. Tags allow them to capture, with high probability, unique aspects or attributes of the supplier without having deep models for every industry, category, and product type; lead to more accurate searches; and make the platform more usable as a generic discovery platform.

If you’re looking for a supplier enrichment/maintenance/discovery platform that can plug into your existing supplier management / sourcing infrastructure, and especially if you are in a distribution / consumer sale / services vertical, Veridion is a platform you should look at.

If it’s used by the likes of Everstream Analytics (last Series B round was 50M), Exiger (valuation at last investment round was 1.2B), and Experian (30B market cap), then you know there is value there.

Why Your Standard Sourcing Solution Doesn’t Work For Direct

Too many of you have been there. You sign that seven figure deal for that end-to-end Source-to-Pay suite, spend another seven figures and 18 months integrating with the ERP, PLM, AP, BI and existing Legal CR solutions, and then try to source your first NPI project natively only to … fail. Why is that?

They just weren’t built for direct.

And it’s not just something you can add in later. If the platform wasn’t designed from the ground up for direct sourcing, there’s zero chance it will ever do a decent job at it. (And, FYI, the majority of the S2P suites the big analyst firms are drooling over in their annual quadrants and waves started out as simple indirect Sourcing or Procurement tools.) People who don’t understand the nature of software don’t get this, but software has to be constructed like a building. You might hear vendors and techies throw around MVC model, which stands for Model-View-Controller, when they talk about how new and well architected their solution is, but that just means it’s built in a maintainable web-friendly way for what, and only what, it was initially designed to do.

It all comes down to the data model and the software architecture of the controller, and neither can be a black box. The data model has to be designed from the ground up to support bill of materials and direct sourcing and procurement data requirements. The controller has to provide the infrastructure to support the complexity of the application that is required. For those who don’t understand software, I like to put it this way. If you pour the foundation for a two story house, and buy wooden beams for all of your structure and supports, you can’t build a 10 story apartment building. You need a foundation for an apartment building and steel and concrete supports. (Even though you can theoretically build a 10-story structure on a two-story foundation if you have the right steel and supports, it won’t be stable. The slightest tremor on the Richter scale [which might not even be detectable by a human] or a strong wind will send it crashing down.) You need both. And just like you can’t replace the foundation under a building or replace the entire support structure in real life, you can’t do the same in code. You have to rebuild, usually from scratch.

So why weren’t they built for direct? Well, there are a number of reasons (besides they wanted to get a product to market fast and/or just weren’t smart enough to build a direct sourcing solution). They include:

  1. direct material sourcing is hard
  2. substitution is not guaranteed
  3. demand aggregation is not straight forward
  4. delivery time guarantees and on-time arrival is significantly more important

To understand these, and learn about the rest of the reasons the majority of sourcing solutions were not built for direct, dive into Standard Sourcing Technology Solutions Don’t Work for Direct – Part One and Standard Sourcing Technology Solutions Don’t Work for Direct – Part 2 over on Supply Chain Matters.

Are Your IT Vendors Performing Up To Snuff? Probably Not. Maybe you should VendorScoreIT and find out!

Let’s face it, it’s a well known fact that there is serious overspend in IT. Given that global IT spend is surpassing 5 Trillion, and that overspend is generally at least 30% on average, this is a category with over one Trillion in annual, unnecessary, losses, and, let’s be honest, your organization is contributing to this loss as much as your peers unless you are taking multiple initiatives to minimize it. (See: Roughly Half a Trillion Dollars Will Be Wasted on SaaS Spend This Year and up to One Trillion Dollars on IT Services. How Much Will You Waste?)

Moreover, just because you engaged / acquired one of the SaaS spend analyzers and optimizers (that we chronicled in our piece on the Sacred Cows) to optimize your SaaS spend, that doesn’t mean you’ve optimized it. Amalgamating your licences to less platforms, amalgamating the spend to one invoice, and then ensuring all of the licenses are assigned to active employees is a good start, but that still doesn’t mean you are getting your money’s worth. First of all, this only works for commodity software — it doesn’t work for big back-office systems like your ERP or finance platform where you have to negotiate direct with the vendor. Secondly, it doesn’t work for cloud costs. Thirdly, it’s just software costs, not service/support costs. Finally, if the platform isn’t doing what it is supposed to do and the vendor is not supporting you, every dollar you are spending could be wasted. That’s why Vendor performance management in IT Software (Platform) and Service categories is critically important.

That is precisely what VendorScoreIT was founded to do. Allow a SME (or larger) organization to monitor and manage it’s IT vendors on a regular basis through scorecarding-based performance management at a price any organization can afford (with pricing that starts at an amount that can be paid on a P-Card) while also providing that SME (or larger) organization the support to do it right.

Now, you might think that such a solution wouldn’t be needed as there are SXM solutions with scorecarding and good performance management modules, and that’s true, but most of these were designed for large organizations with a six figure price tag to match — which puts these solutions out of reach of SMEs, and especially those that just need to get their IT and strategic suppliers under control. (In other words, while VendorScoreIT was initially designed to help an organization manage its IT vendors, which are typically the most significant unmanaged vendors in many organizations, it is generic enough that it can be used to score any supplier.)

The solution is a scorecard driven solution, where you can define scorecard models by vendor type, primary service, and/or platform offering; break scorecards up into core areas (operations, partnership, innovation, and procurement) and measures by area; associate multiple scorecards with a vendor (based on services and/or platforms you want to score and monitor individually); define scoring intervals (and the solution will automatically initiate scorecard rounds on the interval you define and invite all of the individuals you want to score it); and define who you want to score each individual scorecard (and average the scores across all respondents).

The platform, which allows an organization to define its areas and measures of interest, also allows them to define default service model and platform scorecard templates, and then associate these with the vendors it wants to scores. Vendors can be grouped by type and tier for easier management, and the platform comes with predefined models for SaaS vendors and system integrators to jump start an organization’s vendor management initiatives. (Supporting non-IT vendors is just a matter of defining any additional areas of relevance, and the measures for those areas, in the metadata for the products (which would fall under platforms) and services the vendors offers, defining default scorecards, defining a new vendor type, and associating the relevant product and service scorecard with that vendor.)

The platform makes it super easy to see overall performance by vendor type, vendor, vendor service or platform, for a time-period of your choice (and to output those scorecards to Excel) — offering simple drill down / drill up functionality scorecards to allow a user to quickly identify where a supplier is doing well, where it’s not doing well, and how it’s doing with respect to its peers. It’s also super easy to pull up the comments associated with a measure that you drill in on, which can give you insight into why a score is high or low.

Right now, it doesn’t have any integrations with third party data sources (for risk, environmental, financial stability, up-time metrics, etc.), but an Open API is coming that will allow you to integrate some metrics with ease, or initiative management (when you decide you need to take action on a supplier who is underperforming in a critical area), but that is currently being designed and will materialize at some point (and most organizations already have a project management platform they prefer to use).

But the platform does come with a considerable amount of expert advice and support to jump-start your initiative, from experts with almost two decades of vendor management experience (especially in IT), depending on what service level you buy. With the

  • Professional Plan: in addition to customized scorecards, you get guided performance reviews and quarterly strategic sessions
  • Premium Plan: in addition to everything in the professional plan, you get a customized vendor management framework, monthly strategy sessions and targetted strategic vendor consulting

However, it has the collaborative scorecarding many SMEs are missing in their platforms and, more importantly, has it at a very affordable price-point, with premium service options available where one of their experts will help you with initial scorecard creation, vendor assignment, performance review training, and even regular strategy sessions and supplier performance management training. VendorScoreIT is all about making vendor performance management accessible and affordable for all organizations in a package that anyone can use, and get going with quickly. If this sounds like something you could use, you should check it out.