Monthly Archives: June 2024

Let’s Get One Thing Clear: Like All Financing, Supply Chain Financing Benefits the Lender, Not the Buyer or the Seller

While there might be arguments that some form of Supply Chain Financing (SCF) would benefit all parties in a fair world, it’s not a fair world, as it’s run by greedy capitalists, but that doesn’t mean we have to make it more unfair, or complain about laws being proposed to limit unfairness.

But that’s exactly what a recent article in the Global Trade Review on how the Supply Chain Finance Industry Hopeful EU will Soften Late Payment Rules is pointing out. The EU SCF industry is crying foul when there really is no foul.

The article, which notes that even though an EU Parliament committee is pushing for greater flexibility around the regulation on combating late payments that puts in place a stricter maximum payment term of 30 in both business-to-business (B2B) and government-to-business (G2B) transactions (versus the current 60 days), unless companies negotiate payment terms of up to 60 calendar days and both agree to those extended terms in a contract, there are some parties that are still not happy. (Even when the new regulation even allows for companies trading in “slow moving or seasonal goods” to collectively agree to extend terms up to 120 days in a contract.) (For completeness, we should also note that the forthcoming legislation will enforce accrued interest and compensation fees for all late payments.)

However, some parties believe that payment terms should be twice that as they risk restricting liquidity and interfering with companies’ contractual freedoms. The former statement (restricting liquidity) is complete and utter bullcr@p. The latter statement (restricting contractual freedoms) is a valid point if there are currently no restrictions on payment requirements in local laws, but, guess what, all contracts must adhere to the laws and directives of the countries in which the companies operate, and countries / unions have a right to modify those laws and directives over time to what they believe is in the best interest of the greater (not the lesser) good. And when a recent Taulia research report found that 51% of companies polled are typically paid late, something needs to be done.

The point being whined about … err … made is that shortening mandatory terms without agreement to 30 days and with agreement to 60 days would mean SCF lenders would see their returns slashed, and potentially remove any incentive to offer programmes in the first place. And while it’s true they would see their returns slashed from predatory lending, taking advantage of suppliers who need money now from buyers who want to keep their bank accounts as cash flush as possible (even when not necessary to meet internal operating costs), it doesn’t necessarily mean they have to see their returns slashed from a finance perspective. They could still provide suppliers with loans (at fair interest rates) secured by the equipment the supplier buys or the products produced (which they could seize if they feared lack of payment and then the buyer would have to pay the lender for the goods’ release). Or, if buyers liked unnecessarily fat bank accounts, they could lend the buyer cash with the buyer’s illiquid assets as collateral. And while this is more traditional finance, what’s wrong with that?

Allowing buyers to screw suppliers (when those buyers can afford not to) just hurts everyone in the long run. Suppliers have to borrow, usually at predatory interest rates, to make payroll, which increases their overall operating costs. In return, their costs go up on all future contracts. A buyer might squeeze out a slight gain (in its high interest investments vs. paying the supplier or in its stock price based on correlation that a higher than expected bank account is higher than expected growth), but the buyer will just end up paying more in the long term (and then passing that cost onto us consumers). And the only party winning in every transaction is the SCF vendor who gets 2% to 6% on all the short term cash it provides, which is very safe because someone’s going to take that product. And, FYI, even 2% on a 60 day term, works out to over 13% a year (because by the time the supplier submits, the SCF approves, and the money gets transferred, that’s usually at least 5 days). And the rates are only that good when the supplier has more than one SCF option. When the supplier doesn’t, it’s probably 4%, or 26%+ per year, which is likely 40% higher than the organizational credit card, and nearing predatory lending territory! And while it’s not as bad as the 40%+ some suppliers will be saddled with in hard times when all they can get is the local loan-sharks, it’s still not something we should accept.

So bravo to the EU Parliament and shame on anyone complaining about legislation mandating fair payment terms, especially to SMEs. After all, it’s not banning SCF vendors from helping them in other financing ways, or even negotiating an agreement to auto pay every 60 day invoice in 6 days (for 2% of the transaction value) when you know these suppliers are all going to have 60 days shoved down their throats by big businesses.

Procurement Leaders Listen to Roxette!


How do you do (do you do) the things that you do?
No one I know could ever keep up with you
How do you do?
Did it ever make sense to you …

A recent article over on Procurement Leaders asks CPOs why do you do and notes that a recent exercise they’ve been carrying out has been to ask CPOs to share the value propositions they have in place for their function.

Procurement Leaders’ goal was to force extremely busy people to take a step back and think deeply about why they do what they do. What are the ultimate goals of those negotiations with suppliers? Why are they spending time building relationships with certain suppliers and not others? Where should scarce resources and investment dollars be spent? This is because while a value proposition for a Procurement department is not an easy thing to produce and even more challenging to agree and implement, the provocation can allow a Procurement Department to get back to strategy, think about how our decisions affect our stakeholders, suppliers and the communities we do business in.

And while a Procurement department should understand its value proposition, because it helps it focus and relay its value, getting everyone in the organization to agree can be a very extensive effort and extremely time consuming. Furthermore, when you consider the possibility that the “value proposition” ultimately agreed on could be such a mish-mash of different viewpoints and demands to the point that it adds absolutely no value whatsoever, just like a corporate “mission statement” when everyone gets to add their bit to it (and the end result is no different than what the Dilbert Mission Statement Generator used to generate).

However, if you look at the example questions Procurement Leaders’ quoted, you realize that while a vision might be a good goal, a better effort, or at least a better way to start, is to ask the C-Suite to outline it’s top goals for the year, and then for the Procurement organization to identify the best ways they can meet those goals. From there they can identify: which categories should be strategically sourced, which products or services are critical for them, which suppliers are likely critical, and then, for each project, define the value and the goal and not spend effort building relationships with suppliers who are supplying tactical products or services that can be just as easily obtained from the next three lowest bid suppliers and instead spend time developing relationships with suppliers who are critical, even if the overall spend is low. For example, control chips in cars and power regulation systems are extremely critical and often only (capable of) being produced by a few suppliers due to highly specific requirements or proprietary natures. Compared to the costs of the steel, the transmission, the engine and/or the batteries, and even the tires, the total spend might not even register when the chips are only a couple of dollars each — but if a supplier failure, logistics delay, or raw material shortage shuts down your entire production line because you didn’t see a shortfall coming and either work with your supplier to build up an inventory or work with the backup supplier to allow production to be ramped up quickly, hundreds of millions of dollars in revenue could be at stake.

Furthermore, no effort should be spent “strategically” sourcing a product or category where the payback isn’t at least 3X the cost of the manpower required to do so. If an automated multi-round RFX with automated feedback or a reverse auction will get you 99% of the savings and the last 1% won’t even pay for 3X the salary and overhead of the buyer, it’s just not worth it if this prevents the organization from sourcing a lower cost category with a 5% savings potential through better analysis and negotiation. Know the value, define the value, and only put effort in where there is real value to be gained. Otherwise, use appropriate automation or redefine categories and projects. (Definitely don’t go nuts and RFQ everything, because even the squirrels will know you’re nuts if you do. But maybe do some overarching sourcing or negotiation that you can just cut POs or one-time orders against for a year. Sometimes just negotiating for 20% off of lowest list price in a 30 day window [and carefully tracking and documenting those prices to prevent invoice overcharges] is enough to automate catalog orders.)

And similar logic applies to all Procurement (related) activities. While machines can’t replace procurement professionals, they can take over the tasks where their intervention doesn’t add value. That’s the point. So think before you act, and act appropriately.

While Not a Significant Source, Some New Vendors are Contributing to the Procurement Stink!

There are many reasons that Procurement Stinks!

Some of them are due to the Marketplace Madness.

Some of the marketplace madness (a small amount, but non-zero), is aptly summarized as follows.


“We’re pre-revenue, pre-product, and pre-idea.
So any help would NOT be appreciated!“

(Which, to give credit where credit is due, is
a slight rewording of the tag-line to an Andertoon).

Those companies will likely be among the first companies to fail. When there is at least 50 companies that are offering every S2P module, and over 100 for most modules, there is only so much room for differentiation. This means that most of the new startups by the young 30-somethings that did NOT do their market research (but think they know it all because they are tech wizards who built a solution that did slightly more than the three inappropriate products they were stuck with at their last job) don’t really do anything different from a product perspective (and, in fact, usually do a heck-of-a-lot less — hence, “pre-product”). It might be a newer tech stack, it might look slicker, it might be a bit easier to use, but they all fail to understand that THIS IS PROCUREMENT.

This means that, at a minimum, any “product” they want to sell has to satisfy the following:

  • they have to demonstrate a significant ROI, within a decent return within the first 12 months before the CFO will even consider cutting a cheque
  • but before that, they have to show how they will generate long term value before they will even get budget (if the value is one-time like a spend analysis project, especially at Big X quotes of seven figures, not likely)
  • they have to show that it fits in with the current tech stack or IT will object
  • they have to show that it is compliant with regulations or Compliance will object
  • they have to show how it will also decrease overall procurement or supply chain risks, or risk management will steer the budget elsewhere
  • they have to demonstrate they will be able to do more and protect the brand or the CEO will object

Procurement tech is not about cool. That’s consumer tech. Procurement tech is not about the most modern stack to power the business. That’s IT tech. Procurement tech is about VALUE. Procurement is expected to cut costs, NOT increase them!

Until the new generation of founders learns that, and learns there is no way that Procurement will NOT be able to make a case for their 𝘯𝘦𝘸 𝘩𝘰𝘡𝘯𝘦𝘴𝘴 that literally does nothing different than the 𝘰𝘭π˜₯ 𝘣𝘢𝘴𝘡𝘦π˜₯ tech that came before, the old Procurement Pros aren’t going to buy it. And these start-ups won’t hit break-even as a company, and if they don’t get acquired, they will go belly up as the investors realize how over-crowded the space is and any further investment would be throwing good many after bad into the bottomless money pit.

You NEVER Have to Go Crazy on 3 Bids and a Buy!

This is a follow-up to last Friday’s article on RFP Everything? Are You Mad? Even The Squirrels Will Think You’re Nuts!,
which was in response to a LinkedIn Post where a consultant noted that a remarkable example of AI was autonomous tail spend RFP’s generating over 15,000 RFP’s annually through a programmed bot. the doctor‘s response to this was that it was absolutely terrifying. Sales professionals who are already over-inundated with ever more demanding RFQs where they know, statistically, they will only get 20% to 33% of the business if they are on par, and less of the business if they are not, are going to be so overwhelmed that they are going to have two options:

  • pick favourites and stop responding, or selling, to clients that over-inundate but under-buy or
  • acquire an auto-responder and counter auto-generated RFQs with auto-generated bids from their catalog, which may be good, bad, or pointless

Neither is good for the buying company. The counter to this was that there is a category of services which is one off and needs the collection of a number of competitive bids. The value of these services in the €10-100k bracket needed a tail spend management program for which we developed the automated β€˜3 bids and a buy program’ … and there is no better way to organize it.

Which is totally not true, because the doctor saw a better way successfully implemented 16 years ago. Back in the day, Iasta (acquired by b-pack, renamed Determine, acquired by Corcentric) identified that one of the BEST uses for strategic sourcing decision optimization was services procurement (when most firms were still using it for indirect or fledgeling direct).

What they did was:

  1. identify all of the services their large mid-market clients would contract over the course of a year with typical durations
  2. collect bids from national, regional, & local providers
  3. build a huge optimization model which would identify the lowest cost providers for each service in each area and then make an annual award to a mix of national, regional, and local providers guaranteeing a certain volume / $-value of services across a certain number of service categories / roles across awarded service areas as long as the provider locked in the rates for a year

It was ingenious because, when the service was needed, the company simply sent the requisition to one of the chosen providers (lowest-cost first if available, or second-lowest if not or if they weren’t sending enough business to the second-lowest in other categories to meet the commitment).

ONE single RFQ event. One year of quotes negated. The approach regularly identified up to 40% savings, and realized up to 30% savings. David Bush and team were geniuses!

The morale of the story is this: if you think you need to send 15,000 auto-generated RFQs to get tail spend under control, you haven’t done enough thinking about, or analysis of, the problem!

Solution Smash-Up! PROPHETic Vision or Magic 8-Ball!

A few weeks ago, THE PROPHET, who noted he was often asked about which disparate providers and/or solutions might work well together (as part of his strategy and M&A work), said that the answer(s) always depend on hard dollars and common sense in a recent article on LinkedIn.

He noted that there were questions that could be asked to help make the determination between any two specific providers and/or solutions, which included:

  • From a TAM perspective, will it increase the TAM beyond 1+2=2?
  • Does it add additional ideal customer profiles or elevate the solutions to the C-Suite?
  • Does it open up additional GTM strategies and channels?

… but also noted that you can go beyond just payments with AP (traditionally Treasury and Accounting), and provided five examples of solution smash-ups that were a bit more “radical”. In a nutshell, with only minor paraphrasing, these were:

1. Intake Management, “light” e-Pro, and GPO.

This makes perfect sense — there’s a reason intake pre-dates stand-alone intake solutions (Zycus launched iRequest back in 2015, almost nine years ago), and that’s because intake and e-Pro go well together; adding in the GPO allows the organization to take advantage of better prices for regular purchases and makes sense.

2. Contract Management and Price Compliance.

The whole point of contracts is to lock in commitments, which are useless if not realized. Integrating contract management into a price monitoring solution, be it part of e-Pro or AP or payments, is a great choice.

3. Third-Party Risk and Working Capital Management.

Before a cash outlay, or an agreement thereto, it’s a good idea to understand the risk.

4. Spend Analytics and BOM/Part-Level Management.

Well, this already exists in some specialists — mainly in electronics (think Levadata and SupplyFrame), but other players are popping up in other verticals as well. (Sievo and Scalue do a great job of doing direct material or part analysis; and Scalue’s material categorization is great for direct management.)

5. Solve Supplier Supervison Sheol

A few companies are starting to make good progress here on “on-boarding, 3PRM, cyber, GRC, and ESG in one place”. Think Brooklyn Solutions, for example.

So, 3 for 5 on new ideas for solution smash up.

The real question is, what solutions could we smash-up that that, on an initial analysis, shouldn’t increase the TAM, elevate the sale, or open up obvious new GTM solutions … because that’s the smash-up no one will see coming, that we won’t see twenty new entrants next year (where ten will ultimately fail), and that will create the new unicorn. And for this, we’ll need to extend Source-to-Play further into the enterprise.

Here are three smash-ups that might seem strange on the surface, but if look deep, and innovate, you can see how they might just be one of the next break-out solutions.

A. Payroll, Benefits, CLM, SOW, and Sourcing Optimization

Manage all people-related spend in one application to balance employees vs. contractors vs. services firms to balance cost vs. risk (of knowledge walking out the door, resources not being available, etc.)

B. WIMS, Distributor Marketplace, and central e-Procurement Catalog

Optimize not only inventory balance between the local office/warehouse/retail outlet, central warehouse, and distributors and guide the buyer to the right inventory at the right time, auto-replenishing as needed.

C. MRP, Assembly Line Control, Quality Control, and Order Management

Continuously monitor materials coming in, used, defect rate, and intelligently re-order against an existing contract as needed.

Of course, if you want to be the next magical unicorn, you’ll have to get even more radical. Anyone have an idea for a solution smashup that makes almost no sense on the surface but, if you get radical, could revolutionize the space? (If so, and you need a prescription to help flesh it out, you know who to call.)