Monthly Archives: July 2024

Supply Chain Resilience is Becoming Key, but You Can Only Reach it By Design!

But while it used to be a relatively straightforward Supply Chain Network Design problem (especially if you had a good SCND tool with optimization and simulation capability), it’s become a lot more complicated.

A recent article over on Logistics Viewpoint on Resilience by Design: The Power of Simulation in Supply Chain Strategy did a great job of explaining the power and importance of optimization in supply chain network design (and demand fulfillment modelling), especially around optimizing cost between two potential fulfillment options (determined to be equally viable).

These days, you have to consider:

  • the reliability of the supplier (financial viability, raw material availability to it, geopolitical instability, etc.
  • the reliability and availability of the carriers (financial viability, available containers, route viability, etc.)
  • the carbon contribution of the fulfillment model (is it going to make targets today AND tomorrow)
  • … and how your supply chain will adapt if a supplier or carrier fails or a primary product becomes unavailable and you have to switch to a secondary product

That’s true resilience … not just managing costs under demand shifts, but managing availability under supply shifts — in the supplier, carrier, or product.

It’s a tall order, and not all platforms in our space can handle it (well beyond standard SSDO), but a few can. From a network management viewpoint, you can check out Logility Network Optimization (formerly Logility Starboard) and Coupa with their SSDO and SCNO solutions.

The reality is that it doesn’t matter how great of a deal you inked if you can’t actually acquire the products at the agreed upon prices, and, more importantly, if you can’t even get the products at all! So if you want a resilient supply chain, you need to design for it. And sometimes that goes beyond just doing the standard 80/20 or 50/30/20 splits (because if all the suppliers are in the same fault zone on the ring of fire … it will only take one disaster for them all to burn).

The Key to Procurement Software Selection Success: Affordable RFPs!

Modern supply chains are risky. Very risky. Nothing made this fragility more clear than COVID where the world essentially broke down due to an illogical over-reliance on outsourcing, especially to China. (There’s a reason that SI has been promoting near-sourcing, home-shoring, and home-sourcing for over sixteen years — because this breakdown was inevitable, the only unknown was whether or not it was to be geopolitical instability/war, a massive natural disaster, or a pandemic that would be the first card to topple in the house of cards.)

Despite the best laid plans, and all the precautions you can implement, something will inevitably go wrong. Very wrong. And the disturbance will cost you greatly. That’s you you buy supply chain insurance which, depending on exposure, limits of dependency, and regionalization, will cost you between 1% and 10% of the policy value (maximum claim amount). If we take 5% as an average (which is not unreasonable), that says for every 1,000,000 of at-risk inventory you need to insure (to prevent devastating loss), you are paying $50,000.

But do you know what’s just as risky as your supply chain? The investment in the technology that you use to power your supply chain. Therefore, you should do everything you can to ensure you get it right! The best way to do this is create a good, proper, RFP to help hone in on software vendors that have appropriate solutions that should be able to fill your need while ensuring that they have the minimum globalization, size, and services you will need to consider giving them an award.

But, as per previous articles, including our last article on why THERE ARE NO FREE RFPs!, you’re probably not capable of doing this on your own. This is because a proper RFP requires

  • understanding your current Procurement Maturity
    (and while you may understand what you’re doing, it’s doubtful you understand how you are faring against the market or best-in-class)
  • understanding your current processes (based on this) vs. your target processes (based on where you should get to within a reasonable time-frame, taking into account that The Hackett Group, based on their book of numbers, discovered that it was typically an eight-year journey to best in class for large global enterprises)
  • understanding how these translate into use cases that must be supported by technology
  • understanding what technological capabilities will be required to get you there and …
  • what additional capabilities would be beneficial to simplify your tasks, identify additional value, or help your team progress in Procurement maturity over time and …
  • understanding which types of solutions / modules on the market contain the bulk of those capabilities so you know which segment of vendors to send the RFP to
  • understanding if the backbone solutions in place are worth keeping or if they should be replaced instead of augmented (i.e. would the solution with the missing capabilities completely subsume these solutions [rending them unnecessary], like simple RFPs in a Sourcing Suite or catalogs in a Procurement suite, or would they still be needed, like an ERP backbone)
  • understanding the globalization needs not just of the company, but the (potential) suppliers
  • understanding the services that will be required for installation, migration, and integration
  • understanding any unique requirements of the organization that will need to be addressed by a vendor (to ensure they can meet them) before negotiations can begin

and if you don’t know

  • what the state of the market is, or what best in class is
  • how your processes should be transformed to advanced up the maturity curve
  • how to define the appropriate use cases
  • … and the key technology capabilities that will be required
  • … and which optional capabilities will be true value add
  • how to identify solution/module types based on these capabilities
  • which solutions you have that you should keep, and which you should replace
  • the full breadth of globalization needs across the extended enterprise
  • the full breadth of services that will be required
  • which of your organizational requirements are truly unique and need to be spelled out

then you CANNOT write a good RFP. So you really, really, should pay an expert, independent, advisor (or consultancy that does not have any preferred provider partnerships) to do the appropriate Procurement and platform maturity assessments and write the RFP that you need.

Especially since this can usually be done for less than 10%, if not 5%, of the 5-year cost of the investment. (Face it, you’re going to be locked into at least three years no matter what you buy, usually five years, and even if not, it’s going to be too costly to switch out even the worst solution in less than five years.) For example, as per previous Sourcing Innovation posts on how much should you pay for a starting platform, as a mid-market you would be looking at about 250K/year in license fees for a good suite across the board (120K for a starter, but that wouldn’t have all the modules or advanced capabilities where you need them), plus implementation, migration, and integration that will run you anywhere from 125K to 500K (or more) up front. Assume 250K, and this gives you a five year baseline cost of 1.5M. 10% of that is 150K, and you can definitely get the help you need for that — and it’s a SMALL price to pay to make sure you get the acquisition right of this make-or-break technology (that can deliver a 3X to 5X+ ROI done right, and cost you Millions done wrong). (And if you’re a larger enterprise, you’d be looking at 3M to 6M for a suite for 5 years, which gives you a budget that even the Big X would be interested in, but which they SHOULD NOT automatically be considered for as they are all preferred implementation partners for at least one of the major suites.  In other words, if you have shortlisted to their partners, definitely consider use them — they have deep insight.  If your shortlist is for a majority of vendors who are not their partners, or if you want them to consider non-partners equally, make sure they are willing, able, and available to make this commitment up front before giving them the work!  [Remember, when it comes to enterprise suites, some of them have minimum referral / implementation requirements for partners, who can get in trouble and lose the partnership if they don’t recommend that system as one of the options in certain situations!]  Also remember, even if you go elsewhere for RFP creation, depending on whom you select, you may want to move back to a Big X for implementation — keep in mind when you should use a Big X!)

So if you want true success, big savings (10% for the appropriate strategic sourcing/procurement technologies), and real ROI (3X to 5X or more), put those “FREE” RFPs in the trash where they belong and find the right expert to help you create the right Affordable RFP that will ensure the successful selection that your organization needs.

Demystifying the Marketing Madness for you!

The marketing madness is returning, the incomprehensibility is increasing, and the terminology almost terrifying, so here’s the simplest easy-peasy guide the doctor can make to interpreting what the messaging is actually saying, if it’s saying anything at all!

AI-enabled/AI-backed/AI-enhanced/AI-driven: We don’t actually have any capabilities that you won’t find in one to three dozen of our peers, but since they’ve all jumped on the “AI” bandwagon, we will too and use the exact same meaningless messaging. (Remember, there are NO valid uses for Gen-AI in Procurement and most valid uses for “AI” are constrained to specific use cases, the rest of the time it’s just rules-based RPA/Automation.)

Autonomous Sourcing: If you configure enough rules, or, even worse, turn on our Gen-AI auto-negotiator, the platform, given a demand, will auto configure and run a sourcing event to the point it selects a supplier and sends out an award notification, with little to no guarantee it’s what you wanted (if you turned on Gen-AI).

Delightful Procurement: terribly sorry, but even the doctor can’t translate this one!

Intake-to-Procure: Takes a request in, but doesn’t do anything with it … unless you have a Procurement system it can automate or punch into. (As the doctor has said, intake on its own is Pay-Per-View on your data, and something that SHOULD be included in every proper Procurement solution because you should not have to pay another third party to see YOUR data!)

Margin Multiplier: Our ROI isn’t much better than other best-in-class solutions appropriately applied (the difference between the savings achievable from an average Strategic Procurement/Source-to-Pay and a Best-in-Class Strategic Procurement/Source-to-Pay platform appropriately applied is typically less than 2% [unless one platform includes appropriate SSDO and the other doesn’t] … i.e. you might get 12% savings instead of 10%), but since it’s best in class, you might be able to multiply your margin if all the math works out (3% to 6% instead of 3% to 5.8%), and Margin Multiplier just sounds so much cooler!

Orchestration: Cloud-based middleware that allows you to connect platforms using their APIs through a UX and build data-based workflows that pulls data from one platform and pushes it to another while controlling a multi-application process. Unless it supports integration beyond source-to-pay applications, likely not that useful as it just ADDS to solution sprawl when you can just direct connect the S2P applications yourself using the APIs and rules-based automation to push and pull data (as they all work on essentially the same data).

Smart Procurement: Procurement powered by rules-based workflows, but smart just sounds cool, eh?

Spend Orchestration: We don’t do anything different than all the other orchestration providers, but it sure sounds cool!

Sustainable Procurement: Generally speaking, this simply means you can see supplier / product sustainability (carbon, etc.) data when sourcing, but we don’t actually help you identify more sustainable suppliers or, more importantly, how to work with your supplier to decrease the carbon footprint, raw material utilization, fresh water footprint, etc.

Supplier Insights: An extensible, centralized supplier information/relationship management platform that can be augmented with ALL related supplier finance, product, location, compliance, risk, ESG, and other relevant data. A capability offered by a few dozen platforms, which means this platform isn’t that special.

In short, all of this new marketing gibberish is essentially complete bullcr@p and I have to echo the desire of Sarah Scudder and Dr. Elouise Epstein for Procurement solution providers to tell us what your solution actually does and, in the doctor‘s words, CUT THE CR@P!

Have all the Big X fallen for Gen-AI? Or is this their new insidious plan to hook you for life?

Note the Sourcing Innovation Editorial Disclaimers and note this is a very opinionated rant!  Your mileage will vary!  (And not about any firm in particular.)

Almost every single Big X and Mid-Sized Consulting firm  is putting “Gen-AI” adoption in their top 10 (or top 5) strategic imperatives for Procurement, and its future, and that it’s essential for analytics (gasp) and automation (WTF?!?).

It’s absolutely insane. First of all there are almost no valid uses for Gen-AI in business (unless, of course, your corporation is owned by Dr. Evil), and even less valid uses for Gen-AI in Procurement.

Secondly, the “Gen” in “Gen” AI stands for “Generative” which literally means MAKE STUFF UP. It DOES NOT analyze anything. Furthermore, automation is about predictability and consistency, Gen-AI gives you neither! How the heck could you automate anything. You CAN NOT! Automation requires a completely different AI technology built on classical (and predictable) machine learning (where you can accurately calculate confidences and break/stop when the confidence falls below a threshold).

Which begs the question, have their marketers fallen for the Gen-AI marketing bullcr@p hook, line, and sinker? Or is this their new insidious plan to get you on a never-ending work order? After all, when it inevitably fails a few days after implementation, they have their excuses ready to go (which are the same excuses being given by these companies spending tens of millions on marketing) which are the same excuses that have been given to us since Neural Nets were invented: “it just needs more content for training“, “it just needs better prompting“, “it just needs more integration with your internal data sources“, rinse, lather, and repeat … ad infinitum. And, every year it will get a few percentage points better, but if it gets only 2% better per year, and the best Gen-AI instance now is scoring (slightly) less than 34% on the SOTA scale, it will be (at least) 9 (NINE) years before you reach 40% accuracy. In comparison, if you had an intern who only performed a task acceptably 40% of the time, how long would he last? Maybe 3 weeks. But these Big X know that once you sink seven (7) figures on a license, implementation, integration, and custom training, you’re hooked and you will keep pumping in six to seven figures a year even though you should have dropped the smelly rotten Gen-AI hot potato the minute you saw the demo (and asked them for a more traditional enterprise application they can deliver with guaranteed value).

So, maybe they aren’t misled when it comes to Gen-AI. Maybe they are just shrewd financial managers because it’s their biggest opportunity to hook you for life since they convinced you that you should outsource for “labour arbitrage” and “currency exchange” (and not materials / products you can’t get / make at home) and other bullsh!t arguments that no society in the history of the world EVER outsourced for. (EVER!) Because if you install this bullcr@p and get to the point of “sunk cost”, you will continue to sink money into it. And they know it.   Or do they?

In our view, the sad reality is that while one or two financial managers may have gone deep enough down the Gen-AI rabbit hole to figure this out, most of them likely just don’t see the downside for them or their clients.  Given all the hype the creators of these Gen-AI* models are pushing, with prolific examples only of success cases and upside, with very little education on the realities (because few of us are highlighting all of the risks of Gen-AI and failures when misapplied), maybe all they are seeing are promises that are just too good to ignore.

So, please, ignore the Gen-AI until you’ve validated a use case and instead remember When You Should Use Big X. Every solution and services provider has strengths and weaknesses. Please use them for their strengths, be successful, and increase the project success rate. (Post-Edit: As of 2024, technology project failure is at an all-time high. We don’t want to see any more of it!)

*Remember that AI, and Gen-AI in particular, is a fallacy.