Author Archives: thedoctor

How Do You Sustain Sustainability When True Value is Long Term …

… and the brunt of the cost is short term?

AlixPartners recently published an article over on Mondaq on how The Fourth Dimension In Strategic Sourcing, Sustainability, Can Drive Value which caught our attention because Sustainability can drive value, but most organizations under cost pressures, which are rampant in our current inflationary economy, don’t choose the sustainable option as it’s typically a higher expense in the short-term.

Moreover, the big value is investing in suppliers that invest in new technologies that will be more sustainable in the long run. However, due to the cost of implementing these new technologies, the up-front costs are higher as the suppliers have to stay in business until the new technologies start to deliver returns. For example, the following are major improvements to sustainability:

  • suppliers utilizing, investing in, or building their own renewable energy grids (solar, wind) to avoid using the energy produced by the local coal/oil burning plants
  • suppliers re-designing production lines and methods to minimize waste (through cutting of metal, processing of food, etc.) and to ensure any waste they create can be used as an input to another production line (melting and re-fab of metal scraps, animal feed, etc.)
  • suppliers investing in their own water purification technology to re-use water in the manufacturing process
  • suppliers investing in product redesign research to minimize use of scarce rare earth minerals/metals and to increase use of reclaimed minerals/metals
  • suppliers investing in reclamation technology to maximize recycling of products created with metals/minerals

… and the following, highlighted in the article, are minor improvements …

  • sustainable supplier selection as everyone is going to try and secure the most sustainable supplier of the lowest cost suppliers, leaving less sustainable suppliers or more sustainable suppliers at a higher cost that the CFO/CEO will not let Procurement pay for the majority of organizations (the small, sustainable, suppliers cannot massively scale overnight)
  • eco-friendly packaging and waste reduction as this is not new and many organizations are already be doing this to the extent eco-friendly packaging is available
  • energy-efficient products and services as this is not new either and as companies replace end-of-life products, they have been choosing more energy efficient products for a while now with the increase in energy prices over the last five to ten years, and the truth is that this is usually a small dent on their total energy footprint
  • carbon footprint reduction as that is the goal, not a specific action that can reduce carbon footprint, and. most importantly, significant reduction requires significant investment (reducing travel and forcing the CEO to give up the private jet and fly first class only goes so far)
  • collaboration and reporting because while you need to understand your footprint, and sometimes shaming goes further than incentivizeation, reporting doesn’t actually increase sustainability unless action is taken …

IF PE firms, with billion dollar funds, won’t actually invest in supply chain (which includes sustainability) improvements, because you typically don’t realize the bulk of the value until you (significantly) pass the five (5) year mark, how can you expect short-term thinking CEOs and CFOs, trying to impress Wall Street or attract PE funding, to actually put their money with their big mouths are and invest in true sustainability?

If you have answers, we’d love to hear them — comment on the LinkedIn post.

Strengthening Supply Chains is Simple …

It just takes proper people, planning, processes, and platforms. But let’s backtrack.

Forbes recently ran an article on how companies can improve supply chain management to strengthen business operations in 2023 which gave some great advice on various ways a business can improve their supply chain management, which included the following suggestions:

  • align partnerships to prepare for supply chain disruptions,
  • prioritize Learning & Development when it comes to automation in quality-focussed procurement, and
  • look ahead

… and these are really great suggestions, but they skip the starting point — and if an organization does not start off right

  • you’ll never be able to align the wrong partnerships,
  • no Learning & Development program will deliver fast enough if your people don’t have the right educational and experiential background, and
  • looking ahead will be impossible without the right platform.

You see, before you can jump into partnerships and learning and development, you have to go back and make sure you get the basics rights.

  1. Define proper procurement processes, including what will be strategically vs. tactically purchased, this will help you
  2. Hire the right people with the right backgrounds for the categories — not necessarily experienced buyers, but possibly experienced engineers with the insights to know what is needed, what makes a supplier who can meet the needs, when the cost models/quotes are accurate, etc. as it’s often easier to teach an engineer proper purchasing than teach a business grad the basics of electrical engineering
  3. Select the right platforms, which will allow you to qualify and select the right suppliers with whom you can build productive partnerships and
  4. Build the right models, which will allow you to do proper predictive analytics for demand, supply, and related planning

When you get the foundations right, it’s easy to build on those with partnerships and advanced training (to make your good buyers even better), but if you don’t have the foundations right, any attempts to polish partnerships and buildup better buyers will be for naught. (For more on foundations, see past articles on this blog, including The 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay.)

Just a Reminder You Get What You Pay For With Second Rate Market Research

While it might not be easy to look at the non-subscriber / non-client prices of a Gartner and Hackett research report or the cost of an annual subscription and say “yeah, it’s worth it“, we’d like to remind you that you get what you pay for and when you pay for cut-rate advice from a generic Indian Research Firm staffed by people who clearly don’t know anything about the Procurement Market and who hire PR people who think it’s a good idea to push their press releases to a website that got its name from a misspelling of Sheldon Cooper’s catch-phrase (from the Big Bang Theory), you’re paying for advice that, if followed, will cost you many times more than what you paid for that “research” when you follow the advice and make disasterous decisions.

So what kicked off this rant? This press release on Benzinga.com by 360 Market Updates on the e-Procurement Tools Market that proclaims to know How the Market will Witness Substantial Growth in the upcoming years. Research over the last decade from Hackett, Gartner, and Spend Matters — where the doctor was a Lead Analyst for six (6) years — have consistently found, and predicted, year over year growth in the 8 to 12% range, at best, across all areas of Source to Pay, a rate that’s no better the consistent predictions of about 11% CAGR for the broader enterprise software market for the current decade, and in some cases worse.  (Note that the doctor is calling out the press release, not the firm.  He’s not going to bother researching yet another firm that offers yet another cookie-cutter report with no clear value if there is no clear press release or website on that value.)

In other words, while steady, consistent growth is expected, it’s not substantial growth under any interpretation and it’s on par with enterprise software as a whole, at best.

But even worse, if you believe the press release, it’s apparently based on a completely random, entirely mismatched, set of “e-Procurement Tool Vendors” which demonstrates almost ZERO understanding of the global Procurement Tools market.

First of all, if you include all of the Procure-to-Pay vendors, there are over 100. SI has listed the majority of them in Parts 7 and 33 of it’s 39 Part Series on where to start with Source-to-Pay where it listed over 70 e-Procurement companies and over 75 Invoice-to-Pay and Accounts Payable companies. Their press release only lists 15 companies but …

… doesn’t seem to recognize that e-Sourcing, e-Procurement, and Supply Chain Management are not the same thing at all, and one of the vendors included is Delta e-Sourcing whose primary offerings are baseline e-Sourcing/tendering and supplier management and offers only baseline e-Procurement, compared to Medius which offers Procure-to-Pay (Procurement, Invoice Management, and AP Automation). Even worse, it contains Archlet that is an analytics-backed Sourcing Platform with Decision Optimiation and which DOES NOT OFFER ANY e-PROCUREMENT TOOLS.

… isn’t up to date. It lists LetsBuyIt.NET GmbH as one of the 15 vendors (and if you’re saying who?, you’re not alone because it doesn’t exist anymore). LetsBuyIt.Net is now eBidToPay Schweiz, and has been for nine (9) months. (So is this a recycled report from 2022 or 2021?)

… includes a big vendor that doesn’t even sell a Procurement Application anymore! It lists IBM corporation as the first provider, and while IBM acquired Emptoris in 2011, it began to sunset it in 2017 when it worked out an agreement with SAP to migrate all the Emptoris customers to the SAP Ariba platform!

In other words, if the press release is accurate, then this report, like many of the two-dozen plus low-cost reports you can buy from the two-dozen plus Indian Market Research firms that have popped up over the last two decades, would be more-or-less complete rubbish and you’d be better off taking that $6K and sending two of your top buyers to a major Procurement event where they can hear from experts, network with peers, and learn something actually valuable.

And if you need REAL market insight into current vendors and their platform capabilities, and the Gartner/Hackett reports don’t meet your needs, you can always go direct to the experts (like the doctor or Xavier and Bertrand* at Spend Matters, who the doctor has publicly recommended in his list of analysts and consultants he recommends when he’s not the best expert to help you). Yes, you may have to pay a few K per day, but you get targeted advice to your organization which is worth ten times (or more) what you pay because it’s based on decades of research and experience that allows the analyst/consultant to give you the best targetted advice for your organization while filtering out the market information that is relevant to you.

* Bertrand could be the last great analyst in our space! Take advantage of this while you still can … after all, it’s not the analyst firm. It’s the analyst!

Procurement Staff Augmentation: What’s the Approach?

While scanning the weekly news, the doctor encountered an article in the Technology section of HackRead on Strategic IT Staff Augmentation: A Roadmap for C-Level Executives, which outlined key considerations when choosing an outsourcing service provider (as all of them have pros and cons) as well as five essential steps that are required to make a good decision.

But what do you do in Procurement? Whereas there are dozens of big providers with oodles of talent sitting on a bench to help you in Tech, it’s not so in Procurement. Just like organizations struggle to find experienced and knowledgeable Procurement talent, so do consulting agencies, group purchasing organizations, and vendors who want former senior buyers and CPOs to help guide them on creating useable solutions. So if you can’t get talent, and they can’t get talent, what do you do?

It’s a damn good question, and it has a good answer, but not one you’re gonna like. Because you can’t get enough talent, you need to get better tech. The reality is that even if the market improves and your budget for headcount and technology improves, you’ll still have to do more with less because you won’t find the talent you need. So take advantage of the fact that you’re constantly expected to do more with less and set yourself up to be able to do that by getting the right tech.

More specifically, the tech that lets you:

  • automate and streamline tactical tasks
  • define your strategic processes, automate data collection, define validations, and automate standard analysis and insights retrieval
  • integrate 3rd party intelligence including, but not limited to, metrics, ratings, benchmarks, market insights, etc.
  • enable third parties to do sourcing events, negotiations, supplier development, detailed analysis, etc. on your behalf
  • allow self-serve integrations to third party tech used by third parties who do Procurement projects for you

Those last two capabilities in particular are critical for organizations who need Procurement staff augmentation because:

  • they won’t be able to hire more senior staff internally,
  • they won’t be able to secure them from consulting companies for more than short periods of time, and
  • they will only have access to shared resources on a regular basis (i.e. short term engagements from consultants who will engage to provide expertise / leadership on specific projects, short term engagements from vendor staff who will do a specific project / negotiation, etc.)

So, without the tech that will allow a third party to

  • quickly customize the process they will follow
  • automate all the tactical steps and data collection
  • automate the analysis needed for augmented insights
  • use their tools and push the appropriate data and results to the client
  • use the client tools and get the functionality and data they need

A third party cannot take on the work an organization needs it to take due to lack of experienced staff. Thus, the answer to procurement staff augmentation is one that starts with better, more modern, Procurement tech, which is quite different than IT staff augmentation, which starts with firm qualification and then resource qualification. Due to the drastically different market dynamics — an abundance of talent vs. a dearth, the approach has to be entirely different.

PostScript: Please note not ONCE did we say AI. We said better tech. That’s totally different!

To What Extent Can True Supply Chain Value be Created under Private Equity?

the doctor recently encountered a headline that implied that there could be supply chain value creation under private equity ownership, which, even before he made it to the tenth word, caused him to stop and ask just how much supply chain value could be created under private equity as the entire point of private equity is NOT to create supply chain value but to increase investment value in the short term for the fund contributors who are essentially the shareholders of the private equity firm.

And when we are talking short-term investment value creation, usually the biggest value creation levers are:

  • revenue / customer base increase
    (Wall Street Values this the most, so most investors value this the most as it gives them a better exit opportunity)
  • operational cost reduction
    (layoffs of the perceived dead-weight or high-earners, job consolidation, etc.; office space downsizing; cloud/SaaS infrastructure reduction/optimization; etc; as it’s an immediate reduction on the balance sheet which results in an immediate profit increase)

Supply chain is not the top two, and in many cases it’s not even in the top twenty, when you’re talking short-term. Mid-term (5 years), it gets up there (but not high enough for anything significant to be done), and long-term, it’s likely the second top value driver there is (as we must always remember that financiers will always put revenue first) as it can lead to cost reductions and value generation that can exceed any short-term operational cost reduction as the benefits from a supply chain improvement will be realized every year (and not just one time).

When the doctor got past these thoughts and returned to the article, the first thing the article noted is that private equity (PE) and the supply chain have been somewhat at odds with each other … due to what we could call a timeframe imbalance since PE typically aims to secure an exit within 3-5 years while supply chains … tended to operate on longer timespans. (Often much longer timespans.)

Now we must admit that, thanks to the pandemic, PE firms now realize more than ever that, without a functioning supply chain, any traditional business that needs to buy and sell physical goods to function is up Schitt’s Creek without a paddle. As a result, the smarter PE firms have started to give the supply chain some attention, but for the most part their focus and investments are usually limited to qualifying suppliers and carriers, not transforming global supply chains.

Moreover, the execution of this focus on qualifying suppliers and carriers is usually part of a broader strategy to make better decisions, which needs better data, so the focus ends up being a data, analytics, and BI (which is supposed to stand for Business Intelligence, but in some companies just ends up being BullSh!t Interpretation when they buy the wrong tool) strategy and an investment in the right SaaS tools to do that, and not on actual supply chain modelling, (re)design, or transformation. The best companies will procure modern S2P and ERP platforms which support real-time visibility into the location of all product — be they inventory, in transport, and ordered — by way of message and e-Document (EDI, XML, etc.) exchange with supplier platforms, but that’s as far as they’ll go on the “supply chain“.

And when the doctor finally brought himself to finish the article, it mostly admitted all of this, but finished by saying that there has been a surge in PE investment into supply chain technology, which he knows to be true.

In other words, PE firms do invest in supply chain technology and do utilize such to maximize the value in the supply chains of the companies they invest in, but they don’t actually invest in the actual supply chain, which is a much greater source of value (and carbon reduction, FYI) in the long term. And, as the doctor thought, the title was quite misleading. PE firms, if they took a longer term view (even 8 to 10 years would be enough), could totally transform supply chains, but, at least for now, all they do is tighten up what’s there in the hopes of making the company profitable enough to flip it to a bigger PE firm or take it public. So, to be brutally honest, there is no true supply chain value created under Private Equity today. (Hopefully tomorrow is a different story, but we’re not holding our breath.)

Disagree … contribute to the conversation on LinkedIn.