Author Archives: thedoctor

If You Want Good Procurement People …

TRAIN THEM!

A common problem among all Procurement departments is their ability to find good, educated, experienced people. The reason for this is simple: there just aren’t enough good, educated, and experienced people to fill all the Procurement positions that should exist among corporations world-wide.

Why?

1. Procurement isn’t Sexy

People go into careers that are attractive. These are careers that are held in high regard (like doctors and lawyers), careers that pay well (like finance and tech), careers that are currently in high demand where unusually high premiums can be found in the right locations (like nursing or remote mining/O&G positions), or careers that bring fame (like acting, entertaining, and professional sports). People don’t go into careers that no one’s heard of, careers that have a negative stigma, or careers that don’t pay well. Guess what bucket(s) Procurement falls into? The latter three. No one’s heard of it (who even advertises their world class Procurement, yet alone makes it sexy — that’s right, no company on earth). It’s still thought to be the Island of Misfit Toys. And many people think back office purchasing pay scales are akin to entry level AP clerks.

2. There are No Real Procurement Programs

Prestigious Universities have prestigious business schools. These focus on executive management and basic operations. The best of these will also teach classic logistics. There are only a few Supply Chain Management programs globally, and none of these teach modern Procurement platforms and processes as a general rule. A few have brief introductions to modern spend analysis or e-Auction or RFP platforms, but that’s literally two decades old tech in our field. No one coming out of University has any real understanding of modern procurement processes, best practices, or platforms.

3. Most Procurement People Have Very Narrow Skill Sets

When you’re in Procurement because you get put there, fall there because there was nothing else at the time and you needed a job, or voluntarily move there to help the company because you demonstrated a knack for buying certain categories and without you, the company would be suffering and possibly have to layoff your friends, you didn’t go there because you had the right education and experience and knew it was the best job for you. Furthermore, when companies don’t invest in the education you need to learn end-to-end processes, best practices, and category specifics outside of the area you came from, you end up developing, usually by trial and error, a very narrow skill set in terms of applications you can use, processes you know, and market interpretation to determine if the offer is reasonable in current market conditions. This makes it very hard to jump to another job and be a good buyer in another category, or even a similar category where you would have to buy a whole new set of parts from a whole new set of suppliers in a whole new geography.

Thus, it’s going to be very hard, for any intermediate position, to find the right person who can walk in and do the job at market average performance day one.

However, Procurement is not rocket science, open heart surgery, or CPU design. It’s not hard to find very smart engineers, mathematicians, technologists, pharmacists, chemists, etc. who can, with focussed training in best-practice procurement processes and platforms, very quickly pick up the basics of Procurement and use their deep knowledge of products and R&D/Engineering/Manufacturing needs to identify the best products, suppliers, and partners for the organization. These highly educated individuals will also have a decent background in mathematics, algorithms, and logic to learn the spend analysis / market intelligence platforms and quickly identify market average prices and costs for products and parts and be able to analyze bids against current organizational prices, market prices, and should cost models to identify those suppliers offering fair quotes as well as additional service-based value.

With a few weeks of focussed training on key processes and platforms, these resources can often be up and running effectively, and with a few months of training over their first few years, quickly progress to a top-tier performer. All you have to do is bring back the Learning & Development budget and train them by hiring appropriate analysts and consultancies to design/deliver the courses they need to be effective for your organization. And even though custom courses can cost considerable up-front dollars, 10K is nothing if it helps a top-tier resource identify a 10% savings on a 10M contract, as that’s literally a 100X return on your investment. (Remember this the next time someone considers cutting the training budget for Procurement as the return on proper training for a good resource will always exceed the investment many times over.)

The Seven Patterns of Artificial Idiocy … in Procurement

AI proponents, who keep telling us it stands for Artificial Intelligence which does not exist, keep pushing the benefits of AI while sweeping all of the detriments under the rug so you’ll sign that multi-year deal now (and they’ll have the money to keep researching the technology in the hopes that their continued efforts will prevent the bad from happening again). (And while the tech will get better and the success rates will improve, the very nature of the technology they are deploying is such that it is impossible to prevent the bad because the technology is not intelligent and not deterministic, as per our many previous posts on the subject. The best will eventually get success rates up to 99%, but that’s still a 1% failure rate and, in Procurement, it only takes one catastrophic failure to wipe out all of the successes made in the rest of the year. It only takes one bad decision that shuts down a multi-million production line, results in class action lawsuits for the release of unsafe products in to the market, or results in seizures and destruction of millions of dollars of inventory when the products violate import restrictions, etc. to deliver masses losses.)

And the benefits they push typically fall into one of the seven patterns of AI that the AI proponents keep telling us AI will deliver. To help you better classify the false promises, we’ve decided to cover the seven patterns, example promises, and realities you will encounter if you implement current iterations of technology that employ Artificial Idiocy.

HyperPersonalization
Promise: The system will adapt and evolve over time so that when you log in, you see exactly what you need to see, in priority order for you.
Reality: The system comes with a set of widgets, and all the AI does is reorder the alerts/notifications/tasks/reporting views in each widget based on a priority weighting where the weights are recalculated based on recency in access so, at the end of the day, it just keeps showing you what you just looked at and truly important alerts, because you haven’t regularly looked at them, are at the bottom of the widget and off the screen since you never scroll down inside the widget. Classic rule based systems work better.

Recognition
Promise: 100% effective automated invoice processing, routing, and approval
Reality: it only recognizes invoices from suppliers who invoice regularly in a format that never changes; and only if the line item descriptions are never abbreviated; and only matches properly if the PO number is included; 10%+ of invoices have to be manually processed, and abbreviation errors cause misclassifications of units that sometimes don’t get caught until after payment is issued

Conversation and Human Interaction
Promise: natural language interaction, including voice to text
Reality: due to the ambiguous nature of the English language, the number of follow on questions the AI has to ask just to produce a simple report requires the user to spend five minutes giving clarifications and specifying parameters that could be point-and-click selected in 30 seconds; efficiency is flushed down the virtual toilet

Predictive Analytics & Decisions
Promise: what the price will be when, and why
Reality: works really well 95% of the time, with price accuracy often within 2% to 3% and demand predictions (outside F&B and other highly unpredictable industries) within 3% to 5% at the macro/rollup level, but when a trader illegally tries to run up the market with excessive trades, and prices start to skyrocket and the algorithm doesn’t know this is unusual/short-term, it may predict extreme price increases at contract expiry in 6 months, and automatically early renew the contract for you at rates 30% to 130% higher than it should (before the costs become unaffordable)

Goal-Driven Systems
Promise: Sustainable Buys with Cost Savings
Reality: Unsustainable buys as cost is overweighted and over-prioritized in all situations; ’nuff said

Autonomous Systems
Promise: They will procure automatically and do better than humans
Reality: They procure automatically and occasionally do better than humans, usually do on par, and occasionally make such disastrous decisions that the company does well to avoid bankruptcy …

Patterns & Anomalies
Promise: They will detect unusual spending patterns and detect the best opportunities for savings and the most likely instances of fraud
Reality: Unusual spending patterns don’t mean savings, and usual spending patterns don’t mean absence of fraud, and you get all kinds of “priority alerts” with no savings opportunities while the largest opportunities go unidentified and collusion frauds are never detected

At the end of the day, as we’ve said again and again, Procurement Automation: Good, (AI) Automated Procurement: Bad. Only you, dear reader, are intelligent and, thus, only you should do the thinking and only use technology for what it’s good at, the thunking.

While A Good Procurement Tool, Amazon Business IS NOT The Answer to Increasing Revenue and Boosting Resilience in Procurement!

OI! This is yet another article the doctor shouldn’t have to write, but after encountering this thinly veiled advertisement for Amazon Business masquerading as a sponsored article on Thriving Through Disruption over on Supply Chain Dive, it appears he has no choice because simply transferring your Procurement to a third party, like a GPO (Group Purchasing Organization) or Outsourced Procurement Operation, doesn’t necessarily solve the problems you are having (it just changes ownership of them). Furthermore, no single organization, including Amazon Business, is going to even be aware of, yet alone work with, all potential suppliers, and, thus, no single organization is going to be capable of maximizing your options, especially around DEI (which is something else the article trumps up).

As the article notes, resilience is KEY to successful Procurement given that major sources of global supply chain descriptions — global conflict, changing climate, resource shortages, human error (and just plain incompetence), political unrest, and much more — have only increased since the transition from pandemic to endemic for COVID, and the rate of increase shows no sign of slowing down (especially with labour disruptions also heading towards all time highs along with natural disasters).

And, as the article notes, your Procurement department needs to be agile. Unknowns abound and disruptions, even high probability ones, cannot be predicted. And even the best laid plans for risk mitigation can be voided when those plans depend on alternate supply from a supplier or distributor that gets impacted from the same natural disaster, border disruption, or labour strike. As such, an organization needs near real-time supply chain monitoring, a diverse supplier base, and the capability to react quickly when the unexpected, but inevitable, happens.

And, as the article notes, with the backing of an e-Procurement system … organizations can discover new insights that could help them adapt effectively to a changing supplier landscape, fostering flexibility and enhancing robustness.

But, and this is a key point, Amazon Business is NOT an e-Procurement system. It’s a marketplace. More specifically, it’s a very good marketplace, and one that EVERY organization should have in its arsenal for low-volume/tail spend/indirect Procurement (because, like a GPO, the volume it can deliver to suppliers can make it very attractive for suppliers to advertise its best prices up front to win all of the customers on Amazon Business), but it’s NOT a modern e-Procurement platform. (And if you want to understand what this is, and which vendors may provide this to you in a marketplace/vendor agnostic fashion, check out Parts 3 to 7 of Sourcing Innovations 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay, where Part 7 contains a list of over seventy [70] e-procurement companies to check out.)

Similarly, when the article says supplier diversity is a powerful way to enhance service, quality, and value by promoting an inclusive, proactive approach to purchasing from individuals or groups who are members of a traditionally underrepresented or under-utilized group. it is also dead on. Furthermore, as the article says, with the right solutions in place, Procurement leaders can extend equitable access into their sourcing practices, creating a transformative opportunity for small, local, or diverse businesses, as well as their own organizations. And, yes, DEI suppliers can build capabilities, create opportunities, and strengthen community and, yes, a DEI program focussed on including diverse suppliers in sourcing events will help an organization broaden its supply chain, but Amazon Business alone will NOT be sufficient to identify and validate all of the diverse suppliers an organization should be considering. It is true that it is one of the few marketplaces that has designed features and tools to streamline the identification and validation of diverse suppliers, but it’s also true it only has so many vendors on the platform, and the majority are for indirect and MRO — not direct and not services. So it’s NOT a complete solution.

Now, let’s be clear that we’re not trying to dismiss Amazon Business here, because, for many mid-size organizations, it should be part of their Procurement Toolkit and even part of their tail-spend / non strategic purchasing strategy as it can really simplify a Procurement buyer’s life by offering verified products from verified suppliers with reliable delivery dates at good prices. But it’s not an e-Procurement platform and definitely no where close to a complete solution. Understand it for what it is, use it as appropriate for the great value it will give you, but don’t have unrealistic expectations, or the disruptions that eventually be arise will be much more damaging and shocking then they should otherwise be with an appropriately managed multi-pronged organizational Procurement strategy.

There are Three Primary Parts to Procurement Orchestration

Procurement Orchestration is the craze, presumably because Procurement shouldn’t operate in a vacuum. There are a number of startups just focussed on orchestration, a number of analyst firms are jumping on the orchestration bandwagon, and a number of enterprise automation platforms are all of a sudden claiming to be procurement orchestration platforms to get in on the buzz. But there’s a lot more to Procurement Orchestration than just application automation. A lot more.

Procurement Orchestration, which we included in our 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay in Parts 34 to 36 and 39, MUST Address, at a minimum, the orchestration of:

  • procurement data
  • procurement process
  • procurement stakeholders

First of all, good Procurement needs to be data-informed. (Not data driven, data informed. Data driven means that all decisions based on the available data, which is never complete. You can accurately capture all bids in an RFP, previous OTD metrics, previous defect metrics, subjective quality ratings, ESG data, etc. but you can’t capture relationship data, innovation support, etc. and these are also factors that are important in Sourcing and Supplier Selection.) This means that all available data needs to available to the Procurement team. It doesn’t have to be centralized in one system or pushed to a data warehouse / lake / lakehouse, but the source system (that holds the golden record of truth) for every piece of data needs to be identified and integrations created to allow the necessary data to be accessed as needed by the Procurement system currently being used.

Secondly, good Procurement needs proper processes. That’s more than just application orchestration as not all Procurement teams will have applications for every step of the process, and even those that have major applications for every major stage (intake / need identification, spend analysis / opportunity / procurement process identification, sourcing, supplier onboarding / management, contract negotiation and governance, e-Procurement/PO Generation and Management, Invoice Management and OK-to-Pay) will still need to orchestrate intermediate process steps such as stakeholder collaboration, external vendor risk/ESG review, etc.

Thirdly, good Procurement needs to involve all of the relevant stakeholders. The category manager, the risk manager, the budget holder / executive, the in house counsel, etc. All of these individuals need to be able to interact with the procurement process and artifacts at the right time, and through their applications if they have special tools to do the risk analysis, budget analysis, contract review, etc. Thus, supporting procurement goes beyond just supporting procurement applications and processes, but peripheral applications and processes as well so that all stakeholders can be part of the process and effectively contribute their expertise and experience.

Remember this the next time a jazzy tool tries to lure you in with pre-built Procurement platform integrations or easy, visual, procurement workflows. That’s just part of the puzzle.

There are NO Perils of Big Data in Procurement!

First of all, no organization has enough data, and those that come close don’t have big data.

Secondly, the more data you have, the better.

Third, if you think you have too much data, you’re not getting it!

So where’s this rant coming from? The rant-inducing headline du jour. The CIO Review recently published an article on The Perils of Big Data in Procurement which is complete non-sense, as there are no perils to having more data (because there’s never enough), unless it’s bad data (but the assumption in the article was that all the data was correct), just perils in terms of how that data is presented and accessed.

The perils in terms of how that data is presented and accessed can be significant, but that’s not due to having big data, that is due to poor system design — and that’s a different issue!

According to the article, buyers and procurement managers … have available a huge and unprecedented amount of data … [and] start to measure everything in order to manage it and that with this approach, several data lakes are created, feeding various dashboards, scorecards, reports, and metrics as procurement professionals try to understand spend analysis, price trends, market fluctuations, volume, cost savings, negotiation performance, and other essential factors. And this is true.

It goes on to say it is very easy for a person to be lost in the sea of numbers and details and miss the big picture entirely because you don’t know what is the crucial data that would give you critical insights. And if that wasn’t enough, it goes on to say it is the same as someone that enters the hospital with a broken leg but has everything else checked. WTF?

This is so dumb it makes you angry!

  1. If a person gets lost in the sea of details and numbers it’s because they don’t know what they should be looking for and how they should be looking for it, not because there’s too much data.
  2. If they don’t know what is crucial, it’s because they don’t know enough about the project they are doing to identify what’s critical and what’s not.
  3. What health practitioner is going to be so stupid as to not see a broken leg on a triage? Come on now! And what Procurement practitioner would check all but one dashboard randomly and then not check the last remaining dashboard? (And that’s what the article is implying with its ridiculous statement.)

In other words, the headline, and claim, is bullcr@p. Don’t blame a mountain of data for a lack of capability in your people, poor vendor technology choices (that bury you in useless dashboards), and your unwillingness to train your talent in modern technology and best practices so they can do their job properly.

And while the author is completely right in that you need to

  • understand what matters
  • start with a top-down view
  • have people who are good at interpreting the data

It still misses the point in that you need to, for any application you buy and any project you wish to undertake

  • define what’s relevant up front
  • find a solution that is configured/configurable to show that up front
  • make sure the data is easy to interpret, is accompanied with written guidance, and that your talent is trained on how to properly interpret the data and
  • if the goal is opportunity finding, the solution needs to identify and present the top opportunities across all of the analysis done, with deep supporting dashboards buried under the high level summary dashboard

More data is always better, especially if you want to use machine learning. In other words, it’s not the data, it’s the application, or the people, so don’t blame the data for your organization’s shortcomings.