Category Archives: Best Practices

Why Your Tech Selection Should be KPI, and not Bell-and-Whistle, Focussed If You Are Not Technical! Part III

If you won’t admit your TQ (Technical Quotient) is rock-bottom, you won’t spend (or aren’t allowed to spend) budget on an outside expert focussed on Project Assurance, and decide to go ahead with selecting your own ProcureTech solution, then you should make a point to focus your selection around your best practice KPIs. First of all, your management will be happy if you improve against them. Secondly, some of the best KPIs actually require you to have good platforms in place if you are to improve against them.

To demonstrate this, in our first two installments, we began, and continued, a discussion of the 21 Key Performance Indicators (KPIs) for Procurement that Tanya Wade shared because they are a good starting point (as you don’t want too many KPIs as THE REVELATOR pointed out in his analysis). Today, we’re going to continue with the final 7 KPIs, addressing the remainder of the 21 KPIs outlined by Tanya.

Category & Spend Analytics

   Top All Spend Categories

Your top spend categories are not static, and nor are your top savings opportunities, as those are a subset of the top categories NOT currently under management — and that’s what you care about. This necessitates a great spend analysis solution that tracks spend in real time and allows you to track your top categories, filter those out not under contract/management, analyze price variance/market price to find your top opportunities, and then you can pursue those for opportunities.

   (Top) Maverick Spend Categories

Building on all spend categories, this focusses on the categories for which there are contracts, and are classified as “under management”, but where there is a lot of maverick spend that is costing the organization money and even customer of choice reputation with key suppliers. This requires a great e-procurement system that tracks all the spend and a great spend analysis system that analyzes the spend against the contractual requirements.

   Tail Spend

Tail spend might sound insignificant, if it’s only 30% of the spend, but the reality is that, because it is completely unmanaged, the average over spend across categories is 15% to 30%, which gives a savings potential of 4.5% to 6.0% on the spend vs maybe an average overspend of 5% on the upper spend categories that are partially to fully managed (without strategic sourcing decision optimization and advanced analytics) for a savings potential of maybe 3%. Thus, an e-Procurement solution that tracks and manages tail spend is absolutely crucial to spend under management, cost savings, and (future) cost avoidance.

Sustainability & Diversity

   Diverse Supplier Spend

This may not mean a damn thing in the “anti-woke” USA, and even be a turn-off to those white-skinned men related to the boss who acquire their position based on “merit”, but in most countries in the world, especially where there are government programs and incentives for diverse suppliers, where diversity actually improves your brand value, and where people are smart enough to realize that diverse views can actually bring ideas you wouldn’t have thought of into your supply chain, the ability to track and measure (but NOT mandate) this matters. This requires a good supplier management platform with deep profiles and the ability to correlate performance with innovation so buying organizations can determine the right level of diversity to have in their supply chain.

   Sustainable Spend

Again, while this may not mean a damn thing to American C-Suites with the American Federal Government rolling back environmental legislation to the early modern era to the point that Sourcing Innovation had to pen a piece on the Chief Sustainability Officer: USA Edition, this is very important in Europe and the Rest of the Developing/Developed world which has, and is continuing to introduce, environmental legislation and critically important to anyone with enough forward thinking to realize that the production of goods and services that require scarce and dwindling non-renewable resources, too much energy, or too much freshwater is coming to end due to shortages of raw materials, energy, and freshwater globally and sustainability is the key to corporate survival. Thus, a GHG, carbon, energy, and (fresh) water tracking solution, either as part of the supplier management or analytics platform, is becoming key to sustainable (and continually profitable) sourcing and procurement.

Innovation & Collaboration

   Joint Supplier Projects

You need the ability to create, manage, track, and report on projects that require supplier innovation/joint supplier development, especially in direct supply chain as this is critical to gaining, and maintaining, an edge in an ever-evolving marketplace. Suppliers will often hear of new techniques and production technologies and options before you will. Plus, you want them to be figuring out how to give you the best product at the best quality and the best price, otherwise, why are they your strategic supplier? This will require a great supplier onboarding, collaboration, development, and management platform.

   Idea Implementation Rate

You need the ability to not only track the number of ideas a supplier submits for quality, delivery time, or cost improvement, but how many are determined to have potential and how many ultimately get realized. This is important for two reasons. One, you want your suppliers to be helping you improve over time. Two, you want to focus on strategic relationships with suppliers that give you workable ideas you can use and do use over time. This also require a great supplier onboarding, collaboration, development, and management platform.

In other words, all of these KPIs require not only good solutions to track them, but great solutions to improve them. While these KPIs don’t necessarily dictate the full, appropriate, breadth of Source-to-Pay tech that you should have (because the sourcing and contract management platforms could be minimal to non-existent, etc.), they do provide a way to help you judge the appropriateness of a vendor if you can’t effectively judge the underlying technologies.

When looking for new ProcureTech software, simply include ALL of your Procurement KPIs in your RFP and require that the vendor’s response:

  • indicate which KPIs it will improve,
  • by how much it expects to improve those KPIs based on other customers usage and experience, and
  • describe in detail how its solution will enable you to realize those improvements it is promising

while also requiring that the demo include an actual demonstration of the solution performing all of the indicated workflows and functions necessary to achieve the KPIs it promises. This will be much more appropriate than their typical bells-and-whistles show that, as per our recent series, looks great but, in actuality, is quite useless as those bells and whistles in the demo turn out to be cells and thistles in production.

Why Your Tech Selection Should be KPI, and not Bell-and-Whistle, Focussed If You Are Not Technical! Part II

If you won’t admit your TQ (Technical Quotient) is rock-bottom, you won’t spend (or aren’t allowed to spend) budget on an outside expert focussed on Project Assurance, and decide to go ahead with selecting your own ProcureTech solution, then you should make a point to focus your selection around your best practice KPIs. First of all, your management will be happy if you improve against them. Secondly, some of the best KPIs actually require you to have good platforms in place if you are to improve against them.

To demonstrate this, in our first installment, we began a discussion of the 21 Key Performance Indicators (KPIs) for Procurement that Tanya Wade shared because they are a good starting point (as you don’t want too many KPIs as THE REVELATOR pointed out in his analysis). Today, we’re going to continue with the next 6 KPIs, bringing our discussion to 14 total.

Compliance & Risk

   PO Compliance

This requires a good P2P (Procure to Pay) or I2P (Invoice to Pay) solution that can do 3-way match against the PO, the Invoice, and the good receipt to ensure that the supplier is honouring the contract pricing and the PO quantity, and ensuring this ensures that the cost savings you negotiate actually materialize.

   Contract Compliance

This requires a great P2P or I2P solution that can not only ensure the supplier is honouring the price and quantity, but also the lead time, quality, milestones and rebates that they promise. It also requires a great contract lifecycle management solution that can track the organizational’s obligations, such as hitting an order volume by a threshold to unlock a rebate or additional discount, reviewing a new product design or doing a quality test, or making investments/payments on time (to keep the supplier’s cost of capital, and your costs, down).

   Supply Base Risk

This requires a great SRM/TPRM or (spend) analytics solution that can build integrated risk cubes that allow you to determine your overall supply base risk by geography, category, or other relevant factor.

   % of Audited Suppliers

This will require a best of breed S(P/R/L/X)M+ / TP(R/C)M solution that tracks supplier audits and can tell you the percentage of suppliers who have been audited over the past quarter and year. This is especially important if you need to adhere to carbon/GHG regulations or there is a risk of labour exploitation in the supply chain.

Operational Efficiency

   Procurement Cycle Time

This requires a great P2P platform that tracks every action from requisition through RFQ through PO through acknowledgement through invoice through receipt (in the warehouse) through delivery to the requisitioner, can compute the average cycle time end to end as well as the average time in each step, because if the cycle time is longer than industry average, or not decreasing over time, it’s critical to understand which step is the problematic one.

   Automation Rate

This is key. Your automation rate for data processing and tactical tasks should be 90% or higher. There is no excuse today for anything less. And it doesn’t have to be new-fangled experimental Agentic AI that may or may not work. Classical RPA, finely tuned for various Sourcing and Procurement activities, is just fine, as long as you are not manually shuttling data from one system to another, setting up a sourcing event for something you’ve sourced before when the contract is coming up for renewal, manually doing that monthly PO to restock inventory when demand is steady/contracted and predictable, manually building those dynamic spend cubes and manually refreshing them, etc.

Come back tomorrow for the final set of KPIs that Tanya states you need to address and how they will help you select solutions that might actually realize value for your Procurement organization.

Why Your Tech Selection Should be KPI, and not Bell-and-Whistle, Focussed If You Are Not Technical! Part I

If you won’t admit your TQ (Technical Quotient) is rock-bottom, you won’t spend (or aren’t allowed to spend) budget on an outside expert focussed on Project Assurance, and decide to go ahead with selecting your own ProcureTech solution, then you should make a point to focus your selection around your best practice KPIs. First of all, your management will be happy if you improve against them. Secondly, some of the best KPIs actually require you to have good platforms in place if you are to improve against them.

To demonstrate this, we are going to take the 21 Key Performance Indicators (KPIs) for Procurement that Tanya Wade shared because they are a good starting point (as you don’t want too many KPIs as THE REVELATOR pointed out in his analysis). Today, we’re going to start with the first 8 (even though 8 is clearly not enough).

Cost Management

These KPIs will require you to have an e-Sourcing platform in place with good reporting, and/or a spend analysis platform in place with good category management (since, theoretically, if you like the extra work and headache, you can continue to source using e-mail and PDF/Excel templates and get good results if you are guided by a good category management solution and have a good analytics platform to compare the results).

   Cost Savings

You can’t compute, track, and present the cost savings KPI in real-time without an e-Sourcing solution with integrated reporting, or a modern spend analysis solution that updates the cube on every synch with the CLM and ePro system. Both improve your Sourcing focus!

   Cost Avoidance

This requires understanding the current market price vs. the price negotiated, which might be higher than the previous price. If the price paid under the last contract was $1.00 per unit, the current market price, due to supply shortages, is $1.30, but you negotiate $1.15 per unit, you have a cost avoidance of $0.15 per unit, which can be substantial if you need 100,000 units and would have to pay market price without a contract. Without a spend analysis solution that can pull in these market prices and your negotiated prices, it’s very hard to show the cost avoidance your team secures.

   Spend Under Management

This requires a top notch spend analysis system that can suck in all organizational spend across systems, categorize it against a sufficiently defined taxonomy, link each category that is under contract to the associated contract, and then compute spend under management vs. spend available to be managed vs. all organizational spend.

Supplier Performance

These KPIs will require you to have a good supplier management system in place that goes beyond simple onboarding and relationship management system (which even the suites have, even if clumsy), and allows you to truly track supplier performance and supplier ratings.

   Supplier Lead Time

In order to track supplier lead time, you need a good e-Procurement platform that tracks the lead time promised in sourcing, the date the order was placed, and the date the goods receipt was logged in the system. This way, you can track the average lead time across all orders as well as against the promise, and if the supplier is not meeting the promise, you know you need to order earlier and kick off a supplier development project.

   On-time Delivery

You need a good e-Procurement system to track both the delivery date vs. the expected delivery date based on the lead time, but the delivery date vs. the promised delivery date in the acknowledgement, because if a supplier indicates they need extra time for a larger than anticipated order, and you don’t cancel, they are on time if they meet the promised delivery date.

   Supplier Fill Rate

You need a good e-Procurement system to compare the order to the goods receipt to track the fill rate over time. This is critical because if the supplier keeps underdelivering, you risk costly stock-outs, which become more costly if they shut down production lines in a manufacturing or cause customers to start shopping at a competitor’s (online) storefront because the competitor actually has the stock they promise.

   Supplier Defect Rate

You need a good e-Procurement system or a good Supplier Management System to track the number of defects and compare that to the fill rate to track the defect rate, which is very critical, especially if you have SLAs that you are depending on when you make your orders (as a higher than allowed for defect rate could result in stockouts and even expensive production line shutdowns).

   Supplier Rating

This requires a top notch supplier performance management solution (which is a small fraction of the supplier management platforms); a top notch spend analysis system that allows you to build and analyze performance, compliance, and risk cubes; or a top notch SXM+/TP(R/C)M solution that allows you to build Supplier 360 ratings, which is critical to understanding how well your supply base is serving you and how well you are supporting your supply base.

Come back tomorrow for the next set of KPIs that Tanya states you need to address and how they will help you select solutions that might actually realize value for your Procurement organization.

Sustainability in 2025 and Beyond, Part 3: Breaking Out the Stakeholder Requirements

In our first installment we noted that while sustainability may have fallen out of favour in the current American political and regulatory environment to the point that we had to counter the Chief Sustainability Officer graphics going around earlier this year with a Chief Sustainability Officer: USA Edition, sustainability, at its core is becoming more and more important to corporate survival. In our second installment, we described how sustainability concerns permeate every department of the organization, and failing to adhere to them is not only unsustainable in the environmental sense, but possibly in the business sense (because sustainability, done right, also sustain costs at an affordable level, and thus profits).

In this, our third instalment, we are going to dive into the stakeholder engagement that is required for sustainability success. As per our first post, stakeholder engagement is required beyond just the business departments for success. It also requires alignment across:

  • investors
  • the board
  • suppliers / contractors
  • customers

Investors

The best sustainability initiatives with the longest term potential often involves up-front investment (which often results in short-term losses), which means that the investors need to be on board for any major sustainability effort, and willing to both make the up-front investment and take the short-term hit to the profit margin (for long term gains).

The Board

The Board, who answers to the shareholders, also needs to be onboard because the minute profits drop year-over-year is the minute the board is going to throw you under the bus when the expected profits that they promised the shareholders (they answer to) do not materialize. The Board needs to see the long-term gain potential, accept the vision, and communicate that to the shareholders, of which the majority will need to see the long-term value of up-front sustainability investments, for the initiative to be supported over the necessary term.

Suppliers / Contractors

As an organization, you are not sustainable if your suppliers are not sustainable, especially if your definition of sustainability is to minimize non-renewable energy usage and reduce carbon in your supply chain. You can’t have a clean operation if all of your suppliers, carbon wise, are the dirtiest drunks.

Customers

You might think you are sustainable if your operation and your supplier operations are sustainable, but like every other business, you depend on business from your customers. Unless you are directly selling to the end consumer, if your corporate customers are not sustainable, and they end up in trouble due to consumer revolt or financial troubles from uncontrolled costs, that’s going to trickle down the supply chain to you. You want to seek out, support, and serve sustainable customers.

Your Business Counterparts

For true sustainability to materialize, the entire organization needs to be on board, not just your team or department. As with anything worth doing, sustainability is a continual journey, not an easily accomplished task as the first leg may consist of the equivalent of a thousand miles of effort. But done right, it’s always worth it.

So now that you understand who needs to be onboard, we can start outlining key projects the organization should start with, focussing on key goals that not only help with regulatory support in regions that require it, but can also be used for brand building.

Sustainability in 2025 and Beyond, Part 2: Breaking Down the Organizational Requirements

In our last installment we noted that while sustainability may have fallen out of favour in the current American political and regulatory environment to the point that we had to counter the Chief Sustainability Officer graphics going around earlier this year with a Chief Sustainability Officer: USA Edition, sustainability, at its core is becoming more and more important to corporate survival.

This is because, it relates to all aspects of a business, including, but not limited to:

  • Operations, Procurement, and Supply Chain
    • Facilities
    • IT Infrastructure
    • Materials
    • Manufacturing
    • Utilities
    • Distribution
    • Marketing & Sales
  • Talent
  • Risk Management
  • Legal and Regulatory Compliance

Operations: Facilities

When it comes to your facilities, sustainability is more important than you realize. Buildings, especially those that are poorly insulated, use old style fluorescent lights, high flow toilets and urinals, and don’t recycle water for their landscaping requirements can use a lot of energy for heating and cooling and a lot of water in their daily operation. Basic sustainability is minimizing energy and water usage, as the cost for both is increasing year after year, month after month, and sometimes day after day, especially where there are shortages. Minimizing your facility energy and water utilization is key to sustainability, not just from an environmental point of view but a cost (and thus profit) point of view.

Operations: IT Infrastructure

Your organizational IT Infrastructure, especially if you are running older servers and storage requirements, is likely an energy hog running 24/7/365. Moreover, if you are careless about your purchases, you can be buying equipment that uses more rare earth minerals than necessary, and those mining operations aren’t that clean.

Operations: Materials

Materials are a cornerstone of sustainability, especially if they are not renewable. We like to think otherwise, but there is a fixed amount of any non-renewable material on this planet, and unless we learn to recycle and reuse it, we are going to run out (especially since we shoot so much debris up into space and/or let it crash into the ocean where it is irretrievable from the ocean floor). As for renewable biological materials, unless you can replenish them in a year (like food-stuffs), without proper management, they can run out too.

Operations: Manufacturing

Like facilities, production processes can be energy and water inefficient. Moreover, improper or unoptimized production processes can lead to a lot of material waste, exacerbating material sustainability problems (and costs) even further.

Operations: Distribution

Distribution requires vehicles, and most of those still require a form of combustable fuel. The further you have to transport, the more non-renewable fuel you are going to burn, the more you are going to spend, and the more carbon you are going to produce. Even if you have a hybrid local fleet, when you amortize the carbon that went into producing that vehicle and that battery, if the production operation was not sustainable, you may still contribute more carbon in your calculations than if you had burned high efficiency ethanol. (Also, don’t believe the claims that EVs are carbon neutral between 25,000 and 40,000 kms. Most of those make unrealistic assumptions about the cleanliness of the battery and manufacturing supply chains as well as the availability of renewable energy to recharge which just aren’t realistic. We did our own calculations, and, in some cases, those EVs are still dirty at 1,000,000 kms! Now, any EV created with a modern production process using a battery supply chain that is sustainability focussed should be carbon neutral within 100,000 kms, and run for up to 300,000 kms, effectively making them carbon positive over their lifetime compared to non-EVs, but this is not guaranteed. As with every other marketing claim, you have to verify!)

Operations: Marketing & Sales

Marketing and Sales may seem low-stakes in sustainability, beyond the fact that they can quickly blow their budgets and quickly put your finances in the gutter (leading to existence sustainability), but depending on how they conduct their sales and marketing campaign, they can contribute a significant negative impact to your sustainability bottom line. For example, if sales believes that every meeting and demo has to be done in person across the country, via business class flights, that’s a lot of cost and carbon. If marketing loves their high-gloss fancy print collateral, forcibly handing out over-the-top brochures to everyone who walks by the booth, that’s a lot of wasted paper and money.

Legal & Regulatory Compliance

Let’s face it, despite all of the above, most organization’s won’t put more of a focus on sustainability than they think they need to, because they still believe the path to profitability is more sales (even though at some point the cost of sale becomes too high because their core market is saturated), and failing that, cost cutting through Procurement. Typically, the focus they believe they need is whatever focus is necessary to meet the minimum legal and regulatory compliance.

In some jurisdictions, especially those that will levy big fines or penalties if a requirement is not met, this is currently the leading contributor to sustainability, even though the leading contributor should be the long term business sustainability and profitability that can result from the right sustainability focussed investments.

Risk Management

Without good risk management policies, not only is there no guarantee that the future risk of not being sustainable will never be taken into account in any decision made by any operational department, but a real risk that Legal might not be aware of and miss a (coming) regulatory (reporting) requirement and the organization will end up in hot water.

Talent

Talent is key to your operation, and it’s often the hardest to attract, develop, maintain, and sustain over time. However, you can’t sustain a sustainable operation without the right talent. You need to identify the raw skillsets required to t, hire the talent, develop the talent, mentor the talent, and then have them train and mentor the next generation of talent before they move on or retire. However, if you don’t have this talent, you will make unsustainable decisions across your entire business.

There’s quite a lot to sustainability, but there are some commonalities that, if focussed on, can make a big difference. In a future installment, we’ll review some of those.