Category Archives: Best Practices

DEAR ENTERPRISE PROCUREMENT SOFTWARE BUYER: THERE ARE NO FREE RFPs!

This shouldn’t have to be said (again), but apparently it does since Zip has relaunched the FREE RFP madness in Source-to-Pay (that began in 2006 when Procuri first aggressively launched the Sourcing, Supplier Management, Contract Management, and Spend Analysis RFPs) with an RFP that is intake heavy, orchestrate light, process deficient, and, like many RFPs before, completely misses some of the key points when going to market for a technology solution. (Especially since there isn’t a single FREE RFP template from a vendor that isn’t intrinsically weighted towards the vendor’s solution, as it’s always written from the viewpoint of what the vendor believes is important.)

the doctor has extensively written about RFPs and the RFP process here on SI in the past, but, at a high level, a good RFP specifies:

  • your current state,
    it does NOT leave this out leaving the vendor to guess your technical and process maturity
  • what you need the solution to do
    NOT just a list of feature/functions
  • what ecosystem you need the solution to work in
    NOT just a list of protocols or APIs that must be supported
  • where the data will live
    and, if in the solution, how you will access it (for free) for exports and off-(vendor-)site backups, do NOT leave this out
  • what support you need from the vendor
    NOT just whether the vendor offers integration / implementation services and their hourly / project rate
  • any specific services you would like from the vendor
    NOT a list of all services you might want to buy someday
  • what the precise scope of the RFP is if it is part of a larger project
    NOT a blanket request for the vendor to “address what they can”
  • what regulations and laws you are subject to that the vendor must support
    NOT just an extensive list of every standard and protocol you can think of
  • what languages and geographies and time zones you need supported
  • any additional requirements the vendor will need to adhere to based on the regulations you or the vendor would be subject to and additional requirements your organization puts in place
    NOT endless forms of every question you can think of that might never be relevant
  • your goal state,
    it does NOT leave the vendor to guess what you are looking for (note that “goal” defines what you want to achieve, it is up to the vendor to define how they will help you achieve it)
  • what (management) processes you use to work with vendors — and —
  • what collaboration tools you make available to vendors and what your expectations are of them

And it is only created after a current state assessment, goal state specification, and key use-case identification so that it is relatively clear on organization needs and vendors have no excuse to provide a poor response.

Furthermore, a good RFP does NOT contain:

  • requests for features/functions you don’t currently need (but you can ask for a roadmap)
  • specific requests for a certain type of AI/ML/Analytics/Optimization/etc. when you don’t even know what that tech actually does — let the vendor tell you, and then show you, how their tech solves their problem
    (after all, there are almost NO valid uses for Gen-AI in S2P)
  • specific requests on the technology stack, when it doesn’t matter if they use Java or Ruby, host on AWS or Azure, etc.
  • requests for audits (tech, environmental, social welfare, etc.) when you haven’t selected the vendor for an award, pending a successful negotiation
  • requests for service professional resumes when you haven’t selected the vendor for an award that includes professional service, pending a successful negotiation
  • requests for financials, when you haven’t selected the vendor for an award pending a successful negotiation
    (because these last three [3] will scare some vendors off and possibly prevent the best vendor for you from even acknowledging your RFP exists)

And, a good RFP, goes to the right providers! This means that you need to select providers with the right type of solution you need before you issue the RFP, and then only issue to providers that you know offer that type of solution. (You can use analyst reports here if you like to identify potential vendors, but remember these maps cannot be used for solution selection! You will then need to do some basic research to make sure the vendor appears to fit the criteria.)

And if there are a lot of potential providers, you may need to do a RFI — Request for Interest / Intent (to Bid) — where you specify at a high level what the RFP you intend to issue is for, and if you get a lot of positive responses, do an initial call with the providers to confirm not only interest but the solution offered is relevant to your organization. (After all, at the end of the day, as The Revelator is quick to point out, it’s as much about the people behind the technology as the technology itself if you expect to be served by the provider.)

And even if you don’t need to an RFI before the RFP, you should still reach out to the vendors you want to respond, let them know the RFP is coming, and let them know you’ve done your research, believe they are one of the top 5 vendors, and are looking forward to their response. (Otherwise, you might find you don’t get as many responses as you’d hope for as vendors prioritize RFPs that they believe they have a good shot at winning vs. random unexpected RFP requests from unknown companies.)

At the end of the day, if you don’t know:

  • what the main categories of S2P+ solutions are
  • what the typical capabilities of a solution type are, what’s below, average or above
  • who the vendors are
  • how to determine your current state of process maturity (and how that compares to the industry, market, and best-in-class) and what a solution could do for you
  • how to evaluate a vendor’s solution
  • how to evaluate a vendor overall
  • how to write a good RFP that balances core business, tech, and solution requirements to maximize your chances of finding a good vendor for you

and the reality is that you most likely don’t (as less than 10% of Procurement departments are world class, as per Hackett research going back to the 2000s where they also determined the typical journey for an organization to become best-in-class in Procurement was 8 years, and that’s the minimum requirement to write a world-class technology RFP), then you should engage help from an expert to help you craft that RFP, be it an independent consultant or firm that specializes in Procurement transformation.

It is also critically important that the firm you select to help you needs to be neutral (not aligned with one solution provider who refers implementations to them in return for potential customer referrals) and that the firm does not rely on analyst maps either!

If you want help, the doctor has relationships with leading, neutral, firms on both sides of the pond who can help you, and who he will work with to make sure the technology / solution component is precisely what you need to get the right responses from vendors. Simply contact the doctor (at) sourcinginnovation [dot] com if you would like help getting it right.

Simply put, getting help with your technology RFP is the best insurance money you can spend. When you considering that, all in, these solutions will cost seven (7) or eight (8) figures over just a few years, you should be willing to spend 5% to 10% of the initial contract value to make sure you get it right. (Especially when there isn’t a single Private Equity Firm that wouldn’t invest in a technology player without doing a six [6], if not seven [7] figure due diligence first … and sometimes the firm will do this and then walk away! At least in your case, when you work with someone who can identify multiple potential vendors, you’re certain to find one at the end of the day.)

Procurement 2024 or Procurement’s Greatest Hits? McKinsey’s on the money, but … Part 4

… in some cases this is money you should have been on a decade ago!

Let’s backtrack. As we noted in Part 1, McKinsey ended Q1 by publishing a piece on Procurement 2024: The next ten CPO actions to meet today’s toughest challenges which had some great advice, but in some cases these were actions that your Procurement organization should have been taking five, if not ten years ago. And, if your organization was doing so in these cases, should be moving on to true next actions the article didn’t even address.

So, as you probably guessed, we’re in the midst of discussing each one, giving credit where credit is due (they are pretty good at strategy after all), and indicating where they missed a bit and tell you what to do next if you are already doing the actions you should have been doing years ago. And, just like we did to THE PROPHET‘s predictions, grade them. In this third instalment, we’ll tackle the next three actions, which they group under the heading of:

OPERATING MODEL OF THE FUTURE

9. Digitize end-to-end procurement processes. A-

This is yet another action that you should have been working on since the first Procurement platform hit the market over 25 years ago, but an action that you likely couldn’t have completed until recently when the introduction of orchestration platforms made the interconnection of all systems used by Procurement affordable for the average company, even when the company needed connectivity with systems in Finance, Logistics, Risk, and Supply Chain to access necessary pieces of information for Procurement to adequately do its job. (Before these systems, you needed to be a large enterprise with a huge IT budget to afford the integration work to attempt this.) Plus, the “AI” tools you need to digitize paper documents used by old-school, classify data, process contracts to identify potential issues, etc. used to be too pricey — now that seemingly every vendor has them, they are affordable to.

10. Build new capabilities for the buyer of the future. A+

Prepare the organization for Procurement’s future by investing in new abilities for advanced market research, integrated technology, and talent development. Equip procurement professionals with deep insights and tools to understand and address supply market dynamics, risks, economics, and ESG. Given how supply chains have been in constant flux since the start of COVID, with no end in sight as a result of geo-political conflict, natural events (drought in the Panamanian canal) and disasters, supply shortages, rampant cost increases, and so on, the organization is going to need every capability available today, and a few not invented yet, to survive tomorrow. Start researching, testing, and developing now … before it’s too late. (Just leave Gen-AI out of the picture!)

So, putting it all together, the grades were B, B, A, B+, A-, A, B+, A+, A-, A+. Not a bad report card.

Procurement 2024 or Procurement’s Greatest Hits? McKinsey’s on the money, but … Part 3

… in some cases this is money you should have been on a decade ago!

Let’s backtrack. As we noted in Part 1, McKinsey ended Q1 by publishing a piece on Procurement 2024: The next ten CPO actions to meet today’s toughest challenges which had some great advice, but in some cases these were actions that your Procurement organization should have been taking five, if not ten years ago. And, if your organization was doing so in these cases, should be moving on to true next actions the article didn’t even address.

So, as you probably guessed, we’re in the midst of discussing each one, giving credit where credit is due (they are pretty good at strategy after all), and indicating where they missed a bit and tell you what to do next if you are already doing the actions you should have been doing years ago. And, just like we did to THE PROPHET‘s predictions, grade them. In this third installment, we’ll tackle the next three actions, which they group under the heading of:

INTEGRATED MARGIN MANAGEMENT

Coordinate Response for Integrated Margin Management. B+

This is something that should have been done since your Procurement department started strategic sourcing — without a good estimate of the supplier’s cost of goods sold (COGS), there’s no way to know if the bid, or negotiated price, is good or not, or how much margin you are getting taken for (especially if there is price collusion among all the suppliers you invited to the event to keep bids in a certain range, no matter what).

However, in order to truly understand the COGS, you need to monitor commodity and raw material costs in almost real-time; understand the labour, energy and water requirements in production and the local market costs where the supplier’s production facilities are; monitor the local transportation costs (and any surges due to fuel increases, truck or container shortages, re-routings due to route closures or geopolitical situations, etc.) and that’s a much taller order than you had to worry about last decade to maintain a good grip on your supplier’s current COGS. You’ll even have to work closely with engineering, supply chain and logistics to make sure you’re getting it right.

Redefine Portfolio and Product Design. A+

While the latter is something R&D/Engineering should be doing every few years, it’s now critically important that Procurement get involved and guide engineering with respect to which products are, or in danger of, becoming too expensive due to material scarcity, a limited supply base that can manufacture the products, and changing consumer perception and desires regarding what they want from a certain product. As the article says, it’s becoming critical to help R&D/Engineering look for ways to reduce these dependencies, expedite qualification, and increase resilience by pointing out key products to address, key concerns, potential alternatives that are now available to the organization, and so on.

Procurement also needs to aggressively work with Marketing and Sales to shift demand away from products that need to be sunset due to end of life, cost, supply, or sustainability considerations, as well as shift demand to products that are more profitable, sustainable, or secure from a supply availability perspective. It can no longer be about what Sales thinks it can sell, but what Sales needs to sell for the organization as a whole to be successful.

Bring Back the Interns!

Even the offshore interns!

And since, like Meat Loaf,

I know that I will never be politically correct
And I don’t give a damn about my lack of etiquette

I’m going to come out and say I long for the days when AI meant “Another Indian”. (In the 2000s, the politically incorrect joke when a vendor said they had AI, especially in spend classification, was that the AI stood for “Another Indian” in the backroom manually doing all of the classifications the “AI” didn’t do and redoing all the classifications the “AI” got wrong over the weekend when the vendor, who took your spend database on Friday, promised to have it by Monday).

The solution providers of that time may have been selling you a healthy dose of silicon snake oil, but at least the spend cube they provided was mostly right and reasonably consistent (compared to one produced with Gen-AI). (The interns may not have known the first thing about your business and classified brake shoes under apparel, but they did it consistently, and it was a relatively easy fix to remap everything on the next nightly refresh.)

At the end of the day the doctor would rather one competent real intern than an army of bots where you don’t know which will produce a right answer, which will produce a wrong answer, and which will produce an answer so dangerous that, if executed and acted on, could financially bankrupt or effectively destroy the company with the brand damage it would cause.

After all, nothing could stop me from giving that competent, intelligent, intern tested playbooks, similar case studies, and real software tools that use proper methodologies and time-tested algorithms guaranteed to give a good answer (even if not necessarily the absolute best answer) and access to internal experts who can help if the intern gets stuck. Maybe I only get a 60% or 70% solution at best, but that’s significantly better than a 20% solution and infinitely better than a 0% solution, and unmeasurably better than a solution that bankrupts the business. Especially if I limit the tasks the intern is given to those that don’t have more than a moderate impact on the business (and then I use that intern to free up the more senior resources for the tasks that deserve their attention).

As for all the claims that the “insane development pace” of (Gen)-AI will soon give us an army of bots where each bot is better than an intern, given that the most recent instantiation of Gen-AI released to the market, where 200 MILLION was spent on its development and training, is telling us to eat one ROCK a day (digest that! I sure can’t!), I’d say the wall has been hit, been hit hard, and until we have a real advancement in understanding intelligence and in modelling intelligence, you can forget any further GENeric improvements. (Improvements in specific applications, especially based on more traditional machine learning, sure, but this GEN-AI cr@p, nope.)

When it comes to AI, it’s not just a matter of more compute power. That was clear to those of us who really understood AI a couple of decades ago. AI isn’t new. Researchers were discussing it in the (19)50’s, ’56 saw the creation of Logic Theorist, which was arguably the birth of Automated Reasoning, ’59 saw the founding of the MIT AI lab by McCarthy and Minsky, and ’63, in addition to seeing the publication of “Computers and Thoughts“, saw the announcement of “A Pattern Recognition Program That Generates, Evaluates, and Adjusts Its Own Operators“, which was arguably the first AI program (as AI needs to adjust its parameters to “learn”).

That was over SIXTY (60) years ago, and we still haven’t made any significant advances towards “AI”.

Remember that we were told in the ’70s that AI would reshape computing. Then we were told in the 80s that the new fifth generation computer systems they were building would give us massively parallel computing, advances in logic, and lay the foundation for true AI systems. It never happened. Then, when the cloud materialized in the 00’s, we saw a resurgence in distributed neural nets and were told AI would save the day. Guess what? It didn’t. Now we’re being told the same bullshit all over again, but the reality is that we’re no closer now then we were in the 60s. First of all, while computing is 10,000 times more powerful than it was six decades ago (as these large models have 10,000 cores), at the end of the day, a pond snail has more active neurons (than these models have cores), and neuronal connections, in its brain. Secondly, we still don’t really understand how the brain works, so these models still don’t have any intelligence (and the pond snail is infinitely more intelligent). (So even when we reach the point when these systems are one million times bigger than they are today, which could happen this century, we still won’t have intelligence.)

So bring back the interns, especially the ones in India. With five times the population of the US, statistically speaking, India has five times the number of smart people, and your chances of success are looking pretty good compared to using an application that tells you to eat rocks.

Procurement 2024 or Procurement’s Greatest Hits? McKinsey’s on the money, but … Part 2

… in some cases this is money you should have been on a decade ago!

Let’s backtrack. As we noted in Part 1, McKinsey ended Q1 by publishing a piece on Procurement 2024: The next ten CPO actions to meet today’s toughest challenges which had some great advice, but in some cases these were actions that your Procurement organization should have been taking five, if not ten years ago. And, if your organization was doing so in these cases, should be moving on to true next actions the article didn’t even address.

So, as you probably guessed, we’re in the midst of discussing each one, giving credit where credit is due (they are pretty good at strategy after all), and indicating where they missed a bit and tell you what to do next if you are already doing the actions you should have been doing years ago. And, just like we did to THE PROPHET‘s predictions, grade them. In this second instalment, we’ll tackle the next three actions, which they group under the heading of:

NEW SOURCES OF VALUE

4. Manage Volatility. B+

If Procurement doesn’t manage volatility, those savings they project never materialize. Hence, this is something Procurement should be doing every single year, so this is not really a next step — it’s an ongoing action. However, macroeconomic drivers are in flux and need to be monitored, and planned for, more regularly this decade than in the 2000s and 2010s. The organization needs to have multiple sourcing strategies for each of its categories based on potential shifts in the market driven by these macro-economic drivers, and be ready to play offence instead of defence.

5. Optimize Operations End-to-End. A-

Procurement should be constantly optimizing its operations, so this is not something that should be new. However, it needs to take another step up the optimization ladder and go beyond Source-to-Pay+ and include supply chain operations in its planning and make sure everything is in synch in its planning. In addition, a deeper integration with finance and market monitoring, risk management and risk monitoring, and logistics and delivery monitoring is also required for better optimization of procurement operations.

6. Integrate ESG and optimize upstream Scope 3. A

While sustainability should have been a front-and-center concern since it became clear near the end of last decade if you didn’t get ahead of it, you’d be behind (and in trouble when the legislations rolled into effect). However, while sustainability was clear, and targets were clear, it wasn’t necessarily clear (without thinking about the issue) that you would have to focus on not only tacking upstream Scope 3, but on how you will need to help those suppliers, possibly a few tiers down in the supply chain, optimize Scope 3 as there is nothing significant you can do to control your carbon debt if you don’t minimize it before it gets to you.