In our last post, we reviewed many of the core modules of S2P that can be successfully argued as “high priority” for implementation and came to the conclusion that the next module you get, and get started on (whether or not you integrate it right away or not) is Spend Analysis. This is because it not only helps an organization identify its biggest short term, near term, and long term opportunities, but also helps an organization identify which solutions its likely to get the most immediate value from.

For example, if the largest opportunities are:

renegotiation and renewal with key strategic suppliers and/or supply base rationalization (NOT REDUCTION, but we’ll save that rant for when we get to Supplier Management)

then you will need to get Supplier Management implemented promptly

payment term and timeframe rationalization and/or standardized warranty and repair cost recovery (from suppliers)

then you will need to get a good Contract Management solution implemented as fast as possible

risk identification and mitigation

then you will need to implement contract management with (third party) risk data integrations to help you address the risks in contracts

tail-spend reductions

then you will need to rapidly integrate catalogs from approved and preferred vendors into your eProcurement system, set rules limiting orders from non-approved suppliers without managerial overrides, and set budgets as well as enforce x-bids-and-a-buy spot-buys through the platform

mid-to-high spend categories off contract

then you will need an appropriate strategic sourcing solution

overspend recovery from contracted suppliers

then you will need an enhanced I2P solution that prevents additional overspend as well as an audit recovery tool that creates detailed overspend reports and tracks recovery from the supplier

etc.

etc. etc. etc.

However, without a good spend analysis solution, it’s likely that you won’t identify any of your best opportunities. But with the right spend analysis tool, you will, in time, identify almost all of them.

How will you do that? Using a combination of out of the box reports, analytics, and insights and deep, hunch-based, what-if analysis by your expert sourcers and data analysts. And what capabilities does the tool need to have for you to do this? Keep your eyes peeled for Part 10.

So you have your e-Procurement baseline, or you are at least in the process of implementing it and you need to scope out what module / solution to implement next. Where do you start?

The answer here is not as easy, even after careful deliberation and research, because there are very good, sometimes equally good, arguments for four different modules that should be high on your list. (Trust the doctor here. He’s heard them all, especially from vendors that want to be put first.) Plus, some organizations will need all the modules … as soon as possible … and sometimes the needs are almost so equal and businesses cases so good that the only honest response a consultant or expert can give you is “it’s up to you“. These are:

• Contract Management
• Supplier Management
• Strategic Sourcing
• Spend Analysis

We’ll discuss the rationale and key merits of each, but first let’s talk about why I2P doesn’t appear on this list. First of all, for many companies, basic capabilities will actually be part of the eProcurement platform that they select as many eProcurement players actually do provide at least minimal I2P coverage, just better eProcurement than I2P. Secondly, and most importantly, all I2P does is reduce low-cost tactical overhead (and reduce overspend if there is not enough manpower to review all the invoices, but that really is cheap). In a large company that requires 20 people just to process invoices, that still misses errors on a regular basis as only 10% to 20% of invoices are carefully reviewed, this will allow 99% of all invoices to be carefully reviewed even after 10 of those people are reassigned to more profitable Finance activities. However, that’s still a small, fixed cost savings on headcount and a small percentage of the overspend that goes out the door (as most overspend actually isn’t recoverable unless there’s a contract in place and most I2P solutions won’t detect fraud on their own). So, I2P is important. And there definitely is an ROI. But is there real savings? Real risk reduction? Real supplier / product improvement? Real protection? NO! In other words, implement everything the provider gives you, and focus on custom AP/I2P improvements later in the queue because once you have basic capabilities and m-way match, you really don’t need much else.

So let’s talk about

Contract Management. Why would this be high on the list? It’s mainly for the lawyers, isn’t it? And the lawyers still want to use Word, right? Plus, as long as you get the catalog / prices / rate cards into the PO system, why would you ever need a CLM? Efficiency and Risk. Especially Risk. Lawyers, or their paralegals, waste a lot of time drafting contracts that can be automatically assembled from clause libraries or, with newer platforms, similar contracts for initial review. If you need 30 standard clauses, adjusted for the category and the locale, and 20 specific clauses, that’s probably a 30 page contract before the statement of work and addendums, which is what the lawyer should be focussing most of her time on.

But moreover, you need to ensure that the contract includes clauses that cover not only all issues of relevance to your organization (liability, insurance, governing laws, etc.) but all issues where there are laws and industry regulations in place in each country where you, or your supplier, will be producing goods and services or selling those goods and service. Also, if the products will pass through intermediate jurisdictions, they must transported according to any regulations that must be satisfied, which should also be addressed in the contract. Not addressing any of these issues up front in a contract puts the organization at significant legal and financial risk. In particular, risk that could result in the loss of hundreds of millions of dollar in inventory when customs intercepts the shipment, declares it illegal, and destroys goods that are perfectly useable and saleable in any other country but the one country they were shipped to that recently enacted enhanced “safety” requirements (that the products didn’t meet). (Sony once had 1.3 Million PlayStations seized by the Dutch Government, with a total inventory value of $276 Million in today’s dollar, due to high amounts of cadmium … PlayStations which could have easily been sold in the US.) The best protection against any risk is one captured in a contract. And if the organization is extremely services or supplier dependent, contracts cannot be overlooked. Thus, for some organizations, a good contract management solution is super critical.

But not every organization has super high risks, contract overload, or multiple jurisdictions to worry about. Sometimes, its greatest risks are suppliers not being able to produce the products it needs on time, on cost, and on spec … including the quality and reliability requirements. As a result, it needs to focus more on suppliers. This brings us to our discussion of

Supplier Management [which] is high on the list because if the organization is ultimately dependent on key suppliers to provide required, and strategic, goods on time (and on budget to spec), it needs to track, manage, and develop those suppliers. And if those suppliers are not making the cut, are too expensive, or not in tune with the organization’s diversity and sustainability goals, the organization needs to identify new suppliers.

Also, for fact-based negotiations, an organization needs to know what it is buying from a supplier annually, across all categories, how much spend that constitutes, how much of its total spend that supplier constitutes, and how much of a supplier’s business it constitutes. It should also have stats on the supplier’s carbon footprint, diversity, and publicly available risk ratings, as well as any performance, CSR, or other audits that are available. How are you going to collect all of this information and get it in one place to make good decisions on suppliers to invite, verify, select, onboard, monitor, manage, develop, and so on? Your organization needs a good supplier management system, and you really can’t wait (too long) on it.

But there’s also

Strategic Sourcing which is what you use to identify significant cost savings, or at least avoidance, and what the CFO/CEO is clamouring for (and denying your budget requests unless there is a considerable, believable, ROI attached to those budget requests). (And paying for a full suite for six months before anything is usable and two years before everything is usable is not good ROI.) Strategic sourcing allows you to collect bids, analyze them, optimize them, and negotiate contracts and awards fact-based and can often identify 3% to 15% savings, depending on the category it is applied to. (Well managed direct categories won’t have more than a few points of fat, poorly managed low-end CPG and service spend could contain waste up to 30% in some categories, with 15% on average near, and in, the “tail”.)

And even though the first dollar won’t materialize until the first order is delivered, verified, and paid for at contracted rates, if you put the right e-Procurement platform in place that will help you realize 90%+ of the identified savings (demand projections will always be slightly off, unexpected events will happen and you’ll need to expedite, etc., so 100% of the identified savings never materializes; but without a good eProcurement foundation, you’ll be lucky to see 70% of the negotiated savings, and sometimes lucky to even see 60%), over time the opportunities Sourcing identifies can pay off big time. The opportunity is so large that many organizations mistakenly start here (and then get disillusioned when the identified “savings” don’t materialize because they failed to put a proper e-Procurement platform in place to capture those savings).

It’s all so compelling, but there’s still

Spend Analysis [which] is the best way to identify opportunities for spend, and cost, reductions through better sourcing, better contracts, better supplier management, and better processes. It not only identifies top x opportunities, but it can identify variances, opportunities against benchmarks, overspend, process bottlenecks, unnecessary supply base costs, supply base risks, off-contract spend, etc. etc. etc.

In other words, it’s the tool that helps you maximize the value you get from the other tools in your suite. On its own, its value is limited, combined with other tools that help you capture the opportunities it can identify, spend analysis has a value that is limitless. So where do you start? Do we use the “data first” argument that we used to justify e-Procurement and start with something else to increase the value of the Spend Analysis solution? The answer here is actually “not this time” because eProcurement captures the core data, and spend analysis will help you identify the next module where the organization is likely to get the most immediate value (i.e. Contract Management, Supplier Management, or Strategic Sourcing).

Plus, unlike the other modules, you don’t need a tight integration between spend analysis and the rest of your Source-to-Pay ecosystem to start — you just suck the data out of the enterprise systems, map it, cleanse it, homogenize it, enhance it (and spit back the improved data into the applications the data was sucked in from to the extent that you can do so), and analyze it. You can start with spend analysis as soon as the eProcurement core is selected (as you will likely want to clean up and verify the data before you push anything into the eProcurement system) and use spend analysis to help you plan out the module implementation order and timeline as well as the corresponding Procurement project waves for value generation that will kick off as each module is implemented.

So, while the arguments are good for many of the modules, and the choice is tough, after e-Procurement, it’s Spend Analysis next (and, in fact, right away). Nothing stops you from starting with a standalone BoB tool and then integrating it (or selecting a different ecosystem tool for data management later, and some organizations actually use one tool to manage the warehouse / lake / lake house and serve as the management reporting tool and a lightweight, low cost, BoB analytics tool for the spend analysts to do the deep what-if).

The discussion is continued in Part IX.

As promised, here is a partial, starting, list of seventy (70) e-Procurement companies that have many of the baseline features we outlined in Part 5 of this series. Please note that this list is in no-way complete (as no analyst is aware of every company), is only valid as of the date of posting (as companies sometimes go out of business and acquisitions happen all of the time in our space), and does NOT include companies that just do AP/I2P/e-Invoicing or (Travel and) Expense Management. While many might consider those e-Procurement vendors, we are focussed more on the up-front need and order management and related document capture as per our baseline capabilities.

Also, we want to be very clear that not all vendors are equal, and we’d venture to say NONE of the following are equal. The companies below are of all sizes (very small to very large, relative to vendor sizes in our space), cover the baseline differently (in terms of percentage of features offered, how deep those features are, and how customized they are for a vertical), offer different additional features, have different types of service offerings (backed up by different expertise), focus on different company sizes, and focus on different technology ecosystems (such as plugging into other platforms/ecosystems, serving as the core platform for certain functions or data, offering a plug-and-play module for a larger ecosystem, focussing on the dominant technology ecosystem(s) in one or more verticals), etc.

Do your research, and reach out to an expert for help if you need it in compiling a starting list of relevant, comparable, vendors for your organization and your needs. For many of these vendors, good starting points might be the Sourcing Innovation archives, Spend Matters Pro and Gartner Cool Vendor write-ups if any of these sources has a write-up on the vendor.

Finally, note that when we say Source-to-Pay, it means that vendor offers modules that also cover Sourcing, Supplier/Vendor Management, Contract Management, Spend Analytics, and e-Invoicing/AP/I2P. As to whether or not SI would consider these modules meeting the majority of baseline functional requirements, you will have to (wait for and) check the starting vendor lists in those areas.

After checking out the vendors below, continue forward to Part VIII!

Finally, a second reminder that inclusion on this list DOES NOT imply Sourcing Innovation is recommending the vendor.

After sticking through five parts of this series (Part I, Part II,Part III,Part IV, and Part V) you accept that you need to start with e-Procurement, which means getting an e-Procurement foundation in place as soon as possible if you don’t have it or upgrading the e-Procurement foundation if the solution you have now does not meet your baseline requirements. But how do you select the right solution?

After careful consideration, it became quite obvious that e-Procurement was the definitive starting point. It also became quite obvious that no matter how good an argument a vendor gave you for starting elsewhere, it was never the right starting point because all these solutions require data — that the e-Procurement solution collects — and assuming that you could get the full value of their module without that data was a false assumption. (However, if the argument is strong enough, it’s the next module you work on, as soon as possible.) Unfortunately, now that you are ready to select a solution, the answer of what to do next is not so obvious.

Even though we outlined a minimal baseline that is more-or-less an absolute for every organization — small, medium, and large alike — it doesn’t get us anywhere towards selecting a vendor solution, or even identify potential starting vendors, as all the minimal baseline does is allow us to eliminate any solution that doesn’t have core functionality, and, despite vendor claims to the contrary, isn’t yet an enterprise ready e-Procurement solution. So how do you select between what’s left? Especially when this still leaves potentially dozens of solutions that can easily meet your (current) baseline needs.

Well, the answer is a good old-fashioned RFP, but who do you send the RFP too? You don’t want to send it to 20 vendors that seemingly make the baseline based upon their marketing materials and whatever third party write-ups you can find. You want to narrow in to a top 3-5 with the technology to serve your needs as soon as possible, and send the detailed RFPs to them.

If you’re a large company, Spend Matters^*1 Solution Map could be a good starting point as that verifies the solutions have certain technical capabilities and you can weight down to the capability level in a detailed assessment project (assuming, of course, you’ve already done a gap analysis and a study to determine the technical foundations that are necessary and relevant to your organization — the must haves and should haves). (And while the Spend Matters Solution Map doesn’t capture every vendor, it captures a majority of those that can serve large multi-nationals.)

If you’re a larger mid-size company, Spend Matters TechMatch may be a good starting point as it is based on Solution Map and allows you to rank vendors by answering questions that encapsulate (related) functional requirements, and you can always verify deep technical requirements where it’s relevant in the RFP. (And while Spend Matters TechMatch doesn’t capture every vendor that can serve a mid-size, primarily regional, organization, it captures more than enough.)

If you’re a smaller company, TechMatch could work, but the reality is that you likely don’t have the budget for it, and/or want to focus in on the smaller, lower-cost, and/or newer solutions to start, of which only a minority are covered at any point in time (due to the baseline capability required for a vendor’s solution to make the maps and the fact that smaller vendors sometimes don’t have anyone to do analyst relations and/or marketing full time). Also, it’s likely that you can’t yet afford half the solutions in the map anyway. (The suites^*2 are quite expensive. While the suites are most definitely worth it to a large multinational when you do the ROI calculation, the up front [and even ongoing cost] is sometimes impossible for a smaller organization to justify.)

Moreover, an implicit assumption in SolutionMap is that you’re a typical company in a vertical buying primarily indirect and direct categories that are well covered by the solutions represented in the maps. If this is not the case, or if you need more solutions at the lower end of the market, given that the maps typically only represent around 20 solutions, with the majority of these solutions best suited for the mid-size or large enterprise, the maps may not be for you. (Especially when there are more than twice the number of solutions on the market then are represented on any map.) Moreover, if your company is not a typical company and needs a solution customized for a specific vertical (like Marketing or Legal, etc., where a specific solution would not show well on a general map), the maps won’t work for you in these edge cases.

So where do you look? The big analyst firms? Their reports costs thousands of dollars and tend to cover less vendors. Conference exhibitors? That’s typically limited to the bigger companies with larger marketing budgets given the cost of a booth these days and, thus, no better as a starting point. ProcureTech, that puts out a ranking of 100 companies a year? There’s some really good lower end companies there (and the doctor is impressed with the breadth of companies they have identified), but the ProcuremTech 100 is very broad and their organization of this report, and their companies, ranges from ok to confusing to utterly meaningless for a buyer looking for a specific type of solution! (Growth? Innovation? Customer Satisfaction? How do those categories help a company identify who to look at when they need a specific solution type. And sometimes the solutions within a same general category are so different they are barely comparable. This happens a lot in SXM and CLM, as we will discuss in future series.) You could engage with ProcureTech, as they have a good database now, but the doctor feels you shouldn’t have to do an engagement with anyone just to find a starting list of vendors you might want to look at (that the analyst firm could advise you on) or a basic understanding of how the analyst firm can help you before you engage them — especially if all you want is a set of logos in a specific application area when DPW gives you 100+ of those for free with their latest “Sustainable Procurement Technology Landscape”!

How about Spend Matters Almanac? It’s better than most directories out there as it does include over 575 listings across 61 categories, but that’s still only half the vendors in the global extended procurement technology space. (Presumably because most vendors, like most buyers, probably don’t realize it exists and some of those vendors that are aware of it, but not listed, also assume that most buyers aren’t aware of it and thus don’t want to pay for the attention grabbing premium listings and don’t bother with the Almanac at all — often not realizing there is a free listing option.)

The reality is that there’s no good starting point for even getting a near-complete list of relevant vendors to consider, and then when you have that list, putting together a meaningful RFP — which has to get beyond just basic technology and address the core problems your organization needs to solve. (And the answer here is to NEVER take a vendor RFP template and start from it, because all that has ever been since Procuri came up with the concept 15+ years ago is a feature-function list heavily favoured towards the vendor giving the RFP template away for free — and it’s not how many standalone features the product has, including many you don’t need or won’t use, it’s the business functions that support your business, the technical foundations the platform has to be built on to support those functions, the integration capability with other products and platforms you need to work with and support, the support capability of the vendor for implementation, integration, training, and on-going support, etc.)

In other words, it’s difficult to find the right vendor as it’s difficult to even find a meaningful shortlist to send the RFP to. This shouldn’t be the case, but it sadly is. Not a week goes by when the doctor doesn’t talk to a vendor who tells me that a potential client shortlisted them with a second vendor that no one who knows the space would compare to that first vendor and not a month goes by where the doctor doesn’t get an unsolicited request to identify vendors like “X, Y, and Z” where X, Y, and Z are in completely different S2P categories (but the potential buyer thinks they are all interchangeable).

The situation needs to improve, but the reality is that some vendors are profiting too much off of the status quo, the big analyst firms who depend on big cheques from these big firms don’t have a reason to change the status quo, and the smaller analyst firms don’t have the money or the person power to cover all the vendors they want to.

Hopefully now that a few smaller analyst firms are growing they will start to tackle this core problem, but in the interim, the doctor, who used to maintain one of the original resource sites many (many) years ago, still maintains his own database of over 1200 companies in our space, is now working on updating it (which he tends to do biannually or triannually), and will, over the next few months, publish starting lists of vendors in each of the 10 core areas discussed in this series along with an indication of the market-size(s) they are best suited for so you have a starting reference point. It’s not much, but maybe it will help some of you and provide an incentive for the smaller analyst firms to do more. They need to collectively cut through the noise because every Procurement organization who has a bad experience is another Procurement organization we collectively lose for a few years and another voice that’s not spreading the message of how important modern S2P technology is.

And while this wasn’t the post you were hoping for, as the doctor knows you need help breaking down the internal barriers to new solution acquisition (and you assumed the doctor would be talking about that in this post), this is an unspoken reality that, like an elephant in the room, needs to be addressed.

So, onward to Part VII!

^*1 At the time of this writing, the doctor is not a Spend Matters analyst, has not been one for seven (7) months, and receives no benefit from you purchasing any Spend Matters solution. However, he cannot deny it is still the ONLY map on the market that is based on tech and hard, well defined, scales. So he cannot overlook the value of these maps and be fair to you, dear reader. (Compare this to the random mish-mash of soft objective factors that the majority of analyst firm maps are based on where the ultimate ranking is utterly the opinion of the analyst who may or may not fully understand the solutions that are being ranked — and the discrepancy in the results that arise if the analyst firm has multiple analysts ranking vendors on the same, soft, objective scale that is open to interpretation.)

^*2 There are advantages to these suites, especially if you are a larger enterprise that can afford them, as the modules are integrated out of the virtual box and the vendor can turn them on with the flick of a software switch, but there are also disadvantages as well. If the best-of-breed solution you want for a particular module or need to solve a particular problem isn’t already integrated, it could be a while to get it integrated, if you can get it integrated at all (as sometimes only “partners” are supported [and allowed] by these vendors). Plus there’s mapping the data models, API calls, etc. — you’re locking into an ecosystem when you select a suite.