Category Archives: Blogologue

the doctor Exposes A Few More Elephants

As the doctor mentioned in his last post, there are a lot of elephants hiding in the sourcing and procurement war room! There are so many, in fact, that the doctor is having problems figuring out how they all fit! However, as the doctor was in-depth scanning and reviewing some vendor web sites (and no, the doctor‘s not going to list names – since he’s sure most of these vendors are still upset with him for the X-emplification series, which is going to be followed by an X-asperation series in the next month or so thanks to some really great questions and suggestions the doctor received in private e-mails), he caught a glimpse of the data enrichment elephant hiding behind the door, spotted the compliance elephant under the boardroom table, and found the performance management elephant hiding in the closet.

The Data Enrichment elephant would have us believe that your data is “enriched” if it’s processed by a spend repository that applies repeatable data cleansing and categorization rules to make sure it is always in a form that can be analyzed by the solution that you have. Although accurate cleansing and categorization is important, and a necessary part of any spend analysis project (whether done by a central data administrator or an analyst on the fly using a real spend analysis tool), it’s not data enrichment. Enrichment, by definition, means that additional data, culled from other third party sources, is added to your data so that you can do analysis above and beyond what you could just with the data in your organization. For example, this could be using Equifax Austin-Tetra to append financial risk and diversity information so that you can determine how much spend is really going to diversity suppliers (versus how much spend you think is going to diversity suppliers) and how many suppliers you are dealing with have a risk of failure in the next 12 months. In other words, what the Data Enrichment elephant is selling you is important, it’s just not enrichment – it’s basically what you should be getting with any tool you buy that promises accurate cleansing and categorization.

The Compliance elephant would have you believe that just because the vendor sells a complete suite that is capable of fully automating your processes and work-flows, storing all information and award decisions in a searchable centralized repository, and managing your contracts with a solution that alerts you whenever a transaction is found off of contract or a contract is coming up for renewal, that you are compliant. the doctor would like to say he’s sorry, but he isn’t, but compliance is much broader than this. Compliance is not just compliance with internal processes, but whether the system is always being used (because automating the processes is irrelevant if the system is not being used), whether it is collecting the data required by your organization to meet the requirements of Sarbanes Oxley and the accounting standards being used, whether or not you are awarding to a company on the denied party list, whether or not the carrier who is bidding is licensed to operate in the countries that you are shipping from or two, whether or not the products you are sourcing comply with regulatory requirements such as REACH, RoHS, and WEEE, and so on. This goes well beyond the offerings of any sourcing or procurement solution on the market. Well beyond. If the vendor is telling you that they enable compliance with respect to SOX, REACH, etc., and being very specific about it – that’s great! Sourcing and procurement solutions can enable compliance. But, considering the breadth of regulations that need to be adhered to in global trade, a sourcing or procurement solution alone, by itself, will not make you compliant. So, in short, this is an elephant that likes to considerably over-promise and under-deliver.

The Performance Management elephant tells you that if you have a sufficiently complete technology platform, than you achieve supplier performance management. One vendor in particular is stating that a combination of project management, collaboration technology, assessment, and monitoring technology is everything you need for supplier performance management. Although this is likely everything you need to monitor and measure your suppliers, and thus a good foundation, there’s a big difference between measuring something and doing something about the result! The nature of performance management is that it can’t be a purely technology solution – because performance comes down to people. Technology is good at tracking tasks and, by way of benchmarks, pointing out where there are inefficiencies or problems – but you need people to identify the root causes and work with suppliers to identify the solutions and insure that they get implemented. Furthermore, for this type of platform to be truly useful, it should have an expert-system module that can be customized to each vertical to help the individual responsible for performance management to diagnose possible errors and resolutions. Without this, then it’s just an open source project management tool combined with an RFX tool for surveys and assessments and a BI tool on an ERP to produce metrics and generate alerts when something falls outside of an acceptable range. In other words, the Performance Management elephant has a really good cause, but is a little confused how to actually go about getting results.

For those of you counting, this brings the total number of elephants we’ve discovered in this room to date to twelve. In addition to the data enrichment, compliance, and performance management elephants, previous posts identified the optimization, e-Procurement/EIPP, and spend analysis elephants; the supplier enablement, contract management, and hidden cost elephants; and the RFX, e-Payment, and technology RFP elephants.

the doctor hopes you enjoyed this post, and the brief return of the blogologues, because this will be the last regular blogologue for a while. There are two reasons for this. The first reason it takes a lot of time to craft and edit a post of meaningful content (versus the first half-formed thought that comes to mind), and given that this blog is generating zero income at the present moment, the doctor, unfortunately, can only afford to dedicate so much time to it. The second reason is that the first cross-blog series of 2008 on Sustainability starts next week, and given the importance of this topic, the doctor does not want to detract from what he hopes will be a very popular, and very prolific, cross-blog series.

the doctor Wants to Remind You It’s Sourcing AND Procurement

I’m reminding you of this because it appears that there are still some vendors out there that would have you believe it’s e-Sourcing or e-Procurement, or some fractured combination of both – because that’s what they have and they want all of your business.

e-Procurement and e-Sourcing are not the same thing. They’re too halves of a whole, one tactical and one strategic. Alone they bring value, but combined they bring much greater value. The best way to see this is with a picture. (Click on the image below to enlarge it.)

As you can see from the image, sourcing leads into procurement, usually off of a contract, and procurement leads into sourcing, through the analysis step. Without procurement, the organization wouldn’t have a large transaction database and extensive visibility into spend, the key to a successful spend analysis effort, which is the first phase of e-Sourcing. And without sourcing, there would be no strategically negotiated contracts to buy against, and procurement managers would be spending willy nilly, making the current level of maverick spending that you have to deal with pale in comparison.

Furthermore, as you can see from the picture, e-Sourcing is more than just e-Auction and Contract Management (even though they are the solutions offered by the largest number of providers), and e-Procurement is more than just order management, invoice management, and e-Payment. Each step is important, and the most important steps, particularly from a savings perspective, are the steps that most solution providers don’t have solutions for – true spend analysis (not static reporting on a data warehouse), decision optimization (not monte-carlo simulation – leave that to the casinos), reconciliation (since the only way you realize the negotiated savings is to make sure you’re paying what you’re supposed to, and not paying for anything you didn’t actually receive), and, in global trade, tax reclamation (Global Data Mining hasn’t found billions of dollars in savings for their customers because they got lucky).

After all, even though these are crude, inefficient, poor man’s solutions, you could, if you were brave (or is that masochistic) enough, you could use office documents and e-mail to achieve core RFX functionality, you could do basic contract management with an open source content management system (or an Access data base and a college programmer if you were really daring), hold your auctions using a conference call service, manage your purchase orders and invoices with a basic accounting system, and pay with P-cards.

Now, as I pointed out last week in the doctor would like to remind you the one system solution is still a pipe dream, you’re not going to get all of this from one vendor, and that’s okay. The key is to assemble a complete solution that meets your needs, subject to your process and goals. And, as I have previously pointed out, as long as you adopt platforms that use common architectures and standard protocols for data interchange, it’s not too hard to build a complete end-to-end solution that will generate the value you want – as it’s there for the taking.

the doctor Gives You A Very Important Reason to Go SaaS

Those of you who read the On-Demand / Software as a Service Application Platforms wiki-paper on the e-Sourcing Wiki [WayBackMachine], already have fifteen (15) great reasons to go SaaS, which include:

  • Pay As You Go
  • Instant Deployment
  • Single Instance
  • Economies of Scale
  • Provider Handles Administration, Maintenance, and IT Headaches
  • Free Upgrades
  • The Customer Has the Leverage
  • Anywhere Access
  • Buy What Is Needed, And Only What Is Needed
  • Single, Accountable Entity
  • Regular, Automated Data Backup
  • Built for Change
  • Unparalleled Collaborative Capabilities
  • Integration with Office Applications
  • Low Total Cost of Ownership

However, perhaps the biggest reason you should go SaaS, is:

  • Sustainability

Reading the article “Analyzing Costs and Benefits”, I was reminded just how fast energy costs are rising (much faster than the referenced rate from the Energy Information Administration) and how much savings there is to be had just by reducing your energy needs.

And if you maintain all of your systems in house, then, unless you are manufacturer, one of your biggest energy needs is your IT data center – especially since you probably can’t afford to be updating all of your hardware every other year (like many modern data centers do). If you maintain PC-based servers for 4 (or 5 years), and mini-computers / racks for that long or longer, than your hardware needs are probably three or four times what they would be if everything was running on latest technology with real-time load-balancing and virtualization. Furthermore, chances are each of these machines is requiring at least twice as much energy to run as a modern machine with a lower power utilization processor and much better energy conservation technology. All in all, you’re probably consuming at least eight times as much energy as you need to be, especially when compared to an up-to-date data center used by a SaaS provider.

Furthermore, not only are you allowing for significant energy savings by using SaaS, but you’re also contributing to green in a big way, because the hardware resources of a SaaS provider are shared between multiple organizations. This not only allows for even more efficient resource utilization, but also reduces the amount of hardware, and thus the amount of future electronic waste, that will need to be recycled.

the doctor Hopes That You Don’t Get Too Emotional (in Your Negotiations)

the doctor recently came across an article in The Negotiator Magazine titled “Emotion in Negotiation” that had some good advice on incorporating emotional awareness into negotiations, as long as you don’t take it too far, especially when you’re the buyer and the purchase under consideration is a technology solution.

The article suggests that because emotion is an integral and essential part of the human experience, that it is thus inherent in negotiation, especially since researchers have found that emotion is an integral part of reasoning and decision making. Furthermore, there is research that suggests that an absence of emotion has been found to have the same disruptive effect on decision making as strong negative emotion. Thus, the suggestion of the article is that in order to be a truly skillful negotiator, it is important to also be emotionally intelligent.

The article also suggests that being an emotionally intelligent negotiator involves not only emotional awareness, but the ability to use emotions in creative and adaptive ways. And although I heartily agree that Emotional Intelligence, or EQ, as us bloggers like to put it, is very important both in, and outside of, negotiations, I don’t think you should be relying on EQ alone for negotiations. You should be relying on heavy hitting analytics and expected ROI calculations.

Let’s face it … the big technology vendors, especially those without innovative solutions to sell, have known for years that their chances of making a sale increase greatly if they can get you emotional about their product. But you don’t want to be buying a product for how it makes you feel – you want to be buying a product for what it can do for you.

Moreover, you want to know how much value you expect to get out of the product. How much is the increased process efficiency really going to save you in manpower? (Chances are, not much.) More importantly, how much savings is the product expected to enable through advanced analytics, optimization, risk management, or spend visibility? Per year?

This is the basis for your negotiations. A conservative estimate of how much value you expect to obtain from the application. If you conservatively expect to save 10M per year, than you can conceivably pay as much as 1M per year for a solution. But if you only expect to save 2M per year, it doesn’t matter how good the solution makes you feel – spending 1M+ per year on it is just plain stupid.

I’m not saying that you shouldn’t pay attention to your emotions when evaluating technology solutions, or that you shouldn’t try to use them to your advantages in your negotiation with the technology vendor (should you get the chance), but that you shouldn’t be swayed by your emotions in making a decision.

the doctor’s Not Going To Stop Until He Exposes All Of The Elephants!

Late last fall in the doctor wonders why the elephants in the room are often so hard to see and the doctor exposes the elephants in the room I exposed the elephants in the room that were hiding behind the blinds, couch, lamp, and projection screen. But this is a very big room – and it is jam-packed with elephants. So today, in addition to the optimization, compliance, analysis, enablement, contract management, and hidden cost elephants, I’m going to expose the elephants hiding behind the coat rack, the bar, and the water cooler.

We’ll start with an RFX elephant, who’d have you believe that the number of pre-configured templates in the template libraries are an important selling point of an e-RFX tool. It’s not. After all, every business is different and, in reality, you’ll probably have to customize every single standard template that’s provided to meet your business needs before you can use it. That tells you it’s the flexibility of the tool when it comes to RFX creation that’s important – especially since, no matter how many templates are offered, there’ll always be templates that are missing that you need to create yourself.

Now we’ll move on to the e-Payment elephant who will tell you it’s the platform that matters – and, believe-it-or-not, who provides it. Although it’s important that the company that provides the platform be financially stable, it doesn’t have to be owned by a bank or the biggest player in the space to be useful, because, when it comes to e-Payment, it’s not the payment platform that matters – but whether or not it enables your organization. Does it support the types of payments you regularly make? (If you do a lot of p-card and ACH, and it only supports wires and ACH, then there’s a problem.) Does it automate the capture and transmission of all of the payment details that are required by your e-Procurement / EIPP systems as well as your accounting systems? Does it simplify the transactional processing, freeing up manpower for exception handling and more strategic purchasing responsibilities? Because these are the things that matter!

We won’t forget about the technology RFP elephant though – because this big-daddy of elephants, who is often willing to provide us with RFP templates for any technology we might want to put out to bid, will have us believe that you should be evaluating a solution based on the number of (pseudo-) standard features it has, and not whether it has the functionality you need. This is absurd – especially when you aren’t familiar with the technology! After all, why do you care whether or not it has 300 features you probably don’t need? And how do you evaluate solution A with 350 features vs solution B with 315 features vs solution C with 385 features when the common feature overlap between all three solutions is only 60% based upon your unduly long, inept, and inappropriate RFP that this technology elephant gave you. You need a solution that has the functionality that supports the business processes that you need. To do this, especially when you are unfamiliar with the solutions you’ll be evaluating, you need to send out a rather open-ended RFI that describes the processes you need and the problems that you are having and that asks the vendors to describe how their tool solves these problems. Then, you take the top 3 – 5 RFIs, figure out what your minimal baseline is with regards to key capabilities, and send back a more detailed RFP that outlines the core functionality you need (and any industry standard features you’re aware of that are also required), additional functionality you’d like, and the timeframe you’d like to deploy it in and note that formal submissions will not be considered until you get a full demo (if you haven’t had one already). But still, it should be short. Closer to 60 questions than the 600 or so “feature questions” that I’ve been hearing about from some vendors lately if you’re really focussing on what you need and not the market mumbo-jumbo that the elephants are feeding you.

So take heed, elephants hiding in the closet, behind the door, and under the boardroom table – because you’re next!