Category Archives: Economics

Have We Lost The Economy of Information?

Twenty years ago, we were forming GPOs and Purchasing Consortiums to take advantage of Economies of Information. Ten years ago, we were not only rolling out suites that focussed heavily on consolidating spend (and performance) data globally (with the likes of Coupa and Sievo boasting about how much spend they had managed and normalized) to take advantage of the economy of information global spend data gave us, but building best in class analytics solutions to take advantage of all of the data they (could) gather(ed).

In the age of (predictive) analytics, which preceded the current age of AI Hype, the importance of data finally started to become recognized and you had a number of startups hit the scene providing next-gen data feeds. (Near) Real-time commodity indices, market price data, risk data, company financial data, carbon data, energy rates, water rates, regional overheads, average process time, average GPO and transaction rates, average performance data, etc. Any organization that wanted to build a best-in-class should cost model, best in class performance model, etc. The information was available, there was an economy for information, and the economy of information was right around the corner.

Let’s step back and define what we meant by this. On economies of information, twenty years ago we wrote:

The consortium of the future offers the benefit of expertise more so than it offers the benefit of scale. Eventually, especially with constantly rising raw material prices, the best practices employed by a competent consortium will squeeze all of the fat out of the supplier’s margins and the best price will be obtained. Once this occurs, the consortium will use its expertise to assist its members in advancing purchasing technology, reducing wasteful consumption, and improving the application of the goods and services they purchase. Since a consortium has access to all of the knowledge of its members, it can tap this knowledge to identify the best potential suppliers with the best potential products and services to meet member needs. Furthermore, this gives it a much better chance of identifying and qualifying low risk suppliers.

In other words, with a fact-based outlook on reality, consortiums could help take Procurement to the next level. Then, when the data-stream startups made all of that same information easily available as plug and play data feeds into your suite through standard APIs, the true economy of information hit Procurement for those who wanted it and Procurement could make insight-based and fact-based decisions and get better.

But now that we’re a few years into the age of AI Hype, I believe we’ve lost the economy of information. There a few reasons for this:

  • we’ve replaced data feeds with LLM chatbots like clod and chat, j’ai pété and assume they have access to the same data, and, most importantly, the same ability to run predictive analytics on that data
  • despite claims to the contrary, the LLMs are getting worse by the day … now that the majority of data on the internet is AI generated slop, being cross fed into other LLMs, regurgitated with compounding errors, we are not only losing the core data in the tsunami of slop but the meaning of that data as well
  • with LLMs being cheaper than data feeds, the data feeds have been ignored, a number have went out of business, and the rest are floundering

There’s no information without actual, verified, facts and intelligent interpretation, and the majority of that has been lost in the age of AI hype.

If too many real data providers, as well as applications that deterministically and intelligently integrate and analyze real data and real facts, go out of business, there will be no solid foundations for real information, and, thus, no solid foundations for economies of information — and then we’ll be back to the Procurement dark ages.

Technology has never advanced Procurement. Only facts, data, process and decision improvement based on intelligent interpretation has.

Supply Management in the Decade Ahead: Same Old, Same Old — Only the Pendulum Swings Part I

Almost 20 years ago, back in 2007, I wrote a 2-part series on Supply Management in the Decade Ahead: The Eight Major forces (Part 1 and Part 2) where I discussed the various external forces that will impact a company’s supply chain in the years ahead, as verified by CAPS, AT Kearney, and their clients.

And just like you don’t need to read another state of procurement report for five years! because, except for the tech-du-jour, nothing has really changed in the past five, ten, and even twenty years; you don’t really need to do an extensive study or survey to realize that the core supply chain issues are more or less the same, it’s just where the pendulum happens to be in it’s swing on each major issue.

Today we discuss the first four.

Global Competition Contraction

Twenty years ago, we were dealing with the rise of China hitting full swing as a result of the outsourcing craze that started to pickup in the eighties (as a result of pushes by McKinsey and counterparts), as well as other secondary markets becoming more accessible — and a host of global options for just about everything you could buy.

While this hasn’t changed, since the world’s dependence on China is still at an all time high (from about 5% of Global GDP in 2005 to almost 20% in 2025), and there are more and more companies popping up every year to satisfy your needs, their relative availability to you has changed. With canals and straits being shut down on a regular basis, sanctions coming fast and furious, tariffs costing out supply, and so on, the competition you can access in some countries (especially the United States and Europe) is shrinking by the day. The pendulum is swinging back from Globalization to Deglobalization/Contraction, and, as usual, you have to keep track of where the pendulum is and what direction it is (still) swinging in.

Merger, Acquisition, & Supply Market Consolidation

To meet the onslaught of new competition, companies headquartered in developed economies are still attempting to increase in size, scale and market power to ensure they survive stagflation and recessions. Others, in financial (di)stress, need to do whatever they can to survive. This will thus force many companies to continue the merger and consolidation trend that has been ongoing in fits and spurts for the past few decades.

Similarly, in the supply chain software space, paralleling the procurement software space, due to the impacts of the Age of AI Hype, we will see a lot of M&A as the bigger companies, with their legacy SaaS, acquire smaller “AI” players to add the “AI” propaganda to their own marketing, and the smaller legacy companies, struggling to sell their SaaS, put themselves up for (fire)sale to “AI” and I2O (Intake to Orchestrate) providers who need real capabilities and larger companies trying to complete their suites.

Increased Government Regulation

Governments continue to do what they do best — create red tape for the private sector, sometimes with the best of intent, sometimes to fatten their pockets, and sometimes just to keep busy. Sometimes the regulations help competition, sometimes they protect consumers, and other times they just add cost and process for absolutely nothing. Either way, they won’t stop.

This continues to lengthen your supplier / partner research and contract negotiation cycles, which must discuss relevant government regulations, privacy legislation, DEI (must [not] have), AI, and who’s on the hook when (import/export) tariffs get introduced out-of-the-orange. In addition, government actions to support or restrict economic development, such as tax incentives and trade restrictions, will continue to have a large impact on supply strategies.

Technology Advances

(Proclaimed) technology breakthroughs continue to cause major changes in how products and services are provided, especially in the software and control systems spaces. Properly applied technology improvements (i.e. real AI vs. Gen-AI LLMs) will revolutionize design, planning, and production systems and continue to lower total cost of production and the consumer’s total cost of ownership. Aggressive early adopters who overpay for the hammer when they don’t have any nails (just screws) will drive up costs while driving down efficiency and organizational capability (as they lay off workers they actually need and freeze hiring) are increasing their costs significantly and reducing their consumer base. If they can’t rapidly correct, they’ll end up being part of the new M&A frenzy (if not the next bankruptcy), while those who can successfully adapt modern, proven, tech with a plan will win big.

For the rest of the decade, and possibly part of the next decade, the winners will continue to be those that adopt the right SaaS solutions (because, while we may be in the SaaSpocalypse, it’s only going to weed out those overcharging for commodity software and capability, and the companies that survive the next few years will be those that offer true value. The reality is that even agentic (and AI) is still SaaS, it’s just SaaS that requires less (to no) human intervention [beyond maintenance by the provider] for the tasks it is assigned.

The New Market Dilemma IV: Buyers Still Win the Battles!

Vendors and Consultants are but a small portion of the industry, and the economy … as Buyers, you work for organizations that compose the majority. The only way we’re truly going to get back to business-as-usual is if you use the vision provided by the vendors looking ahead to solutions (and not looking back to outdated manuals or just offloading their work to hallucinatory Gen-AI LLMs) to identify what clarity you need, bring in consultants to help you realize it (and the significant ROI that accompanies it), and then use your newfound “savings” to procure the best-of-breed sourcing, procurement, and supply chain visibility technology offered by the visionary vendors, as this is the technology that will help you increase productivity and significantly reduce your costs across the board and survive the AI Hype Induced Market Crash to come.

We don’t know how bad the crash is going to be, and it might be a long road to recovery that requires a significant effort and initiative on your part (depending on the size, complexity, and focus of your organization), but the starting point is clear. So here’s a simple step-by-step guide to get you on the right path.

  1. Do a real process and spend analysis.
  2. Bring in process and category experts to get you real time savings on your most time-consuming processes and your most profitable tier-1 categories.
  3. Implement workflow and process orchestration and e-Procurement systems to realize the savings.
  4. Adopt e-Sourcing to streamline and maximize the savings potential on your tier-2 categories.

REAL ANALYSIS

We’re not talking about a simple time tracking exercise on a step-wise basis based on progression points, we’re talking about real end-to-end process analysis in terms of how much actual human time is spent on each step (not just when the steps happen), why, if the process can be redesigned to take out the time-consuming steps, and, if not, if the steps can be redesigned to take less time. It’s about real efficiency, not just a bit of streamlining with thoughtless automation.

And we’re talking about real spend analysis — not just loading your AP data into a UNSPSC cube and running out of the box reports on your top 10 vendors, top 10 categories, and top 10 departments. Even if you don’t know the exact amounts, a simple internal survey will tell you those with uncanny accuracy. And it’s definitely not throwing random spend data into your LLM of choice and asking for it to find “savings”. That’s just going to run the same dumb reports and give you the “obvious” recommendations that you already know, and that for one reason or another, you can’t do because of existing contracts, specific product needs, etc.

We’re talking about loading all of your spend-related data -— AP, Invoice, Contract, Third-Party Price Indices, etc. — in a real spend analysis product that will let you slice and dice it any way you can think of so that you can identify (a) where you have made overpayments and extract refunds and (b) identify the top categories with with the most savings potential. If you haven’t done this before, you’ll want to bring in an expert. There are a few providers in this space that typically find tens of thousands, and sometimes hundreds of thousands, and occasionally millions, of dollars in overpayments within a day. The ROI is well worth the investment.

CATEGORY EXPERTS

This is especially important in categories like energy, telecommunications, utilities, and SaaS that require significant expertise that you might not have. While you might be able to negotiate a 15% cost decrease in a buyer’s market if you’re well informed, a seasoned veteran who has been negotiating these deals day in and day out for a decade (or two) will find a way to save you 30%. And when many of the firms will work on contingency, i.e. you don’t pay until the new contract is cut for an amount less than what you’re paying now, the ROI will be significant.

IMPLEMENT MODERN E-PROCUREMENT

Up to 60% of negotiated savings never materialize at many companies. If you don’t implement state-of-the-art end-to-end e-procurement systems orchestrated with your sourcing, supplier, and supply chain solutions, with price control capabilities (contract integration, punch-out price verification, authorizations for off-contract spend), you too could lose 60% of the savings you negotiated.

ADOPT NEXT GENERATION E-SOURCING

While you’ll still want to bring in the big-guns for the big savings opportunities, as the ROI will be many times what the big-guns cost you, there will be a large number of tier-2 categories where the savings opportunities, though substantial, won’t be as significant if you have to pay high-powered consultants. These are the categories where you get your best returns if you can run the events quickly, and efficiently, in house. And this is what modern e-Sourcing execution platforms allow you to do … especially on categories where you need to go back to market regularly because the volatility is too high to risk long term contracts.

The key is a modern sourcing execution platform that will let you incorporate the right amount of automation, market intelligence, optimization, analytics, and suggestion. It’s all about allowing the buyer to spend just the right amount of time to extract the value and not a second more.

The New Market Dilemma III: Consultants Need to Provide the Clarity

Just like vendors need to stand up and provide a real vision (and not AI hype), consultants need to sit down (with executives) and provide the execution clarity that will get buyers on the fast-track to procurement, organizational, industrial, and economic success. More specifically, at this time, they need to:

  • Focus on a Niche (as you can’t be experts in everything)
  • Establish Thought Leadership (not regurgitated AI hallucinations)
  • Create Brand Awareness (for you and for the client)
  • Outline an Organizational Path for Long Term Success (not just short term billing)

Focus on a Niche

In the market to come, failure is not an option and no one will want an old-school consultant who says “yes” first and figures it out later. Identify what you’re good at, how you can deliver significant value, and, more importantly, how you can identify significant value now. In the market that’s coming, sound long-term planning tends to fall by the wayside, so even though it’s the most important thing a company can do, chances are, they’re only going to spend on short-term initiatives until you prove that you can deliver the goods.

Establish Thought Leadership

There are hundreds of other consulting providers out there. If you don’t believe me, just ask your favourite AI Engine to give you 100. Why should they use you? How do they know that you know your stuff? How do they know that you’re on a path of continual improvement? How do they know that you’re focussed on being the best? If you don’t establish thought leadership, they don’t … which means that your only chance of success is if the other firms the customer is considering also don’t have any thought leadership and you want to compete on price, not on value.

Create Brand Awareness

Contrary to popular belief, you have to market, market, market. You need permanent brand visibility so that when people have a problem in your niche, they call you. This doesn’t mean expensive print ads in magazines no one looks at (despite impressive sounding circulation numbers), this doesn’t mean sponsoring expensive analyst reports year after year (especially considering that the vast majority of the A-level analysts are now long gone from the big firms), and it doesn’t mean hiring a VP of Marketing who’ll come in, use up a lot of your budget, and recommend the same-old same-old that didn’t work at the last company he was at. What it does mean is that you need to tap into the channels where your customer base already is. Speaking engagements at key low-key events (not overpriced, nosiy, trade shows with too many vendors and too little content), sponsored educational webinars for appropriate professional societies, and, most importantly, the independent educator sites (blogs, podcasts, video content) where educated, innovative, progressive buyers go for information and illumination on a daily basis.

Outline an Organizational Path for Long-Term Success

Although you need a quick-hit ROI niche to get that initial engagement, you don’t want to be seen as a one-trick pony. It’s important to have a plan that will allow you to guide your customers down a recovery path that will take them to their long term success.