Category Archives: Market Intelligence

Aligning Procurement Strategies to Business Goals, Part I


Today’s guest post is from Torey Guingrich, a Project Manager at Source One Management Services, who focuses on helping global companies drive greater value from their expenditures.

Part of good category management is ensuring that the sourcing strategy in place for the products/services is intentional and logical based on the market and commercial aspects of your company. Consider how you are determining sourcing, contract management, and vendor management strategies for different categories of spend: what are the guiding factors that push you towards a long term versus a short term contract, or a consolidated versus a segmented supply base? If you are applying the same strategy for every category, e.g. consolidate suppliers and sign a three-year contract, you may need to reconsider the variances in the categories and how these differences should affect the chosen strategy.

In 1983, Peter Kraljic published his ideas around how Procurement can transition from purchasing to supply management in a still-relevant 1983 article. These ideas were introduced to me when I first began my career in Procurement. I’ve kept these ideas in mind throughout my career to understand at a high-level how the inputs being sourced relate to the business at hand and how to best position a category management strategy given the market conditions associated. We’ll walk through a simplified version of Kraljic’s original ideas and how they can be applied to Procurement at any company.


Complexity of Supply Market/Supply Availability:

To simplify the original idea around “Complexity of the Supply Market” that Kraljic introduced, I want to focus on the availability of supply within the market. Across categories, there are certainly areas where suppliers or additional production are more available than others. In the manufacturing world, I’ve worked with companies that pursued long-term contracts with key suppliers, e.g. over 10 years, and even shared in the capital investment of building plants or production facilities in order to secure supply. Certainly a decision that large would be made with many stakeholders and C-suite folks involved, but it serves as an example of understanding the availability of supply in a given market and strategically responding to scarcity.

Scarce goods or services have rigid supply curves; there are limitations that prevent supply from meeting demand by simply increasing production/output. I use availability to mean more than just physically scarce resources; low availability can be brought on by high barriers to entry, complexity in extracting or moving the materials, a rapid increase in demand, or a rapid decrease in supply. Consider a manufacturing company; an example of a relatively scarce service in that market would be railroad transportation. For railroad capacity, we see high barriers to entry (e.g. we don’t see new railroad companies popping up every year) and an inability to ramp up to changes in demand (e.g. new railroad lines can’t be quickly added). When in Procurement, it is crucial need to look at the supply markets of different categories related to your business – are you being approached by suppliers frequently; are you able to easily find new suppliers to include in sourcing events; have there been any large-scale events that impact supply? Additionally, you can research the number of suppliers in the market, limitations on delivering the product/service, alternatives/substitutions available, and any other limiting factors that can affect supply to determine the relative scale of availability.


Importance of Purchasing/Criticality to the Business:

Availability of supply works hand-in-hand with criticality of that category to the business. Kraljic calls this component “Importance of Purchasing;” I position this aspect as “Criticality to the Business” to refer to the level of spend for a category and the overall impact on profit or production. To be able to measure this, Procurement needs to understand the business perspective and what drives production (either physical production of goods or sale of services). When I was taught these concepts at a steel company, one of the key materials to production was coke to fuel the furnace to smelt iron ore. Consider the core elements of your business and the drivers of production/sales as well as high volume/high price goods; this will help to gauge how critical a given product/service is your business. It should be noted that when looking at criticality, that the quality of that supply can be just as important as actually guaranteeing the volume needed. If key quality specs do not meet acceptable levels for production, there is the risk that the material may not be usable at all.

Based on availability and criticality, you can begin fitting Procurement’s spend categories into different quadrants to develop a sourcing strategy around each.

We will dive into details in Part II.


Thanks, Torey.

The 50/50 … stamped with the doctor‘s seal of approval! Part II: To Watch

As announced last Sunday in our post on how the Masters will have the 50/50 in their Sights, this week the Spend Matters 50/50 … 50 to watch, 50 to know … list for 2016 was announced. It consists of 100 companies that every Supply Management professional should know about. (Even if the solution is not right for you, or your organization, you don’t know what tomorrow will bring after a job transfer or a merger.)

For those who missed it, this is the list of the “to watch” companies, augmented with links to past SI (and SM) coverage, and annotations where coverage is coming soon!

Provider Solution SI Coverage
4C Associates Consulting / Services
AnyData Solutions Analytics Coming Later
Apex Analytix Recovery Audits Coming Later
Applause CrowdTesting
Aptitude Healthcare Market
Avetta EHS Coming Soon
BuyerQuest P2P Coming Later
Claritum Tail-Spend
I
II
DecideWare Agency Management
I
II
III
IV
DirectWorks Direct Procurement
Co-exprise:I
II
Ecovadis CSR
I
II
Eved Event Management Coming Later
Exari / Contiki CLM Coming Later
Fluent
FusionOps Supply Chain Intelligence
I
Genesis Automation Healthcare ERP
Gigwalk VMS (Mobile Workforce)
Global Risk Management Solutions (GRMS) Vendor Screening
Greensill Working Capital
HICX SRM
I
II
III
IV
Hourly Nerd Workforce Marketplace
Innocentive Innovation Management Coming Later
Keelvar Optimization-Backed Sourcing Platform
I
II
III
Lavante Recovery Auditing & SIM
I
II
III
MBO Partners Contingent Workforce
Nipendo e-Invoicing
I
II
OpusCapita (jCatalog) P2P Coming Later
Per Angusta Sourcing/Procurement Project Management
I
Prodigo Healthcare Consulting / Services
Rapid Ratings Supply Chain Intelligence Coming Later
ScoutRFP e-Sourcing
I
II
SDI MRO Procurement Coming Soon
Sievo Spend Analysis Coming Later
Simfoni Tail Spend Procurement App Coming Later
SirionLabs Complex Services Management Coming Later
Source One Management Services Consulting / Services
I
SourceMap Risk Management
I
Spend360 Analytics Coming Later
SpendLead Vendor Search
SupplyOn SCM Coming Later
TAMR Data Science Coming Later
Toptal Workforce Marketplace
Uber Uber
Upwork Workforce Marketplace
Vinimaya Procurement Marketplace
I
II
III
IV
Vroozi Tail Spend Procurement App Coming Later
Wax Digital P2P Coming Later
Workday VMS
Xeeva e-Invoicing Coming Later

And now you know.

For those curious about how the list was arrived at, the public defender has a great explanation over on Spend Matters UK (in “spend matters 50 to know and 50 to watch questions and answers”). Seven analysts across three continents argued over who should and should not be on the list, making it one of the most objective subjective lists (not rankings) out there. (Now, I do not think any of us got to see all of our top ten picks on either list, but you can be sure that any company that made the list is a company that multiple analysts, including analysts that cover different areas of the Supply Management space, saw as a leader or innovator. So while everyone will question a few omissions, it is pretty hard to question that those there deserve to be there. The real question is, how many will be there next year. The competition in this space gets fiercer and fiercer.)

The 50/50 … stamped with the doctor‘s seal of approval! Part I: To Know

As announced last Sunday in our post on how the Masters will have the 50/50 in their Sights, this week the Spend Matters 50/50 … 50 to watch, 50 to know … list for 2016 was announced. It consists of 100 companies that every Supply Management professional should know about. (Even if the solution is not right for you, or your organization, you don’t know what tomorrow will bring after a job transfer or a merger.)

For those who missed it, this is the list of the “to know” companies, augmented with links to past SI (and SM) coverage, and annotations where coverage is coming soon!

Provider Solution SI Coverage
Accenture Consulting / Services
Achilles SIM / SCM Coming Later
Amazon Business Catalog GPO Replacement
AT Kearney Consulting / Services
Basware P2P
I
II
III
IV
Beeline VMS (Contingent Workforce)
Beroe Supply Chain Intelligence Coming Later
BravoSolution S2C
I
II.1
II.2
III
C2FO Working Capital
CapGemini IBX P2P / Supplier Network
I
CIPS Professional Organization
Coupa P2P
I
II
III
DCR Workforce VMS (Contingent Workforce)
Deloitte Consulting / Services
Detrmine S2P
I
II
DocuSign e-Signature
E&Y Consulting / Services
Efficio Consulting / Services
GEP S2P Coming Later
IBM S2C / Consulting / Services
Infor SCM / HCM / PLM Coming Later
Insight Sourcing Group / SpendHQ Consulting / Services / Spend Analysis
I
II
III
IV
Invoiceware e-Invoicing Coming Later
IQNavigator VMS
I
ISM Professional Organization
Ivalua S2P
I
II
III
IV
KPMG Consulting / Services
McKinsey Consulting / Services
OpenText GXS Business Network
Oracle Procurement
Pool4Tool Direct Procurement Coming Soon
PrimeRevenue SCF
I
II
Proactis P2P Coming Later
PRO Unlimited VMS (Contingent Workforce)
Proxima Consulting / Services
PWC Consulting / Services
Recruit VMS
Resilinc Risk Management
I
II
RiskMethods Risk Management Coming Later
SAP Procurement
ScanMarket S2C Coming Later
SciQuest S2P
Coming LaterHistorical AECSoft:
I
IIHistorical CombineNet:
V
VIIHistorical Upside:I
SynerTrade S2P Coming Later
Taulia e-Invoicing Coming Later
The Hackett Group Analyst Group
Trade Extensions Optimization-Backed Sourcing Platform
I
II
III
Tradeshift P2P & Supplier Network Coming Later
Tungsten e-Invoicing Coming Later
ZeroChaos VMS (Contingent Workforce)
Zycus S2P Coming Later

Procurement Is Dead! Long Live Procurement! Part IV

Mr. Smith is right. Procurement is dead. It was doomed, entombed, marooned on a desert island, and passed away peacefully in the night long after everyone had forgotten about it. It’s dead and buried. (See: “procurious big ideas video peter smith and the death of procurement” in Spend Matters) And you should thankful that the Romans closed the door on the Egyptian Empire’s burial chamber or you would have been buried with it.

And, as we explained in painful detail in Part II, there is no more need for a purchaser. Like video killed the radio star, the internet killed the purchaser. And good riddance too. The innovations that led to the purchaser’s demise are far superior than even the John Henry of purchasing could ever be.

Procurement is Dead!

But with the death of every monarch, a new monarch is appointed.

Long Live Procurement!

A new age is coming, and Procurement will lead this new age. But it won’t be the Purchasing of old where catalog buyers sat in dark rooms ordering widgets and sprockets, processing mountains of paper, sending requests by fax, and comparing results in lotus 1-2-3 spreadsheets on MS DOS.

It will be the Procurement of new where senior analysts equipped with actionable intelligence make decisions that not only reduce costs, but increase quality and reliability across product and service lines and, moreover, increase the value with each decision made.

These senior analysts will amalgamate market intelligence from raw material and commodity markets (food stuffs, metals, petroleum, etc.), credit and risk providers (Dunn & Bradstreet, Bureau van Dijk, CreditSafe), CSR providers (Ecovadis and Sedex Global), third party auditors, and so on; integrate this data into extensive cost and risk models; and then compare them across suppliers to determine the real cost of each product and supplier from an organizational perspective now, 12 months ago, and with reasonable certainty, what it will likely be in 12 months. They will be able to make decisions that balance cost, risk, and quality, and also take supplier innovation into account.

But this is just one thing that these senior analysts will do. Because they will also have deep insight into best practices and processes across the supply chain, they will also have deep insight into best practices and processes that can help each organizational unit. Not only will they have insight into buying office supplies, and sending out RFPs for custom manufactured products, but they will have deep insight into best practices for

  • Marketing Spend Management
    their insight into production can be levied into managing both print runs and media production
  • Human Resources
    as their insight into services management can be extended into managing temporary labour
  • Legal
    discovery services, standard contracts, and market intelligence are similar to specialized HR services, other market intelligence services, and standard publication acquisition
  • Warehousing
    as their total cost modelling capability will be just as applicable to modeling the operating cost breakdown of a warehouse as it is to modelling the production cost breakdown of a super widget
  • etc.

These analysts will do more than just send out simple RFQs and make simple purchasing decisions. They will define category, supplier, and even supply chain strategies and execute them strategically — starting with spend and value-based analysis, continuing with the collection of the right supplier and product information, followed by the right bidding and award strategy for the situation at hand (be it multi-Round RFX, e-Auction, re-negotiation with incumbent, etc.), which could even include a supply chain redesign, and concluding with a contract-based award to one or more suppliers that will be managed through the lifecycle of the contract. No more set it and forget it. Milestones for certificates, certifications, and reviews will be set and completed. Purchase orders will be regularly reviewed for completeness, correctness, and appropriate responses. Performance will be monitored and, if necessary, corrective action plans put in place and executed. Supplier Relationship Management (SRM) with strategic suppliers will take a front seat. Tactical processes and data collection will be automated as much as possible so that only exceptions will be addressed as needed and more time will be available for education, best practice improvements, supplier, and Procurement development and improvement.

Procurement will listen to the needs of the key stakeholders, synthesize them into a cohesive whole, and insure they align with the goals of the business to make sure that the right purchase — not the lowest cost or most readily available — is made every time. They will be strategic leaders that lead the way vs. tactical soldiers that just execute last year’s market plan. And they will generate more value than was ever generated simply by taking 5% (or 10%) off the top.

And we will continue to describe the tools, technologies, methodologies, and innovations that Procurement will use to form a new Procurement to replace the purchasing that has finally been entombed like the pharaohs of old.

Procurement is dead! Long Live Procurement!

Procurement Is Dead! Long Live Procurement! Part III

In Part II we left of noting that not only is Mr. Smith right and Procurement really dead, having passed away peacefully in the night long after everyone had forgotten about it, it’s dead and buried with the radio star (because Video Killed the Radio Star) 6 feet under.  (see: “procurious big ideas video peter smith and the death of procurement” on Spend Matters) The internet has killed the purchaser just like the industrial revolution laid waste to the armorer, blacksmith, glassblower, and dozens of other occupations.

But I’m sure you’re all shocked that in yesterday’s argument we left out the most important fact of all about the purchaser:

He could process a mountain of paperwork that instills fear and loathing in even the most die-hard career AP clerk.

Paper? Who cares! The only paper (not counting the unnecessary printing of e-mails by managers who can’t read on the screen) any organization with a modern platform needs is the signed contract in jurisdictions that still need ink on the page to recognize a contract. Modern platforms take requisitions from anyone in the organization, allow a buyer to flip them into a purchase order to the under-contract or awarded supplier, allow the suppliers to flip them into invoices when the goods have been issued, queue the invoices for processing upon goods receipt from the warehouse, auto-match the invoice to the goods receipt and the PO, and if everything matches (or is within pre-defined parameters), send it to AP for (pre) approved payment (who make an ACH to your bank account). No paper required.

And while we recognize that, historically, up to 15% of invoices will come in with errors and the exceptions need to be processed even in e-form, the reality is that modern rules-based workflow driven cloud-based m-way match system will auto-detect (and sometimes auto-correct) the discrepancies, flip them back to the supplier for correction (or acceptance), and then, when they are correct (or at least within pre-defined tolerances), send them to AP for (pre-approved) (automated) payment. Since most suppliers will correct an (honest) error, and since most omissions (PO Number, address, routing number, etc.) can be filled in with corresponding documents, at the end of the day, less than 2% of invoices will need to be manually processed.

When you look at all of the innovations the internet has given us, not only is there no need for a purchaser, there’s no desire for his resurrection either. After all, it’s so much better to be able to find any product you could ever need with a single search at any time and have it within one business day then it was to have to wait. In the old days, if you discovered at 6 pm on a Friday you needed a part Monday, and the purchaser had already left for the weekend, what could you do? Typically nothing. Today, you do an internet search, place an order, request expedited same-day shipping, it ships out first thing Monday morning, and you have it late Monday afternoon. Maybe you are a day late in delivery, but if you had to wait for the purchaser to return, get his attention, maybe he gets the order in Tuesday and maybe you have the part Wednesday. And today, if you really have to have it now, you can order it Friday night, request special courier shipping on Saturday, finish the product on Sunday, and still make the Monday morning deadline. (It will cost more, but it can be done.)

And who would give up the automated m-way matching? It used to be that a large organization needed a roomful of AP clerks to process the 20K to 40K invoices it got a month, and even then it could only verify 10% of them 100%, leading to an average overspend (on overpayments, duplicate payments, and fraudulent payments) of 1.5% to 3%. Today, all invoices are processed 100% in real time, missing data is automatically appended, and erroneous invoices are flipped back to the supplier (with explanations of errors and acceptable corrections) … leaving less than 2% to be manually processed by a junior clerk who can get through all of them.

The purchaser is no longer needed.

Procurement is Dead!

But with Procurement’s death, we have a new beginning.

Long Live Procurement!

To Be Continued.