Category Archives: Market Intelligence

Sourcing Excellence IS Optimization!

Sourcing Excellence requires optimization. Not AI. Optimization. We have finally reached a point where nothing else will get you there.

And Sourcing Excellence requires Paul Martyn. You need someone who has built and led programs, evaluated and employed multiple tools, and has the decades of experience to bring the insights you need instantly to the table. With many of the sourcing optimization greats (who founded CombineNet, VerticalNet Tigris, Trade Extensions, etc.) retired or moved on, the number of people left who have over two decades of practical experience are countable on your fingers (just like the number of analysts who have been consistently covering this space for two decades). Paul Martyn is one of the few, true, optimization masters left. So if you want to save your supply chain, reach out to Paul.

If you want to understand why, as well as why sourcing excellence truly requires optimization (as it’s time has finally come), since I know you won’t listen to me, read Paul’s ongoing Sourcing Excellence series, which just saw Part 11 published.

  1. Part 1: (Optimization is Thinking)
  2. Part 2: (Optimization Frames Reality)
  3. Part 3: (Optimization is More than a Capability)
  4. Part 4: (Optimization Changed the Game)
  5. Part 5: (Optimization Must Always Be On)
  6. Part 6: (AI is NOT Yet Fly in Procurement)
  7. Part 7: (Innovation is Just an Input)
  8. Part 8: (Orchestration is the Key)
  9. Part 9: (Value is a Game)
  10. Part 10: (Constraints Dictate)
  11. Part 11: (Constraints Vary)

Another Reason To Avoid AI: NO ECONOMIC GROWTH COMES FROM AI!

A recent study by Goldman Sachs, summarized in Fortune, found no meaningful relationship between AI and productivity at the economy wide level/.

Think carefully about that. 450 Billion, which is more than the GDP of over 100 countries, was sunk (and I mean sunk) into AI last year — for the net result of ZERO economic growth. For 1/6 of that, every college in the US could be free — and you’d have 20 Million smarter adults with no student debt dragging them down, causing them stress, and zapping from their productivity. For 1/12 of that, you could eliminate all the hunger and food insufficiency in the US. For 1/50 of that, you could re-open Alcatraz and provide a King with his own special castle and his own moat.

In other words, there are so many better things that could have been done with that money — including training your people to be more productive, modernizing processes for efficiency, and building deterministic tech that actually works at 1/100 to 1/10000 of the compute power in a data center that’s already powered up.

The only company “winning” is Nvidia, who provides the chips, which means that most of the money is going to its factories in Taiwan and South Korea, and those are the only countries that are actually winning while Americans, who were laid off in droves last year, get poorer, colder and hotter, hungrier and thirstier (as AI sucks up all the energy, which is now not available for heating or air conditioning, and all the water for cooling, which is now not available for drinking or farming).

Think about that the next time you think an overpriced clod or chat, j’ai pété wrapper, even if hyped up as an AI Employee by the A.S.S.H.O.L.E., is going to solve all your problems. Especially since all the Age of AI has done for us is make us dumber, poorer, and less prepared for what is to come next than any age that has come before.

There’s No Cost Management UNLESS It’s By Organizational Design

Cost Management is what thought leaders and analysts have been talking about for 25+ years in Procurement (and is something that has been discussed on SI since its founding in 2006), but not something that is typically realized.

It’s more than just strategic sourcing, contract [lifecycle] management to capture the agreements and obligations, e-procurement, and 3-way matching for cost assurance (and obtainment), but rarely does an organization even achieve these (and that’s why up to 30 to 40 cents of every negotiated savings dollar never materializes).

It’s even more than including Procurement in NPD and NPI (which is where 80% to 90% of the cost is baked in), or in supply chain / logistics network (re) design, which still isn’t the case in the majority of organizations.

It’s a fundamental organizational realignment from traditional budgeting, pricing, forecasting and spend planning based on historical spend and revenue to dynamic budgeting, pricing, forecasting and spend management based on real-time market data as categories come up for sourcing or renewal, internal organizational spend increases or decreases (on hires or fires; internal development projects; assets are acquired, fully paid off, or divested) where budgets are defined based on real-time market data and updated forecasts when a sourcing event is kicked-off, pricing is adjusted based on actual costs and expected market tolerance to standard margins/mark-ups, forecasts are re-run using advanced curve fitting models with the most recent data, and spend planning is adjusted based on all of the prior updates.

The “when a sourcing event is kicked-off” is the key — not when it’s planned, when it needs to happen because the company has decided to introduce a new product, accelerate a planned event due to an expected demand or cost increase, or a supply chain disruption has necessitated emergency replacement of supply.

The harsh reality is that if a chip or RAM factory was just wiped out by a natural disaster or fire (which happens about once a decade), prices are going up. Doesn’t matter what you spent last year, this year is a whole new type of ball game — especially if supply routes become cut off and your only options are longer sea routes, air routes, or new (already overloaded) suppliers in new regions that aren’t cut off.

And any savings or cost avoidance success needs to be measured against the average market price at the time.

But, as pointed out by this article in Supply Chain Digest on how to get From Supply Chain Cost Cutting to Cost Management, this is not what happens every time a market shock hits, executive pressure rises, and the organization is told to take costs out fast.

As the article continues, the danger is not the mandate itself. It is what repeated, reactive cost-cutting does to the supply chain’s long-term health. It can lead to diminishing returns on cost cuts, weaken operational effectiveness, and narrow options the next time volatility strikes.

And it’s all due to a hidden problem with the traditional approach. Namely static budgets create the wrong conversation. Because, when supply chain performance is judged primarily against an absolute dollar budget, leaders often get pulled into debates about compliance instead of outcomes and, even worse absolute-dollar metrics can also steer attention toward the biggest cost line items, even when those costs enable profitable growth.

According to the author, the solution is to ditch static dollar budgets, assess performance through an adaptive lens that aligns with margin assessment, and report costs as a percentage of revenue. Which is great advice, but doesn’t really help you transition the organization to being cost management (vs the current method of cost mandating that is completely divorced from reality and regularly results in organizational failure) focussed.

That’s where the Busch-Lamoureux Exact Purchasing model comes into play. When you align around exact purchasing, and segment your spend into the pocket cube, you realize that for all of your high complexity, high risk, and/or high impact categories, you need to either architect the cost model and the supply chain around it, monitor market conditions in real time (and possibly trigger [re]-sourcing events as a result), or continuously monitor input pricing as well as the price points an average consumer will pay across your markets at different volume levels and adjust your cost and revenue model accordingly.

You no longer plan around fixed costs and prices for the next year, that never happens, but around evolving market realities. And if your price point adjustments are limited, then you know you need to scale back on service commitments, marketing during a downward market trend (when consumers don’t have time to buy), or overpriced sales personnel just adding to expenses with no identifiable return. i.e. Spend is reallocated as appropriate to keep the organizational profitable and productive during extreme events or market conditions while other companies can’t adapt due to lack of category management structure and organizational alignment around what is actually being bought as they still operate off of a spreadsheet that represents a fictional model of non-reality.

Hansen’s Models are a Great Addition to the Pool of Analyst Offerings …

… but they still don’t solve your solution selection problem end to end. As per my successful vendor selection, Assisted Solution Selection is a Seven Stair Methodology, and many of those steps aren’t covered.

Backing up, Hansen just launched his new Hansen Procurement site where he centralizes his three new offerings around Organizational Maturity, Vendor Fit Measurement, and Strategy — all of which are sorely needed in our space as the consultancies and analyst firms don’t really address this (or at least don’t address these aspects to the level they need to be addressed to flip the script and turn the 80%+ chance of failure with every new technology project into an 80%+ chance of success).

The best way to see this is to outline the steps of a solution selection project, define what they are, and indicate where various analyst and consultancy offerings come into play.

Step Goal Offerings
Organization Maturity Determine if the Organization is Ready for Process Change that will Involve New Tech Hansen Phase 0 Readiness Assessment
Actual Need Identification Expert review of current processes and problems to identify real process and automation needs, not parroted buzzword descriptions from non-expert executives. Any Niche Consultancy or Expert Advisory Firm Engagement
Holistic Solution Assessment Translation of the need to actual process improvements, platform and automation needs, and service requirements. Any Niche Consultancy or Expert Advisory Firm Engagement
Vendor Pool Selection Starting vendor pool where the vendors meet the minimum platform, automation, and service requirements specified. Spend Matters Tech (only) Match &
Hansen Fit Score Vendor Assessment (Actual Performance)
Vendor Assessment Process RFX cycle management, response and demo analysis, and overall vendor suitability for the client to find the best match. Any Niche Consultancy or Expert Advisory Firm Engagement
Project Assurance Guidance on implementation plan creation, project monitoring, and vendor and partner management with a focus on client success, not the vendor or implementation partner! Engagement with select niche consultants and experts who understand both modern platforms and process requirements of Procurement and Supply Chain.
Strategic Post-Implementation Training, Monitoring, and Advisory A successful implementation does not guarantee success -— that requires adoption, continued utilization, and results. Engagement with select niche consultants and experts who understand both modern platforms and process requirements of Procurement and Supply Chain and why adoption is critical.

As you can see, with the Hansen Models, you finally have a way to judge your organizational maturity and readiness for a new tech-based solution before you start done a path you aren’t ready for (as that always ends in failure), and you finally have a way to determine a potential vendor’s ability to support you in achieving your goals in addition to whether or not the technical core is up to the challenge (which you didn’t have until Spend Matters introduced Solution Map, which powers their Tech Match).

These are key additions because without them,

  1. it’s almost impossible to judge organizational readiness
    you can’t bring an expert in, do a few interviews, and reach a conclusion because you have nothing to compare against (and, moreover, you need scale … at least 30 to 50 related, relevant, projects for any level of confidence in your assessment)
  2. it’s hard to zero in on the best vendors for a selection
    as the best tech fits from both a capability AND a vendor support perspective

The Strategy offering from niche professionals who understand where the organization actually is from a maturity perspective is a nice touch, as they can create more appropriate plans for you more efficiently, but other niche firms could also offer you the same level of strategic advice if they ran the models from Hansen and Spend Matters — although it might take them longer and cost you more depending on their change management and transformation chops vs. Hansen’s chops.

But, as we said above, it’s not end to end, and you’ll still have to do a lot of manual work to get from beginning to end, and possibly need a lot of guidance. But it’s getting you a step (or two) closer to a good assisted solution selection methodology in practice.

Today is the One Day Procurement Doesn’t Have to Worry About Purchasing Software and Services …

… because vendors try to make a fool of them every day of the year.

As per our recent 3-part series on Now is NOT a Good Time To Buy (1, 2, and 3), vendors across the board are trying to overcharge you on a daily basis, by as much as 900% of the software’s actual value.

Services vendors are constantly trying to push you towards the most expensive offerings (that give them the greatest kickbacks, sorry, partner commissions), upsell you on as many modules (that you don’t need) as possible, drag out the implementation (which they know will be easy because they know you’re not organizationally ready to support an implementation because they didn’t prepare you because you didn’t ask), insist on extraneous integrations using custom connectors, and then up-sell you on training for an overly complex system you weren’t ready for.

Then there are GPOs who are claiming they can save you dollars you can’t save on your own, and that you should hand over a whole host of categories to them for an annual six figure access fee and a slice of every transaction, even though you could do just as good on your own managing the larger categories they want to hand over (by the time you factor in the transaction fee and the amortized GPO access fee) and handing the rest over to low cost Amazon Business.

Then there are the marketplaces you need to use for your tail spend that try to convince you to pay preferred access fees, priority order processing fees, expedited shipping fees (for carriers they control), etc. All extra costs for non-priority goods and MRO.

And, of course, when the sales person at the supplier thinks that you don’t have any other immediate options, they come up with fees you never heard of in order to guarantee that order.

In other words, every vendor and supplier is trying to make a fool out of you every day. There’s nothing else they can try to pull on April Fools day that they haven’t already. Multiple times.

In other words, we’re the one profession that doesn’t have to worry about being an April fool, as we deal with tricksters, cons, and frauds every other day of the year.