Category Archives: Procurement Damnation

Mistake X that Procurement Founders Keep Making

As part of the discussion between the doctor and Jon The Revelator on how 2005 can tell us why most AI initiatives fail in 2024, the doctor, who recently finished the first six installments of his Mistakes Procurement Founders Keep making series, noted one mistake that founders keep making that maybe he should have made more explicit.

Specifically, and this applies to founders who are techies / ex-consultants in particular who are tech first, the one big mistake that is still being made two decades later is this:

Building a “solution” without having identified the “problem” they are trying to solve.

Or, as The Revelator put it, you must solve problems before selling solutions.

(And, preferably, not a problem that was already solved, and solved better.)

While this mistake could fall under foundational market research, it also stands on its own because these tech-minded individuals think that just because the tech doesn’t appear to exist, there’s a market for it.

While the “find a new ‘solution’, figure out what it works for later” might work for PhD students (develop a new algorithm, technique, material, etc. and then figure out what it can be used for), it doesn’t work well in the business world.

While techies might think business people want cool, the reality is that business people, especially those writing big cheques, don’t care. Techies think business people want slick UX. The reality is that business people don’t care. Techies think business people want the latest and greatest tech stack. But, again, business people don’t care.

The techies fail to realize that the business people they are selling to are NOT the people in the organization who are actually going to use the solution, which could be on decades old tech, with a horrendous UI and UX, and descriptors from an 80s horror film. All the solution buyers in an organization care about is

  1. will it meet the business need,
  2. will we get it at the lowest price and,
  3. if the solution processes transactions or personal data,
    does it have all the appropriate security certifications and monitoring?

That’s it. The budget controllers only care about whether or not the solution will solve their problem efficiently, effectively, and affordably. And if you can’t demonstrate that, they won’t care whether or not they’re buying it from Someone Who’s Cool.

We Need to Hasten Onshoring and Nearshoring — the Drivers Will Pound Those Who Don’t Into the Ground! Part 2

In Part 1 we noted how it was great to see a recent article on Supply Chain Dive on 6 reasons why global supply chains are shifting because the unending list of disruptions, cost pressures, and geopolitical tensions are only going to get worse.

As per the article, six major factors were influencing the decision — landed costs, tariffs and subsidies, geopolitical risk, existing supply networks, agility, and ESG goals — but these are, frankly, only half of the reasons that you should be shifting back. (And again, read the article for a detailed explanation of each factor, it is extremely well written and Part 1 only described the factors at a high level.) Today, with that article as a preamble, we are going to dive deeper into why the global outsourcing craze (thatthe doctor has been rallying against and complaining about for over 15 years, since he saw the business case begin to crumble in the late 2000s) was, and is, fundamentally wrong.

Collaboration

Yes, this would is overused, misused, and abused, but if you truly want to work with your supplier, it’s much easier to work with a nearby supplier than a far-flung supplier.

First of all, they are on a similar timezone, so at least half of a normal workday should overlap. No more 7 pm / 7am meetings in the best case (or 7 am / 3 pm / 11 pm meetings in the worst cases when you also have to dial in a partner organization in a multi-tier assembly operation).

Secondly, if you need to go on site, even if air traffic is grounded (terrorist risk, volcanic eruption, dangerous solar flares, etc.), you can get in a vehicle and drive to an on-shore site and many near-shore sites. And even in the North America / South America situation, while we still don’t have a complete Pan-American highway (as we still have the Darien Gap), we do have complete connectivity in North America and in South America, and if trade were to increase, it would make a ferry service from Panama to Colombia financially viable, and trucks could be ferried from Port Panama City to Santa Marta (and cars as well, although there is already a weekly service from Colón to Cartagena that could be expanded to operate more frequently). This means that you could get goods from any country county in South America into the US mostly by land in 2-3 weeks, or get to a supplier site by land in the same time. However, suitable partner selection could get you, or your goods, anywhere mostly by land in less than a week! (So, during normal times, imagine how fast and easy air travel will be — without racking up huge, unnecessary, overseas travel miles.)

Cultural Understanding

Most countries have a better understanding of their neighbours (unless it’s a communist/dictatorship with completely closed borders) than they do of countries half a world away, which usually makes collaborative working relationships naturally easier.

Complexity Reduction

The further away the good, the more complex the sourcing. There’s enough complexity to deal with in modern business. Why increase it? Especially since there is NO Big Red Easy Button (and Gen-AI definitely WILL NOT deliver one)!

Back to Basics

And, finally, when you onshore home-source or near-source, you’re getting back to basics. If you look at the history of trade, which was always long, risky, and costly, you traded for what you did not have locally, not what you had.

Convincing you that off-shoring was a good business decision that would save you money was one of the biggest cons, if not the biggest con, that the Big X Consultancies ever pulled off, since, in the long term, the only organizations that will make any money in the end are them*.

These Big X Consultancies charged you a lot of money to help you off-shore (which involved identifying suppliers, managing global supply networks, redesigning processes, updating inventory management, dealing with more defects and quality issues, etc.), which took you years to recoup before you started making money … which you have to give them again so they can help you re-shore, which requires identifying new suppliers (because even if your systems have data from pre-offshoring times, chances are those suppliers are out of business), redesign your supply networks (as you need different carriers, new warehouses, new partners, and new regulations to adhere to), updating inventory management, and temporarily dealing with defects and quality issues as the new suppliers evolve to support you. After all, any staff who knew how to deal with near-shoring (as well as handle trade in a time where there were few recriprocal agreements, tariffs were everywhere, logistics was a nightmare, etc. … i.e. pre 2000s, retired during / post COVID when they decided they had enough as a result of your “temporary” furloughs, forced office returns, and/or headcount rationalization in favour of new “AI” systems that don’t work.

If you had just stuck to the basics, and instead of going half a world away for a quick win, invested in process, product (design for cost/reuse/etc.), manufacturing, inventory, and logistics optimization, chances are you’d be far ahead now while the rest of the world scrambles to catch up.

*Today’s soundtrack: Bullet with Butterly Wings

We Need to Hasten Onshoring and Nearshoring — the Drivers Will Pound Those Who Don’t Into the Ground! Part 1

It was great to see a recent article on Supply Chain Dive on 6 reasons why global supply chains are shifting because the unending list of disruptions, cost pressures, and geopolitical tensions are only going to get worse.

According to the article, the following factors are influencing the decisions — and the doctor encourages you to read the article as he’s not going in depth into anything already written, especially when it was written very well, but instead wants to emphasize why the global outsourcing craze (that he has been rallying against and complaining about for over 15 years, since he saw the business case begin to crumble in the late 2000s) was, and is, fundamentally wrong (and emphasize even more factors you may not be considering yet).

Landed Costs

Items have become more expensive as supply constraints on certain raw materials and food stuffs have significantly increased prices across the board, tariffs and taxes from protectionist policies have heightened prices further, and then the skyrocketing logistics costs during the pandemic and now due to canal crises (Red Sea, Panama, etc.) and the lengthened shipping routes around the Capes (Horn and Agulhas) they are introducing make farshore sourcing very expensive.

Nearshoring from Mexico or Central America can take two weeks off of delivery time and reduce landed cost by up to 20% from the average. On the flip-side, sourcing from China with “trade war” tariffs (that Trump is threatening to increase) can increase landed cost by 20% (as section 301 tariffs targeting China added a 25% duty on hundreds of products).

Tariffs And Subsidies

These trade penalties and incentives are flying fast and furious both in populist-run democracies/republics/parliamentarian systems with Our-Country-First policies and communist/dictatorship countries with protectionist policies or tit-for-tat trade-war tariff and incentive policies. This makes “neutral” countries the best choices for outsourcing. See the article for a great breakdown of import value trends as a result of these changes in tariffs and incentives.

Geopolitical risk

The trade-wars were just the start. Now we have the Russia-Ukraine War, the Israeli-Palestine conflict, the war in Sudan, increasing tensions between China and Taiwan, and so on. All of these have, and will, disrupt global sourcing. The global political trade risk in multiple countries is now significantly high.

Existing Supply Networks

Even though, for North America, China came at the cost of Mexico, the trade networks still exist, and are easy to ramp up again. Similarly, multinationals already have hubs in multiple countries they sell (a lot) in and re-orienting around those hubs is easier than finding new hubs half a world away. Moreover, reducing routes increases FTL/utilization of key routes, and allows for logistics optimization.

Agility

Extended supply chains mean extended ocean shipping times, congestion at ports and warehouses, increasing labour disruptions (which is the biggest supply chain threat right now), can create lead times that stretch into months when we want to operate in a near JIT (just in time) manner, and get restocks in days (or weeks at most). Nearshoring can often allow that. Offshoring (unless it’s very small components you only need a small number of that can fit in a cargo plane and where the cost is so high you can afford the high air transit prices) can not!

ESG Goals

Shipping takes fuel. LOTS of fuel. LOTS of dirty petroleum-based fuel. Hard to make your ESG targets when ocean shipping is one of the dirtiest industries on the planet when there are still container ships on the ocean that, in one year, emit the same amount of cancer and asthma-causing chemicals as 50 MILLION cars. (Link) Remember that 6 of the worst polluting container ships can pollute more than ALL of passenger vehicles in the US in a year. (And don’t tell me that electric cars will fix all that when the production of a single battery pack, which often requires burning dirty coal or oil, for an electric car can produce up to 16 metric tons of CO2 [Link] and charging that battery from a dirty coal power plant can result in the indirect burning of 950g of CO2 per kWH, meaning you could be producing 78kg of CO2 every time you fully charge your battery pack for a Tesla 3. This means that, in the worst case scenario where the battery and frame production was as dirty as possible, you would have to drive 1,000,000 kms for that clean car to become carbon neutral!)

And while these are most of the major reasons to consider nearshoring and onshoring (but not “friend”-shoring, but that’s a different article), there are others. And we will discuss them in Part 2.

Firms that Rely on Logo Maps and Analyst 2*2s for Tech Selection are NOT Appropriate for Tech Selection!

In our last article, where we described in detail the many, many reasons why logo maps (including the Sourcing Innovation Mega Map on Source to Pay+ with 666 Unique Clickable Vendor Logos which were verified to be valid as of 2024 April 13), we not only reiterated how these maps are mostly useless but explained that your mileage will vary widely between a map created by an analyst who’s likely seen 1/3 to 1/2 of the vendors in depth and a(n) (former) implementation consultant or (want-to-be) influencer from a CPO background who has no in-depth technology education or experience (beyond the systems he used).

Those who read between the lines would have seen this post coming — not only are they not appropriate for tech selection, any firm that relies solely on them or analyst firm 2*2s (which are great if you are searching for some holy smoke to keep the beast of procurement technology at bay) is also inappropriate for tech selection projects.

Your results with such firms will be about the same as the bigger firms with “consulting partner” status with all the (same) big players, as they will ultimately just recommend the same ten firms for your Tech RFP over and over again, whether or not they are the right firms (and solutions) to meet your needs.

In order to effectively select a set of potential solutions for a client, you need to, at the very least:

  • understand the processes the client needs to support and the gaps they have
  • understand the solution types needed to support the processes, and the client’s gaps in particular
  • understand the client’s current technology landscape and Technology IQ, including what is replaceable and what is not (since, gosh darn it, some clients are going to hold onto that ERP they overpaid for until you dodge their six-gun pistols and pry the contract from their cold, dead hands)
  • understand the client’s unique situation based on vertical/industry, market size, and geography/culture
  • understand what global vendors support the processes, fill the gaps, synch with the tech stack, and can, possibly through third party integrations/partners, address the client’s unique requirements

This is a tall order. So tall in fact that, despite the growing demand for technology transformation and digitization across the Procurement landscape, outside of a few niche vendors that primarily focus on specific industries and specific solution types, the vast majority of procurement transformation shops aren’t able to fulfill it. Most will

  • have the processes down pat, they are consultants after all!
  • have a decent understanding of the common/core solution types, as they smart ones will actually read the expository articles written by the analysts (that they have access to anyway*)

Some, who employ technology and industry-specific professionals, will be able to build a decent understanding of

  • the client’s technology landscape and technology quotient
  • the unique requirements to look for/enable based on vertical/industry, organizational size, and geography

But few, if any will be able to:

  • identify even a handful of relevant global vendors that take into account the first four requirements

This is because, as pointed out in our last few articles:

  • the space is much bigger than they think, with
    • more types of product offerings,
    • considerably more vendors then they think exist, and
    • considerably more than they can process
  • they don’t have the deep technical background or technical understanding to differentiate between two vendors that speak the same and present applications that look the same in a 60 minute demo, but differ greatly in underlying power, extensibility, integration capability, etc. where you need a deep technical background and/or competitor understanding to tease it out (as well as a deep understanding of Procurement and the competitive [solution] market place)
  • they don’t have a process to do a proper technical assessment, diligence, or tech analysis …
  • and they certainly don’t know how to do a deep assessment by module/area to truly differentiate two solutions to qualify them as suitable for selection if they submit the best RFP

As a result, many consultancies will just do their in-depth process analysis, write up functional requirements based on that, and toss it over the wall to the solution providers to figure out, selecting from their partners if they feel there is enough overlap, then from the upper right in the analyst maps they paid for, and, finally, from the logo maps from their most trusted source. And, as we’ve explained, this doesn’t cut it and is why many sourcing / procurement software selection projects fail to live up to client expectations. Because, and we can’t say this enough, the most you can use logo maps / analyst 2*2s for is vendor discovery. Not validation for your projects!

Now, while the doctor has yet to receive an answer to his transformation process inquiries from any consultancy/service provider that fully satisfies him (he is demanding, after all), he is happy to say that, recently, a few# providers have acknowledged that transformation is going to require getting a lot more intelligent in tech and updating their processes and methodologies to recognize that, while it’s still The Wild West, it won’t be tamed by hope and grit alone — you’ll need the right tools to conquer it (and, FYI, those tools aren’t Gen-AI, they are good old-fashioned predictable, dependable steam- and gunpowder-powered tech solutions in the hands of us old and busted masters; the new hotness has nothing on us).

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* this is your regular reminder that Sourcing Innovation has never had a paywall and never will for baseline vendor coverage or expository posts; should SI choose to offer books, in-depth [comparative/market] intelligence, or similar IP services, for example, it may in the future sell this non-blog content, but every blog post will remain paywall free — almost 6,000 and counting …

# and we mean few, he can currently count them on his fingers on one hand, thumb not required

Like Analyst Firm 2*2s, Random Logo Maps are NOT Appropriate for Tech Selection!

In our last article, we explained why the doctor created the The Sourcing Innovation Source-to-Pay+ Mega Map, even though he despises logo maps. It was literally the only way he could expose how every one of logo maps released to date was completely useless (and some to the point that they were harmful, but that’s another rant for a later time).

In a nutshell, all of these maps had the following problems, which were correctable (and corrected in the Sourcing Innovation Mega-Map):

  • vendors / solutions no longer existed as of release date
  • categories were meaningless and not actual solution modules
  • vendor logos were not clickable or even footnoted (so you had no clue what that ruin actually represented — a new age vendor or a demonic symbol from a long lost hieroglyphic or symbolic language)

As well as the following problems, which still exist in the Sourcing Innovation Mega-Map (SIMM) because some of them are just not (fully) addressable:

  • nowhere near complete (the further you get away from the Source-to-Pay core, the less complete the SIMM likely is
  • no indication that the landscape changes DAILY (vendors come, get acquired/merge, go out of business, add new capabilities and modules, drop existing modules, etc.)
  • the vendors aren’t always comparable even at a functionality baseline
  • not all vendors with a comparable solution are relevant to the same (type of) company

We ended our last article noting that the right vendor for you was dependent not just on the module(s) you needed to address the process gaps the transformation consultants defined, but the industry/vertical you are in, the size of your organization, the cross-organization user base you need to support, and their technical intelligence (TQ).

The logo maps don’t capture that. (But, to be fair, the vast majority of the analyst market maps don’t either.)

But more importantly, they don’t always (accurately) capture what solution(s) a vendor accurately captures. The reason for this is that, to be completely accurate, the creator would have to be fully aware of, and have seen, the current full end-to-end solution as of the day the map was released and then accurately map the providers’ solutions to each of their logo map categories.

the doctor has likely reviewed more Source-to-Pay solutions over the past 19 years as an analyst than almost any other analyst except for Mickey North Rizza (15 years at AMR / Gartner / IDC), Duncan Jones (who was Forrester Vice President and Principal S2P analyst for 16 years straight), and Pierre Mitchell (25 years at AMR / Hackett / Spend Matters). (Just about every other technology analyst still active in our space has only been a full time market analyst for a decade or less.) Even though he has reviewed, in depth, over 500 hundred solutions (and written about 350+ in detail on Sourcing Innovation and Spend Matters [but good luck finding at least 1/3 of the Spend Matters coverage since, as previously mentioned, the site refresh dropped co-authors on many articles, many of his articles were co-authored, and he was always second billing], he hasn’t even seen half the solutions on the map in depth (but still believes the ratio of in-depth vendor knowledge that went into this map is still greater than every other logo map produced). As a result, his classifications, like any other analyst, are based on, in order:

  • in depth demos, diligence or evaluation projects
  • detailed vendor communications (beyond just what’s on the website)
  • website / third party summaries (looking at the functionality where possible, not just the language)

Which means that, if the website/materials were out of date when reviewed (and it’s been a few years since the last review), the classification could now be highly inaccurate. The eProcurement vendor could have shifted mostly to I2P/AP. The supplier management vendor found a niche in risk management or category sourcing and dropped most SXM capabilities. The contract management solution, interchangeable with forty others, didn’t get traction and was dropped. And so on.

So if your mileage varies in this map, put together by someone who has consistently been at least a part time (if not full time) analyst since Sourcing Innovation was started in 2006, imagine how much it will vary in a map put together by a former consultant, who might have only seen the same ten solutions he was always implementing in depth, or a former product manager who doesn’t have a solid technical background and can’t accurately judge the true capabilities and potential of the solution he’s looking at. (the doctor has an earned PhD in computer science and has been a software architect / research scientist / CTO, compared to the average analyst who, in the early days, came from an operations / logistics / management background if you were lucky and a journalism,
English, or history background [because they could actually write] if you weren’t.)

In other words, no matter how cool these (logo) maps look, at best they will be mostly useless (if they give you clickable logos so you can begin your own research effort), or completely useless otherwise.

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