Category Archives: Procurement Damnation

While A Good Procurement Tool, Amazon Business IS NOT The Answer to Increasing Revenue and Boosting Resilience in Procurement!

OI! This is yet another article the doctor shouldn’t have to write, but after encountering this thinly veiled advertisement for Amazon Business masquerading as a sponsored article on Thriving Through Disruption over on Supply Chain Dive, it appears he has no choice because simply transferring your Procurement to a third party, like a GPO (Group Purchasing Organization) or Outsourced Procurement Operation, doesn’t necessarily solve the problems you are having (it just changes ownership of them). Furthermore, no single organization, including Amazon Business, is going to even be aware of, yet alone work with, all potential suppliers, and, thus, no single organization is going to be capable of maximizing your options, especially around DEI (which is something else the article trumps up).

As the article notes, resilience is KEY to successful Procurement given that major sources of global supply chain descriptions — global conflict, changing climate, resource shortages, human error (and just plain incompetence), political unrest, and much more — have only increased since the transition from pandemic to endemic for COVID, and the rate of increase shows no sign of slowing down (especially with labour disruptions also heading towards all time highs along with natural disasters).

And, as the article notes, your Procurement department needs to be agile. Unknowns abound and disruptions, even high probability ones, cannot be predicted. And even the best laid plans for risk mitigation can be voided when those plans depend on alternate supply from a supplier or distributor that gets impacted from the same natural disaster, border disruption, or labour strike. As such, an organization needs near real-time supply chain monitoring, a diverse supplier base, and the capability to react quickly when the unexpected, but inevitable, happens.

And, as the article notes, with the backing of an e-Procurement system … organizations can discover new insights that could help them adapt effectively to a changing supplier landscape, fostering flexibility and enhancing robustness.

But, and this is a key point, Amazon Business is NOT an e-Procurement system. It’s a marketplace. More specifically, it’s a very good marketplace, and one that EVERY organization should have in its arsenal for low-volume/tail spend/indirect Procurement (because, like a GPO, the volume it can deliver to suppliers can make it very attractive for suppliers to advertise its best prices up front to win all of the customers on Amazon Business), but it’s NOT a modern e-Procurement platform. (And if you want to understand what this is, and which vendors may provide this to you in a marketplace/vendor agnostic fashion, check out Parts 3 to 7 of Sourcing Innovations 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay, where Part 7 contains a list of over seventy [70] e-procurement companies to check out.)

Similarly, when the article says supplier diversity is a powerful way to enhance service, quality, and value by promoting an inclusive, proactive approach to purchasing from individuals or groups who are members of a traditionally underrepresented or under-utilized group. it is also dead on. Furthermore, as the article says, with the right solutions in place, Procurement leaders can extend equitable access into their sourcing practices, creating a transformative opportunity for small, local, or diverse businesses, as well as their own organizations. And, yes, DEI suppliers can build capabilities, create opportunities, and strengthen community and, yes, a DEI program focussed on including diverse suppliers in sourcing events will help an organization broaden its supply chain, but Amazon Business alone will NOT be sufficient to identify and validate all of the diverse suppliers an organization should be considering. It is true that it is one of the few marketplaces that has designed features and tools to streamline the identification and validation of diverse suppliers, but it’s also true it only has so many vendors on the platform, and the majority are for indirect and MRO — not direct and not services. So it’s NOT a complete solution.

Now, let’s be clear that we’re not trying to dismiss Amazon Business here, because, for many mid-size organizations, it should be part of their Procurement Toolkit and even part of their tail-spend / non strategic purchasing strategy as it can really simplify a Procurement buyer’s life by offering verified products from verified suppliers with reliable delivery dates at good prices. But it’s not an e-Procurement platform and definitely no where close to a complete solution. Understand it for what it is, use it as appropriate for the great value it will give you, but don’t have unrealistic expectations, or the disruptions that eventually be arise will be much more damaging and shocking then they should otherwise be with an appropriately managed multi-pronged organizational Procurement strategy.

AI: Applied Indirection, Artificial Idiocy, & Automated Incompetence … The April Fools Joke Vendors are Playing on You Year Round!

So on the one day of the year when they should be making the joke, I’m going to reveal it.

The vast majority of vendors who claim “AI”, where they want you to think “AI” stands for Artificial Intelligence, have no “AI” in that context, and many don’t even have anything close. A few may have “Assisted Intelligence” (Level 1) and even fewer still may have “Augmented Intelligence” (Level 2), but “Analytical (Cognitive) Intelligence” (Level 3)? Forget it! And as for, Level 4, “Autonomous Intelligence”, which is the baseline that must be met before you could even consider a system true “AI”, doesn’t exist (at least as far as we know). (ChatGPT would be a 3 on this scale, 3.5 if you’re dumb enough to use it to power a semi-autonomous application.) (For more details on the levels of “AI”, see the detailed Pro piece the doctor wrote over on Spend Matters on how Artificial intelligence levels show AI is not created equal. Do you know what the vendor is selling?.)

However, thanks to ChatGPT/OpenAI and other offerings, every vendor all of a sudden feels that their solution has to have “AI” to compete, and is now claiming they have AI when, at best, they’ve implemented some third party “library” into their analytics module, which itself may or may not be AI, or, at worst, they just have classical rule-based automation and statistical-based predictive analytics (i.e. trend analysis) but have called it “AI” because, just like a classic decision-tree expert system from three decades ago, it can make a “recommendation”. Woo hoo.

Not that this is nothing new, three years ago a study by London Venture Capital Firm MMC found that 40% of European startups that are classified as “AI” don’t actually use AI in a way that is “material” to their business. MMC studied 2,830 “AI” startups across 13 EU countries, and in 40% of cases, [they] could find no mention of evidence of AI. (See the great summary in The Verge.) And even that statistic is a bit misleading, because I’m willing to bet that the “evidence” they did find was technology that didn’t necessarily mandate “AI” and could be implemented with “classical” techniques because, as a longtime blogger, analyst, due diligence professional and, most importantly, a PhD in theoretical computer science (read: advanced applied mathematics), I have found that most claims of “AI” weren’t really AI — in most cases they were just using a combination of automation and/or configurable rules and/or advanced statistics and/or machine learning and just had some of the foundations, but no real “AI”.

In our space, real “AI”, and by that I mean strong Level 2 / weak Level 3 (which is the best you can get) is quite rate and specific use cases are few and far between, and most AI is simply semi-unsupervised machine learning for transaction/categorical classification (spend analysis) or clause identification (contract analytics).

The problem is that, when no one really understands what “AI” is, and given that less than 1/10 Americans have the mathematical competency to even begin the university studies to try and garner an understanding [Level 4 on the PIAAC], it’s really easy form them to try and pull a fast one on you. This is especially true when the solution is able to automate certain tasks or recommend best practices in the majority of situations faster and more consistently than the average buyer (who, let’s face it, is under-educated — thanks to limited supply chain / operations management programs and almost no real Procurement training in Colleges and Universities, under experienced, and not an expert in modern technology), and the solution can be made to look “smart” (but, in reality, is dumber than a doorknob and definitely dumber than Maxwell Smart). But it’s not smart. Not at all.  And don’t be fooled.

The good news is the marketing manager using Applied Indirection to push a false AI solution at you probably doesn’t have a clue what they have anyway, and a few smart questions asked by someone who understands what AI is, and isn’t, can probably get pretty close to the truth pretty fast. For example:

1) “We have advanced AI data auto-class. It’s the most intelligent, and accurate, classification in the space.”

‘How does it work?’

“It uses a multi-level neural net that has been trained on tens of millions of records across over a hundred clients in the indirect space.”

‘Great, so basically it categorizes transactions based on similarity to other transactions in a slowly evolving manner, and I’m guessing for a new client in the indirect space, out of the box, you’re around 85% to 90% accuracy out of the box and you approach 95% with semi-supervised retraining over time — and that’s the upper bound and it will never be perfect.’

“Uhm, … well, … more or less … “

‘Got it!’ At this point you know it’s “AI” level for classification is augmented (as it learns and evolves over time), and barely, but it’s not “the best” mapping in the space as platforms that use AI to suggest rules (upon implementation and then for unmapped transactions) and do mapping and categorization based on the user selected and verified rules can produce 100% accurate mappings, always outperforming an “AI” solution that uses neural nets that are good (but not perfect).

‘Do you use AI anywhere else?’

“Uhm, what, why? It’s great where, and as, it is.

And now you know that there is no real AI in the analytics part of the platform, and there’s no reason to choose it over any other.

2) “We use AI for OTD prediction and risk in delivery prediction.”

‘Cool. What algorithm do you use?’

“Huh, what do you mean?”

‘How does the application compute the OTD and/or risk associated with the delivery.’

>Wait for the hand off to their “data scientist” …< “We use a blended least-squares method to produce a prediction function where, if there is enough data for the product, carrier, and lane, we’ll primarily use that data for the function, but if there’s not enough, we’ll use the most similar (using a mathematical distance function) product, carrier, and/or lane data … “

Is that AI, well, if there’s some sort of learning involved in the selection of “similar data” or recommendations as to parameter tuning IF parameters can be tuned, maybe, but this is just classical statistical trend analysis and not really any different than classical ARIMA based forecasting from the 70s, and did they have ANY AI then?!? (The answer is “NO”!)

3) “We use AI for our supplier recommendation process?’

‘Sounds promising … please explain!’

“We compute a relevance score taking into account a large number of factors including product base, geographic location, diversity, risk, etc.”

‘OK … how … ‘

>Cue the Eventual Hand Off to “Data Science” Team<

“Product Base is computed as a percentage of the category they can likely cover, geographic location as an average distance function, diversity as an estimate of diversity employment if there is no diversity ownership data (in which case it’s just 50%), the risk score from our risk model, etc. “

‘So, in other words, it’s just a formula … ‘

“A very sophisticated multi-level formula with conditionals and nesting that computes … “

‘Got it thanks!’ NO AI! Not even a hint there of as it’s just a functional risk score that could be built in ANY application with a formula builder.

This isn’t to say that a solution without AI isn’t right for you! (In fact, it probably is!) It’s all about solving your business problem, and many problems have been solved in our space just fine for the last decade or so with rules-based workflow and automation, optimization, and statistical modelling and trend projection. When guidance is needed, decision trees/matrices tied to expert curated best-practices (the modern equivalent of a classic “expert system”) often work better than one could imagine. In other words, it’s not AI, it’s not the hype, it’s what solves your problem, reliably and predictably time-after-time.

So don’t fall for the false hype and be the April fool.

It’s Been Four Years Since I Told You About The Procurement Damnation of Project Management …

… but what has your vendor done to abate it? There’s a reason that the new iteration of Spend Matters’ Solution Map, designed by the doctor, has two subcategories dedicated to Workflow and Project Management (and two other sub-categories dedicated to Data and Document Management) … and that’s because of the importance of project management to your sourcing and procurement efforts.

Remember, while project management works good with the physical world, it doesn’t work so good with the virtual world. For example, where software development is concerned, there is a rough definition of what is desired, but the beginning and end is a best estimate that is no more accurate than a wild guess in some cases, the resources required (while defined as software architect, developer, network specialist, etc.) are not well understood (as a non-skilled software architect cannot define what makes, or identifies, a good software architect), and the amount of money required is relatively unknown (due to uncertain work effort requirements, unknown support requirements, etc.). And that’s just software.

When it comes to supply chain, the difficulty is intensified. There’s the management of the sourcing, the management of the negotiation and contracting cycle, and the management of the procurement. But before that, there’s identifying the right supplier, which requires detailed understanding of the product technical requirements and the supplier production capabilities. There’s identifying the expected costs, based upon understanding material costs, labour costs, energy costs, tariffs, and overhead. There’s managing the supplier relationship. There’s dealing with disruptions and disasters. And taking corrective actions.

Most supply chain projects don’t have well defined beginnings, or endings, or static workflows. There’s no one-size fits all and the platform needs to be able to adapt.

But even before we get to workflow and adaptation, we first need the ability to define a project and a workflow to support it – be it a full strategic sourcing project with supplier discovery, supplier selection, multi-round RFI, and online negotiations; a simple 3-bids-and-a-buy RFI for a services engagement; an automated auction for regular MRO purchases; a deep optimization project for multi-national transportation or services; a regular catalog buy for a regularly occurring purchase; etc.

How many platforms can define an appropriate project? They all have the capabilities, but in many platforms that’s it. You can’t define a workflow. You can’t capture basic category intelligence. Everything is one step at a time, where the steps can only be performed by an experienced platform master. You can create an event, and then do stuff in the event, but you can’t abstract the workflow, just copy it and edit it for next time.
And if you need a new workflow, you need to create a new event.

Even four years later, only a few platforms have any real semblance of project management, and that needs to change. But will it?

(If it doesn’t, at the very least the platform should integrate with a project management workflow tool like Per Angusta which was built to do precisely this and integrate your disparate best-of-breed Sourcing and Procurement modules into a unified platform with workflow and project management.)

Societal Damnation 47: XaaS

This is a damnation so damning that it was one of only two damnations that required two entire posts just to overview (and one of the few damnations the doctor could literally write an entire book on)! So just what is XaaS?

XaaS, short for Everything as a Service, is the latest craze that is going to cause your Supply Management organization nothing but suffering and pain. While it sounds really cool, because, historically, the transformation of a non-core but essential function (legal, accounting, etc.) or utility (water, electricity, waste disposal, etc.) into a service made your life easier. But, as with any good thing, it’s always possible to have too much … and with XaaS, to have too much forced down your throat even if you’re already choking on your own regurgitations.

And while the right services can provide an organization with advantages that include, but are not limited to,

  • expertise,
  • cost reduction, and
  • efficiency

for an organization that does not have the dedicated personnel, or expertise, to perform the function as good as a third party, if the wrong services (or service providers) are provided (or selected), the organization will instead be burdened with a number of considerable disadvantages that included, but are not limited to:

  • cost increase,
  • efficiency decrease,
  • loss of control, and a
  • 3rd Party Management (3PM) nightmare.

And if different business units decide to start outsourcing what they perceive as non-core functions (which are in fact core to the business or which should be managed by Supply Management or a different business unit), functions for which the service provider cannot achieve economy of scale, or functions that have not been optimized for outsourcing (which will result in an efficiency decrease as a best-practice provider will not be able to optimize inefficient workflows) willy-nilly, Supply Management will have quite a third party management mess to deal with.

In a nutshell, services are good, but, as clearly illustrated in our second damnation post on the subject, Everything-as-a-Service is a ridiculous concept and any organization that buys into it is just asking for trouble.

So what can you do when you are pushed to buy into this latest outsourcing craze?

1. Get an organizational policy in place that all services spending goes through Procurement.

This will be very hard, but unless Procurement knows about an outsourcing initiative or a XaaS buy, it can’t make sure that the organization makes the right buy, if a buy is even required at all!

2. Do your homework on each request.

Why is the service being requested. What does it do and what processes or services does it replace. Why could a third party do it better and are the third parties being considered capable of doing it better. If the process is outsourced, will the organization lose important skills or knowledge. Should a traditional product to enhance in-house be considered instead?

3. Figure out what processes are truly strategic and what process are just tactical.

Strategic processes should be kept, or at least managed, in house while tactical processes are the prime candidates for XaaS providers. From the list of tactical processes, identify those that would be best suited for outsourcing through efficiency gains or cost savings.

In other words, the key to sustentation is not jumping on the bandwagon and doing everything you can to prevent the rest of the organization from jumping on when you’re not looking.

Environmental Sustentation 20: Oil & Natural Gas

Oil and Natural Gas is an environmental damnation in more ways than one. It’s dirty fuel, that is regularly subject to price shocks, and it’s collection and transport often result in significant disasters to the environment, your bank account, and your reputation.

And even though you should move to greener power, in some cases you can’t. Biofuel is not always a viable alternative for transportation, especially for ocean freight (where it takes a lot of combustion to move those mega-carriers) or air travel. And you still need to power your current energy production systems until the new ones come online. So you are stuck with using oil & natural gas for at least some of your energy needs for the time being. (But hopefully with a plan to use less and less over time.)

And, as a result, have to live with the risks of shortages, price spikes, disasters, and the resulting financial and reputational damage that will result. So how do you survive?

Accurately predict future needs.

If your demand is going to spike because of expected sales spikes, or projected energy shortages in other areas, that is something you want to know in advance so you can be sure to contract for sufficient supply. Similarly, if demand is dropping, that is also good to know as maybe you can cut shorter contracts and buy more on the spot market without serious repercussions.

Acquire expert supply and price projections — from various sources.

Don’t just monitor supply and prices, try to understand where it is going so you can source, or re-source, at the best times. While an unexpected disaster, political decision, or pumping slowdown can change everything, the more informed you are, the better off you’ll be.

Have disaster recovery plans in place.

If there is a shortage due to a disaster, you want an alternate source. Don’t sole source if you can avoid it, and make sure you include a provision with the provider who gets the smaller award to increase business over time and that they can support a spike if you need it. If there is a transportation disaster, hopefully you don’t take possession or responsibility until it’s in your storage tank, but either way, you better have a plan to get another shipment sent through an alternate carrier, possibly from your other supplier, ASAP.

Start sourcing clean power and building your own power plants.

Most places in the world can produce a lot of power from wind, solar, or hydro-power, and not only should you be looking to buy from energy companies that produce this power, which can power your equipment, buildings, and even short-haul transportation (that run on battery packs), but if you are a large factor or office building that uses the equivalent of a small power plant of energy, you should be building your own, and only taking off the grid when you need supplemental. With so many regular failures in overtaxed and antiquated power grids, this is just good planning.

While we can’t rid our dependence on oil and natural gas just yet, we can certainly reduce our need for it and this type of planning will not only make it more affordable (if demand lessens), but also make energy consumption and transportation safer and more reliable.