Category Archives: Procurement Innovation

The Catalog is Not The Be All and End-All …

Originally posted on the Synertrade blog in November, 2018.

… it’s only the foundation that you need for great across-the-board cost control.

But let’s back up a bit so you know where we’re coming from. As we have already discussed, the past couple of years have seen a flurry of M&A activity, with a lot of “best-of-breed” catalog vendors getting scooped up, and one big firm in particular buying two, that’s right, two “best-of-breed” catalog vendors (when such firm already had an in-house catalog management solution). This is, of course, a bit whacky because

  1. it’s not how many external catalogs are built-in out of the box (but how many you need),
  2. how smart the guided buying is (as most “guided buying” can be accomplished by a few simple rules and it’s simply about ensuring the right product is bought), or
  3. how Web X.0 the UX is (it has to be usable, not confusingly beautiful).

Remember the key points we made in our last post on why you should update that catalog (not that catalog platform, as it might be more than adequate for your organizational needs):

  1. it captures negotiated savings by making sure negotiated deals are captured for easy requisition by buyers;
  2. it makes it easy for buyers to see what is contracted, what is preferred, and, most importantly, what is neither;
  3. it captures more organizational spending and this is why
  4. it enables more cost control.

Let’s focus on this last point. Enables. Good sourcing and procurement requires good insight into organizational spending. When spend is just put on a P-Card, or even worse, a T&E report, an organization generally doesn’t have good insight into precisely what it was for or what other products or services there are that are, or could be, under contract that could have been selected (or why those contracted products and services were not contracted).

Remember, a prime candidate category for sourcing is one that has a great savings potential when current spend is compared to expected spend against market average and depends on two factors: volume and price differential by unit. And if you do not have true insight into category volume or the precise products (and the price differential from current market pricing of preferred products), you will never know what categories with great potential exist that you are missing.

It’s not always the 10M+ or 100M+ categories that hide the biggest savings. Chances are you are aggressively sourcing the 100M+ categories every year and the best you can do in any given year when prices are static or rising is 2% with good sourcing optimization and better inventory and cash management. That’s maybe 2M in savings. For a 10M category, that is often put through a less rigorous sourcing process, you’re still probably coming within 3% to 4% of absolute optimal, let’s say 300 K of savings might exist. That’s not a lot.

However, it’s often the case that there are a handful of 1M to 5M categories being ignored because half of the spend (or more) is unmanaged catalog, P-Card, and, even worse, personal credit card spend (which only appears on T&E reports). Let’s say there are five of these categories not under contract which total 10M. Chances are, the average over-spend here is 10% to 30%, depending on the category. Or, on average, 1.5M on categories that could be quickly, and near-optimally, sourced with 3-bids-and-a-buy within 3% of optimal. In other words, the insights a good catalog solution provides through increased spend capture could enable another 1.2M on just a handful of categories.

And this is why catalogs are not the be all and end all. They are the enabler. The true value of a catalog-enabled solution is an end-to-end platform that supports not only strategic sourcing and day-to-day Procurement but tail-spend management around the catalog. This is where the greatest overages, percentage-wise, often are and there is no single strategy for tail-spend management. Some of it has to be spot-buys off a catalog. Some of it has to be 3-bids-and-a-buy quick-hitter single-round RFX. Some of it has to be promoted to strategic categories, existing or new. Some of it has to be auctioned on a regular basis to the lowest bidder. And for some of it, the strategy will change on market events. And if all the platform supports is catalog buys, great opportunities are being missed.

And that’s why you need more than just a great, updated, catalog — you need an integrated end-to-end platform around that updated catalog with good tail spend management to capture the next-level of savings.

Update that Catalog! It’s Still the Best Cost Control Tool You Have.

Originally posted on the Synertrade blog in June, 2018.

Those of you that know me, and my constant pursuit to get your organization to implement modern analytics and optimization-backed sourcing platforms, probably either have a look of confusion on your face thinking you read the title wrong or a look of dumbfounded shock on your face right now thinking the doctor has finally gone cuckoo from talking to deaf ears.

So I’ll pause for a bit while you re-read those words just so you can be sure you read them right.

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Now that you’ve satisfied yourself that you’ve read the words right, I’m going to say it again. Update that Catalog! It’s still the best cost control tool you have.

There’s Cost Savings, Cost Avoidance, and Cost Control. Catalogs do squat for cost savings and have minimal impact on cost avoidance, and, moreover, only achieve cost avoidance if there are proper approval mechanisms in place (to insure only valid purchases are made) and deterrents to avoiding the catalogs (to prevent maverick spend). But when it comes to cost control, catalogs can do wonders.

Why? First of all, a catalog is often the best tool for ensuring that negotiated savings get captured. It’s a well known statistic that, in an average Procurement organization, 30 cents to 40 cents of negotiated savings never materialize. There are a slew of reasons for this, including intentional maverick spend, but common reasons include lack of knowledge of what products and services are covered by a contract and lack of ease in identifying the right product or service.

A good organizational catalog, which captures all contracted (and preferred) products and services both makes it easy for an organizational buyer to identify both what is on the contract and to buy it. A user can do a simple search and the smart catalog brings the user right to the product and allows the user to requisition it with a single click if approval is required and buy it with that single click if they have purchase authority.

Secondly, a catalog is one of the best tools that an organization has in their arsenal to ensure that there is a central portal to capture all organizational spending, even if there isn’t a contracted product or solution in place that meets the user’s needs. A modern catalog allows a buyer to not only buy on-contract products and services, but punch-out to third party sites for other products and services using a mechanism and standard that allows the spend to be captured and, if necessary, pushed through an approval process (which will allow the invoice to be automatically matched and paid). And we mean products and services. A great catalog comes with e-Forms that allow standard services to be requested with minimal specifications (hours/days or fixed tasks, locations, etc.) and, if necessary, be put to quick bid.

But it doesn’t stop there. A great catalog also includes the ability to do simple RFXs for custom product or services not in the catalog. A user simply enters the specs, pushes it to suppliers in the system, gets bids back, selects one, and makes an award, which is automatic if they have the budget and approval authority or routed to the right approver if they do not.

Thirdly, if the user needs something that they really should get help with, they can immediately put in a request for help to a senior buyer with all of the information they have. The senior buyer can then guide the more junior user to a proper catalog product or service if it exists, create a proper RFX/Auction if a proper product or service does not exist and the event value is small, or the senior buyer can take over the process if the event value is large or the buy should be part of a managed category.

Great catalogs capture spend throughout the organization, and that’s the real key to cost control. Knowing how much you spend, on what, with whom, and what percentage is captured by preferred and on-contract suppliers is fundamental to managing cost and defining category strategies. That’s why all true spend analysis projects start by collecting spend from disparate systems and trying to normalize it to a schema that allows it to be analyzed on an apples-to-apples basis across categories and suppliers. But, as we all know, this is typically a monumental undertaking and by the time the data is collected, cleansed, enriched, mapped, and analyzed, which often takes anywhere from 6 weeks to 6 months, the spend is stale. But if all spend goes through a catalog, the centralization, categorization, and cleansed data is already there, and spend can be analyzed in real-time. Changes in the cost profile can be identified quickly and addressed just as quickly.

And that’s why catalogs are still the best cost control tool that you have. What else can you roll out to (tens of) thousands of users across the organization?