Category Archives: Procurement Innovation

Does Logistics Management Understand Procurement Better than Most Procurement Publications?

A recent Logistics Management Article on The State of Procurement in 2024, starts off with Procurement is fundamental. It spans everything from day-to-day purchases to measuring sustainability to future-proofing operations for long-term growth. It’s a wide spectrum of mission-critical responsibilities, spanning all business functions.

As we noted in our recent article on The Future of Procurement is the Past, Procurement is at the heart of the business. It’s always been a core function and always will be. And once businesses realize that the key to sustained profitability going forward is getting back to basics, it will be again.

And while the article says “Procurement is transforming at lightning speed“, it’s only partially right … leading Procurement departments are transforming their technological baseline at lightning speed to become more efficient and effective, but they are not changing the core, strategic function they perform, they are just implementing processes and tools that allow them to perform those core, strategic functions more efficiently and effectively.

Why? According to the article, which quotes Gartner, its due to the intersection of accelerating changes in risk management, ESG, and technology and the complexity and challenges of keeping up. The internal challenges — such as system complexity, a wide range of vendors and products, and compliance requirements — and the external challenges — rising costs, unexpected economic changes and CSR mandates, and changing digital procurement needs — are increasing by the day.

As a result, many Procurement departments have been going through transformations, sometimes two or three at a times, but not all are turning out as planned. This is because, as the article notes, most of these projects focus on implementation, and not the reason for; relies too heavy on staff(‘s lack of) experience and implementer inexperience; buys into the vendor’s “one size fits all” approach; and leaves workflows incomplete. Digital is not an option, but how you approach it is. The article emphasizes simplicity, quoting Gartner’s statistic that organizations that employ design simplicity have a 42% increase in success, but that’s just part of the picture.

As per our previous articles, it’s not just simplicity, it’s focus on what is needed, why, and vetting the platform and the vendor against both. It’s putting the real need first, not the technology, and selecting the right technology for the job. Sometimes it might be AI, but most of the time it will be classic tech that’s been on the market for 10, or 20, years that has been honed over the years by a vendor laser focused on solving a subset of Procurement problems in the best way possible for companies in the industries, market size, and geography the vendor is focussed on. As the article notes, there’s no AI roadmap and, as such, significant care should be taken with any AI initiative.

It’s more critical as the article notes, to focus on better data analysis, efficiency, and system (and data stream) interconnection. The more insight you get, the better decisions you can make on system selection.

In other words, the current state is a challenging one, but that’s no different than what Procurement has been going through since the first commercial telephone interchange began operations in 1878. Procurement has always had to deal with change, the only difference now is that it’s coming harder and faster than it ever has. But it’s not like Procurement hasn’t always had to deal with or adapt to change, and it’s not like the best Procurement departments haven’t always done so, it’s just that the challenge has reached a new height. But as long as Procurement employs the same best practices they’ve always employed and does the right due diligence on any solutions they are considering, they will do just fine.

The Future of Procurement is the Past … With Just a Dab More Modern Technology

A recent article in the SCMR asked what is the future of procurement after reviewing a benchmarking report (or at least a press release) from McKinsey & Company on “Where Procurement is Going Next”.

The article quoted a statistic that companies excelling in procurement had a digital capabilities maturity score 40% higher in strategy, digital and data analytics compared to average performers. They also noted that this tracks with the first Procurement benchmarking survey McKinsey launched two decades ago which uncovered a clear link between procurement maturity and higher business performance. (Today, top quartile procurement maturity companies have EBITDA margins at least 5% higher than less mature peers.)

According to SCMR, McKinsey found that the priorities for the next 6 to 12 months is end-to-end margin management; next generation technology, data, and analytics; and talent and resiliency. Translation: focus on sustained profitable growth, make sure you have the right technology to support it, and don’t forget that talent is key to resiliency (or at least not until the budget gets tight and the first thing to be cut is the training budget and the next the compensation budget).

First of all, isn’t that what Procurement’s always been about? Supporting the business in a manner that allows it to be sustainable and profitable, using the tools at its disposal (good negotiators and couriers, then phones and catalogs, then faxes, then emails, etc. etc. etc.), and the right people for the job.

Secondly, now that the time of global expansion and growth is over, inflation is back with a vengeance that was unseen for two decades, global trade is disrupted on a daily basis, capacity is low (thanks to ships scrapped during COVID) and lower thanks to Panamanian droughts and the conflict in the Red Sea (and the renewed need to make the long, and sometimes dangerous, voyage around the capes), sustainability is critical in many jurisdictions, and the marketing mad men can only take your company so far, companies are realizing that they need to get back to basics.

And those basics are good operations centered on what is most important. If we go back to Business 101 (which, unfortunately, many of today’s founders and CEOs didn’t take or forget), businesses survive on profit and profit equals revenue minus expenses. Revenue is not infinite, which means the key to growth is NOT just revenue growth, but expense management. And expense management is good old fashioned Procurement.

Which means the future is the past. The future is that Procurement will regain its importance in any organization that not only wants to survive the increasingly turbulent and troubled times ahead, but thrive.

Procurement is at least the world’s third oldest profession, depending on whether astronomy came first or third, and, as we’ve been repeatedly saying, the core, and importance, has never changed. Not since the first known modern manual was published in 1887. Not since The Royal Mint was founded in what is now the UK in 886. Not since someone was first hired in an ancient metropolis by a businessman to buy goods on his behalf thousands and thousands of years ago. Buy usable, quality, goods and services the business needs at a fair price so that the business can sustain its operation profitably. And that’s where Procurement’s focus, and importance, will return. That’s the future. And it’s the past. Brush up on your history. The “tools” may change but the job remains the same.

We just have to survive Everything Louder than Everything Else.

Digital Procurement Transformation Requires Strategy and Design …

… not just new technology! (As THE REVELATOR would say, an agent-first approach, not an equation-first approach.)

A recent article on Turner and Townsend noted that while effective digital-first procurement strategies are key to capturing the necessary data and providing the comprehensive visibility needed to manage complex and multi-faceted risks, a digital-first procurement strategy demands a strategic overhaul – it cannot only be about adding technology to existing processes.

Furthermore, it needs more than a cultural shift to integrate a digital golden thread that aligns the organization’s overarching commercial vision and the enterprise-wide digital ecosystem. It needs a technological shift, one that goes from looking at technology as a saviour to technology as what it always was, just a tool, and a tool that only works if

  • properly selected,
  • properly used, and
  • placed in the hands of an appropriately educated, trained, and skilled individual.

Furthermore, it doesn’t matter how modern the tool, how much “AI” inside, or what provider is offering it. Just like a power drill won’t screw in a nail, a Gen-AI solution won’t provide a strategy, won’t analyze generic data in a meaningful way to select a sourcing strategy, and won’t properly parse and automate that invoice. (That’s not what it’s for. It will summarize large supplier RFP submissions and crawl through your contracts for common clauses, or lack thereof, but that’s it … it’s just a huge document parser and summarizer.)

Only the right platform will solve your problems, and you’ll only be able to select one if

  • you analyze your processes and identify the data you need
  • you analyze where the data comes from
  • you analyze who has to create / enter any data that needs to be manually vetted …
  • you determine the TQ level of all those individuals who need to use the system
  • you analyze the potential systems with respect to their ability to store the data you need, collect it automatically from any data feeds it is available in, and collect it through manual submission in easy-to-use interfaces that minimizes the chance of error on data entry
  • and when you find ones that meet the data need, then you confirm they can support the process needs …
  • and then you do vendor diligence.

But without the right platform, no progress will be made and, in fact, if you consider the failure stats, chances are the wrong platform will worsen the situation. Technology is NOT an easy button. You still have to do the work of vetting it, implementing it, configuring it, and even when it can automate a task, verifying it on a regular basis (as well as identifying when an exceptional condition arises and dealing with that regularly). Technology can make your life (much) more efficient, and easier, but it’s not an easy button. Never forget that.

the doctor explains the Procurement Alphabet

I would say that you approach them with caution
You should not let them overwhelm you with cheer
Pays to know what you’ll find
To understand their kind
’round here

Drawing their lines,
they look so radical
Tracking their curves
I get so lacrimal
Something deep down reveals they’re tragical

I think I’ve had enough …

It’s a strange alphabet
That’s what I know
But it’s a strange alphabet
We’ve got to follow …

Seventeen years ago I explained the whole numbers. Steve Martin explained the alphabet (but not the Procurement alphabet), and who better to explain the whole numbers than a trained mathematician.

But lately I’m seeing a lot of glossaries and “complete sourcing/procurement guides” that are anything but … so I thought I’d fill in a few basics for you …

A is for Analyst, who pretends to understand
B is for Buyer, with cash in hand
C is for Contractor, lost in Legal land
D is for DEI, now on the witness stand

E is for Equity, where can it be found
F is for Finance, who pay by the pound
G is for Goods, which make the supply chain go round
H is for Hedge, on currencies sound

I is for Insight, desperately needed
J is for Jazz, the hope has been seeded
K is for Kanban, its use exceeded
L is for Legal, its advice unheeded

M is for MRP, technology ancient
N is for Negotiate, done in plainchant

O is for Onboard, suppliers aplenty
P is for Purchase, multiples of twenty
Q is for Quality, often absent-ee
R is for RFX, created by cognoscenti

S is for Supply, critical to success
T is for Tariff, always assessed
U is for UNSPSC, classification coalesced
V is for Vendor, marketing obsessed

W is for Warranty, never enough
X is for Xennial, weary and gruff
Y is for Yardmaster, full of chuff
Z is for Zealotry, Procurement tough

… just to make it clear that the depth and breadth of the space is well beyond what a short glossary or guide can ever hope to address. The Procurement alphabet is not a character alphabet, or even a phonetic or syllabic writing system, it’s a logographic one. One that takes years, if not decades to fully master with all of its global dialects.

But that doesn’t mean you shouldn’t try.

Procurement Is NOT Hard — But You Do Need The Right System! (Part 3)

At the end of Part 2, we noted that the major problems Procurement folk are having that are causing many to proclaim that Procurement is too complex have been solved for over a decade (and, in fact, there are old grey beards that successfully solved them two decades ago with the right systems, integrations, configurations, and customizations when first generation systems were a lot less capable than today’s third generation systems).

We told you that there were quite a few third-generation true SaaS e-Procurement systems built from the ground up since the 2010s that provide an organization with

  • full visibility and organization wide access
  • full core Procurement process support
  • usability by the average Procurement Pro (and not just tech wizards)

And all you had to do was find one. (There are over 666 Solution Providers out there, many of which have been reasonably well covered here on SI in the Vendor Post Index and Archives.)

To help you with that, you can search the archives for hundreds of posts on what you

But, since the marketing madmen and consulting con-men are playing up the complexity and playing on your fears, hear are a few tips on how to get started on identifying the right solutions from the right vendors for your RFP:

  • start with mapping the essentials of your everyday processes; the 80/20! if you can automate the 80%, you will have the manpower to deal with the fringe cases if the system can’t support them
  • look for vendors with business understanding, not just technical gurus (it doesn’t matter how great they are, if they don’t understand Procurement, how can they build a Procurement system?)
  • look for solutions that not only solve the 80%, but for a vendor that can configure the solution to support and enable the process your people have to do multiple times a day every day while doing the 80%; you can always get consulting help or another system if the 20% is really that difficult, important, or valuable

While the process could be very involved to select the right vendor, the process to narrow down the vendors are not — if the potential vendor doesn’t understand your use cases, can’t show you how to enable them efficiently and effectively (in an improved process that your team members not only can, but want to use), or can’t convince you it’s at least the 80%, roll on.

But trust us when we say the solutions are out there to solve the vast majority of your Procurement problems, and do so in a relatively simple manner. No complexity required!