Category Archives: Procurement Innovation

Operationalizing the Pocket Cube for Exact Purchasing Part I

A few weeks ago, we not only told you that Exact Purchasing is a Pocket Cube, but we broke it down and defined each octant for you, as well as indicating which categories of goods and services were most likely to fall in each octant (with the disclaimer that there is variation between industry and sometimes even companies in the same industry based on size and focus).

This was a great start, but once you understand the breakdown, the next step is understanding how you go about sourcing and procuring the categories in each octant. In this follow-up series we dive in and define the core technologies you will use for each octant as well as their focus.

Today we start with the Transaction focussed-octants.

Low Complexity, Low Risk, Low Impact: Transaction Capture

This is the most “non-critical” of all of the categories in the pocket cube … the true lower left. The impact is minimal if a purchase is delivered late, or has to be replaced with another order. It’s so unimportant compared to literally every other category that, with the right technology, you can literally automate all of it without any worry whatsoever — because the worst case is an ASN/delivery doesn’t materialize and you re-order from someone else, a shipment doesn’t meet spec and you return it and reorder (from someone else), or a service isn’t up to snuff and you don’t (fully) pay for it.

The core technologies are the following:

  • (Strategic) Sourcing: (Deterministic) Autonomous Sourcing
  • Supplier Management: AVLs (Approved Vendor Lists)
  • Catalog Management: APLs (Available Product Lists)
  • Contract Management: Auto Creation and Auto-Sign
  • Procurement (Channel)*: Goods PO (Item Master), Service PO (Fixed Cost Service), PCard Purchase (One Time)
  • Monitoring: ACK, ASN, and Receipt in the Procurement System

Basically, once you define what the categories are, what the product requirements are in each category, and which vendors you have vetted as being real and “safe” enough to source with, you automate the entire sourcing process end-to-end. (You can even use experimental AI here if you want — the vast majority of the time worst case is that a wrong order is made, and you will have to inform the system of its error, return it, and order again. Unless, of course you ask for 100 10g pot for your nursery, and it interprets that as you needing 100 bags of 10gs of pot and orders 1,000 grams of marijuana for you off the dark web in a state where that’s still illegal … but that is rather statistically unlikely so you’re probably safe.) Once you have your AVLs and starting APLs that capture the specs, as well as your standard RFP/RFQ templates, classic robotic process automation can do the entire event from trigger (stock falls before a certain level, an approved buyer request comes in) to final payment on final delivery on final receipt. You step in if a human detects an issue, and otherwise, you just let (for what is typically tail spend) the process flow.

Low Complexity, Low Risk, High Impact: Continual Transaction Monitoring

The difference between this category and the last is that while the products are simple, commodity, and very low risk, you need them to keep operating day to day and you can’t be without them for too long. However, the lack of complexity and risk means that this is another category you heavily (heavily) automate and only step in to review the award recommendation to make sure the specs are met. You set up additional monitoring, and the system kicks off another event or PO (to a backup supplier) the minute an ACK or shipment from the primary is too late (and even sends a cancellation to the primary for breach of terms), again involving you only to verify an award (if the award is not one that has been previously verified, since a re-sourcing/re-order should be automatic).

This can again be handled mostly by classic RPA, but some AI will be used to monitor for new products from the existing supply base that can be used (even if the supplier hasn’t supplied the category/product before), because the human award review will ensure that new products get human approved before they are purchased.

  • (Strategic) Sourcing: (Deterministic) Autonomous Sourcing with Award Review
  • Supplier Management: AVLs and Performance Monitoring
  • Catalog Management: APLs and regular review and approval of new product options
  • Contract Management: Auto-Creation and Auto-Sign
  • Procurement (Channel)*: Goods PO (Catalog), Service PO (Fixed Cost), Contract Invoice (Fixed Payment Schedule), Blanket PO (Fixed Delivery Schedule)
  • Monitoring: ACK, ASN, Receipt in the Procurement System; Lead Time, Delivery, Quality Trends in the Inventory Management System;

* Unless the Channel-Master Joël Collin-Demers says otherwise.

A Buyer is NOT a Buyer — Exact Purchasing Makes That Clearer than Ever!

A month or so ago, Tanya Wade posted a great article on how “A buyer is just a buyer” is BS because a buyer is NOT a buyer.

Tanya noted that while she buys marketing agency services, software, consultancy services, and logistics — stuff that companies need to operate but that customers never directly see — her friend Simon buys food — a commodity that has to arrive on time, meet quality standards, survive audits, and keep processing lines running (as shutdowns can cost millions). This is entirely different from marketing services and consultancy services as it’s rare that a week late will make a difference (and if it does, you waited way too long to contract them).

Tanya then notes that in addition to buyers who support physical supply chains, like Simon, and buyers who support stakeholder needs, like her, there is a third type of buyer — the retail merchandiser who decide what actually hits shelves. And they need entirely different skill sets.

In actuality, there are more types of buyers than that. Think of the physical supply chain — you’re buying inputs or you’re buying finished goods. For the information chain, you’re buying data subscriptions, or you’re buying the software that processes it. For the organization, you’re buying products from the physical chain, information, or services to support the business — which could be agencies/consultancies that process and present the information in different ways (media advertisements, studies, etc.) than software would process such information.

But even this does not capture the complexity of purchasing. You need to embrace Busch-Lamoureux Exact Purchasing to properly segment your buyers.

Because you don’t just care if it’s a product, service, data, or software offering — you care about how it is used and where it falls in the pocket cube. Because if the product is complex (i.e. you need precise specifications for your manufacturing process) or very high risk, you need to manage it differently than if it is not complex or low risk. In the first case, you need to spend a lot of time doing spec reviews and detailed inspections of physical samples before making any decision, and in the second scenario you need to understand all of the events that could present a significant risk of disruption, monitor for them, and have mitigation plans ready to go should an event happen that is going to impact your supply.

And to make matters worse, what’s complex or high risk at one level in the supply chain is less so at another level. If you’re manufacturing electronics, like cell phones or laptops, RAM is a highly complex category that needs to meet exact specifications, have very low failure rates, arrive on time, and fit in your product where the sizes must be within 1/10 mm or it won’t fit in your product. This requires a high degree of manufacturing expertise, spec review, and sample inspection and testing. This is very different than the needs of an IT department supporting desktops in a large development shop where all you care about is the RAM type (SDRAM, SGRAM), the capacity, and the MHz. Brand doesn’t matter — because you’re just upgrading or repairing a desktop or internal server and shoving them in a slot based on whatever is cheapest, height doesn’t matter, because you have extra centimeters, and the production technology (and how that may impact the failure rate) doesn’t matter, because you expect 1% to fail and you just replace them.

In other words, a buyer is defined not just by the category, but where it fits in the Busch-Lamoureux  Exact Purchasing framework from the viewpoint of the organization — as it defines not just how you buy, but how you mitigate, monitor, and manage.

You Need Automation. But You Don’t Always Need Agentic and You Almost Never Need Gen-AI!

In a previous post we dove into how analytics must drive source to pay, because most of source to pay should be automated and touch free as most of the source to pay process is straight forward (and capable of being automated for the last decade), non-strategic, and low to medium value.

Strategic Sourcing is an activity that should be focussed on high risk, high complexity, and/or high value categories and occasionally focussed on medium risk, medium complexity, and/or medium value categories where there is incomplete information or insufficient product/category history, atypical turbulence in the market, or highly particular requirements that just came into effect as a result of new regulations. That’s a minority of products/categories, not a majority.

Procurement should only be focussed on significant exceptions. And, with proper, modern, systems with proper e-document integration and exchange, most of the documents should be arriving in standardized digital formats, and most of the processing should, thus, be fully automated. And most of what is non-standard will be PDF in relatively standard formats that LLMs will be able to process to 95% accuracy and only require a few human verifications and field completions. The days of 20 people invoice processing team should be long gone, as the tech, even for standardized PDFs, has been in production by the leading players for over 8 years. Invoice discrepancies can be auto-identified, suppliers auto-notified, suggested corrections auto-included, one-click acceptance emails/screens for the suppliers included, and most contingencies accounted for. Only in the rare situations where suppliers refuse to accept a correction, invoices are in very non-standard or handwritten format, payments don’t go through, etc. should a human need to get involved. However, 95% to 99% of all documents and transactions that flow through Procurement should be 100% automated.

But most of this doesn’t need experimental Agentic AI or Gen-AI. Classic RPA will do just fine. For most of the rest, Adaptive RPA, with a bit of Machine Learning / Auto-Suggestion based on human-based exception processing, will do the trick nicely. If you look closely at current generation (A)RPA, Machine Learning, Optimization, and Predictive Analytics and walk through the full source-to-pay process, there is very little that can’t be automated without Gen-AI LLMs or experimental Agentic Systems. Sourcing — there are many standard (seven step) processes that can be completely automated based on data analysis, data-based risk assessments, goal definitions, and optimization. RFX (including e-Auctions) can be fully automated and, from the time you specify a product/category to source, everything can be automated to the award (including the demand pull/calculation from other systems).

When it comes time to contract, if you have standard templates or a large clause library, the system can automatically create the contract from the template and RFP responses, integrate DocuSign, and auto-execute it. If you don’t, or if you have to use the supplier’s paper, then you might use an LLM to create a draft for human review and/or analyze the supplier’s paper for terms, pricing (to make sure it matches the bid) and potential risks, as well as suggested revisions, before you sign. Gen-AI/LLMs unnecessary, but useful on a point-basis if you don’t have a good historical equivalent of a solution like Coupa Exari or iCertis.

Supplier onboarding can be fully automated with RPA powered dynamic workflows and third party data ingestion, as can risk and compliance analysis — no modern Agentic solutions needed.

Then we get to automatic invoice monitoring and point-based re-orders, receipt creation from inventory integration, and invoice processing in e-Procurement which has all been around for at least a decade. Automated approvals subject to tolerances, rules and pre-approvals — as well as predictive analytics on payments for new or one-time suppliers/orders or (slightly) out-of-tolerance invoices can automate the entire invoice-to-pay process.

We can get through the entire process on best-of-breed, classically oriented, RPA tech with some machine learning that processes human decisions in exception management, alters or augments the rules (and guardrails), and auto-processes the same type of situation next time. We quickly get to 95%+ throughput for any task that should be mostly automated, and a top human employee with BoB (A)RPA solutions and some augmented intelligence packages for analytics and research becomes 10 to 20 times as productive as they would have been in the past.

That’s the real future of Procurement. Small, top-talent teams (mentoring small emerging top-talent teams) doing the work of teams five to ten times their size, doing it better, and delivering more value than anyone would have believed possible with best-of-breed tools. Not error-prone, hallucinatory, agentic systems that work well in demos and a few select categories, and go all over the place in reality (and then try to hide their mistakes like Nick Leeson [who single-handedly collapsed Barings Bank] until they do a modern equivalent of the 2005 J-Com trade and cost you hundreds of millions of dollars on your key billion dollar product line).

So while you need to modernize at all costs, you don’t need to go full Agentic on unproven solutions. Get 90% of the way on tech that has been proven where you can control the automation level until you get comfortable with automation and learn where you can safely hand tightly boxed “decisions” to the machine (where well-defined calculations would determine your decision the majority of the time) and where you can’t. Otherwise, you’ll just end up being another member of the 94% AI failure camp. That’s not a statistic you want to be part of, especially given the cost of this tech today (and the increased cost tomorrow as energy grids start to break and the compute costs for modern AI tech goes through the proverbial roof).

Roll Up The Space To … Lose!

Over the past decade, a number of the big PE firms in our space decided that a “roll up the space to win” strategy was the right approach and bought a large number, and in some cases dozens, of assets in the Procurement space globally. Vista, Main, KKR, Accel-KKR, and Thoma Bravo all followed this strategy in the hopes that with enough assets, they’d control enough of the space that controls the transactions to give them a long term home inside a significant number of major corporations.

It was a great plan, and a great play at the time (as it worked out well for them), but one that may backfire for anyone who is late to the party as the Age of AI, coupled with the realization that bit pushing applications don’t cost very much anymore, means that these nine and ten figure plays are not going to maintain their market dominance, or their income stream that depends on seven figure annual subscriptions, for much longer.

As per THE PROPHET‘s recent piece on An LP, an AI Builder, and a PE Advisor Walk into a Bar, the time for the traditional players is coming to an end — especially the mega-suites that thought they could charge 7-figure license fees until the end of time. Whether or not Agentic AI can fully replace them (they can’t, by the way), the price compression is changing the game. (Especially when you’ve been warned that Now is NOT a Great Time to Buy … a Mega-Suite.)

If you don’t have time to read the piece, THE PROPHET believes that Agentic AI is going to effectively boil the ocean and cook all of the traditional plays, charging high six and seven figures a year for relatively simple tasks that can be mostly automated by these Agentic AI solutions for a tenth of the cost (until compute costs skyrocket, but still, that’s significant downward price pressure now) in the process. If you don’t trust AI, even better, since applications that were built on modern stacks in the last 5 years with the ability to wrap discrete tasks in micro-services and orchestrate them into dynamically configurable workflows that exactly match your needs, cost about a fifth of what these big plays do and do more for you. Either way, as has been indicated many times on this blog over the past, unless your Source to Pay needs are in the top 10%, you probably don’t need to be paying more than 250K for your Source to Pay.

Now, no one can see the future with clarity, everything is in flux, and we could both be wrong, but all software (like hardware) depreciates with time, tech always advances faster than we would like to think, organizations in unregulated market places under severe cost pressure are always looking for ways to cut costs, and those providers who are running on old stacks that are hard to adapt and support aren’t going to be able to keep up or keep costs low enough. There’s going to be a massive shift, and any major players not in the public sector (where contracts tend to extend beyond our professional lifetimes due to the slow pace of change in government organizations) are on the verge of shifting out of business.

So, like THE PROPHET, when it comes to the continued dominance of traditional SaaS in a big PE portfolio, I’m not buying it either.

Maybe If Procurement Had Embraced Magic and Logic Decades Ago …

… it would not be in such dire straits today.

The Procurement Ledger recently ran an article on Agility with Purpose which ran an interview with Jeanette Hübsch, a Global Procurement Leader and Senior Consultant with Proxima, who said that in Marketing Procurement, agility isn’t just a buzzword—it’s a necessity because the landscape shifts constantly with evolving consumer trends, digital innovation, and now AI-driven content creation. Procurement must move beyond being a cost controller; it needs to be a business enabler, a partner, and a source of innovation. And she’s right.

But she goes on to say that in indirect procurement, disruptions don’t always look like delayed shipments—they might be sudden campaign pivots, regulatory changes, or shifting budgets. Agility means being able to respond without slowing the business down and to accomplish this her focus is on building an adaptable supplier ecosystem—trusted partners with modular contracts, alternative sourcing strategies, and the ability to flex with us. Strong relationships, clarity, and scenario planning make a big difference.

In other words, it seems that marketing has understood what Procurement needs, and has needed, for at least the last two decades, but yet it’s still the sacred cow in most organizations that Procurement is not allowed to touch (when Procurement should be designed around good strategies that come from good Marketing Provider Management) and be allowed to shoot any scared cow ready for pasture.

Thought leaders have been promoting the embracement of good procurement by Marketing and marketing flexibility by Procurement for at least two decades now (and we first started talking about it in our two-part piece on Magic and Logic [Part I and Part II] two decades ago), especially since Decideware (founded in 1999 in Australia), one of the leaders in Marketing Procurement Technology, was just starting to break into the North American market at that time.

And even if they were a little slow on the uptake, then it should have been adopted when some thought leaders tried to make it vogue in the mid 2010s. A decade ago I penned a two-part piece on what to do if Marketing Mayhem Got You Down? Maybe it’s time to master the Marketing Way (Part 1 and Part 2) and ran a two-part series by Brian Seipel (of Source One, which was acquired by Corcentric) on why you should Ditch the Pepsi Blues, Already: Become a Marketing Procurement Asset (Part I and Part II). By then Decideware was taking marketing magic to a whole new level, but still marketing procurement (and the best practices it could bring) was still being largely ignored, even when marketing needed procurement more than ever. (In fact, Marketing recognition of Procurement wasn’t until mid 2019, and within a year COVID had shut everything down.)

While marketing suppliers (i.e. advertising agencies) are often very different from custom manufactured part suppliers (i.e. factories), and the categories need to be managed differently because of that, in a world where supply chains are being broken daily by geopolitics, unrest, and natural disasters, both require agility, creativity, multiple relationships and multi-sourcing, risk monitoring, mitigation, and management, and the ability to react as needed. The underlying best practices required by both sides are similar in theory and the lessons each side can teach the other can make both sides stronger.

So, if you want to be a better Procurement Pro, think like a Marketer, and if you truly want to be an effective Marketer, include some Procurement thinking. (And read the full interview with Jeanette Hübsch.) Remember that value has a cost side as well as a revenue side and both parties MUST manage both.