Category Archives: Procurement Innovation

Source-to-Pay+ is Extensive (P2) … Where Should You Start???

In our last post we noted that inflation is back with a vengeance, anticipated savings is leaking faster than a bald spigot, and most organizations are in a cash crunch as a result of down sales during the pandemic (and now due to a lack of core inventory to sell), and they need to update their procurement tech stack fast.

And they need to do it yesterday! But, due to the four primary (but not the only) reasons I listed in our last post, they can’t do it all at once. Big Bang software implementations always end with a big bang (and some have been responsible for the biggest supply chain disasters of all time, search the archives). So organizations need to start with one or two core modules/capabilities, and work their way outward over time. But where should they start? Which of the 4+ upstream, 3+ downstream, and 3+ cross-stream technologies should they start with?

Everyone you ask will have a different opinion, based on a different (and usually valid) argument, and the doctor can see the rationale for most of them. But not all technologies are created equal, especially when you consider the top four reasons you can’t do it all at once, and numbers alone don’t tell the story, only experience does (which is necessary to see, and understand, the big picture that needs to be considered). For example, what the doctor would have typically recommended a decade ago is not what he’d recommend today. But once you have the right mix of education, experience, and realism, the crystal ball, that was cloudy for so long, finally begins to clear.

Let’s start with cross-stream.

Inventory Management: very important; if critical inputs are not available for production, not only are end products not available to sell for the life-blood cash of the company, but production lines can shut-down (which can amount to massive losses in industries where re-start costs are high, or where a large work-force scheduled for the shift and/or on salary have to be paid regardless); if critical MRO products are not available when needed, some people in the company won’t do their job; if backup parts aren’t available, internal servers can go down and anyone who needs them to do their daily jobs (let’s face it, not everything is SaaS, and not everything should be!), will be ground to a halt; that being said, inventory optimization only saves so much in a TCO calculation, and if you can’t get the goods in, who cares, so you should not start here

GHG/Carbon Tracking: important if you have reporting needs, or sustainability goals, but lets face it, as long as your purchase data is somewhere, you can always hire a consultancy once a year to Git-R-Done if you need to, and this doesn’t do much to control your procurement costs or your risks … so you do it when you have core procurement capabilities under control

Risk Management: this is becoming critical with so much uncertainty around everything these days; we’ve went from the probability of a major disruption occurring at least once a year in one major category being almost 100% to everything being uncertain thanks to the ongoing turmoil caused by the pandemic; this capability obviously has to be high on any list, but, the reality is, if you can’t even find the goods to order, it’s probably secondary … but this doesn’t mean we know the answer of where to start yet …

So let’s move to upstream since we probably have to secure the goods first, and that’s usually upstream, right?

Contract Lifecycle Management: now, considering you should have a good contract for any high dollar or strategic category, this sounds like a fairly important starting point, especially since a contract theoretically secures supply, but the reality is, not everything needs a contract, and if you need the goods, you’ll spot buy on the open market if you can get the goods, so while it should be very high on the list, it is still a secondary need

Supplier X Management: goods come from suppliers, so strong supplier management should reduce your risk and accelerate your delivery, and, moreover, you don’t get goods at all unless you can find a supplier, so discovery is probably high on the list if you don’t have a sufficiently strong supplier base — but you don’t need a solution for discovery, there are still marketplaces, GPOs, your own database, consultancies, etc. so this is mid-weight priority (at most, possibly even lower if you have a lot of internal process problems to fix)

Spend Analysis: you need cost control, and fast, and nothing finds opportunities for cost reduction (by identifying overspend, opportunities for supply base amalgamation for potential economies of scale, by identifying unused contracts/opportunities, etc. etc. etc.) faster, but, again, identifying opportunities doesn’t realize them, so … it sounds like it might be Strategic Sourcing but first …

Let’s visit downstream to see if we’re missing something there.

e-Payment: this obviously isn’t high on the list, first you get the good or service you need, then you pay for it … so this definitely should not be high on the list, especially since you already have an AP solution, even if not optimal and considerably more manual than it should be

Order / Invoice Management: this should be a bit higher on the list than e-Payment, but, again, first you need to place the order, then you manage it, accept the invoice, and process it for payment, so you should not start here either

This takes us to …

e-Procurement: and this could be it, this could be the starting point, because, whereas strategic sourcing identifies the supplier, e-Procurement is where you place the order for the good or service you need …

To be continued … in Part III .

Source-to-Pay+ is Extensive (P1) … Where Do You Start???

Even though all core sourcing and procurement technologies have been available for twenty (20) years (although it is debatable just how good the initial versions of many of these applications were), there are still many mid-size or larger organizations that don’t have any modern applications to support Procurement, and the majority of organizations still do not have what any modern analyst would consider reasonable support for the full, core, source-to-pay process.

Given that inflation is back with a vengeance, anticipated savings is leaking faster than a bald spigot (see last Friday’s rant), and most organizations are in a cash crunch as a result of down sales during the pandemic (and now due to a lack of core inventory to sell), they need to update their procurement tech stack fast.

But they can’t do it all at once. Even if your organization selected a SaaS suite platform where the provider can enable a full end-to-end solution with the flip of a software switch, your organization still can’t do it all at once. Why?

1) these applications don’t work without data … and they don’t work well without LOTS of data … most of which is either historical data, which has to be located, cleansed, transformed, and enriched … or supplier / market data, which has to be requested, collected, verified, transformed, and loaded

2) these applications don’t deliver without user training … and I don’t care how much “AI” is included, how “autonomous” the vendor claims they are, or how “intuitive” the UI is supposed to be … everything’s obvious to an expert (who designed the system), but nothing is guaranteed to be obvious to someone without the same education and experience in Procurement and Technology

3) you need value out of the gate to justify the purchase and the continual license fees (SaaS isn’t about utility, it’s about being a utility which locks you in for life)

4) your users need to see results for them to want to continue using it, which is key for not only value out of the gate but value over time

So the reality is, even if you decide to go for a suite solution, you should implement it piecemeal over time (on a realistic schedule), as well as ensure that you don’t start paying for anything you can’t realistically use until you can start using it regularly and with value.

But where do you start?

Upstream? Here you have, at a minimum:

  • Strategic Sourcing, which can include RFP, e-Auctions, and hybrid multi-round events, with and without strategic sourcing decision optimization
  • Spend Analysis, where you can analyze your spend and find opportunities to address
  • Supplier X [Information / Relationship / Performance / Risk / etc.] Management, where you keep track of, interact with, manage, collaborate with, or eliminate suppliers
  • Contract [Lifecycle] Management, which can, depending on what you get, help you negotiate, create, analyze, and manage contracts

Downstream? Here you have, at a minimum:

  • Catalog Management / e-Procurement which allows your employees and buyers to order what they need, when they need it, off of contracts or pre-negotiated price sheets
  • Invoice and Order Management, which allows you to track your orders, manage your invoices, ensure you get the appropriate reviews and approvals, and make sure you get the right OK-to-Pay
  • e-Payment, which ensures the inventory/service is received, the appropriate ok-to-pay(s) has(/have) been received, the payment is appropriately scheduled, and made at the appropriate time and generally manages your AP from a Procurement perspective

Cross-stream? Here you have, at a minimum:

  • Risk Management, which allows you to track supplier, carrier, and other risks that could prevent you getting your stuff or getting it to your customer
  • GHG/Carbon Tracking, which allows you to be compliant with (coming) reporting requirements, and supports Scope 1/2/3 as appropriate
  • Inventory Management, especially in direct where you are doing build-to-order and need to ensure that product doesn’t get released just because it’s in stock (when it is part of an urgent build waiting on another product for a customer that ordered three months before anyone else);

Not an easy decision, eh? So where do you start? Stay tuned for Part II .

How Can Indirect Spend *NOT* Be Well Managed in 2023?

the doctor gets a lot of press releases. Some of them contain a lot of BS (which is good, he writes best when he’s on an angry rant), others contain a lot of “findings” that, if true (and the findings usually are for the right for the right subset of the market), are simultaneously scary and ridiculous. In this particular case, as the doctor writes this, he received a press release that said the research finds that 82%+ of procurement leaders say their indirect spend is not well managed, leaving substantial cost savings on the table.

The question is, how is that number so high? We’ve had source-to-pay suites for a decade (which were originally designed to source indirect products and services, create catalogs of those sourced selections, support purchase orders only for items in the catalogs, and ensure invoices matched the item prices in the catalog. And for those willing to do custom integration, it was possible to integrate a best of breed sourcing solution and a best of breed catalog management solution and a best of breed e-invoicing solution and achieve this in the late 2000s.

Now, in a mixed solution, there was no guarantee that the sourcing event would choose the best mix (since early solutions generally didn’t support optimization or advanced analytics), that the catalog would force the lowest cost (or even preferred) selection when there were multiple options, or that the invoice management could detect when shipping costs were too high or handling fees shouldn’t be there, but there was still management and any overruns were not substantial (at least compared to pre-solution overages in indirect; an organization could easily cut out 80% of the fat, which could be as high as 30% in some categories; so if the overage went from 30% to 6%, that was well managed — and solutions have only become better over time).

What’s even worse is when the expected reality is put into hard numbers. According to the press release “two-thirds of suppliers (68%) report increased demand for their offerings compared to the past year and nearly half (43%) are planning to increase prices in 2023“. Thanks to global inflation, prices are going up as demand does (which is still pent-up post-pandemic), and we know it, but knowing costs will be uncontrollable to an extent is a tough one.

Of course the press release says that the key to cutting cost is to implement (autonomous) technology that saves on day one, which you should know by now, but the question is why have so many companies not yet implemented basic S2P functionality, either as a suite or as BoB integrations, as such technology would have ensured indirect was well under control, and reduced a likely organizational overspend by (85% of 15% of 35% =) 5% (est. realization * avg. savings * avg. indirect spend) of total spend, which would go straight to the bottom line! No autonomous tech needed!

For those interested, the press release came from a third party PR firm and was based on Globality’s 2023 Research Insights for CFOs.

Do You Have a Data Foundation?

Last week we asked Where’s the Procurement Management Platform as the future of procurement is a platform that allows Procurement to build up, maintain, and evolve the solution it needs to be successful over time, over time. Such a platform needs to be the foundational data source for Procurement, but not necessarily the data hub that is used to integrate all of the organizational and external data into the core data source (which is either the internal data store or the data store supported as the platforms foundational data source).

While a procurement management platform could be the data foundation, since it’s primary purpose is process based procurement solution integration, it isn’t necessarily … after all, an API / Integration Engine focused on process doesn’t need to support every data source out of the box, nor does it need to make integration with arbitrary data sources easy, and, most importantly, it doesn’t need to support advanced data processing and transformation features, which is key when trying to integrate multiple data sources into a foundation that can be universally processed by the platform and support true end-to-end spend, and risk, analysis.

Like a Procurement Management Platform, which we may see four (4) of by year end, Data Foundation solutions are also quite few and far between. The reason? Most “data” solutions are focused on BI [Business Intelligence], Spend Analysis, or Contract/Document management, etc. and most “data” feeds on risk data, supplier data, catalog data, etc., which means they are built for certain data types and processing operations. This means that they will support a straight-forward integration for any data source with similar data types, or data types with compatible processing operations, but not any others.

When you look across Source-to-Pay and the broader Supply Chain spectrum, there are a lot of different applications that support a lot of different processes that need a lot of different data requirements of different types and formats. You need a modern MDM [Master Data Management] solution that works on web and cloud data, can pull in and process data on the fly, and push it back out enriched as needed. And support any data format and standard, not just flat files or relational tables in text (like old school MDM).

This capability is a lot rarer than you think. Most suites are built on transactions, most supplier networks on relational supplier data record, and contracts on documents and simple, hierarchical, meta-data indexes. But you also need models, meta-models, semi-structured, unstructured, and media support. And that’s just a start. But there are possibilities emerging. Just watch this space.

2030 is too late for Center-Led Procurement!

Especially since 2020 was too late! And organizations should have been there by then since center-led procurement was being discussed as the next generation model in the mid-2000s and, more importantly, as the futurists were predicting that the future of work, and companies, was remote and distributed last decade, every company should be “center-led” by now.

(Note that we mean “center-led” and not “centralized” where one central office handles all major procurement projects globally. We mean center-led where a centralized function determines the best procurement path for each category — which could be centralized, distributed, multi-level, or mixed — and provides guidance to all of the global teams and makes sure they build the right procurement — and supply chain — models up front.)

In fact, by now, all organizations should be working off of a virtual center-led model where the “center” is the Procurement A-Team, where the members could literally be spread out over the 6 continents to “locally” absorb the situations in each geography before making decisions and to always have someone available to answer questions on not just a follow-the-sun but follow-the-local-business hours model.

And while virtual / remote / distributed work still seems to be an entirely new thing that most companies didn’t think of before the pandemic and that most companies are trying to eliminate entirely now that the pandemic has been declared over (even though the next pandemic is just around the corner and, yet again, no one is prepared for it), those of us in IT and Supply Chain have been doing it for two decades (and the doctor has been primarily been working remote for the past 19 years — the tech has been there, and has worked, for two decades … and now that high speed is in just about every urban area globally, there’s no reason a hybrid/virtual model cannot work and work well).

The reality is that the pandemic not only brought global supply chains crashing down but brought to light the high risk embedded in them a few of us saw a decade ago, which went beyond the obvious risks of “all your eggs in one basket” (even though Don Quixote was published in 1605) and “The Bermuda Triangle“*1, but also included the risks of relatively centralized procurement where one team in one part of the globe made the all-our-eggs-in-the-China-basket and managed the relationship with one team at one factory in another part of the globe; so if either team got completely locked down with little remote/virtual support (and we saw some countries limit people to 1KM from their homes and China lock down entire cities and not even let people leave their apartments), the entire chain was shut down even beyond the worst case that some of us were envisioning a decade ago (and made our definitions of bad — which was factory goes out of business, shipping lane closes, or ship sinks — look good by comparison because, at least then, you could still go to work and travel to find a new factory, organize a new lane, or spin up the factory 24/7 until you remade the order).

However, with virtual center-led, you not only have a team that knows how to work distributed and remote, and who knows how to use that setup to better mitigate operational risks, but who also has a risk-mitigation mindset that any supply base should also be distributed and different locations remote from each other (two factories in the same town is not risk-mitigation; an earthquake destroys the roads, the entire town gets quarantined, or political borders shut and its effectively one cut-off source of supply) and will help the different parts of the organization design more risk-adverse, or at least risk-aware, supply chains — tapping into local expertise in each part of the world to make the best decision and allowing the organization to move management of the chain around as needed and local teams (because you’re not sourcing your Canadian snow-plow and igloo building services from India, for example) to always have remote access to guidance and best practices in snow-removal services RFP construction (and know how from Norway and Japan).

In other words, center-led procurement (of which you can find a lot of guidance on in the archives here and over on Spend Matters, especially since, now retired, Peter Smith of Spend Matters UK was a guru on this as well as sustainability) of the virtual kind is what you need to be doing now if you want to last until 2030.

 

*1 which, while statistically no more dangerous than any other part of the oceans, exemplifies the fact that even the biggest ships, with an entire year of your inventory on board, can sink, especially when oceanographers have finally realized [even though mathematicians working with wave models understood this concept decades ago] that rogue waves are not a once a in decade occurrence, but a DAILY occurrence on this planet, it’s just that the ocean is so big that the fraction ever covered by ships is so microscopic that the chances of any ship encountering a rogue wave are infinitesimal on a ship-by-ship basis)