Category Archives: Procurement Innovation

Get With the Program!


Sourcing only identifies value. But value is not realized until it is captured. Capturing value requires each purchase to go through the system and be realized as a perfect order — the right product at the right place at the right time for the right person at the right price using the right delivery method, and so on. In order to make this happen, an organization has to do more than source — it also has to execute, track, report, and correct. Otherwise, it will fail to realize 30% to 40% of negotiated value (which is a statistic that has been well known for almost a decade).

However, the only way an organization can properly source, execute, track, report, and correct procurement operations is through proper program management, which is much more than just executing an event, negotiating a contract, and filing it away in the contract management system. It’s taking that e-paper and making an e-process out of it, preferably in an integrated Source-to-Pay platform that can insure each step of the program is followed.

This requires a program-management based platform, something which the average Procurement organization does not have as most first, and even second, generation sourcing platforms did not have any real program management built in.

And when one thinks about what is involved when one tries to consolidate the messy and muddled functionalities scattered across the ERP, analytics, invoice processing, contract management, supplier management, and other supply management platforms across the organization, supply program management can be a difficult and complicated task. The solution of which is an effective program management strategy, backed up by an appropriate platform-based solution.

To find out how to get started, download the doctor‘s latest white paper on “The Importance of Program Management For Savings and Value Realization”, sponsored by SynerTrade. The read will be worth your time.

Of Course Catalogs Can’t Be Trusted to Manage Low Value Spend!

They’re a tool in a machine. Saying you trust a catalog to manage your spend is saying you trust a hammer to pound that loose roundhead nail back into the wall stud. It can, but only in the hands of a reasonably skilled laborer who can hit the nail on the head at an appropriate angle to drive it back in (and not bend it, knock it out, put a hole in the wall or knock himself unconscious on the recoil.

Similarly, a catalog is only going to serve its purpose and deliver value in the hands of an appropriately trained buyer or employee who knows how, and when, to use it.

And the fact that a spend management company had to pay Spend Matters to run an article that made clear 3 reasons catalogs can’t be trusted to manage low-value spend shows that, despite all this talk about strategic sourcing, category management, digitization (or any other flavour of this overused, always misunderstood buzzword you care to imagine), and cognitive procurement, Procurement, overall, is still in a sorry state of affairs overall.

Not only are we in the situation where at least a third of mid-size and larger organizations don’t have any modern solutions at all, and of those that do, a majority are still on what we’ll call legacy first-generation solutions which are cumbersome to use and low on power, but this also puts us in a situation where those un-enabled organizations don’t have the platforms to improve processes, reduce workloads, and allow the Procurement team to execute, and get comfortable with, more advanced and strategic sourcing methods.

To these organizations, a catalog looks like an answer to tail-spend prayers. Get a few master contracts for common low-value, low-dollar purchases, load them all into a modern, single search, single view, federated catalog, and allow people to buy whatever they need through the catalog. And while this is a valid strategy for some purchases, and can really take a huge workload off of an overworked Procurement team’s plates, it doesn’t solve all the problems.

As the article noted:

  • Catalogs can Waste Time

    Unless it is always-on, up-to-date (which could require a dedicated catalog manager), federated single view, capable of filtering to in-stock items only, and guided (showing the mosts popular or typically best choice when there are multiple options), an employee will spend way more time looking for the item then she might spend using it! Catalogs are not set and forget. They must be managed! Vendors don’t focus on this, especially if they don’t have a modern solution with strong vendor self-update capabilities (where a buyer only has to review vs. doing all the work), and a buying organization that chooses the wrong catalog solution can end up worse off than they were before they acquired a solution.

  • Catalogs can Miss Savings

    Procurement can always get a better deal on volume or discontinued items (and when its an internal item for consumption, sometimes it just doesn’t matter; such as pens that get lost before they are used, cleaning suppliers where packaging doesn’t matter, etc.) and when an item is getting purchased frequently enough, it’s best just to do a bulk order and put it in the store room. A catalog will never alert you when the time is right to take something out and do a bulk-buy.

    And this is fine, as long as an organization knows that just like you can’t set and forget a catalog, you can’t forget to run the analytics on the purchases on a(t least) a quarterly basis, preferably monthly, to make sure the right purchases are going through the catalog and, at the same time, review the non-catalog P-card and T&E spend and see if other types of purchases should be put in the catalog.

  • Catalogs can Introduce Hidden Risks

    As the article notes, uninformed employees will sometimes bulk buy thinking they are saving money (even if the savings per unit is negligable), when in fact they are tying up capital when the item is low use and the other 10, or 100, will sit in the storeroom for months (or years). Sometimes they will scroll three pages in to find an in-catalog, non-preferred, item that they prefer (and costs twice as much, but because all inventory from office supplies vendor A is in the catalog at a flat 10% discount off of MSRP, just in case something else is needed than formally specified in the contract, they can do it). And so on. And if we’re talking electronics, and the organization doesn’t know how to secure certain non-standard devices, this could be very, very, bad from a data security and privacy standpoint.

Catalogs are a tool to manage tail-spend, but only one tool, and they need to be part of a larger tail-spend strategy to deliver value. Never forget that.

The Revolution of Purchasing: Part II

Yesterday, in Part I, we noted that even though Purchasing has been evolving in the leading Supply Management organizations, thanks largely in part to some great technology platforms outlined by Lisa Nyce of Source One Management Services in her guest post three years ago on The Evolution of Purchasing, it has been an evolution to more strategic purchasing on select categories, and not a widespread revolution.

And this is problematic in SI’s view because we’ll never have a true purchasing revolution until all Spend Under Management is truly Managed Spend. Right now, many Procurement organizations have the fallacy that just because the spend goes through the e-Pro/P2P/I2P system, that doesn’t mean it’s managed. It just means it’s tracked and available for analysis. And, more importantly, the spend strategy and decision has to be enforced. Negotiation a contract with Supplier X for 10% below current prices is useless if everyone keeps buying from Supplier Y. Deciding to go three bids and a buy is useless if the buy is from the highest price / lowest book value supplier just because the buyer knows they’ll deliver. Directing a user to a catalog with preferred items is not spend under management if the user can just punch-out to Amazon and buy from an overpriced third party because they want a non-standard product. And so on.

For all spend to be managed spend, at least things have to happen:

  1. All spend has to be categorized.
    Uncategorized spend is unmanaged spend. It gets shoved into the tail spend, and is left for anyone with budget authority to manage as they see fit. Catalog buy. Spot buy. Non-preferred vendor spend. Big barkup store down the street spend. Etc. If it gets into a category, and that category is a managed one, there’s a chance it will be managed.
  2. All categories have to properly purchased.Every category has to have an associated bucket. Strategic. Non-strategic 3-bids and a buy due to high spend volume. Catalog. Just categorizing is not good enough — categories must be mapped to preferred strategies. And bought according to those strategies.
  3. All purchasing decisions have to be enforced by a platform.Once a purchasing strategy is selected for a category, it must be executed. And once an award or decision has been made, it must be enforced. The platform should not permit a strategic category purchase to go through punch-out catalogs or a catalog buy for an on-contract item to be made with an off-contract supplier.

And, since there just isn’t enough manpower for a Procurement department to tackle 100% of Spend Under Management (as the average organization struggles to tackle 1/3 of strategic spend each year), the platform must support automation of tactical 3-bids and a buy, catalog buys, inventory re-orders, etc. Modern cognitive solutions, with enough rules, data, and market intelligence can buy low-dollar, non-strategic categories as good, if not better, than overworked purchasing professionals. Automate 3-bids and a buy. Automate catalog purchases with on-contract suppliers. Automate re-orders for on contract product and services when inventory gets low. Automate that where your strategic insight provides little value, and then increase the percentage of strategic spend that gets strategically sourced every year and you will have a real purchasing revolution.

The Revolution of Purchasing: Part I

Three years ago, SI published a guest post on The Evolution of Purchasing from Lisa Nyce of Source One Management Services, a provider of sourcing consultancy and category management services that has been in the game for a very long time compared to many of the niche consultancies out there.

In this post, she noted that purchasing has become more strategy-oriented, rather than transactional, but needed better tools to to their jobs. Specifically, if these Procurement pros wanted success, they needed to adopt:

  • Spend Analysis Software,
  • Cost Savings Tracking,
  • Supplier Report Cards, and
  • Stronger Legal Controls.

And they do for strategic sourcing success because:

  • you can’t wring savings from a category with no savings potential
  • savings aren’t real until they materialize
  • a supplier isn’t better until you have hard data to backup your claim
  • a lack of compliance can wipe out all of the negotiated value with one product seizure, fine, or consumer boycott

But when you think about it, while this is an evolution of the function into strategic procurement, it’s not the revolution we need for widespread success. Why?

In Procurement, most of the Spend Under Management is NOT Managed Spend.

For a decade or so, we’ve been hearing that one of the keys to Procurement success is getting more of that organizational spend under management because not only can the organization not save on spend that Procurement doesn’t manage, but Procurement can only wring so much in savings out of a limited spend bucket. And this is true. But merely dumping more spend on a Procurement organization not ready to handle it doesn’t generate savings.

There is a common fallacy that spend in the system is spend under management. It’s not. Just because the spend goes through the e-Pro/P2P/I2P system, that doesn’t mean it’s managed. It just means it’s tracked and available for analysis. That’s a great first start, but that’s all it is, a start. All spend has to be strategically allocated and appropriately sourced to really claim spend under management. And, more importantly, the spend strategy and decision has to be enforced. Negotiation a contract with Supplier X for 10% below current prices is useless if everyone keeps buying from Supplier Y. Deciding to go three bids and a buy is useless if the buy is from the highest price / lowest book value supplier just because the buyer knows they’ll deliver. Directing a user to a catalog with preferred items is not spend under management if the user can just punch-out to Amazon and buy from an overpriced third party because they want a non-standard product.

The Revolution of Purchasing will only happing when all Spend Under Management is truly Managed Spend.

Why’s it all about the platform when it should be all about the power?

As we all know, the last year has been all about the M&A frenzy as the big try to get bigger by gobbling up any player with any modules they don’t have or any player with customer bases in a region they aren’t in, and doing so in a manner that doesn’t always make sense to analysts. As the doctor indicated in his post last month on “Surviving a M&A: The Customer Perspective”, acquisitions should lead to synergies and do so from a customer, solution, and/or operations perspective.

Preferably, an M&A should culminate in synergies of all kinds. Why? An M&A that doesn’t synch on an operations perspective doesn’t reduce overhead costs, and that means you don’t get any economics of scale, which is something all the traditional textbooks say is the first thing you should look for. If there are no customer synergies, then there are no cross-sell or up-sell opportunities, and that’s typically the next thing the textbooks say you should look for.

And, especially in our space, if there are no solution synergies, then a lot of money is wasted, as the point of the acquisition should be to build a better, or at least, a more complete platform. Otherwise, one company is paying a lot of money for something that will just get tossed in the bit bucket because supporting non-synergistic platforms gets too expensive too fast and the non-synergistic pieces will get sunsetted faster than the sun in Alert, Nunavut in late February.

So why doesn’t the recent M&A Frenzy make a lot of sense to the doctor? Not only has a fair amount of it been lacking in obvious synergies, but a lot of it has been to simply expand platform offerings, without focussing on the power of the solutions being bought or how the acquisitions will help the platform.

The past year has seen the acquisitions of traditional catalog providers and leading spend analytics and optimization providers. In some cases, the power is limited … and in other cases the power is limitless. But in the majority of cases, to date, the integration has been pretty limited. It’s been more or less just plugging a module into a whole without an analysis of not only the power of the solution but how the solution could enhance the rest of the platform in new and innovative ways.

For example, let’s take optimization. Just plugging it into a S2P platform is pretty good, especially given the dearth of optimization solutions on the market today, but is it great? How do you take an offering to market that the market will understand is better than the other leading vendors which have optimization? After all, if it’s just the same process — construct RFI, send it out, get data, pump into model, get result, make award, push into contract management — what’s better from the perspective of an average Joe? But if you have an advanced Procurement solution, can plug it into the catalog and analyze not only the cost, but the total cost if the order can be piggy-backed on other orders from on-contract suppliers who can add it to forthcoming shipments, give you contract-level discounts, etc. that’s value. And if you are looking to assemble a standard kit for a new hire, can run all the various combinations and determine which variant is best over a given time frame, that’s value too.

And a catalog solution can enhance sourcing if it supports punch-out and integrated search and anytime a buyer is considering sending out an RFI, can be integrated to identify current market pricing and source suppliers from the data within the catalog and in punch-out sites. If the buyer compares this pricing to current pricing, this can let the buyer know if going to market will likely be good (if market pricing is significantly less than current organizational pricing) or bad (if market pricing is significantly higher and the best option is just to extend the contract with the incumbent if pricing will stay about the same).

At the end of the day, Procurement is about generating value — and if the platform addition doesn’t generate additional value, what’s the point?