Category Archives: Procurement Innovation

When Managing Supply, Don’t Forget …

… sometimes supply comes from within the four (virtual) walls of your business. This is one fact that is overlooked by many S2P suites which are setup to acquire external goods and services (and, specifically, finished goods and services that typically fall into indirect categories.

When we are talking about MRO, the goods and services you need might be in a storage room in another building. If we are talking about consumables, like what you might need for a new hire, everything you need might be one floor down, left behind by another hire who, after the probation period, didn’t work out.

Inventory and Asset Management are key to successful Supply Management, and to successful Procurement. One should NOT buy what one does not need. This is the other form of demand management — which is two parts. The curbing of need for consumables (less paper for the printer, less usb drives when there are secure network share folders, etc.), and the re-use of what you have. Laptops or cell phones less than 6 months old should never go unused or reassigned. Expensive MRO replacement parts can often be couriered from site to site for $40 — why spend $5000 ordering another 4-pack to fix the production line and have your minimum “3” on hand when another facility still has 8 in storage.

When you are upgrading your e-Pro / P2P / S2P system, keep this in mind. Either find one that includes inventory management or integrates with an inventory management system, and you’ll save a lot.

But to truly win, make sure it supports end-to-end asset management. It’s not just expensive hardware that often collects dust in storage closets, is also expensive assets. Like expensive snowblowers that are bought, put in the basement, forgot about when the business gets a new, better, facilities contractor and the internal maintenance team doesn’t have to do it anymore instead of being sold or sent to another facility. Expensive 3-D software licenses that are not transferred to another engineer, and then bought again 6 months later when a new hire needs them. Patent or other IP library that could be licensed by sales to a partner for extra revenue. Etc. This last part is key. Not only are unused assets costing the company money (because thy were bought to fulfill a need, which is not being met by them, but costing the company money if they can be licensed, rented, or, in the case their value becomes limited, sold.

So when you are upgrading your e-Pro / P2P / S2P system, keep this in mind too. Make sure it’s inventory and asset management or integrates with an inventory and asset management, and you will not only save a lot, but help the organization generate value.

So You Need a Sourcing Platform That’s Next-Gen To You. Where Do You Start? Part II

In our last post we noted that there’s no single right answer or easy answer here. It’s very situational. We also noted that some consultants will always tell you to start with Sourcing, while others will tell you to always start with Procurement, even though it will often be a chicken and egg situation. You need to score big wins, and that requires Sourcing. But to pick the right categories, you need good data to analyze, and that requires Procurement. But that doesn’t take into account that sometimes the best starting point is SRM or CLM for an organization where the most benefit can come from supplier development (because the organization is locked into strategic suppliers) or CLM (because compliance is key to cost, and brand, control).

So where do you start?

It’s very situational dependent, but your biggest issue should drive it. So if you think your biggest issue is that:

  • you can’t do enough sourcing events

    start with e-Sourcing

  • you’re events are generating limited returns

    use decision optimization with extensive models that factor in all known direct & indirect costs and even costs of capital

  • you can’t find the right suppliers

    start with a modern SRM platform that integrates with a true supplier network for granular supplier discovery that takes a plethora of business needs into account

  • you have to (quickly) ensure compliance with a newly introduced regulation

    start with a CLM platform with embedded semantic-based / deep learning analytics that can quickly scan thousands upon thousands of contracts and determine those in compliance, those not, and those that need to be manually reviewed (due to the presence of non-standard clauses, enforcements that appear to be country specific, etc.)

  • your over-spend, and need for audit recovery, is too high

    start with an I2P solution with m-way matching (contract, PO, Goods Receipt, etc.)

  • your maverick spend is too high

    start with e-Procurement / P2P with an embedded catalog (with visual-guilt driven guided buying), flexible requisition & approval processes, and no-PO / no-Pay enforcement capability

  • you need to get your services spend under control

    start with a Sourcing platform with a VMS/CWM module or a VMS/CWM solution that can integrate with a BoB S2P solution

  • you are unsure of where your best opportunities lie

    start with a modern spend analysis solution with integrated prescriptive analytics that can go deeper than just top N

In other words, you let the issues drive the starting point. After all, we all know what happens if you try a big bang implementation and take on the entire extended S2P process at once … the project goes up in a big bang and you risk ending up as one of the top supply chain disasters of all time (especially since everything will need to talk to the ERP)!

So You Need a Sourcing Platform That’s Next-Gen To You. Where Do You Start? Part I

There’s no single right answer or easy answer here. It’s very situational.

Some consultants will always tell you to start with Procurement because:

  • you get manpower and transactional savings immediately
  • you will get the majority of your spend properly categorized in ONE system (which will enable better spend analysis and opportunity selection later)
  • you will stop overpaying and duplicate paying invoices with 3-way matching and reduce recovery requirements
  • you will reduce cycle times and be able to take advantage of early payment discounts
  • and so on …

Some consultants will always tell you to start with Sourcing because:

  • you can invite and compare more supplier bids with modern RFI tools
  • auctions are a great way to realize a quick category price reduction
  • timeline reductions allow you to source more spend
  • portal-backed SIM makes it easy to keep track of suppliers and contacts with up to date information
  • etc.

But this doesn’t take the chicken and egg situation into account.

  • you can’t identify significant savings without a modern optimization-backed platform-backed sourcing solution that allow you to identify new opportunities, which means you need to start with a Sourcing platform if you need savings fast
  • but you can’t identify the best categories without good data, which is captured in a good e-Procurement/P2P system, which means you need e-Procurement to capture the data you need to identify the right opportunities (using spend analysis in the sourcing platform)

Or the fact that the biggest savings opportunity for your particular organization might be a best-of-breed niche SRM or CLM solution due to your biggest savings opportunities lying in supplier development or compliance.

So where do you start? Stay tuned for Part II.

For Those Who Recently Adopted Sourcing, Start Thinking About Next Generation Sourcing Now!

SI has been about next generation sourcing since the day it began. No matter how good you think you have it now, it’s not good enough. Why? Most of you are still on last decade’s sourcing platforms which, especially if you never had anything like them before, is a great start (and maybe beyond your wildest dreams if you were in e-mail and spreadsheet world), but not good enough. What you are going to find out, as SI told the Procurement leaders seven years ago today in its post on Next Generation Sourcing, all good things come to an end.

As we noted for those of you with first generation and early second generation systems,

  • Once you institute RFX, the manpower savings from automating bids can only be claimed once.
  • By the time an organization gets to the third auction, there are no more savings to be had as the fat from supplier margins has been squeezed out.
  • Once the allocation has been optimized across the supply base in a way that minimizes unit costs, transportation costs, (interim) storage costs, etc., re-running the optimization won’t lower costs further unless something changes — such as the identification of a new supplier, an alternate material (that is cheaper), additional demand (that increases the economy of scale), or a more powerful optimization model is provided.
  • Once contract management and monitoring is put in place and no invoices are paid that are not for delivered, defect-free products, at contracted rates, there is no little on-contract leakage to be stopped.
  • Once controls are put in place to stop off-contract purchases that should be on-contract (through integration of the e-Procurement system with the Contract Management system), there is no little off-contract leakage to be stopped.
  • Once spend analysis has identified all the opportunities, the savings won’t actually materialize until something is done about them. This something cannot be appropriately identified unless the appropriate information is available to the knowledge worker

And, more importantly, for those of you with later second generation systems:

  • Once a SIM with a powerful supplier portal and information / (compliance) documentation monitoring and alerting system is put in place, there is no additional time savings from information maintenance offloading.
  • Once a SPM which automatically collects organizational data and metrics is put in place, there is no additional time savings from automating supplier scorecard production.
  • Once a SRM with proper corrective action requests / corrective action monitoring and integration system is put in place, there is no additional time savings from quick-and-easy semi-automated resolutions.
  • Once an audit recovery system is put in place that not only 3-way matches invoices but identifies when rebate or discount targets are hit and automatically applies the discounts to current and future invoices, there is no more savings from high-priced audit recovery services.
  • Once integrated contract negotiation and e-Signature is implemented, there is no more process time savings from being able to track all updates by both parties and do sign-offs quickly.
  • … and so on

At some point, your year-over-year returns will start to trail off … somewhere between the three and five year mark, depending on how much spend you are able to put through managed sourcing events every year and how much you are able to use the system to support it. So don’t stand still. Start identifying your biggest weaknesses and looking for the next generation system to address them when the opportunity costs of not taking advantage of the opportunities you are missing gets too high.

So where do you start? Stay tuned.

The Real Reason No One’s Buying Your Traditional Contract Lifecycle Management System … Part II

Yesterday we noted that the real reason no one’s buying your traditional contract lifecycle management system has not changed in eight years. That we’re still in the situation that, to be blunt, many of these solutions can still be built by a high school student with Microsoft Word and Access and mad visual basic scripting skills. A situation that, to be blunt, is pretty pathetic. We also noted that, when we first addressed the subject eight years ago, SI was only able to identify one true value of a CLM system — a value that only materialized from deep, real-time, integration with the P2P (and, to be honest, only used the metadata).

Since then, SI has only identified three other sources of true value, but, as we explained in yesterday’s pst, one of these can still be accomplished by a high school student with Microsoft Word, Microsoft Access and mad visual basic scripting skills.

So when does a system provide true value? When it offers one, and preferably both, of the following:

2. Prescriptive Analytics

And we mean true prescriptive analytics. Just integrating a third party analytics platform, like Qlik, and creating some fancy reports based on standard operational metrics (like turnaround time, new contracts per month, average expiry rate, etc.) is something that can be done by the script kiddie with an open source reporting engine. And even throwing in some predictive trend analytics isn’t that valuable as their are open source libraries with dozens of textbook algorithms to throw against your data set.

We mean real prescriptive analytics that takes the data, runs the trends, compares it to a knowledge-database of standard times across companies and industries, identifies those trends that improved with the application of one or more specific actions, and recommends those actions to decrease turnaround time, automate renewal processes, negotiate better results in a category, industry, or geography, etc. True situationally aware intelligence. That’s true value #1.

3. Semantic Intelligence

Let’s say a new compliance requirement or initiative you never expected comes at you out of left field and you have 3 months to get in compliance. You don’t track any metadata associated with it, only started using clauses in the past two years that might cover the requirements, but it really depends on the variant of the clause used, the geography in which it was used, and the rest of the contract. How do you identify which contracts are likely to be in non-compliance quickly and those that definitely need human attention without actually manually reviewing each contract without a clause you are sure is safe? Of which there could be thousands?

This is where a modern machine-learning backed semantic intelligence solution that can automatically scan, parse, index, and make sense of all your contracts comes into play. A solution that can, from enough examples of sufficiently compliant and/or irrelevant contracts (across the industry, not just your company) determine those definitely not in compliance and those most likely not in compliance and give you a probability. One that can also determine those contracts that can be eliminated from review due to expiry or coming expiry and those coming up for renewal that need one or more clauses inserted and automatically identify the right personnel. One that get’s it right 95% to 98% of the time, a success rate that will be better than the temp manpower you’d otherwise have to higher.

These solutions didn’t exist 8 years ago. But now we have almost a dozen players, mostly new, with this type of functionality — which you won’t yet find in most suites. So if you want your suite CLM to have value, better find one of these new, standalone, BoB contract intelligence platforms that can integrate and integrate it. You’ll finally be able to drill deep enough to extract gold from the claim your original CLM vendor sold you, that, up until now, has proved worthless.

So if you want real value from a CLM solution, get one that embeds natively with your P2P through APIs, offers integrated prescriptive analytics, and provides you with modern semantic intelligence capabilities. Then you will truly find value that you could not find before.