Category Archives: Procurement Innovation

What’s Procurement’s Role for 2018?

Watchdog.

As we enter the new year, the predictions and prognostications are going to get crazy again. And, like always, they are going to be of the obvious variety or, as the public defender points out, of the wild guesses.

But the reality is that from a process, power and performance perspective, not much will change … it will be the continual slow prod forward that it has been for the last decade. However, as the past few years have shown us, one thing is constant. Suppliers will fail. Disruptions and Disasters will happen. And your technology vendors will get acquired.

We’ll start with this last point first. Over the past year, Jaggaer and Coupa tried to outdo each other in an acquisition frenzy. Spend360 and Pool4Tool and Trade Extensions and BravoSolution all scooped up by Procurement space giants trying to get bigger. No matter how big, how successful, how stable, or how much they indicate a desire to remain independent, they could literally be scooped up tomorrow. Everyone has their price, and if it’s a PE firm, the company is flipped as soon as that price is met. And as we discussed in our recent post on M&A on how The Mania Continues, if this means there is solution duplication, at some point, you can be pretty much assured someone’s solution is going away. M&A’s are done to enhance synergy of offering or enhance profit through synergy of operation where you can reduce staff and product footprint against a larger customer base.

This means that Procurement has to expect that, at some point, at least one of its preferred platforms is going up in smoke, and has to be on the ball to identify what platform may be at risk, when, and what steps will have to be taken to mitigate that risk.

Similarly, it will have to insure it is keeping an eye on all critical suppliers — which, as the best know, is not just the 20% of suppliers who get 80% of the spend, but any sole-source or dual-source supplier that supplies a product or service critical to the organization’s primary product lines. If the product line could not be offered, or not offered to the full extent, without that supplier, any impending issues need to be detected early. This will mean keeping an eye on the organization’s credit risk, timeliness (if shipments get later and later, that could be an indication of trouble), sustainability ratings, negative mentions in the news, and so on. (An SRM solution that integrates with risk watchdogs will be critical.)

And, finally, it has to be on the alert for natural or man-made disasters that can pose a risk to parts of its global supply chains. It not only needs to know when an event happens that could affect a critical part of its supply base, but what suppliers in particular will be effected.

It has to be a watchdog on constant alert. Just sourcing and negotiating great deals is not enough. They have to be realized. And, for that, Procurement must be the best watchdog there is.

Source-to-Pay UIX 2017 (Collected Links)

What Makes a Great U(I)X?

What Makes a Great e-Sourcing U(I)X?

What Makes a Great (Strategic Sourcing Decision) Optimization U(I)X?

What Makes a Great Spend Analysis U(I)X?

UX Epilogue

Can You Stop Your Event Dead In Its Tracks?

The best laid schemes o’ Mice an’ Men … often go awry. And in the Supply Manager’s world, they often do. And, to be frank, more often than you realize. And sometimes market reality will shift in an instant and continuing a current event could cause considerable loss, and not the significant value that was initially expected.

In this case a Sourcing or Procurement event, even if for a critical product or service needed in a short time frame, will need to be stopped in its tracks. But can you do it? Or will you continue with an auction only to see costs (significantly) increase (if there is no ceiling? Or an RFX only to get no responses at the deadline (with not enough time to try again)? Or a catalog buy for a product that shouldn’t be bought (because excess supply at a non-preferred supplier just resulted in a huge price drop the organization could safely take advantage of)?

And then, even more importantly, the right event will need to be kicked off in its place. An RFX or Auction might need to be replaced with a strategic renegotiation with an incumbent? A catalog buy might need to be replaced with a spot-buy auction to a set of acceptable suppliers with equivalent products? A simple RFX might need to be expanded to a more complex optimization-backed multi-round RFX to take advantage of new entrants shaking up the market. And so on.

But for this to happen, four critical abilities need to be in place.

  1. The ability to detect market shifts that would necessitate a significant change in Sourcing or Procurement strategy.
  2. The ability to determine the appropriate Sourcing or Strategy to shift to.
  3. The ability to quickly terminate an existing event (type).
  4. The ability to structure and launch a replacement event quickly.

1. The ability to detect market shifts.

This requires continuous, real-time, market monitoring which, to be honest, cannot be done without significant software support, and is a proper application of AI in sourcing and procurement. (But this is a subject for another post [series].)

2. The ability to determine the appropriate strategy w.r.t. the shift.

This requires both software support — to extract key details of the shift, summarize it in a meaningful way, and suggest the option(s) likely to be best — and senior buyer wisdom to make the right decision.

3. The ability to quickly terminate an event.

This requires the ability to quickly terminate an event, and do so in a way that will not result in offended suppliers and lawsuit. While not likely possible in the public sector, with proper foresight, and notification, as part of the terms and conditions a supplier must accept to participate, this can happen.

4. The ability to launch a replacement event quickly.

This requires the ability to set up new events quickly, reusing as much information as the current event as possible. This will require great software support (but not necessarily AI).

As you can see, not easy, but sometimes it literally is the difference between a multi-million dollar win, and a multi-million dollar loss.

Why You Need to Capture the Flag Sooner Rather than Later

This week we have been talking about how Procurement is in vogue but that the only reason it is in vogue is because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. But we’ve also been talking about the fact that even though Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money since their customers are buying a lot of solutions, butt this alone isn’t enabling savings, or at least the savings the organizations should be seeing.

And the reason is that technology, GPOs, and consultancies don’t capture the flag. Particularly when the technology has no constraints on data, the GPOs don’t even give you any data (assistance) beyond what you can buy off of the master contract, and consultancies only cleanse and categorize enough data to find enough savings opportunities to justify their worth — and a continual retainer.

But, as we explained in our last post, dirty data is costing you big $$$. For any organization over 10M in revenue, it is literally costing that organization Millions. For any organization over 10B in revenue, it is likely costing that organization Billions. You read that right! Billions! When you add up the cost of maintaining that data, the cost of trying to integrate, cleanse, and categorize that data, and the lost Sourcing and Procurement opportunities, it will literally exceed One Billion Dollars in an organization that doesn’t have it’s data under control. And that cost will be paid year after year after year. (In fact, dirty data probably costs governments more than terrorist groups demanding multi-Million dollar payouts. Even Dr. Evil’s One Billion demand is cheap in comparison.)

Some studies have found that persisting and maintaining a single data record in some organizations can cost up to 4 dollars a year! Now consider the fact that many Global 3,000s have 50K, 60K, and even 100K supplier records, many of which are duplicated, each of which have dozens to tens of thousands of associated contracts, purchase orders, invoices, payments, disputes, etc. Consider how many of those are duplicated, incomplete, unnecessary (as good data can prevent disputes), etc. and how much of that cost is purely unnecessary.

Consider the cost of integration and categorization across the dozens of disparate (ERP, MRP, Accounting, S2P, etc.) systems the organization has and how much it costs to even do a basic global spend report, yet alone a complete analysis.

Now consider how much is being lost on every purchase. Without good data all of the following will happen:

  • on-contract / preferred products and services will not be found / purchased
  • unnecessary RFXs will go out (instead of purchasing standardized services / product customization projects off of approved suppliers through standard forms)
  • opportunities for product / category consolidation will not be noticed
  • organizational users will bend, if not break, the T&E policies (and some organizations have found that up to 2/3s of users will do this) … and this can be anything from staying at non-preferred hotels (where there are master service agreement rates) when there is an option to filing kennel receipts as hotel expenses
  • regular MRO buys that can be automated will not be noticed, and buyer time will be wasted
  • true market cost will be unknown and when there is no contact / preferred option, chances are a higher price option will be bought on spot-buy
  • fraudulent invoices will slip through the cracks, especially for services, as AP is used to not being able to process and match all invoices
  • etc.

And that’s why you need to get your data under control, and capture the flag sooner rather than later.

The Key to Cost Reduction? Capture the Flag! Part III

In this series we have been discussing how Procurement is in vogue but that the only reason it is in vogue is because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. As a result, Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money.

But not all companies are getting the returns they expect from their S2P platform, and it’s not always the fault of the provider — it’s often the fault of the data. Bad data. Dirty data. Data that causes you to miss over billings and duplicate billings, opportunities for volume consolidation, opportunities to spot new trends, and so on.

But how do you get that data under control? Especially when most systems allow any user to enter any data they want in description fields, not populate key SKU or cost center fields, and so on.

The traditional answer has been process, but process has continually failed, especially when organization’s have tried to scale it.

So what is the right answer? It’s hard to say, but it becomes less important if the opportunity for creating bad data is minimized. So how do you do that? You minimize the need for the end user to enter data in the first place.

This means you need a P2P system that not only minimizes the need for end users to enter data, but makes it easy for the admins to correct any oversights that would result in the end user entering data.

So what are the requirements for such a P2P system?

It depends on not only what you are buying but how you are buying it — for whatever procurement functions you support, they must be designed to minimize, if not eliminate, data entry. For example, if the organization has a lot of MRO and back-office purchases, the catalog must be complete, easy to maintain, and guide the buyer to the needed product, not an e-Form or RFX. If the organization needs a lot of services, then there should be well defined e-Forms for requesting standardized services which have all the requisite details, codes, and descriptions. If the organization needs specially configured products (like cars, computers, etc.), there should be standardized requests to preferred suppliers or standardized RFXs. And so on. The less user entered data, the better.

Moreover, it’s not just buyer users who create user error, its supplier users as well. So such a system must minimize the data required by the supplier. Once the supplier receives a PO, they should be able to simply and easily flip acknowledgements, shipping receipts by checking the boxes (and only overriding quantities if needed), invoices (from POs or shipping receipts), payment receipts, etc. with button clicks. The less, the better.

Anything that can be standardized and entered once should be standardized and entered once. And anything that isn’t standardized should go through a review queue to see if additional standard products, services, forms, etc. can be added to minimize future data entry requirements. The goal is single entry, and the use of correct single entries, as much as possible.

Only when data is under control can savings be identified, and realized. And only then will you have captured the flag.