Back in May, the doctor indicated that at some point after Inspire he’d do a deep dive into the acquisition of Trade Extensions by Coupa. He waited as he wanted to think more on the possibilities and probabilities and get more insight into the potential, but as no additional insight appears to be coming in the short term, we’re going to summarize where things are at now, from the perspective of a SWOT analysis.
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Come back tomorrow where we discuss the opportunities and threats.
O’er on Spend Matters UK, the public defender does a great job of figuring out how we would explain Procurement to a (hyper-intelligent) alien race who has no concept of what it is or why it is needed in his post on “back to procurement basics – explaining to an alien”, which is a must read, but I don’t think that would ever be a problem.
Any alien race smart enough to build and pilot spaceships that can exceed the speed of light and traverse vast distances to get from where they are to where we are in a lifespan would obviously be smart enough to understand why beings of lesser intellect have to specialize to do well, and that these beings of lesser intellect would have to work together, and come up with a system (the corporate world) to allow that, as flawed as it may be. They’d get it.
Our real problem is explaining the importance of Procurement to an old-school CEO who still thinks success is all about sales (and marketing to pave the way) and a CFO who thinks success is all about cost control, especially internal, and trying to pay peanuts rather than wages and rates that would incentivize someone to success.
I challenge the public defender to come up with an explanation that an average old-school CEO who only ever studied operations and came up through (Sales or Marketing) Management or traditional Finance would not only understand, but understand to the point that he (let’s face reality, these narrow-minded CEOs are usually male) would embrace Procurement and the value-based vision we run off of.
Bonus points if it changes the viewpoint of someone who graduated Trump University.
Apparently SpendMap, a relatively unknown provider of Procurement software (compared to the big guys), has decided on the marketing strategy of “Free Procurement” to make a name for themselves and, hopefully, get their software known.
the doctor really wishes they would have consulted with him, or another knowledgeable analyst who has been around for a decade, before making this decision. “Free Procurement” doesn’t exist, and it’s just gonna bite them in the rear if they don’t do the smart thing, like Coupa did, and drop it.
This isn’t the first time, or even the second time, a company has tried this, and it didn’t work then for the same reasons it’s not gonna work now. Most people don’t remember, but way back when Coupa launched on Procurement Independence day, they offered a free downloadable, streamlined, do-it-yourself version of their software. Anyone could download this RoR (Ruby-on-Rails) code bundle, install it, test it, and use it for free as long as they wanted — if they could install it, configure it, get it working to their liking, and deal with any bugs that managed to slip though. (And installation wasn’t a breeze, mainly because you had to get the RoR stack working, which wasn’t a breeze to do in the early days of RoR.)
Then, a few years later, a company called Bupros (remember them, probably not, but they are still around) decided to make the same play. They also released an open source PHP community edition of their procurement software about 3 years after Coupa and still no one knows their name. (And installation of this, despite being three years after Coupa, was even more painful. PHP is a nightmare — unless you are using the same version on the same stack in the same environment it was developed and tested on, something is not gonna work right. Plus, their documentation didn’t quite sync up with their download and the doctor remembers spending the better part of a day for what should have been a 30-minute install just to get basic functionality going. [Remember, the doctor has a PhD in CS and has been a Chief Scientist, Chief Architect, and CTO and has been coding for over 25 years, so when he says something should take X time, and it takes 10 time, you can trust that assessment is reasonably accurate.])
So why isn’t there any such thing as “Free”? And why doesn’t “Free” work?
First of all, when it comes to Procurement software, especially do-it-yourself procurement software, as per our classic post on Uncovering the True Cost of On-Premise Sourcing & Procurement Software, it’s not just the license cost. It’s the cost of the hardware and middleware infrastructure (which could include databases, web servers, third party middleware, etc.) it runs on. It’s the cost of the installation, which, as per above, can take a lot longer than the provider will say it will (because only their developers know all the gotchas to watch out for and avoid), integration with any third party systems that need to push data in or pull data out, and maintenance. It’s the internal training and support costs. And these costs can often be substantially more than the license fee.
And don’t get fooled by a pure SaaS offering either. Just because the license is free and you don’t have to buy servers, there’s still the integration costs (as someone has to figure out how to use the APIs to push data in and pull data out and actually do it), the training costs, the maintenance (as the provider upgrades the platform and introduces new connectivity requirements) and re-training costs (as new features or modified workflows require retraining). And then there’s the back-up costs (it’s free, which means no service guarantees, including no guarantee the platform and/or your data will still be there tomorrow) and contingency plan creation, testing, and maintenance costs (what to do if the platform, or your data, disappears). These add up. And they might be considerably more than just licensing the lowest cost product on the market where you have service guarantees, initial integration, maintenance, and regular (web-based) training or free access to a complete self-training audio, video, and manual library.
So, regardless of the intention of the provider, who might be trying to move you up the ladder or increase the visibility of Procurement software (which is an important component of success), don’t get taken in by free. When it comes to Procurement (or Sourcing) software, there is no such thing as free. Low-cost, yes, because basic procurement and e-negotiation-based sourcing functionality is now a commodity, but not free. Either you’re paying a provider, who can take advantages of economies of scale, or your paying IT and support staff (and possibly paying for more infrastructure). And if you’re small, you’re paying more when you go the free route.
If a company really wants to help small and small mid-size businesses get on a platform and modernize, they’ll go the low-cost consumer-based SaaS route and offer low-cost monthly licenses per user that a user can put on their p-card or credit card and expense monthly and, as part of that service, offer all of the support and reliability of other online service offerings (like SalesForce, Zendesk, etc.). But they will never, ever, offer, or push, free.
A couple of months ago, after we sang Bye, Bye to Monochrome UIs, we indicated that we were beginning a series that chronicles what makes a good UI, and more importantly, a good UX (User Experience) in a modern Sourcing or Procurement system. This is critical because systems that are not useable do not get widely adopted, and systems not widely adopted never deliver the promised value.
In our first post on What Makes a Good UI where we noted that the full series was being published over on Spend Matters Pro [membership required] as it is the result of a deep long-term multi-blogger collaboration (led by the doctor and the prophet) designed to identify what should be (and not what ay given vendor will try to promote based on what they have), and sponsored by Spend Matters, we outlined some of the fundamental requirements of a UI / UX for any Supply Management application which include, but are not limited to:
(And if you want deep coverage on these topics, see the first instalment of our full series on “Measuring the Procurement Technology User Experience: More Than Just a Pretty Screen” over on Spend Matters Pro [membership required].)
But, as we stated, these were just the absolute base-line requirements. In Parts II and III of our full series, we outline the next set of core functionality that should be pervasive across any Supply Management platform that you acquire. And in future articles, we dive into e-Negotiation, e-Auctions, Optimization, Spend Analytics, SXM, CLM, Requisitioning and Shopping, Procurement and Catalog Management, and Invoicing … just to start. But we’re getting ahead of ourselves.
One of the core requirements we reveal, and dive deep into, in Part II in our article on Smart Systems and Messaging, Chat, and Collaboration is smart systems.
As per our article, smart systems drive integrated guidance leveraging new “AI” techniques -— better termed automated reasoning (AR), as software isn’t truly intelligent —- that adapt and learn over time. They do this by mixing semantic technology, sentiment analysis, key-phrase driven expert systems and other machine learning techniques with history to determine what the user is doing and what the user wants to do.
For example, a smart system in sourcing will detect if there has been a full event/process before run by a user or similar peers in an organization, and allow the user to instantiate a new instance (by copying the template or previous event). Or, in the case of one-time requisition in which competition could benefit the outcome, a smart system can detect an automated spot-buy event that can be run against prequalified suppliers hands off, which the system suggestions.
And that’s just the beginning of what a smart system could, and should, do for you. For deep insights into not only where the bar is today (as leading providers start to release first versions of these guided systems), but where the bar will be by 2020, check out our post, which also dives deep into the Messaging, Chat, and Collaboration functionality [MCC] that a modern system should support. [Hint, more than just integrated e-mail or first generation chat!]
And stay tuned for the next part, coming later this week, on the final set of core requirements that we feel a modern Supply Management System cannot be without!
P.S. If you are a vendor invited to the Sourcing, SRM, CLM, or Spend Analysis Solution Map, this is a series you do NOT want to miss!
Yes, technology costs money and five and six figure technology purchases look expensive, especially if a vendor is asking for payment up front, but it’s often the case that not having an automated technology solution as a mid-size or large organization is costing your organization even more. The reality is that anything not automated has to be done by someone, and having that someone do a task costs you a lot of money. Even if that someone is a (near) minimum wage resource. Remember, it’s not just the $15 an hour, $120 a day, $600 a week, $30000 a year that resource costs, but it’s all the overhead associated with that resource. Benefits. Training. Office space. Equipment. Opportunity cost of NOT having them work on more strategic tasks. Etc. When you do the math, that $15 an hour / $30000 a year resource is likely costing you closer to $30 an hour / $60000 a year. If the solution costs less than 30K a year, and replaces one FTE that’s not only a savings, but another resource you can reassign to value identification and generation (which never comes from doing tasks that can be automated).
But in Supply Management, the solution can often replace 3, 6, 10 or even 50 FTEs with very little incremental processing power required. A great, and often repeated example, is invoice processing with m-way (typically 3+) way match and auto-return to supplier for completion of missing information and correction of (potentially) incorrect information. These systems can review these invoices 100% and often, through auto return and correction, reduce the number of invoices that need human review to less than 2%. For an organization that receives 50,000 or more invoices a year, with dozens (or hundreds) of line items per invoice, where a team of 3 people can only fully review 20% and spot check a few lines on 20% more, this system, if in the 50K price range, has an ROI 10X its cost as it allows all invoices to be fully reviewed and verified before being paid — something that would otherwise take a team of 10 people, who are more error prone than the system and will still miss issues that need to be reviewed.
But it’s not just invoice review in Procurement that takes a huge amount of time, and never gets finished. It’s data entry and maintenance. Catalogs. Supplier Masters. Approved products and bill of materials. Preferred products. An average organization has tens of thousands of records that need to be created and maintained over time. Larger organizations have hundreds of thousands. And the annual maintenance of each record is so time consuming that the cost to accurately maintain this data (and keep it up to date) is literally in the hundreds of thousands of dollars, if not millions. (the doctor once read a thesis that estimated the average annual cost at about $2 a record, and with the increased rate of data change, that actually seems to be on the low side). But a system that allows suppliers to maintain their data, automatically updates the data from one central, verified, repository (provided by the supplier or vendor), etc. can greatly reduce this cost while increasing the accuracy.
And it’s not just tactical Procurement that requires a lot of manual effort. It’s also, believe it or not, Sourcing. A lot of categories that should be strategically sourced can be mostly automated. Especially the lower value, market-driven, and non-strategic categories. Often, the best strategy is just a winner-takes-all auction or a 60/40 split between the two best RFPs, where the bidders can be limited to pre-approved suppliers (and products) in the first case (with ceilings) and pre-approved suppliers in the second. These events could be automatically configured and, once reviewed by a buyer, automatically launched and executed and, once the results reviewed, automatically awarded. The entire process, which often takes days in some platforms, could be accomplished in an hour or two, freeing the buyer up to focus on truly strategic and large value categories and new types of supplier consolidation / part standardization / raw-material unification analyses that might yield previously unknown savings opportunities.
In other words, never balk at the cost of a solution until you calculate the true ROI, which is often many times the tactical manpower cost you are replacing (as its often the case the manual effort isn’t doing a complete job). The ultimate goal is to allow your team to focus on value identification and capture, and they can’t do that if all they are doing is manual data entry and review that can be (almost) fully automated.