Category Archives: Procurement Innovation

Supply Management Technical Difficulty … Part II

A lot of vendors will tell you a lot of what they do is so hard and took thousands of hours of development and that no one else could do it as good or as fast or as flexible when the reality is that much of what they do is easy, mostly available in open source, and can be replicated in modern Business Process Management (BPM) configuration toolkits in a matter of weeks.

So, to help you understand what’s truly hard and, in the spend master‘s words, so easy a high school student with an Access database could do it, the doctor is going to bust out his technical chops that include a PhD in computer science (with deep expertise in algorithms, data structures, databases, big data, computational geometry, and optimization), experience in research / architect / technology officer industry roles, and cross-platform experience across pretty much all of the major OSs and implementation languages of choice. We’ll take it area by area in this series. In our first post we tackled standard e-Sourcing, and in this post we’re tackling standard e-procurement.

Requisition, Approval, and Purchase Order Management

Technical Challenge: NOTHING

There’s nothing challenging about creating a requisition, placing it in a, possibly bifurcating and reconnecting, approval stream, getting approvals, and flipping it into a purchase order. It’s literally just adding lines and data to a form, like building a survey or RFX, recording approvals, and generating a purchase order in an appropriate distribution format when the necessary (final) approval(s) have been generated.

Invoice Management

Technical Challenge 1: Automated Error Correction

It’s easy to create and distribute an invoice. It’s easy to run a set of verification rules to verify completeness and correctness and then reject an invoice if data is missing, incomplete, or invalid. It’s harder to determine when data is missing (such as codes, skus, etc.) what that data should be, harder still to figure out which data is likely correct when there is a mismatch between fields that should align, and even harder when data is incomplete and suggests multiple possibilities. The goal should be to not only determine when there are issues with an invoice and flip it back to a supplier for correction (to reduce the number of invoices that need to be manually reviewed and approved) from an average of 15%+ to 1.5%+, but to indicate what the acceptable corrections are / should be so that the supplier can accept and the invoice can be automatically accepted and processed on re-submit. This requires strong AR (Automated Reasoning) technology and it is not easy to not only identify 90% + of the bad data, but 90% + of the correct data to replace the bad / non-existent data with.

Payment Management

Technical Challenge: Working Capital Optimization with Multiple Options

While ACH integration can be a challenge because of the security requirements, it’s not that difficult (as the banks / payment providers did the challenging task of implementing the encryption, secure networks, etc.) and the vendor just needs to plug in, it’s just coding hoops and a well understood process. The challenge is how to optimize the payment schedule against net terms (to prevent penalties), early payment discount options (when it is cheaper to take the discount offered even if the organization has to pay interest at their preferred credit rate), co-factoring (where the organization helps the supplier factor the invoice and agrees to take an early payment cut to cover some of the supplier’s cost of factoring), and investment opportunities to make sure the organization has the cash on hand it needs while minimizing its supply management costs.

Taxation Management

Technical Challenge: NOTHING

While it’s the ultimate pain-in-the-backside to keep up with all of the requirements associated with tax-tracking across multi-level jurisdictions when taxes can be applied at the union, country, state, and city level, especially when the amounts, collection rules, and submission rules are always changing, it’s just data tracking. Nothing more.

IN SUMMARY

With the exception of automated error identification and automated corrective suggestions and of working capital optimization, as with basic e-Sourcing, basic e-Procurement is pretty much common fare today that can be bought off the shelf from dozens (and dozens) of providers, but, as you can see, it’s not all equal. Any provider with AR capabilities for advanced invoice processing and working capital optimization capabilities is leagues ahead of anyone else.

And, as per part I, in this series we’re not discussing the User Experience. While a good User Experience, while not always challenging to code, can be challenging to define, it doesn’t define Technical Difficulty on its own.

Next Up: Supplier Management!

Are We About to Enter the Age of Permissive Analytics?

Right now most of the leading analytics vendors are rolling out or considering the roll out of prescriptive analytics, which goes one step beyond predictive analytics and assigns meaning to those analytics in the form of actionable insights the organization could take in order to take advantage of the likely situation suggested by the predictive analytics.

But this won’t be the end. Once a few vendors have decent predictive analytics solutions, one vendor is going to try and get an edge and start rolling out the next generation analytics, and, in particular, permissive analytics. What are permissive analytics, you ask? Before we define them, let’s take a step back.

In the beginning, there were descriptive analytics. Solutions analyzed your spend and / or metrics and gave you clear insight into your performance.

Then there are predictive analytics. Solutions analyzed your spend and / or metrics and used time-period, statistical, or other algorithms to predict likely future spend and / or metrics based on current and historical spend / metrics and present the likely outcomes to you in order to help you make better decisions.

Predictive analytics was great as long as you knew how to interpret the data, what the available actions were, and which actions were most likely to achieve the best business outcomes given the likely future trend on the spend and / or metrics. But if you didn’t know how to interpret the data, what your options were, or how to choose the best one that was most in line with the business objectives.

The answer was, of course, prescriptive analytics, which combined the predictive analytics with expert knowledge that not only prescribed a course of action but indicated why the course of action was prescribed. For example, if the system detected rising demand within the organization and predicted rising cost due to increasing market demand, the recommendation would be to negotiate for, and lock-in supply as soon as possible using either an (optimization-backed) RFX, auction, or negotiation with incumbents, depending upon which option was best suited to the current situation.

But what if the system detected that organizational demand was falling, but market demand was falling faster, there would be a surplus of supply, and the best course of action was an immediate auction with pre-approved suppliers (which were more than sufficient to create competition and satisfy demand)? And what if the auction could be automatically configured, suppliers automatically invited, ceilings automatically set, and the auction automatically launched? What if nothing needed to be done except approve, sit back, watch, and auto-award to the lowest bidder? Why would the buyer need to do anything at all? Why shouldn’t the system just go?

If the system was set up with rules that defined behaviours that the buyer allowed the system to take automatically, then the system could auto-source on behalf of the buyer and the buying organization. The permissive analytics would not only allow the system to automate non strategic sourcing and procurement activities, but do so using leading prescriptive analytics combined with rules defined by the buying organization and the buyer. And if prescriptive analytics included a machine learning engine at the core, the system could learn buyer preferences for automated vs. manual vs. semi-automated and even suggest permissive rules (that could, for example, allow the category to be resourced annually as long as the right conditions held).

In other words, the next generation of analytics vendors are going to add machine learning, flexible and dynamic rule definition, and automation to their prescriptive analytics and the integrated sourcing platforms and take automated buying and supply chain management to the next level.

But will it be the right level? Hard to say. The odds are they’ll make significantly fewer bad choices than the average sourcing professional (as the odds will increase to 98% over time), but, unlike experienced and wise sourcing professionals, won’t detect when an event happens in left-field that totally changes the dynamics and makes a former best-practice sourcing strategy mute. They’ll detect and navigate individual black swan attacks but will have no hope of detecting a coordinated black swan volley. However, if the organization also employs risk management solutions with real time event monitoring and alerts, ties the risk management system to the automation, and forces user review of higher spend / higher risk categories put through automation, it might just work.

Time will tell.

We Don’t Need Another Hero!

the doctor‘s response to the public defender‘s post on “What’s the Future of Procurement? How the Rogues Will Become the Heroes”

Out of the ruins
Out from the wreckage
Can’t make the same mistake this time
We are the relics
The last generation
We are the ones they left behind
And I wonder why we are always after change
Dancing around the way, till nothing pure remains

We don’t need another hero
We don’t need to know the way forth
All we want is rules stopping
Mavericks

Looking for something
We can rely on
There’s gotta be something better out there
Rules and processes
Their day is coming
All else is descriptive vapourware
And I wonder why we are always after change
Dancing around the way, till nothing pure remains

All the stoics say
We don’t need another hero
We don’t need to know the way forth
All we want is rules stopping
Mavericks

So what did we do with our lives
If we don’t leave our mark
Will our story shine like a light
Or end in the dark
Give it all or nothing

We don’t need another hero
We don’t need to know the way forth
All we want is rules stopping
Mavericks

While flexibility, collaboration, and innovation are to be nurtured and cherished … if the system is the workaround, then something’s wrong …

Classic (Friday) Rant: The Key to a Successful (Virtual) Procurement Center of Excellence? No MBAs and No PMPs!

As you know, the doctor is pushing for platform-powered Virtual Procurement Centers of Excellence, and some of you might be wondering how to staff them.  The answer is, with the best Procurement Pros you can get.  Who are they? The answer is often industry, Company, and sometimes even category specific, but to get you started, we’re going to reprint this classic post that defines who they are not and, in traditional SI style, pulls no punches.

Regular readers will know I’ve been blasting MBAs (Master of Business Administration) for years and feel that the degree on its own is worthless (a belief that has started to be echoed by many progressive US companies who realize that MBAs have too much training on the coastline of business and not enough on the mainland, as pointed out by Robert Kaplan on The Hollow Science). In a nutshell, if all you have is an MBA, then, as far as I’m concerned, you’re just a Master of Business Annihilation!

But what regular readers don’t know is that I hold project / product managers with no education or skill in what they are attempting to manage in the same regard and believe that PMPs (Project Management Professional, as certified by PMI for e.g.) with no other skills are nothing more than certified, legitimized, pimps. (Think about it. All you are to them is a resource with a skill to be sold to the highest bidder. The only difference between them and a street pimp is that, while the street pimp is selling a resource with physical skills to the highest bidder or favoured client, they are selling a resource with mental skills to the highest bidder, or favoured executive.) The reason that I’ve been quiet is, until now, I’ve had no proof. But thanks to a recent Hackett Group study, nicely summarized in this Information Week article on “Project Management Offices: A Waste of Money”, we now know that not only are you not expected to get better business outcomes or project delivery performance if you use a PMO (Project Management Office) staffed with PMPs, but using one might actually decrease outcomes and/or performance. In fact, the study found that an IT organization’s performance actually improved once the PMO was eliminated.

What everyone seems to be forgetting is that, especially today when the level of process and technical sophistication in most fields is higher than its ever been and the pace of advancement is still relentless, you cannot effectively manage what you do not understand. While the basic principles of good business and project management are the same across disciplines at the high-level, 30,000 foot view, the implementations vary, and the knowledge needed to understand if a project is really on schedule or if a disruption is serious or not is different across every industry, organization, and project — especially in software and engineering. Every project comes with its own unique challenges, many of which will be deeply technical or process oriented. And if you don’t even understand the ramifications of the second law of thermodynamics, don’t expect to understand the challenges your design engineer is facing when the system keeps overheating at normal usage levels and how long those challenges might take to resolve.

Now, to be clear, I’m not denying the usefulness of MBA skills or project management skills, as they are useful when layered on top of a deep understanding of the organization’s supply chain or a relevant engineering degree (when one is managing an engineering project) — as they are incredibly useful in these circumstances, just denying that these degrees and/or certifications have any value on their own. In fact, as some recent studies have shown, on their own they can be down-right destructive!

So if you want a successful Supply Management Center of Excellence, forget about the MBAs and the PMPs and look for people with the skills in the disciplines necessary to create and deliver your products and services. If you produce electronics, look for designers, electrical and electronics engineers, risk management experts (to prevent supply disruptions from your dependence on rare earth metals), finance experts (to help manage working capital until the first product is sold), and any other cross-functional expertise necessary for a successful product. If you find the right experts, you can then train them in the project management and business skills that are required. And since these skills require substantially less capability and training than the disciplines the experts have already mastered, your experts will be able to master these skills given sufficient time and proper training. (On the flip-side, the chances that a PMP with only an associate’s degree in psychology is going to gain a sufficient mastery of power electronics to truly understand the project requirements to design a new overload reset switch for a local power grid are slim to none.)

When a Quartet’s Not Enough, It’s Time for a Simfoni!

When you’re first effort was essentially a duo (Trading Partners), your next a quartet (MarketMaker4), what comes next? A symphony! And that’s exactly what the founders of Simfoni are trying to create. After creating two successful Procurement companies, including Trading Partners (a former e-Auction leader) and MarketMaker4 (acquired by Xchanging), the founders of Simfoni are using their experience to try and create the perfect Procurement-as-a-Service (PaaS) for end-user organizations of various levels of maturity and consulting organizations a like. Are they succeeding? Time will tell, but they are already being used, and promoted, by PWC and Deloitte (among the largest global consulting organizations), so they’re going somewhere. Where? Time will tell, but for now, we’ll give you a brief introduction.

Founded in 2015, Simfoni is a global solutions provider and solutions integrator based out of the UK and the UAE (and with an office in Australia) that combines both its own technology, it’s services, and third-party capabilities (where relevant) to bring savings and benefits to their customers. It characterizes itself as a “mobile-first” solution provider, and all of its initial applications are built around, and embrace, the mobile platform. Even it’s analytics offering is designed so the reports look good on an iPad.

The Simfoni solution consists of four main options:

  • Virtuosi
  • PocketBuyer Mobile
  • PocketBuyer Desktop
  • iOS Assessment App

Virtuosi

Virtuoisi is Simfoni’s analytics platform. Based on Microsoft BI and augmented with “roll-your-own” customized capabilities, the Virtuosi platform is custom configured for each client organization to give Procurement, Finance, Risk Management and management teams a real-time perspective on sourcing, spend, procurement and risk related performance and opportunity. It can integrate with multiple data sources and classify the data in real time for exploration through the front-end, which can be configured by Simfoni to report on whatever data the organization needs to see in whatever way it needs to see it. This is a great benefit to the platform, but could also be a limitation to an organization that wants to roll-their-own.

PocketBuyer Mobile

PocketBuyer Mobile is an app that allows the management of all low value (tail) spend in one place, whether it originates through requisitions, travel, or daily operational management. Organizational personnel on the go can use this to request whatever they need — ground transportation (car services), a new laptop, parts for the production line they are inspecting, the office supplies order they forgot to put in before they left, and literally anything else they need — when they need it. It’s intuitive and quick to use. It’s a great tail spend tool, but missing a powerful punch for larger buys.

PocketBuyer Desktop

This is where PocketBuyer Desktop should come in. However, right now this is the desktop version of the PocketBuyer application where a user can make the same requests through a web browser that they would make through the app. Literally a big screen version, the application is just as easy to use, with the major difference being that instead of taking a picture of what you need and attaching it to a request, you attach an image file. Now, the recent acquisition of PurchasingPlatform.com could change this and give Simfoni the solid P2P foundational capability they need, but, again, time will tell.

iOS Assessment App

Simfoni’s IOS aplication is native tablet “app” that provides a procurement maturity assessment and category management tool to help consultants help their client organizations identify profit improvement strategies that can also be used by internal procurement organizations with a centralized and/or center of excellence (CoE) driven model that acts as a services provider to the business.

The app encodes a detailed multi-criteria assessment that assesses an organization’s maturity on the dimensions of strategy and rating, structure and capability, category management, sourcing, contract management, purchase to pay, vendor & risk management, warehouse, IT infrastructure, spend management and analysis. It includes pre-defined outputs/answers that represent the scale of maturity against each criteria as entered, and all the consultant (or other user) has to do is select the right one for each criteria and when all is said and done, the app will automatically compute, objectively, the maturity of the organization. Moreover, the assessment is aligned with the SCOR (Supply Chain Operations Reference). It may not be perfect, but it certainly gives a solid, objective, assessment of where an organization is.

In addition, Simfoni, which does have ties to other technology and consulting providers as outlined above, has its own team of internal sourcing and procurement experts that enables it to take on the services portion of engagements as well. It’s a next generation PaaS offering which might just be the right choice for many emerging Procurement organizations. For a much deeper dive into, and discussion of, Simfoni, check out the doctor and the prophet‘s upcoming in-depth series over on Spend Matters Pro [membership required].