Category Archives: Procurement Innovation

Serex – Bringing Auctions Back to Procurement

At this point in time, you’d think reverse auctions would be old news in Procurement, seeing that FreeMarkets was running reverse auctions twenty years ago and the doctor has repeatedly bashed their use in strategic sourcing (because they are not strategic), but they’re not.

There are two reasons for this.

1. They have an important role to play in tactical Procurement.

and

2. Companies new to strategic sourcing are still convinced by first generation solution providers with great marketing teams that they are still the greatest thing since the spreadsheet and that the historical savings opportunities are still there.

And while the doctor would like to think that the majority of buyers of these solutions fall in group 1, the reality is that the majority of buyers fall in group 2, and, once acquired, will treat every strategic sourcing event as a nail and use the auction tool as a hammer. So if that is the case, then the buying organization better get the best damn auction tool out there (since they will still need the auction for the tactical procurement nails when they figure out there is a better way to do strategic sourcing, and will actually need the auction tool more).

And these organizations will need a useable solution. The reality is that while just about every suite and point-based sourcing and procurement vendor offers an auction tool, not all of these are good auction tools against modern standards. Many first generation tools have no way to bulk select suppliers, bulk select products, bulk upload starting bids, import historical data, bulk upload attachments, etc. — ease of use capabilities you would think that would be standard. In fact, for the most part, only the newer reverse auction tools from smaller best of breed vendors targetting the mid-market tend to have the usability one would expect.

Usability and efficiency capabilities in an auction tool is key. I’ve heard countless stories about big organizations taking 1 to 3 weeks to set up a large global auction for large bill or materials or global category in a first generation tool when that same auction could be set up in a modern tool in 1 to 3 hours.

And this is where Serex comes in. Serex is an interesting entrant in the e-Procurement space. Originally founded 23 years ago to help clients select, implement, deploy and effectively use CRM and marketing automation systems, something it still does to this day, a few years ago, after a routine meeting with a client that asked if it had systems to support buying, it decided to enter the e-Procurement space when it found out that its client had tried, and passed on, over a dozen auction and sourcing platforms because not one met its need. (Serex was shocked at this as it knew there were a lot of solutions and assumed some were good, but figured it one Global 3000 couldn’t find a useable solution, then there must be other companies in this group that couldn’t find a useable solution either.)

So, after securing beta customer support (and a commitment for monthly guidance from the CPO with over two-decades of cross industry experience in large mid-size and Global 3000’s as well as weekly buyer availability), they began development of a new auction solution that would be developed by buyers, for buyers, and used by buyers. (And it is. Serex’s first customer saved 6M in year one and since full launch this year, its first few clients have logged over 14M in savings. And this is one reason why all of its prospects are large mid-size and Global 3000 organizations, despite the fact that the solution best fits the mid-market, which they have traditionally served on the CRM side.)

The reverse auction solution was designed to enable buyers to quickly set up and run auctions through quick bidder search and selection, quick product search and selection, quicker selection of which suppliers can bid on which products, and default auction parameters (which can easily be overridden). Complete product specs can be defined or uploaded as attachments if needed. Suppliers can send detailed messages during the auction to request or offer alternate delivery dates or substitutions for quicker delivery, and a buyer can update the auction specs as needed. In addition, all auctions are saved and new auctions can be created as copies of old auctions, and then updated as needed, allowing repeat auctions to be setup in just minutes (which is valuable if a product sells better than expected and an auction needs to be repeated on short notice to meet demand). (The auction platform has a built in attachment viewer that displays standard web formats.)

And that’s the solution. With the exception of a product manager sub-component and a bidder management sub-component, there isn’t even an RFX, which is probably the biggest short-coming of this new e-Negotiation tool — because sometimes you just want a simple tool to collect bids and make a decision. This is the biggest weakness of the tool. But Serex built it in a little over a year, and can easily build it out considerably in the next year. SI expects that in two years it will more or less compete on par with the other best-of-breed e-Negotiation mini-sourcing suites aimed at the mid-market along with adding capabilities that will cause larger organizations to adopt it onside their first generation Source to Pay platforms that they are locked into (but which are not useable enough to use on the majority of procured categories).

Assessing A Procurement Team’s Skills

Special thanks to Charles Dominick, SPSM3 of the Next Level Purchasing Association for this guest post.

You have a procurement team. It isn’t performing quite as well as you’d like.

You instinctively know that there has to be mismatches between the skill levels required for each position and the skill levels possessed by the occupants of those positions. You know action is required. But you can’t exactly put your finger on a way to solve the problems that are preventing you from maximizing procurement performance.

Where do you start?

Well, you can’t solve a problem unless you identify it. And you can’t effectively go to war without knowing what weapons you have. So, at this point, you need to assess the skills of each member of your procurement team.

Now, conducting a world-class procurement skills assessment is a pretty involved process. For the brevity required by a blog post, we will have to cover some parts of the process by simply stating what tasks need to be done and not necessarily how to do them. For example, before you assess procurement skills, you need to determine which competencies are required to achieve organizational goals. That’s an hour-long seminar in and of itself. Let’s assume that you already know what competencies are required for success and, therefore, what skills you need to assess. There are many options for assessing procurement skills, so we will spend more time on that process.

There are three ways of assessing procurement skills. The following is an excerpt from a Next Level Purchasing Association white paper entitled, “The Procurement Leader’s Guide To A More Successful Team: Seven Steps For Improving Skills & Getting Better Results.”

Skill Assessment Method A — Self-Assessment

One commonly used approach is to have each team member complete a self-assessment. For example, you may list your desired competencies and ask each staff member whether their skill levels in that competency are high, moderate or low. While this can get the job done quickly, it is not likely to be accurate.

First, the assessment is inherently subjective. Any skills assessment should be able to challenge a skill level claim with the questions “according to whom?” and “compared to what standard?” The answer to these questions for this method would be “according to the individual” and “compared to that individual’s opinion,” respectively. Not the strongest benchmarks.

Second, there is a risk that a self-assessment might be completed defensively. Individuals may feel that the reason for the assessment is to identify candidates to be downsized or to award promotions or raises. Therefore, individuals may rate their skills higher than they truly are in order to avoid punitive measures or to achieve rewards. Attitudes of individuals in these situations may be characterized by statements such as “If I don’t recognize my skills, how can expect others to recognize them?” and “If they knew my real skill levels, they wouldn’t be asking me to do this self-assessment, so why be modest?”

Skills Assessment Method B — Manager Assessment

Another approach is to either

(i) begin with a self-assessment and validate it with a manager’s review and update of that assessment or

(ii) to simply have the manager assess each staff member’s skill levels independently.

Of course, this approach is still subjective and “inside the box.” An internal assessment does not compare skills with best-in-class procurement professionals — it compares it with internal expectations, which often can drift to one of two extremes:

(i) the current team has inadequate skills or

(ii) the current team has been here a long time and the team members know their jobs inside and out.

When it comes to mastering all aspects of procurement, you should always lean towards the mantra of “We don’t know what we don’t know.”

Skills Assessment Method C — Third-Party Assessment

Yet another approach is to have the skills assessment performed by a third party. A third-party assessment can provide the most objective data. And you may be surprised that, depending on the provider, you can have a procurement skills assessment performed at little to no cost and little effort.

Regardless of the method chosen, you need to have an idea of at least two tiers of skill level in each competency: acceptable and unacceptable. A graduated measurement with data between these two tiers is better, but you must at least know the demarcation point between acceptable and unacceptable.

Using Assessment Results

Once you have assessed the procurement team’s skills, you need to do a gap analysis. Again, that’s one of those things that I could write on and on about. I’ll simplify it by saying you’ll document which team members lack adequate skills in which competencies.

Once you have your skill gap analysis, then can develop a roadmap for training in order to close those gaps. That topic deserves plenty of attention, so I will dedicate my next guest post to that topic.

Stay tuned!

Thanks, Charles.

With Currencies Crazy, Is It Time to Return to Barter?

This is more of a question / thought experiment than anything else, but it’s a good question.

Brexit has thrown the British pound into chaos again. (Nothing new, it’s happened before, it will stabilize eventually, but it will happen again.)

Canadian and Australian dollars have recently made substantial declines from highs that put the dollars almost on part with the American dollar to lows that put it a mere two thirds to current values around the three quarter mark.

The Greek financial crisis is still ongoing and could threaten the Euro further.

And so on.

An organization enters a long term (multi-year) contract with an international partner under the expectation of value, an expectation that is crated based upon a current and projected currency exchange rate — which can change radically overnight when a single country, or in some cases, a single bank, decides to do something extremely unexpected or extraordinarily stupid.

All of a sudden costs can double. That’s considerably more fluctuation than is in the reserve budget.

But what if there was no exchange of currency. What if it was an exchange of a raw material or service for another raw material or service, where each raw material or service came from the organization or a partner in the same country. Since the value of a product or service, adjusted for inflation, is relatively constant over time and since the relative value of one versus another is also relatively constant over time, such a contract would not be subject to rapid changes in value differences regardless of what happened in the currency markets.

Now, you’re probably thinking that this wouldn’t work — you buy from X and don’t sell them anything, but who do they buy from and what do they buy? And what do their downstream partners need? Remember, they have bills to pay too and if their supplier requires a raw material in abundant supply that could be supplied by one of your customers, that has to pay you anyway, all could work out.

For example, just because you’re buying rare earth metals for electronics manufacturing, doesn’t mean bartering is off the table. The rare earth metals provider, which provides a refined metal, might be buying from a mining company that is part of a conglomerate owned by a single company that requires specialized mining equipment on a regular basis. One of your biggest customers could be a producer of this equipment that buys all of its hardware and associated services from you. If you arranged for payment in mining equipment of your choice in today’s dollars, and the seller was happy with that conversion, you could pay in mining equipment over time, regardless of how your relative currencies rose and fell.

This might not have been imaginable years ago given all the supply chain visibility, data, and optimization models that would be required to identify the right value-generating deals that could keep costs constant over time, but with modern supply chain systems that enable visibility from the raw material to the end customer, all supply relationships, demands and spend, and multi-level optimization models, this is now a reality. And currency risk could effectively be made a thing of the past in large, critical categories. It could require more multi-party agreements, but if all parties benefit, why not? It’s not like you have to courier contracts around the world — create a secure collaboration portal, agree, e-sign, and you’re done.

Now, just like buying on behalf of the supplier to get lower costs through greater volume leverage is still only done by the leaders, SI expects that this is something that only leaders would do for at least the next decade, if it was done at all. What do you think? Will leaders catch on?

Pool4Tool: Bringing The Direct Procurement Platform — And Message — To the Masses! Part III

In Part I, we began our discussion of the Pool4Tool platform by focussing on its Sourcing capability. Then, in Part II, we discussed their Procurement and SRM capabilities, and specifically, the catalog management capability, procurement requisitions, service management, the SRM portal, and the overall procurement workflow capability. In this third and final installment of our initial 3-part series on Pool4Tool, we are going to discuss the supply chain management capabilities, which is where many of the capabilities not found in traditional source-to-pay (or procure-to-pay) platforms designed with indirect in mind fall short for direct materials management.

The Pool4Tool platform contains a number of unique supply chain management capabilities, including deep ERP integration, document approval, VMI, automated order dispatch and order acknowledgement, Kanban, and quality control.

Let’s start with ERP integration. Pool4Tool supports extremely deep ERP integration and the integration to SAP is so strong, and the interfaces so useable, that it’s actually deeper than Ariba and more useable by its clients for SCM than SAP’s own interfaces in some cases.

It’s EDI integration with third party content is extensive as well. Third party feeds that have already been integrated include, but are not limited to, D&B, Ecovadis, and about a dozen other providers. This data can be viewed side by side with all internal system and supplier data to provide a true 360 degree view of a supplier that extends beyond the enterprise to the market as a whole.

One of the true strengths of the platform is the integrated VMI capability. Not only does the portal allow a supplier to self manage all of their data, see all of their purchase orders, get real-time visibility into their invoice status, and collaborate with the buyer, but it allows the supplier to manage inventory levels on behalf of the buyer. The supplier can keep track of stock levels in real time, manage deliveries to make sure stock levels do not fall below minimums or exceed maximums, and insure the buyer can run their operations smoothly at all times. This can take MRO to a new level and allow both parties to be more efficient.

And, last but not least, the bill of material support and integrated lifecycle costing with integrated budget management extends into supply chain management capabilities as well. The cost of a product is more than just the production cost, or acquisition cost, or sales cost — it’s the cost of distribution, the cost of maintenance, the cost of return, and the cost of raw material reclamation. The lifecycle cost can be many times more than what it costs to make a product, and the POOL4TOOL platform not only contains models to accurately compute that cost, but also to manage the acquisition, distribution, and support against a budget and track the costs across the lifecycle.

In other words, the capabilities of the Pool4Tool platform, while only briefly discussed in this series, go well beyond the average Source to Pay platform designed with indirect in mind and is, thus, a platform that should definitely be evaluated by any sourcing organization that does a lot of direct (material) sourcing.

For more information on why indirect platforms cannot support complex direct sourcing needs, see Sourcing Innovation’s recent white paper on The Direct Procurement Challenge. For more information on complex direct sourcing needs and the importance of efficiency and effectiveness in general, see the doctor‘s recent paper on The Procurement Value Engine, co-authored with the procurement dynamo. And check out the Pool4Tool platform.

For a deeper dive into Pool4Tool and their platform, see the recent 3-part series over on Spend Matters Pro [membership required] that does a very deep analysis of Pool4Tool and their capabilities. (Part I, Part II, and Part III.)

Pool4Tool: Bringing The Direct Procurement Platform — And Message — To the Masses! Part II

In Part I we began our discussion of the Pool4Tool platform, focussed on its Sourcing capability. Specifically, we discussed the RFX and e-Auction capability, the Contract Management capability, and the Catalog capability which can be used to kick-off Sourcing events or procure much needed products and services. Today, we are going to discuss the Pool4Tool platform’s Procurement and SRM capabilities.

It’s important to understand what the Pool4Tool platform does, and how it is different because, as we have been saying (in the Direct Procurement Challenge), indirect platforms cannot support complex direct sourcing needs and the Pool4Tool platform is one of the few platforms that can. (For more information on complex direct sourcing needs, see our recent paper on The Direct Procurement Challenge, sponsored by Pool4Tool, and for more details on the importance of efficiency and effectiveness, see the doctor‘s recent paper on The Procurement Value Engine, co-authored with the procurement dynamo.)

As per our last post, one of the capabilities of the Pool4Tool platform is a powerful catalog management platform that can be used to manage not only multiple supplier catalogs, internal and external through punch-outs, but also multiple requisition types and templates that can be reused as needed across sourcing and procurement projects. These catalogs can be managed by the buyer or by the suppliers themselves, and fully supports UNSPSC. The catalog is fully integrated into the e-Procurement platform and supports approval workflow by employee, cost center, or organizational unit. Requisitions can be approved in full or in part and (partially) approved requisitions can be automatically pushed into the ERP as soon as an approval is made. This can also kick off an automatic purchase order to the relevant suppliers (as requisitions can contain requests for products and services to multiple suppliers) and can do so in their own currencies (as not only does it support multi-currency, but even multi-currency within a single order).

The entire process can be kicked off by a Procurement Requisition from somewhere in the organization that can be made through the platform, be automatically routed to the right buyer, and kick off the right sourcing or (catalog) procurement process. This allows for all requests to be captured and managed in a central fashion. This is more important than you think as this allows all spend to be captured, tracked, analyzed, and brought under management.

In addition, service orders are deeply embedded in the e-Procurement platform and can be kicked off like procurement requisitions and tracked and managed through the entire process outside of the catalog or the standard PREQ if need be. Each type of service order can have its own workflow and approval process, can be tracked, invoiced against, and paid only when services have been rendered.

From an supplier point of view, the Pool4Tool Supplier portal is quite extensive. Suppliers can (self) register and create, and maintain extensive profiles. They can also manage their certifications, qualifications, insurance policies, and other documentation that is required by the buyer. They can access all their RFXs, auctions, communications, orders, invoices, and have a 360 degree view of their activities with the buyer.

Flipping back to the buyer view, the buyer can also use the portal to manage and develop their suppliers using the supplier development and (corrective) action management capabilities of the platform. And, like the buyer, they can get a full 360-degree view of all activities associated with the supplier. Past and present RFX and auctions, contracts, current orders and commitments, innovation initiatives, development activities, issues and corrective action plans, and overall supplier scorecards are all centralized. It’s a central point to get a comprehensive view of supplier capabilities, commitments, engagements, and possibilities.

In Part III, we are going to discuss the SCM capabilities of the Pool4Tool platform.