Category Archives: Procurement Innovation

Coupa = 1B? the doctor is shell-shocked!

It takes a lot to shell-shock the doctor. It’s a crazy, crazy world and companies get overvalued all the time (take Facebook, for example). But 1B for a Procurement play best suited for the SMB market that only recently added basic sourcing (which qualifies as level 1 in the forthcoming 5-level sourcing model), basic finance support, and globalization support? A 5X multiple would be generous — and this is definitely closer to the 15X multiple that Spend Matters estimates in “coupa valued at over 1b in latest funding round”.

There are some who would argue that Coupa was past it’s prime when it started – the doctor had a conversation yesterday with someone who thought focussed Procurement platforms should have been over in 2006 (which is when they saturated the early adopter market). But since the true measure of maturity is when the technology starts to saturate the leader majority, the actual date the doctor would give for Procurement platform maturity is circa 2010-2011. Coupa doesn’t have anything that hasn’t been available from multiple vendors since at least then.

What Coupa does it make it faster (with instant start-up), better (through unprecedented ease of use), and cheaper (through SaaS and economies of scale). But it’s not unique, it’s not new, and while it is a Ferrari compared to the ERP Yugo, it’s still just Procurement with some Sourcing, Finance, and a solid technology stack. And it’s trying to lead a very competitive market. They may have grown faster than their peers (but they also raised 80M to do it when many companies only had a fraction of that to work with at any time), but hungry, hungry hippos come along everyday. And now that they are global, they have to take on the European heavyweights and newcomers (like Basware and b-Pack, which can now offer end-to-end Source-to-Pay as a result of the recent Selectica/Iasta acquisition, and both of these providers have Finance offerings as well — Basware actually started in Finance). And they more they crack open the market, the more companies that are going to be grasping at their coat tails, forcing them to be faster, better, and cheaper still — which at some point is going to erode their margins and affect their profitability.

Don’t get the doctor wrong, he has loved Coupa since Procurement Independence Day, and he even dedicated a full EP to them (which includes the hits It’s Coupa Time, The Coupa Store, and the unforgettable Davie and the Coupa Factory), but 1B is just crazy. It’s placing unreal expectations on Coupa and the Market as a whole, and setting them up for a huge acquisition that could make them the new Titanic of the space. And we all know what happened to the Titanic …

All Boards should Follow Kenya’s Lead!

Now that’s a title the doctor never thought he’d write! But a recent news story over on Capital FM Kenya that stated that President Uhuru Kenyatta issued a stern warning to his Cabinet to Adopt e-Procurement in 7 Days or Face the Axe got his attention.

If even the President of Kenya, a country in Africa that is not likely to be associated with progressive e-Procurement practices like leading countries in Europe, knows that it is necessary to introduce transparency, accountability and eliminate abuse of … existing procurement and financial management process than how come your average board of a 100M+ company in North America hasn’t figured it out yet? Less than half of companies of these size have modern systems or processes, even though decent systems have been around for almost 15 years!

Especially when SOX has been in force for almost 13 years and:

  • mandates a set of internal procedures designed to ensure accurate financial disclosure,
  • mandates the external auditor to report on the adequacy of the company’s internal control on financial reporting, and
  • mandates that the company adequately report on risk

A modern e-Procurement system, which can track all expenditures, not only makes all expenditures through the system visible but also makes it easy to report on such expenditures. If the company mandates all such expenditures through the system, then the company can report on all of those transactions and make accurate financial disclosures.

If the company forces all requisitions, purchase orders, and purchases through the system, then it has adequate spending controls and reporting.

Plus, since a company can quickly see what they are buying and who they are buying from, it makes it easier to identify risks – simply evaluate each supplier and cross-reference each product against a list of products where demand may exceed supply or where necessary raw materials could become scarce as a result of a potential disruption (such as a natural disaster, trade embargo, etc.). It doesn’t address all risks, and, in particular, sell-side risks, but it’s much better than not knowing what you are buying or who you are buying it from.

So follow Kenya’s need and mandate that your organization enter the modern Supply Management world.

“Best” Procurement Organization? What “Best” Procurement Organization?

A recent post by the maverick over on Spend Matters asks “Does the “Best” Procurement Organization in the World Exist”? There’s the long answer, which the maverick gives, and the short answer, which the doctor will give.

Question: Does the “Best” Procurement Organization Exist?
Answer: No!

There is no best, at least, as the maverick explains, as a whole.

The reasons for this, as detailed by the maverick, include, but are not limited to:

  • direct vs. indirect
    there are organizations “best” in direct, “best” in indirect, but typically not “best” in both
  • categories
    there are organizations that excel in certain categories, direct or indirect, but not other direct or indirect categories
  • trade secret
    organizations that are, or at least believe they are, truly ahead of their peers tend to keep quiet, thinking this provides them a competitive advantage
  • inbound vs outbound vs omni-channel retail
    most organizations tend to excel in one of these supply chains
  • operational efficiency
    which allows an organization to attack more categories than their peers

But also include the following:

  • market intelligence
    detailed supply market and pricing knowledge that can be used to the organization’s advantage
  • modelling capability
    to build accurate should-cost models using raw material, labour, energy, and overhead data to understand the gap between market pricing and actual costs and whether or not it is a fair profit margin
  • optimization-based negotiation
    to get the truly best price during the organization’s sourcing exercise

There are a host of factors that make a “best” Procurement organization, and all of them need to be met for an organization to be “best”. And since no organization is best in all of them, there is no “best”. But the good news is that not only is there room for improvement, but it’s easy to identify where the improvement needs to happen, to make the improvement, and surpass your peers. Fortunately, to win the game, you don’t have to be “best”, just “better” than your peers. Improve on each of these eight dimensions, and your organization will be on the fast track to getting there.

Why Finance is Failing Procurement

Today’s guest post is from Pierre Mitchell, the maverick of Spend Matters, who needs no introduction.

I’m doing a 5-7 minute poll (here) on Procurement-Finance misalignment (in conjunction with ISM).

This poll is basically geared around the question below regarding what Finance needs to do differently.

The long version takes about 15-20 minutes, but gets you entered to win an Apple Watch or one of 10 Spend Matters PRO monthly subscriptions.

I’m presenting provisional results at next week’s ISM Conference, and I’m going to take a snapshot of the data this Friday and need some good provisional data to present!

So, if you are a practitioner (and I apologize for not reaching out 1-to-1) I would like to personally appeal to you to take the 5-7 minutes required to help the profession build this case for change.

If you are a provider, I would greatly appreciate if you could pass this on to any of your practitioner contacts this week.

The study link that you can forward is here: http://bit.ly/ProcurementFinanceAlignment2015.

Thanks!

And here’s the question in question …

How can Finance reduce misalignment with Procurement and unlock impactful value for your firm?

Please choose all that apply that would have a favorable and meaningful impact on your performance.

These items would have a favorable and meaningful impact:

  1. Don’t reduce working capital at the expense of supplier health and TCO
  2. Look beyond headcount reductions for project justifications
  3. Provide more resources to get spending, contract, and savings visibility in place (for mutual benefit)
  4. Include Procurement in upstream strategy & planning activities (M&A, JVs, Innovation, Tax Efficiency, Variabilization, etc.)
  5. Fix the “use-it-or-lose-it” budgeting process that encourages end-of-period spending
  6. Establish a more effective procurement involvement/approval policy and process
  7. Be an advocate, enabler, and leader for strategic cost management processes/ practices
  8. Help manage external expenditures with the same rigor that is applied to internal expenditures
  9. Provide Internal Auditors and Controllers as change agents to help Procurement
  10. Treat procurement as a true partner and a profit center rather than just another cost center
  11. Don’t try to use the General Ledger as a spend data warehouse
  12. Move A/P from a payment efficiency focus to a spend management effectiveness focus
  13. Measure Procurement on value beyond purchase cost reductions (especially PPV)
  14. Help get Legal involved appropriately in the contracting process as an enabler and partner
  15. Help coordinate and prioritize corporate risk/compliance activities that should be taken out to the supply base coherently
  16. Get a supplier master data management process and policy that works for everyone
  17. Invest in needed supply risk management capabilities to help protect the business

Hi-ho. Hi-ho. It’s Off PO We Go!

Or do we?

A few years ago Jason the prophet Busch wrote a post over on Spend Matters that asked “can (and should) we eliminate purchase orders (POs) entirely”? In the post he quoted Tom Linton, CPO & Supply Chain Officer at Flextronics, who suggested that we eliminate POs entirely as a result of his mandate to eliminate work before you automate, automate work before you move it and always make sure you improve outcomes in any given scenario.

Mr. Linton is entirely right — there’s no point in automating unnecessary work. And in many circumstances Purchase Orders are entirely unnecessary. If the contract specifies a delivery schedule with approved rates, then there is no need for a Purchase Order since it would just be replicating what’s in the contract. Similarly if it’s for services and approved projects, resources, and rate-tables are defined against a project schedule (unless overtime exceeds the maximum overage allowed).

In this situation, you can just conduct the 3-way match against the goods receipt and the contract when the invoice comes in and you are still certain that you have payed the right price for the right good from the right supplier at the right time.

But what about the situation where there is no (master) contract? What then? You just match the invoice to the goods receipt? I hope not! In this situation you can verify you are paying for the right goods from the right supplier at the right time — but not the right amount. You need to verify that the price is right (because, as the line goes, it can all be yours if the price is right). So in in this case you need something. A requisition? Nope – that’s not sent to the supplier, that’s sent to your supervisor/manager for approval. A one time contract for a single purchase? Isn’t that just a purchase order?

The purchase order can’t be eliminated, because proper purchasing procedure dictates that all purchases should be for approved products from approved suppliers at approved prices and such approvals should be documented in some form — be it a contract schedule or rate card, purchase order, catalog, or approved rate range for a T&E expense — and there are some instances where the only viable option will be a purchase order.

But an effort to eliminate as many purchase orders as possible will be a good and productive one because, like invoices, each and every purchase order comes with a processing overhead cost that adds up and costs the organization significantly over time.