Category Archives: Procurement Innovation

Supply Management Has a Long Way To Go To Get to The Top!

The ISM and BravoSolution (who want to align Sourcing with the rest of the organization) recently released the 2013 ISM Survey of Procurement Executives on “Procurement & Sourcing: Moving from Tactical to Strategic” which summarized the responses from 545 Supply Management executives at the Director level and above to a detailed survey created by BravoSolution and administered by ISM last July and August.

These executives were given a list of 24 topics identified to be of recent concern to procurement and sourcing executives and asked to identify their top organizational priorities in 2013. The top priority of improving cost reduction and savings should not be a surprise to anyone since most companies have been laser-focussed on cost-reduction and savings since the major financial crisis in 2007-2008, to the detriment of just about every other important goal. However, what should be surprising is that cost reduction and savings is not only the top priority in 60% of companies but still twice as important as the second most common business priority of revenue growth and profit improvements despite the fact that most organizations expect their cost reduction efforts to yield less than 10%!

The time of near-zero inflation is at an end and with hyper-inflation a strong possibility in many commodity markets and a few countries, and, despite the opinion of some experts, we could be looking at a return of stagflation in some global economies. And even if we don’t see stagflation, the rapid rise in costs across a number of raw material and commodity categories should be enough to convince the average Supply Management professional that savings will not be possible in many categories and the best one can hope for is cost avoidance — unless other opportunities for savings are identified. Opportunities that revolve around process improvement, raw material substitution, value-add, and non-value add service removal. This means that more effort should be spent on supplier collaboration and innovation, supplier performance and sustainability management, and raw materials, but the first two of these options were only listed as priorities by 19% and 23% of the respondents, respectively, and the third option didn’t even make the list of the 9 topics that were selected by more than 10% of respondents.

It was nice to see that 30% of respondents recognized that a key capability of properly performed Procurement is the delivery of revenue growth and profit improvement, but this doesn’t happen without the proper focus on efforts that can lead to revenue growth and profit improvement, which include efforts like the Procurement Perfect Order (which will make your organization a more attractive supplier), improvement of working capital (which will allow Finance to reduce interest and penalty payments, take advantage of early payment discounts, and possibly even earn money on short term investments), improving customer loyalty (as it costs less to keep a customer than to acquire a new one), improving the strategic nature of trading partner relationships (as this can lead to joint efforts to take cost out of products and services and increase sales), and more spend under management (which permits better spend and opportunity analysis). However, from this set up of options, only two — getting more spend under management and improving working capital — were selected as priorities by more than 10% of respondents. Without appropriate priorities, profit and revenue goals are just pipe dreams.

There’s a fair amount of analysis in the 23 page report, but the bottom line is that Supply Management has a long way to go to become the strategic powerhouse it should be. It’s just like Angus, Malcolm, and Bon said back in 1975 — It’s a Long Way To the Top (If You Wanna Rock ‘n’ Roll). A long, long way …

If You Really Want to Make Stakeholders Hate You, Just …

Spend Matters UK recently published a 5-part series on how to make stakeholders hate you, which presented five actions you can take that, despite your intentions, will help you achieve your goal of helping stakeholders to hate you.

In order, they were:

  1. Drive them Mad with Technology
  2. Revel in Being the Gatekeeper
  3. Talk Your Own Language
  4. Insist Every Spend Category is the Same
  5. Focus Purely on Savings

From a Procurement point of view, pushing for new technology, focussing on savings, and speaking the language of good Procurement is typically a good thing (as technology helps you do your job better, savings pleases the C-suite, and the language of Procurement isn’t appreciated enough). But from a Legal point of view, technology is irrelevant; from a Marketing point of view, it’s about sales, not savings; and from an Engineering point of view, the language of Procurement is irrelevant — the product has to work, work well, and be something to be proud of (damn it). So, even if it’s delivered with the best of intentions, a push for new technology, a focus on savings, or explanations delivered in your language can turn stakeholders off.

However, insisting every category is the same or revelling in your role as the gatekeeper is definitely confrontational and will help achieve your goal of getting stakeholders to hate you, with time and effort of course. But if you really want your stakeholders to hate you, and hate you with an unrelenting passion, the best way to accomplish this, beyond a shadow of a doubt, is to:

     0.  Take all the Credit

Assuming that you can convince the stakeholders (or the C-Suite who will force them) to work with you, the best way to truly become the target of their ire is, once the project is a success, take all the credit. While it’s true that the root of the project success — be it cost savings, quality improvements, JIT delivery, value-add, etc. — will be the result of the technology, process, and supply management experience you bring to the table (which takes the good job they were doing and makes it great), you can’t take all the credit. Remember, (as far as the stakeholders are concerned), they worked just as hard as you; they brought the category expertise to the table; they have the experience with their preferred suppliers to, supposedly, determine which tactics and methodologies are likely to yield the most fruit, and they have a need to look good to the C-suite too. (Especially if their department is seen as a cost-center and not a value-creator.)

So if you stand up when the project is done, compare the greatly improved results that were achieved when the department worked with you for the first time (compared to the dismal results the department achieved on its own last year), and do your absolute best to take all the credit, the stakeholders will hate you so much that they will strive to open the gates of hell and unleash its fury upon you. It’s the only thing you have to do to gain their eternal animosity. No ifs, ands, or buts about it. No top five list needed.

Why Big Brains Will Beat Big Data in Procurement


Today’s guest post is from Ryann Kahn, Marketing and Communications Manager at Source One Management Services.

Two weeks ago, the Sourcing Innovation blog published an article about how the three cognitive traps stifle global innovation. I couldn’t help but think about how the same points could be made in procurement: data (though usually we don’t have Big Data) can help overcome some common issues, but ultimately Big Brains are more important and effective at the same job.

Take a procurement sourcing project for example.

The commonly used traditional three-bid process is data driven. It implies that if you collect enough (i.e. three pieces of) data, then you are making a good decision. Now, by collecting three bids, you know you are not getting the worst price and service out there and you are encouraging some competition. But without category expertise or a strategic process in place, can you really consider the data alone enough to justify that you have made a wise and innovative decision? Data != strategic sourcing.

But the data itself can often lead to the confirmation bias that the doctor referenced previously. Was your RFP template (or software solution) structured in a way that drove you to the conclusion that you already had envisioned? For example, if you want to remain with your local incumbent supplier, does your scorecard penalize suppliers for not having a location near you? Did you only request pricing on a specific product, which you knew your preferred supplier had the best (or only) price available? Confirmation bias in the sourcing world is real and common. Many companies effectively eliminate competition with better solutions because of the way they structure their questions.

By contrast, a true strategic sourcing process uses data in a Big Brain process.

The first step is a spend analysis of data from contracts, supplier invoices, P-Cards, supplier reports, POs, and more. (That’s a lot of data.) Then we look at market intelligence, historical trending, new products or process enhancements and benchmark data. (Now that’s Big Data!) All of this information is pulled, assessed, and analyzed. But the data alone does not give a full picture of a company’s spend. It takes the “curious, open mind” to uncover the whole story. Data may suggest inadequacies, but only through more in-depth research and thorough interviews with stakeholders and end users will one be able to identify problems and usage requirements.

The next step of the strategic sourcing process is the sourcing strategy. Again, it begins with data collection to cast a wide net of suppliers and determine their capabilities. But the bulk of the work in this stage belongs to the Big Brain: creating the supplier strategy, envisioning an RFx strategy, and planning for an execution strategy.

Even if procurement evolves to join the Big Data bandwagon, data will never be able to replace a human category expert. A category expert comes armed with nuanced knowledge of market trends, characteristics, players, and history, and uses analytical skills to apply that to plain data. Or, as the HBR article says, “When we look at markets different from our own we often have little information”. An expert who has been intimately involved with sourcing a category for years will be able to achieve better results than a novice armed with data, or the most powerful e-sourcing tool, any day.

In the final phases of the strategic sourcing process, implementation and compliance, it is entirely the work of a Big Brain. Experts must ensure that a company is actually achieving the results that were identified in the earlier phases in terms of savings and level of service. These experts may use tools to help collect the data to support the process, but the tools themselves don’t do an adequate job of capturing the data that is important to the unique organizational situation.

Data can, and does, help make good sourcing decisions, but ultimately it’s the Big Brains that lead the way. A Big Brain will always be needed to strategically apply the data (big or small), and be the “curious, open-minded researcher” to make a good decision.

Thanks, Ryann.

Still Not Convinced You Need Your Invoices Under Control?

Then, for starters, maybe you need to dwell on the following:

  • You’re probably overpaying your suppliers by 1%
    because that’s what an audit recovery firm expects you are, and why they make a killing auditing the 20% of suppliers that constitute 80% of your purchase volume, because it’s not that hard for these specialist firms to identify overpayments of 0.5% that typically generate 500K or more in a gain share agreement for a few man months of work (or less)
  • There’s a 2 in 3 chance you are being defrauded of 2% of your revenue
    and that you’ll never notice because you aren’t able to verify all invoices
  • Up to 75% of your AP-related overhead is completely wasted
    on manual data entry, supplier inquiries, and other tactical work that adds no value to Finance or Procurement
  • At least 1 in 10 invoices have an error
    which could be as simple as missing payment information or as involved as incorrect pricing on every line item for a 200 line Bill of Materials because the supplier forgot to apply the discount
  • One Million invoices requires at least 100 standard 4-drawer filing cabinets
    if you get 1 M invoices a year, after 10 years, that’s 1,000 filing cabinets — where are you going to store them all??? (With today’s Storage Area Network densities, that’s 1 SAN. Which can be replicated in 3 places at almost zero cost compared to the seven figure cost of replicating and storing 10 Million invoices at three different locations.)

SI could go on, but the reality is that, especially if your organization is growing, it really, really needs to get its invoices under control. To find out how it can do this, download SI’s new white paper on An End-to-End Invoice Automation Framework Benefits & Best Practices, sponsored by Nipendo. (Registration required.) Once you understand the requirements for a true end-to-end invoice automation solution, you will be well on your way.

Basware: P2P for the Global “E”

Basware is one of the largest players in the global procurement arena. Founded in 1985 in Espoo, Finland (as Baltic Accounting Systems) to deliver enterprise finance software solutions, the company (which is now public and traded on the NASDAQ OMX Helsinki Ltd. as BAS1V) has grown from a small country player to a global platform with over 2,000 international P2P customers that collectively do business with almost 1 Million companies in over 100 countries. Basware supports its global customer base through its operational footprint that spans over 50 countries on 6 continents and includes over 100 partners and resellers.

It’s solutions span the entire P2P (purchase to pay) process, from requisition through payment and post-transaction analysis and includes the Basware Commerce Network that enables over 425 Billion of e-commerce annually. The network currently lists 1.9 Million suppliers and processes over 60 million e-invoices annually through the 60+ e-invoice formats it currently supports, including XML, EDI, and Virtual Printer formats. The network is growing and transaction growth is currently running at 60% year-over-year, and now that they have partnered with MasterCard to provide their customers access to MasterCard’s suite of payment products, it is likely that network growth will accelerate even more now that customers have even more payment options.

One of the most unique features of the platform is the fact that it spans the full AP and P2P cycles, whereas many of the smaller P2P and e-Procurement platforms are Procurement centric, with little support for AP. However, Basware started as a provider of finance solutions and migrated to the e-Procurement space with the birth of e-Commerce, and, as a result, has a firm command of the order-to-cash cycle from both organizational viewpoints.

From the procurement side, the platform contains modules for analytics, basic sourcing (RFX), contract management, catalog management, e-Procurement, and e-Invoicing. From the AP side, the platform contains modules for e-Invoice Processing, e-Invoice Matching, e-Payment, and Analytics. All modules are integrated with a consistent look-and-feel, and all modules are available on top of Basware’s new cloud-based Alusta platform which supports (multi-)enterprise private cloud instances. In addition, the collaboration capabilities and social integrations span the entire platform and all data in the platform is available to the analytics module.

Another unique feature is that Basware has decided that they are a procurement platform, and not a sourcing platform, and that their sourcing capability will remain basic. Basware recognizes that Procurement experts are not Sourcing experts and vice-versa, and have decided that they are going to partner to delivery an industry leading sourcing solution for those customers that need end-to-end Source-to-Pay functionality. As a result, they recently announced a major partnership with BravoSolution to deliver a comprehensive source-to-pay solution that covers all key steps of the sourcing, procurement, and finance process.

In future posts, SI will dive into key capabilities of the Basware Commerce Network; the e-Invoice processing, matching, and payment capabilities; and the analytics platform.