Category Archives: Procurement Innovation

Procurement Key Issue 2013: CXO’s Still Don’t Get the Disconnect!

This week, the Hackett Group released their “2013 Procurement Key Issues” study. This study, which was likely the last hurrah from Pierre Mitchell as a Hackett Group Employee, found that some organizations are going deeper and broader to deliver borderless procurement services, which is good, but the one thing that blatantly stands out is that your average CFO, COO, and CEO still doesn’t understand the value of the Procurement Organization.

Before I explain, let me review a few of the key findings.

1. 82% of respondents state that increasing operational agility and flexibility is a key enterprise issue.

2. 65% of respondents state that pursuing game-changing innovation/technology is a procurement initiative planned for the next 12-24 months in support of enterprise strategy.

3. 76% of respondents state that expanding purchasing’s scope and influence is a major procurement-related issue in 2013.

4. 76% of respondents state that increasing innovation and product/service report is a major procurement-related issue in 2013.

5. 88% of respondents cite strategic sourcing as a major issue.

6. 81% of respondents cite category management as a major issue.

BUT

7. As a whole, respondents are projecting:

  • a 0.4% drop in the operating budget and
  • a 0.5% drop in the FTEs in the procurement function.

 

I think this calls for a WTF!

Strategy and category management require skilled resources with the right intelligence and toolsets. This requires adequate budget.

Innovation and agility require advanced skills, expertise, and market knowledge that requires a lot of supply market intelligence, outside information, and time to study mini- and mega-trends. This also requires adequate budget.

Scope of influence comes with results, and results require talented people with appropriate toolsets and knowledge. Again, this requires adequate budget.

Furthermore, we have the situation where budgets are not being cut equally. From what I’m gathering, for the fifth year in a row, Procurement Training budgets are being slashed or are non-existent! This is driving me nutz! This disconnect of separating expectations from budget is ridiculous, especially when the organization is supposed to be scored on value. Value is ROI. ROI is return on investment. In Procurement, this is defined as savings/avoidance/revenue increase over spend. This means that if spending $10K on training will give your category managers the capability they need to go negotiate another $100,000 of the TCO (Total Cost of Ownership) through unit price, logistics, and non-value added service savings, then you increase the budget by 10K because you are getting a 10X return!

If the goal is for the Procurement organization to deliver value, then they need the budget for the technology, supply market intelligence, and training they need to deliver that value. Otherwise, expecting them to do more with less (FTEs) is just stupid. Ludicrous in fact!

Seeking Spherical Supply Solutions? Succeed in the EU! Part III

In our last two posts we outlined five major reasons you should be looking at European Supply Management Solution Providers if you are a global multi-national that is buying from and selling to multiple countries. Briefly, they were:

  • EU solution providers are already multi-lingual!
  • EU solution providers understand the importance of locality.
  • EU solution providers understand that customer priorities differ by locality.
  • EU solution providers realize that, one way or the other, you have to be in Asia.
  • Including EU solution providers in the mix reduces the chance that you will need two solutions.

If the EU provider, understanding the importance of locality, has opened a US office and staffed it with local staff, why shouldn’t they be in the mix. After all, if they also have:

  • the functionality to meet your requirements,
  • successful implementations (verified with references) in the countries you have targeted, and
  • a proper localization of their software for the US market

they could be perfect for you. And when you get down to it, a number of you are probably storing your data in an ERP solution that came from Germany!

It’s no longer the case that, as it was as recently as a few years ago, a multi-national has to use a US-founded solution provider in the US and a European-founded solution provider in the EU (and maybe even the rest of the world). There are now choices in both markets that serve the globe, with companies like BravoSolution, Hubwoo, and Wallmedien being examples on the European side.

SI isn’t saying that a European provider will be the right choice for you, as there are big name US providers that have successfully gone global, including recently acquired Ariba and Emptoris, and some up-and-comers like Coupa and Iasta have added multi-lingual and localization support since their early days and are exceptional solutions for the markets they are being deployed in. What SI is saying is that you cannot strike these EU providers off the list until you have seriously reviewed them. I have seen situations where no US provider has fit the bill, and expect that this reality will continue at least until a few US providers rise to the level of Ariba and Emptoris, if not for the next decade. The only way to guarantee that you are going to get the best solution for your business is if you invite all the top players to the table, regardless of where they came from.

Seeking Spherical Supply Solutions? Succeed in the EU! Part II

Alliteration aside, the reality is that if you are looking for a modern sourcing or procurement solution, not only should you not exclude the EU, if you truly want to go global, and install global, you should probably focus in on the EU solution providers before making any decision. In today’s post we continue an explanation of why.

They understand that customer priorities differ by locality.

While this could have been included in the last point, it merits its own point because priorities do differ substantially between NA and the EU. While many North American companies will often trade functionality for usability — which is why there are so many flashy solutions out there across the spectrum of business solutions that are almost void of advanced functionality where optimization and analytics are concerned, the same is not true of the EU solution providers that, after the doctor‘s heart, favour functionality over form. That’s why many of the EU (import) solutions have deeper, and broader functionality but UIs that look like they were designed five to ten years ago. (Fortunately, with customer help, this is an easy fix. It’s easy to put a new paint job on a faded corvette. It’s much harder to turn an oldsmobile into a corvette.)

One way or the other, you have to be in Asia.

If you’re a global multi-national, you’re either buying from, or selling, to Asia — if not both! Most of the EU Supply Management companies have a larger footprint in Asia than most of their counterparts in the US. The EU, close to Asia, has not only been doing business with Asia for just as long as North America, but due to their ability to support multiple languages, and locales, from day one, had an easier job moving into Asia.

It reduces the chance that you will need two solutions.

While you want Best of Breed, the last thing you want is multiple best of breed solution providers if you can get away with one. Adding the EU providers to the list increases your chances that you can find a solution provider that will meet all of your needs.

In other words, you have at least five very important reasons to be seriously considering EU solution providers. Tune in tomorrow when we’ll summarize the situation.

Seeking Spherical Supply Solutions? Succeed in the EU! Part I

Alliteration aside, the reality is that if you are looking for a modern sourcing or procurement solution, not only should you not exclude the EU, if you truly want to go global, and install global, you should probably focus in on the EU solution providers before making any decision. Here’s why.

They’re already multi-lingual!

There are twenty-seven (27) member states in the EU, speaking close to two dozen languages. To do business across the EU, you need to support close to a dozen languages, and most European sourcing and procurement providers do, and have supported multiple languages since their first release. In contrast, most North American providers built up their suite supporting only one language, English, and added other languages as an after-thought. This means that only the bigger names can support multiple languages, and your selection of global providers in the US is limited.

Plus, multi-lingual is more than just translating the UI. It’s having people who speak the language – natively – to support the product and local references in the appropriate countries. If you ask ten random EU providers for a reference in Poland or Malaysia, nine will probably be able to name three off of the top of their head. In contrast, ask ten random NA providers for a reference in Poland or Malaysia, and you are likely to get a blank stare from nine of them.

They understand the importance of locality.

And the bigger providers are global. The first thing they tend to do when they want to enter a new market is open a local office. In contrast, an average North American firm will try to serve the new locale from an existing office first, and a US one if possible, with only the help of one or two local employees to assist them.

Secondly, they understand that since most transactions involve money and legal contracts, that it’s very important to localize not only the language, but the terminology in order to come off as being a professional solution put forward by a professional company. For example, in Europe it’s “article” instead of part and “position” instead of bid.

Thirdly, localization of the supplier enablement process is very important as it is often a critical factor to supplier adoption. Each locale has it’s own business and technical challenges. For example, in addition to language and terminology on the business front, an understanding of local culture is often critical to convince an uncertain or wary supplier to get onboard. An organization that is already established in the region typically has a much better understanding of culture than one that is not. Secondly, even though there are often multiple connectivity options at an organization’s disposal, some options are not applicable to some regions. Example: punch-outs in Asia.

These are just two of the reasons. Turn in tomorrow for Part II.

Could Strategic Sourcing Save the US Government?

It’s a hard question to answer, but when you consider the fact that Joe Jordan, administrator of the Office of Federal Procurement Policy just said that our government is the largest purchaser in the world, but it buys as if it were 130 mid-sized businesses. We’ve got to leverage our buying power, you’ve got to think about it. Especially when a recent report from the IBM Center for The Business of Government by David C. Wyld estimated there are 8.9 Billion in Savings to be had in US Federal Government Spending Alone just by using public sector reverse auctions on a mere 75 Billion of Federal Spend identified as appropriate for reverse auctions.

When you think about the fact the the U.S. Government Budget for 2012 consisted of 3.796 Trillion of Expenditures, with 716 Billion going to defence, 56 Billion to International Affairs, 31 Billion to Science, Space, and Technology, 23 Billion to Energy, 43 Billion to Natural Resources and Environment, 19 Billion to Agriculture, 103 Billion to Transportation, 32 Billion to Community and Regional Development, 361 Billion to Health, and 62 Billion to Administration of Justice (which adds up to 1.446 Trillion, where you know manpower costs are probably less than half, you have to believe there is at least 750 Billion of Federal Spend that is appropriate for strategic sourcing. At least. Slap on the expected 12% expected average savings if the Federal Government bought strategically using its buying power, and we would expect there are at least 90 Billion in what is likely low-hanging fruit savings opportunities just waiting to be plucked. At least. Now, it’s true that this wouldn’t even cut 10% off the deficit, but if the US returns to a balanced budget in the near future, and strategic sourcing saves the company 12% of sourceable spend, then even if sourceable spend is only 50% of the entire spend, the company will be saving 150 Billion a year, and that adds up quite fast!

According to Jordan, strategic sourcing could perhaps apply to $150 Billion of $500 Billion under his (direct) purview. It’s only a fraction of the total spend that eventually needs to be strategically sourced, but it’s a good start if addressed. That would likely give the government savings of 15 Billion to 18 Billion and an incentive to force strategic sourcing through all the agencies that receive and/or control government funds.

And the savings will be magnified if the office really does improve the government’s records on contract past performance and takes advantage of inspectors’ general work in exposing waste, fraud and then suspends and debars “bad actor” contractors from getting work. (While some governments don’t believe past performance should be used against bidders in future RFPs, those of us in the private sector know that is the among the stupidest ideas ever and you don’t give a non-performer more work.) It’s one thing to overspend on a contract by 10%. It’s another thing to overspend by 100% because you awarded the contract to an entity that could not deliver.

And if Jordan is convinced that the office needs good, timely and robust past performance information and uses this as an incentive to evaluate the use of data to drive fact-based analytics in the acquisition process and moves to spend analysis and decision optimization / support systems, the savings opportunities for the U.S. Federal Government are an order of magnitude above what even the biggest corporations can hope to save with advanced sourcing efforts. For the US Federal Government, strategic sourcing is definitely worth the effort it will require.

And, for sure, this is another arms race the UK doesn’t want to win.