Category Archives: rants

Who Do Catalogs Serve? Not Who They Are Supposed to!

Over on Spend Matters, the prophet and the maverick recently co-authored a post that asked “Do Catalogs Serve Suppliers or Buyers More?”. The answer varied depending upon the (age of the) platform, the implementation, the intent, and the author, but the simple answer — which did not really come through loud and clear in their post(s) — is not who they are supposed to serve. Especially if it’s a first generation catalog.

We’ll take first generation catalogs first.

A first generation catalog is nothing more than an electronic version of a paper catalogue — and when you are in a rush to find and order a product, how good is that? With a paper catalogue, you flip to the index, hope the keywords you can think of are there, and hope the product on the page you flip to will do the job at a decent price. With an e-catalog, you are scanning through a keyword index or searching keywords and hoping the right product at the right price comes up. Not that useful, whether you are the buyer (who may or may not find what you want) or the supplier (who may or may not have their product found and requisitioned), especially when the buyer has to search each catalogue separately and will stop when the find the first acceptable product (which could be in another supplier’s catalog).

A second generation catalog is a bit better as it indexes all text, allows all supplier catalogs to be searched simultaneously, allows side-by-side comparison, single cart, and automatic PO splits across suppliers when a requisition is approved. But it’s still not perfect. The product might not be there. It might be out of stock. The price might not be right — or there may be no capability to communicate with the supplier for clarification on important details. The buyer is not served, and the supplier is not served.

Third generation catalogs are much better, and were supposed to solve the issues as they also allow punch-outs; real-time federated search across internal, supplier, and punch-out catalogs; communication; RFX; preferred and contract items to be weighted or forced to the top of the listing; budget integration; and visual guilt features, to make sure a buyer buys what should be bought when and how it should be bought. This helps Procurement help buyers buy on-contract items on-contract and steer purchases to preferred suppliers. And it helps suppliers because they know if they have a contract or are preferred, buyers will be guided to them.

But it doesn’t serve either party if the need isn’t served by an on-contract item in stock at a preferred supplier, because the buy might not be appropriate for catalogs in the first place. If the buyer buys an overpriced item via punch-out, that doesn’t help Procurement. And if the buyer buys the wrong product from the supplier when there was a better one, the supplier gets a bad rap and may not be bought from again.

The problem is catalogs, like GPOs, are presented as the be-all, end-all tail-spend management solution when, in reality, tail spend (as pointed out in Sourcing Innovation’s recent paper on An Introduction to Tail Spend — and why you need a technology-based solution, tail-spend is a very complex beast that is often only suitably served by a mix of catalog, RFX, and auction buys, often optimization-backed, with the solution varying with market conditions and particularities of the need.

And a catalog will never tell you when it is the right — or wrong solution. So unless it’s only a part of a full tail-spend suite, with expert guidance (via expert programmed workflows), it won’t even come close to serving either party. Remember that before buying a “new and improved” e-Catalog solution.

The Death of Factoring Will Be Highly Exaggerated

Last Friday, Spend Matters published a great Friday rant by the prophet aptly titled “Die Factoring, Die”! because Factoring can be the death of many an uninformed supplier who, like desperate individuals, take out payday loans to pay off payday loans at insanely compounding interest rates until they go bankrupt.

Factoring should die. It is no longer needed, but the doctor fears just like the pulp industry has survived for over a century when it should have died out long ago, it will still be around a century later. Just like the pulp industry had the perfect environment to grow until it was big and powerful enough to effectively outlaw the competition, the factoring industry has the same perfect environment to grow and crush the better options.

Before we explain, we’ll point out that just like there is a better alternative to factoring, as the prophet pointed out in his post, there is a better alternative to wood-based paper. In particular, the alternative that was around before the wood-based paper craze: hemp. Whereas hardwood trees take decades to mature, hemp can be grown and harvested in a single growing season. It’s the number one biomass producer on the planet (10 tons per acre in 4 months) and contains 77% cellulose (needed for paper) compared to the average tree at 30%. It’s stronger, the paper lasts centuries longer, does not require any bleaching, and the production requires significantly less water and energy than paper production from trees. (The pulp and paper industry uses more water to produce one ton of product than any other industry and is the fifth largest consumer of energy on the planet.) Hemp for paper is many order of magnitudes better, but since hemp (which contains, on average, 1/5 to 1/10th the THC of cannabis) was made illegal with the delegalization of THC in North America, it’s not an option.

This was possible because the pulp and paper industry was rich and powerful enough to lobby for the delegalization across the board, vs. just the delegalization of cannabis. They got that way because, during the start of the industrial revolution, when paper was needed en-masse to “power” back offices, North America was filled with old hardwood forests and there was not much hemp, as hemp was native to Central and South America. The population was much smaller than it is now, the possibility of deforestation was not even considered (as manual logging could only go so fast), and the technology to produce paper from pulp was understood and easy (at the time). And it could meet demand fast — logging could happen year round whereas hemp could only be harvested once a year in many of the central and northern parts of the US. So it became the defacto paper producing industry, and since everyone needed paper, it obtained a monopoly. And since no one knew better, or was even allowed to learn of a better way, the monopoly persists until this day.

Similarly, the factoring industry has obtained a monopoly on what is effectively “payday lending” to suppliers that need money now, can’t get it from the bank, and don’t want to beg the local “godfather” for a loan (at interest rates that put even North American credit card companies to shame, with default penalties much worse than repossession). How did it get like this? First of all, there have been no other viable options for many of these suppliers (as not all suppliers are lucky enough to get buyers that will offer the [slightly] better alternative of early payment discounting, as not all buyers can afford that). Secondly, growth demands working capital, and the capital has to come from wherever it can, and if you are a supplier in an emerging or tight market, it’s often factoring or death. Thirdly, the banks stayed out of it for too long, allowing the industry to grow and cement on its own, and now that it is “proven”, the banks have been drawn to it like moths to a flame, and they control the global cash flow.

So as long as it is effectively a cash cow, which it is as it is a slow cash drain (death) for most suppliers (meaning that you’ll acquire and keep more customers in a year than you bankrupt), more suppliers need it everyday (as they try to stay in business when times become troubled or they try to grow faster than they can afford), and it’s relatively low risk compared to other types of lending, it’s going to continue to gain support and traction from the lenders, who are going to do their best to present it as the only option available. And some suppliers will believe, lock-in, and get trapped in the factor cycle, factoring more and more invoices over time until every invoice needs to be factored as soon as it is issued just so the supplier can make payroll.

So even though modern platforms, backed by “big data” (even though the data doesn’t have to be all that “big” to adequately calculate risk and buyer payment time-frames), and enabled by networks (that give the supplier dozens or hundreds of options including half a dozen or dozens of better ones), could provide better options, the doctor just doesn’t see it happening any time soon. We’ve known since 2000 that multi-line item optimization can save an organization 10% or more on just about every sourcing event (and since Aberdeen’s advanced sourcing study in 2005 that it will save an organization an average of 12% across all categories) and still less than 10% of organizations using strategic sourcing platforms are effectively employing it — even though modern optimization-backed sourcing platforms make it easy enough for even junior buyers to use it self-serve and run basic models and identify considerable savings without expert support. (Not always the full 10% to 12%, but enough savings to justify its use on each and every event!) Factoring is finance, and banks have made finance unnecessarily complicated to maintain the monopoly. So it’s here to stay. And when big data and networks enter the picture, you can bet it will be the factorers, and not the factorees, that gain.

It’s sad, but for now — and the foreseeable future, it’s true.

Societal Sustentation 44: Education Quality

Supply Management is hard. Real hard. And it’s only getting harder. SI has said it before, and it will say it again … and again — in order to excel at Supply Management a Sourcing or Procurement professional has to be a jack-of-all-trades and master-of-one.

But this is not an easy thing to do. The skill set required by today’s Procurement professional is longer than Santa’s naughty and nice lists put together and is growing by the day. And that’s just the basics. The EQ, IQ, and TQ required for an average Procurement professional to get through the day is enormous. It’s to the point where a person of average intelligence can’t cut it. It used to be that only the best and brightest could do law and medicine and engineering but now only the best can do supply management. And, to make matters worse, just EQ, IQ, and TQ is not enough.

A modern Supply Management Professional needs knowledge — and lots of it. With constantly changing market conditions, new inventions, and new modes of operation, whatever a supply manager knows today is unknown tomorrow. As new methods of production come online, old methods become cost prohibitive. As new products are invented, old products become obsolete. As market conditions change, old plans become irrelevant. And so on. And what you need to know changes by the day.

But where do you get that knowledge. Most universities have a curriculum that is still mired in old-school logistics and operations research. Most professional associations are still teaching you old-school negotiating tactics. Most blogs are mired in the noughts and still preaching the gospel according to Ariba and Emptoris (which no longer exist on their own). And the analysts … well, we’re not too sure just what they are inhaling before they do their preaching, tragic quadrants, and dangerous graves.

And education quality in general in North America is bad, with the US ranked 14th, and getting worse. Only one in seven people can do math. Potheads have a higher IQ than twitterers. And spelling and grammar? The best case is whatever the iPhone autocorrect feature suggests. So what do you do?

1. Find curious people.

Find people who want to learn and get smarter and more efficient on their own. That will seek out the nuggets of knowledge, internalize them, and try their best to incorporate those nuggets into their work.

2. Seek out those that have a higher than average IQ, TQ, or EQ.

Those with a higher IQ will be able to quickly grasp, internalize, and utilize new theories and methodologies. Those with a higher TQ will be able to master new technology faster and find ways to simplify it and train the rest of the organization on the key features. Those with a higher EQ will be able to work better as a team.

3. Make sure you hire people that excel in each area.

Having a mix of high IQ, TQ, and EQ people will create a well balanced team that can work together, adopt and exploit leading technology faster, and learn about new options ahead of your peers.

4. Encourage continual learning … and pay for it.

Bring back the training budget, and pad it well. Even though you’re going to pay more for these well educated, smart, tech savvy, team-oriented, curious people, that doesn’t mean you shouldn’t pay even more for training. In what other organization can a $1 of training take $100 off of the bottom line when the sourceror takes 5% off a category expected to be at rock bottom, gets the supplier to throw in a value-add warranty for free, or finds a new production method that shaves 50% off of overhead cost? Find people that want to learn, and continually educate them. The cost is nothing compared to the ROI you will generate.

So, Do You Throw Provider RFX Templates Out with the Packaging?

This post originally ran two years ago. (Link) SI is repeating this post because the majority of organizations still have issues with RFX templates of all shapes and sizes for all types of purchases.

So, do you throw provider RFX templates out with the packaging? That depends. If you have lazy, uneducated, or inexperienced Supply Management personnel (because your Procurement department was staffed like the Island of Misfit Toys), then you want to delete them as soon as you get them because, if a template exists for the product or service you want, it will be sent out more-or-less as is and you’ll get a specification that is two sizes too large, two sizes too small, or very irregular and not at all a good fit for your organization.

On the other hand if you have educated, experienced, go-getting Supply Management personnel who take the time to properly construct an RFX, going through the steps outlined in our many RFX series here on SI, then they do have a use. Specifically, as a check-list after the RFQ has been completely drafted to make sure that nothing was missed. Sourcing is complex these days and it’s hard even for an expert to include every relevant detail every time when time and resources are so scarce. There’s a reason that even hospitals and clinics use checklists, because it greatly decreases the chance of a (serious) error being made. If a vendor, that built a template as a result of analyzing dozens of events, included something in an RFX template, then, at least at one point in time, it was very relevant and, as such, should not be excluded from an RFX until a senior buyer confirms that the market or standard operating conditions have changed and that the question, cost component, or requirement is no longer relevant.

So, these templates do have their uses, as long as they are editable by senior buyers. Because, as explained in the last paragraph, over time, some parts of the template will become irrelevant and other questions, cost components, or requirements will become very relevant and need to be in all RFXs related to that product or category. If the senior buyers can completely customize the templates to the categories, products, and services of the organization and configure the tool so that no template is used out-of-the-box (until a senior buyer confirms that it is still accurate enough out-of-the-box), then the templates, and template features, have a use.

But as-is, the templates in many template libraries are probably still less useful than calling a supplier over the phone and saying you need a quote for customized circuit boards and doing three-bids-and-a-buy blind.

In other words, templates have a use, which is why the doctor encourages most vendors to have a library of templates that can be used as starting points, but their use, until customized by a senior buyer, and reviewed regularly, is that of a post-RFX creation checklist. Nothing more. And not understanding this can get your organization in serious trouble in its sourcing events.

When Are We Going To Wake Up and Stop Wasting Food!

Recently, Italy introduced a new law designed to reduce food waste which is being celebrated by farmers and restaurant owners as it simplifies the donation of excess food that ends up becoming food (or field) waste. Approximately 100 Million tonnes of food across the EU is wasted each year. (Source: European Commission) That amount of food would sufficiently feed at least at least another 100 Million people annually (as the amount of food a person needs in a year varies between 0.5 and 1 tonne depending upon diet, weight, etc.). This is just in the EU. In the US, recorded food waste exceeds 30 Million tonnes, and is probably much higher. (Source: Feeding America) That’s at least another 30 Million people that could be completely fed. Putting these numbers together, and assuming the average amount of food consumed by a person a year is 0.75 tonnes (and not 1), that’s about 175 Million completely satiated. There are almost 800 Million undernourished people in the world. If we assumed that they were surviving on only half the food they needed (which is not reasonable, as that’s barely sustenance, and a lot of these undernourished people are in developed countries and still eating enough to work), this says that the recorded food waste in 1/7th of the world’s population could cut the number of undernourished people in the world by half! By Half!

Italy is only the second country in the EU to adopt such laws (following a similar move by France earlier this year – Source: The Guadian), so let’s hope that at least in the UK, sanity reigns. Because in North America, and in the US in particular, it does not. It’s illegal in many cities to feed the homeless (Sources: NPR and MIC), even if the food is not passed its expiration date and untouched, or you are a Pastor (Source: The Daily Signal)!. In some states, game meat donated to shelters is burned (Source: Daily Caller). And even if you can donate food without getting fined and arrested, and someone gets sick because, while it was still good when you donated, by the time it was prepared and eaten it wasn’t (or it was contaminated when you received it with e-Coli and you didn’t know), then you can get sued for millions of dollars, so why take the risk?

This is why, as per our post from August, 2012 on why it’s Not Criminal, But it Should Be, America Trashes 40% of its Food Supply. It’s insane!

Food reserves have not recovered from the all time low, over 800 Million people, including almost one third of children in developing countries, are malnourished and the two richest economies in the world (the US and the EU) are collectively wasting enough food to solve over HALF of the problem. All this in a time when agriculture produces 17% more calories per person per day than it did 30 years ago. This is enough to provide everyone in the world with at least 2,720 kCal per day, which is 30% more calories than an average person needs. Instead, the cost of staples is rising, access to food by the lower class and malnourished is falling, and, because of stupid, stupid laws made by stupid, stupid lawmakers, the situation is getting worse. When it should be 10 times better!

As per our research from four years ago, there is no excuse for wasting more than 4% of food. (That’s still too much, but the 100% solution is always difficult to achieve right away. And when the 90% could be achieved tomorrow, let’s start there!) Not only would sanity (and laws mandating food donations and feeding the homeless instead of laws preventing this) reduce costs by $150 Billion and methane emissions by 22.5% (as rotting food makes up 25%), but the US would NOT have anyone undernourished! (14% of households in the US are food insecure! Fourteen Percent! The US is the richest country in the world, how can this be???)

Bravo France and Italy for finally doing something right! Let’s hope the rest of the EU follows suit so at least some people won’t go hungry!