Category Archives: rants

RIP to the Big Idea!

This post appeared in its original form almost 5 years ago on August 31, 2011 when it was titled What’s the Big Idea. Since nothing has changed, we’re knocking it up a knotch with our borrowed spice weasel.

Seriously, like your predecessor’s Procurement, it’s dead and Buried! Inquiring (not enquiring) minds are in mourning. Because, as far as any of us can tell, there aren’t any big ideas any more. As Neal Gabler said in the New York Times article on the elusive big idea, we live in a society that no longer thinks big. And that’s bad. Why? In many fields of technology, there have been no big ideas for decades. Sure, we see new and better devices every year and sure the iPad Air Mini just came out and now you can chase Pokemon in the real world with your Pokemon Go app, but, let’s face it, the iPad Air Mini is a netbook with a touchscreen. A netbook is just a miniaturized laptop, and a laptop is just a miniaturized portable computer, and portable computers have been around for over 35 years. (Yes, you read that right, over thirty years, with the first portable computer manufactured in 1979.) And touch-screens have been around almost as long (with the first commercial touchscreen computer released back in 1983). Apple just took the technology to the next generation, while making sure it was easier to use than all of its competitors products. And as for virtual Pokemon tracking, let us remind you geo-location technology has been around for civilian use since the 1980s.

The cloud? Well, I hate to burst your bubble (actually, not true, I love to burst that bubble), but the cloud is just a return to the fundamental concept of mainframe computing with dumb terminals — one big shared computer that services a whole bunch of users who are remote and don’t want, or need, to know how the big computer works. Except this time the big computer is a whole bunch of smaller computers networked together and, since the network is very big (and, in fact, global), the computers can reside anywhere. I could go on, but, even in computing theory, almost everything traces back twenty to thirty five years (or more).

I’m almost ready to agree with the author of a recent Forbes opinion article on the New York Times article that asked why did big ideas die when he said that we live in a post-idea society where people don’t think at all. With exceptions fewer and further between by the day, most people don’t think [deep] anymore.

Why is this? As Gabler says, we are living in an increasingly post-idea world — a world in which big, thought-provoking ideas that can’t instantly be monetized are of so little intrinsic value that fewer people are generating them and fewer outlets are disseminating them.

Who’s to blame? Gabler blames the usual suspects — the web, Twitter, and everything else that, instead of facilitating a lively intellectual life, instead drowns us in information. And while some of these suspects, like Twitter, are indeed a problem, the reality is that they are a symptom and not the root cause. (Even though it was demonstrated back in 2010 that excessive use of Twitter and similar real-time communication platforms makes you dumber than a Pothead.)

The problem lies with Wall Street and VCs. They’ve convinced the business world that nothing matters beyond the current quarter and any idea that can’t be brought to market overnight isn’t worth it. We did not come further in the last 100 years than in all of human history by only focussing on products that could get to market quickly. (We have to remember that the first cross-Atlantic transmission did not occur until 1902. This transmission, and all major computational and communication advances since, did not happen in a quarter. Most of the advancements took years of research and decades to perfect.) If you’re trying to change a market — to go from a Model-T to a Jaguar — that takes years, but VCs won’t support anything that can’t be done in more than a few months. As a result all we get are small incremental improvements, with significantly diminishing returns as time goes on, as no one is investing to take the big leap forward.

And, despite claims to the contrary, we haven’t really reinvented the organization (as telecommuting and outsourcing have been common for at least a couple of decades), education, health care, or ownership. We’ve simply redefined management and, in some cases, who foots the bill. I’d like to see some fundamentally new big ideas, but unless someone from a parallel universe where they invented time travel finds away to break into this one and give me a time travel machine to go back in time, I may not live to see that day.

Millions Saved. Pennies Spent. Why Won’t They Learn?

Trade Extensions recently released a new set of case studies chronicling just half a dozen sourcing projects it did over the last couple of years for its fortune 500 clients that chronicled, on average, savings of 10% or more which ranged from 500K on a 5.5M category to 28M on a 200M category. All of these companies saved tens of millions (or more) and only spent in the six figure range for the Trade Extensions solution, which means for every penny it saved a dollar.

It is not just the magnitude of the savings that is significant though – it is the breadth of the impact. The air freight example not only identified a savings potential of 42%, with a realized savings of 21% (when the company took risk, performance, and preferred vendors into account), but also identified a scenario which improved service levels and reduced risks while delivering 21% savings.

The compliance reporting example helped an organization that, due to the scale of it’s operations, took five days to analyze the output of its Transportation Management System (TMS), reduce its retrospective analysis time to a proactive operations step that automatically executed in 30 minutes or less, and allowed the organization to, for the first time, ensure its product movements were consistent with the awarded contract scenario.

In the full truck load and global packaging examples, the companies were able to rationalize the supply bases by 25% to 40% while reducing cost and at least maintaining service levels and risk (if not increasing service and decreasing risk).

But yet these examples are rare. Every year many organizations as large, or larger, than these continue to spend close to, if not, seven figures on their first generation sourcing or source to pay platforms while generating savings that, instead of being in the 10% or more range, are in the 2% to 3% range, which means that the organization is essentially spending dollars to save dollars — which does not make good ecnoomic sense. Especially when a modern optimization (backed sourcing) platform can always be run along side existing supply management system and used as appropriate to generate 3X to 5X the savings and value than the organization would otherwise obtain.

So while the leaders have learned, why won’t the laggards learn?

Don’t Be Fooled. There is no SaaS. Part II

In our last post, we said there is no such thing as Savings-as-a-Service and any organization promising to deliver it (with the exception of the big provider recently valued at 1B) is making a promise they likely won’t keep. The majority of organizations that jump on this new acronym with grandiose claims of SaaS delivery will not meet up to expectations, and many will not deliver any savings at all.

The reason being is that a company is not delivering savings unless they are either delivering a product or service below market average price or delivering a product or service at market average but at a higher value than would normally be obtained (either through enhanced quality, reliability, features, knowledge, etc.). After all, anyone can go to Amazon, Staples, Office Depot, eBay, etc. and figure out a rough market average and get that price if they want to.

For a company to deliver savings, they need to (have a platform that):

  • know what the market average is for a commodity or service, and always provide options that are less or the same with additional value beyond the market norm (which means they need a modern catalog platform)
  • have a way of collecting quotes and bids from potential suppliers that can be compared in a normalized, weighted, apples to apples fashion (which means they need a modern e-Sourcing platform with strong e-Negotiation support capability)
  • have a services team to handle the negotiations and the contract process to make sure that what gets offered gets agreed to
  • have a platform capable of managing the PO, invoice, and goods receipt process (and m-way matching) to make sure that the right products are ordered at the right price, that only invoices at the right price are accepted, and that payments are only made for goods and services received (which means they need a modern e-Procurement platform with strong e-Document management capability)
  • have a platform capable of tracking obligations and supplier performance (to make sure that deliver is on time, quality is up to snuff, etc.) and handling any corrective actions that are needed and supplier development that can improve overall value (which means that a strong SRM platform is needed as well)
  • and have the expertise in the appropriate categories relevant to your business! An engineer from the direct materials world probably know squat about contingent lab or procurement or marketing agency management, which could be where a considerable portion of your unmanaged spend is.

How many providers have a full featured S2P platform with enhanced e-Catalog and SRM functionality, budget integration, analytics that support normalized year-over-year spend reporting, services professionals to support all of this as a true SaaS (Software as a Service) platform *and* the expertise to support the categories you need supported?

The answer is: relative to the number of providers in the Supply Management space, very few. Only this handful of companies can claim that they can deliver Savings-as-a-Service. And, fair warning, their services will come with a hefty price tag. (This is not to say that the price tag will not be worth it, especially since there are providers that can consistently deliver a 5x to 10x ROI year after year, but that you need to be prepared for the price tag up front and willing to work with them and follow their lead in order to realize the savings.)

Because it sounds so awesome, expect a number of companies to jump on this new SaaS acronym, and expect most of them to be stretching the truth at least a little (if not a lot). Do your due diligence and find out what it is they really deliver and what will be expected of your team to realize the ROI they are promising. Then figure out if your team is up to the challenge, can be with training, need (temporary) (GPO) (expert) augmentation, or need a services provider to simply take over part of the Procurement in an outsourcing relationship until they can be brought up to the level (and manpower) needed to realize the ROI themselves.

Everybody wants savings, but simply not paying more than you have to under normal circumstances is not saving, it’s just avoiding clearly unnecessary cost. Savings is going below the baseline, and to realize that, you need a provider that can actually help your organization achieve that consistently across categories.

Don’t Be Fooled. There is NO SaaS! Part I

That’s right — there is no such thing as Savings-as-a-Service and any organization promising to deliver it (with the exception of the big provider recently value at 1B) is making a promise they likely won’t keep. The majority of organizations that jump on this new acronym with grandiose claims of SaaS delivery will not meet up to expectations, and many will not deliver any savings at all.

That doesn’t mean that you will not see reductions in spend, because many of the offerings proclaiming SaaS will lead to reductions in unit price, but this isn’t savings. Paying less than you were spending is not saving. If you were paying more than market average, and you reduce the cost to market average, you are simply realizing a cost reduction you could have realized any time you wanted simply by shifting the spend to a GPO, (an) Amazon (or e-Bay) (reseller), or an e-Catalog provider with punch-out integrations to all the big marketplaces. That “savings” was yours for the taking any time you wanted. And, moreover, once you make the switch, and start paying market average, if you simply stay with that provider, you will never see the “savings” again.

“Savings” is what you realize when you reduce spend below market average or extract value beyond what you typically get at the price point you are paying. Thus, to deliver savings you must deliver a customer a viable option to obtain a product or service they need below market average or to obtain more value (add) when they pay market average. And, thus, to deliver savings as a service you must do this repeatedly on a regular basis.

This is NOT something you can do if all you offer is a catalog. All a catalog allows you to do is determine the market average (range) for a product or service and identify those products that meet the price (range) and document which are of the best quality or the best fit for your organization. This is a valuable “service”, and every organization should be using one for their commodity product and service tail spend, but this is not “savings as a service”. Savings comes from analysis, engagement, negotiation, and relationship management.

If you want a better than market price or value-add features and services, you have to engage a potential supplier, negotiate for delivery (based on guaranteed volume, dollars, or value-delivery — such as co-marketing, lean training, or volume-based raw material purchasing at a better rate on their behalf), and manage the relationship. Thus, obtaining savings is also more than just sending out an RFQ and accepting the lowest bid (because if quality or reliability decreases and you have more returns and stock outs, you are actually paying more), so providers that just offer RFQ/e-Auction technology don’t deliver “Savings as a Service” either. They deliver a platform that you can use as part of a strategic sourcing process to negotiate savings, but as you can see, there’s a lot more to delivering savings than just providing a platform.

And we’ll address this in Part II.

Your Procurement Sucks … and Here are 3 Likely Reasons Why.

Yes, SI is trying to get your attention and yes there is the vanishingly small possibility that nothing SI says in this post applies to you because you are the top 8% of the top 8%, but let us face facts. The possibility that the entirety of this post does not apply to you is significantly less than 1% and we can say with near 100% confidence this post will benefit you.

Procurement May Not Be Dead (as per our four part series on Procurement is Dead! Long Live Procurement!) but that doesn’t mean your job isn’t if you don’t eliminate the situations on this list and enter the modern age of Procurement. So take careful note of not only what is wrong with your Procurement, but the hints we give you for addressing these problems.

You’re drowning in paperwork

Invoices. RFPs. Catalogues. It’s not the 90s anymore, it’s the teens. If you don’t have a modern e-invoicing, e-RFX, and e-Catalog/e-Shopping solution there’s no hope of you ever getting your Procurement on track because you’ll never be able to process the mound of paperwork that is getting bigger and bigger every day as your organization grows and more invoices go in, more RFPs go out, more suppliers respond, and more suppliers send you their catalogues that get bigger every year.

You’ve never sourced Marketing, Legal, HR, or any spend outside of MRO and For-Sale Products

If all you are sourcing are office suppliers, MRO, and resale products, you are likely only sourcing half of the organization spend, at most. These areas, T&E, and other areas you are not sourcing are accounting for greater and greater portions of organization spend. Many studies indicate that 10% is the magic number for marketing spend. With more and more work being assigned to contingent labour, consultants, or outsource partners, this can be 20% of spend. T&E is also 10% of spend at many organizations. Then there is legal, which can be quit high, p-Card spend, event, spend, etc. If Procurement is only responsible for half of spend, why is it even needed at all? A third party can manage MRO, a GPO can manage office spend, and VMI can manage products for resale.

The only metric on your scorecard is savings.

This might have been a great metric in the noughts when inflation was essentially zero, many suppliers had inflated margins during the right-sizing craze of the eighties and the outsourcing craze of the nineties to record highs, and new suppliers were desperate to win business at any cost and double digit percentage savings were the norm in sourcing events across the board. But inflation is on the rise, hyper-inflation is around the corner, margins have been trimmed to low single digits as a result of over-use of auctions, and savings is a word that will soon only appear in the history book. We’re in the age of demand management (for consumables and internal spend), spend management (to keep cost increases in line with actual inflation), and value management (where value-added services that can increase revenue is sometimes more important than reducing spend).

If any of these situations applies to you, fix it fast, or your procurement will remain in the dark ages. Not a situation you want to be in.