Category Archives: rants

Automation is Good Across the Board! But Automation still does NOT mean Automated.

Not that long ago, we penned Procurement Automation: Good. Automated Procurement: Bad because organizations that embrace the right digital technology do much better than their peers, but organizations that go all in and put too much trust in unproven technology without human oversight (while trying to run before they’ve learned how to walk) or good data (and then make worse decisions than having no technology at all, as recently determined by Gartner) are making a huge gamble while forgetting that it is the house who always wins. (And in this case the house is the technology provider that is charging you a lot of money for the technology that eventually fails and costs you time, money, and in the worst case, your job and/or business. But we digress.)

And while this blog is a Sourcing, Procurement, and related Supply Chain Technology blog, it was very happy to see a recent release from the Hackett Group, as advertised in a recent press release on yahoo! Finance / BusinessWire, that noted that while HR (and Humans are VERY important to successful Procurement Operations) operating costs increased significantly in 2023, Digital World Class organizations continued to spend significantly less than their peers while delivering more resiliency, employee productivity, and greater business value with less staff than their peers. The Hackett Group concluded that increased spend on technology plays a key part in driving the superior performance.

Other key metrics that Hackett pointed out is that companies with at least one business services function operating at Digital World Class levels see a five-year average performance premium over their industry medians -– an 80% improvement in net margin; 24% higher earnings before interest, taxes, depreciation and amortization; 89% greater return on equity; and 44% higher total shareholder return. (So imagine how good your organization would be doing if you were world class in Procurement and HR, and ensured that your organization always acquired, trained, retained, and promoted the best of the best.)

Hackett found that a key aspect of Digital World Class Organizations in HR, just like Procurement, was a greater use of technology (to the tune of 60% more likely to have and use the full capability of Human Capital Management applications).

There are a lot of great applications that a leading HR organization can employ that go beyond the specific applications mentioned of:

  • Human Capital Management
  • Time Sheet Management (for hourly employees / contractors)
  • Health (& Welfare) management

and, as Hackett points out, include the use of emerging technologies such as:

  • smart automation (not automated Gen AI applications)
  • advanced analytics
  • collaborative tools

For example, a good HR department will employ platforms that:

  • will use smart automation to onboard employees, ensure they get paid on a regular basis, ensure that their expense claims are properly routed and evaluated on a timely basis (and OCR use to reduce receipt processing), ensure that all information they enter on health/disability/etc. claims is auto-routed to the right third party systems (and not lost/transcribed wrong), etc.
  • will use advanced analytics to analyze its highest contractor/third party costs, determine what functions should maybe be brought (more) in-house, analyze it’s biggest employee benefit plan costs, optimize those costs (without reducing benefits), etc.
  • use collaborative tools for onboarding, training, and continued professional development, especially for remote learning and self-study

Just like a good Procurement department will employ platforms that

  • use smart automation to onboard suppliers, automatically distribute and collect RFPs, verify data that can be verified by a third party, do automated sanity checks, do initial analysis for presentation to a HUMAN, automatically generate POs from carts/contract schedules, automatically match, to the extent possible, invoices to POs, etc.
  • use advanced analytics to identify not only the greatest costs but the greatest opportunities available to the organization based on PPV (purchase price variance), market opportunities, consolidation, demand management, substitution, etc.
  • use collaborative tools to involve all stakeholders and make sure processes are automated to the extent possible

Because modern technology is far superior for tactical processing (thunking) than we are as humans. However, the leaders understand machines, while they can augment our intelligence with finely tuned applications, cannot think and leave the final decisions to the humans. Technology is applied appropriately for maximum success.

As Hackett says, the bottom line is that Digital World Class HR organizations are better at enabling their companies to succeed. They have streamlined the day-to-day transactional elements of their operations, and through systematic use of global business services and process automation have freed up an additional 12% of their teams’ efforts to focus on value-added activities. Now, they can more effectively focus on attracting, retaining, developing and engaging employees. The right digitalization helps people, and that’s why the right digitalization helps Procurement.

Gartner Inadvertently Makes the Case for NO AI in Supply Chains (which includes Source to Pay)

Gartner, which promotes the use of Generative AI in customer service, even though it did place Generative AI on the Peak of Inflated Expectations on the Hype Cycle for Emerging Technologies, just inadvertently made the best case for never, ever, ever using AI anywhere in the supply chain, including Source-to-Pay, and we love it!

In a press release on their newsroom in late September, where Gartner Says 80% of Supply Chain Not Accounted for in Current Digital Decision Models, the subheading clearly stated that Digital-to-Reality Gap Shows Current Technology Use Fails to Improve Outcomes for Supply Chain Decision Makers.

As a result of this “digital-to-reality” gap, Gartner’s research, based on an analysis of 600 survey responses of supply chain decision makers, not only found that current use of digital models to analyze trade-offs made no meaningful impact on the rate of good decision outcomes but actually found that slightly more bad decisions were made with the use of digital tradeoff analysis than without and marginally increased the percentage of bad decision outcomes. Moreover, More than half of supply chain leaders reliant on digital technology to make a recent strategic decision told us that they felt they would have landed on better decision outcomes without the use of their models, and our analysis suggests that they are correct.

In other words, if source-to-pay and supply-chain decision makers cannot even make decisions when relying on traditional, focussed, machine learning and modelling technology, there’s no chance an unpredictable probabilistic incarnation of Artificial Idiocy that randomly changes its output by the millisecond is going to make good decisions. And the reason is the same — just like traditional (guided) (machine learning) models require good data and a digital representation that covers the majority (if not the entirety) of the process and relevant variables, so do Generative AI models and, in just about every organization on the planet, this necessary digital representation DOES NOT EXIST!

As a result, applying AI without the data it needs to have even a snowball’s chance in h3ll to make a decision is pretty much guaranteed to lead you to worse decisions than you, or any other intelligent human with a decent understanding of the situation, will make without the use of any technology whatsoever.

You don’t need AI, you need end to end process modelling, data collection, data enrichment, data validation, and the ability to use those end-to-end digital tools, interpret the data and recommendations, and make good decisions off of that. And since, with the current rate of digitization, it’s unlikely the majority of organizations will go from 20% supply chain digitization to 80% supply chain digitization (which is the minimum level of digitization you should have before even considering any AI, even for inconsequential decisions) by the end of the next decade, you should not even have AI for decision making on your future roadmap before the next decade rolls around.

the doctor doesn’t say this often, but thank you, Gartner. (Because it really is the case that stupid is as stupid does.)

How Do You Sustain Sustainability When True Value is Long Term …

… and the brunt of the cost is short term?

AlixPartners recently published an article over on Mondaq on how The Fourth Dimension In Strategic Sourcing, Sustainability, Can Drive Value which caught our attention because Sustainability can drive value, but most organizations under cost pressures, which are rampant in our current inflationary economy, don’t choose the sustainable option as it’s typically a higher expense in the short-term.

Moreover, the big value is investing in suppliers that invest in new technologies that will be more sustainable in the long run. However, due to the cost of implementing these new technologies, the up-front costs are higher as the suppliers have to stay in business until the new technologies start to deliver returns. For example, the following are major improvements to sustainability:

  • suppliers utilizing, investing in, or building their own renewable energy grids (solar, wind) to avoid using the energy produced by the local coal/oil burning plants
  • suppliers re-designing production lines and methods to minimize waste (through cutting of metal, processing of food, etc.) and to ensure any waste they create can be used as an input to another production line (melting and re-fab of metal scraps, animal feed, etc.)
  • suppliers investing in their own water purification technology to re-use water in the manufacturing process
  • suppliers investing in product redesign research to minimize use of scarce rare earth minerals/metals and to increase use of reclaimed minerals/metals
  • suppliers investing in reclamation technology to maximize recycling of products created with metals/minerals

… and the following, highlighted in the article, are minor improvements …

  • sustainable supplier selection as everyone is going to try and secure the most sustainable supplier of the lowest cost suppliers, leaving less sustainable suppliers or more sustainable suppliers at a higher cost that the CFO/CEO will not let Procurement pay for the majority of organizations (the small, sustainable, suppliers cannot massively scale overnight)
  • eco-friendly packaging and waste reduction as this is not new and many organizations are already be doing this to the extent eco-friendly packaging is available
  • energy-efficient products and services as this is not new either and as companies replace end-of-life products, they have been choosing more energy efficient products for a while now with the increase in energy prices over the last five to ten years, and the truth is that this is usually a small dent on their total energy footprint
  • carbon footprint reduction as that is the goal, not a specific action that can reduce carbon footprint, and. most importantly, significant reduction requires significant investment (reducing travel and forcing the CEO to give up the private jet and fly first class only goes so far)
  • collaboration and reporting because while you need to understand your footprint, and sometimes shaming goes further than incentivizeation, reporting doesn’t actually increase sustainability unless action is taken …

IF PE firms, with billion dollar funds, won’t actually invest in supply chain (which includes sustainability) improvements, because you typically don’t realize the bulk of the value until you (significantly) pass the five (5) year mark, how can you expect short-term thinking CEOs and CFOs, trying to impress Wall Street or attract PE funding, to actually put their money with their big mouths are and invest in true sustainability?

If you have answers, we’d love to hear them — comment on the LinkedIn post.

Just a Reminder You Get What You Pay For With Second Rate Market Research

While it might not be easy to look at the non-subscriber / non-client prices of a Gartner and Hackett research report or the cost of an annual subscription and say “yeah, it’s worth it“, we’d like to remind you that you get what you pay for and when you pay for cut-rate advice from a generic Indian Research Firm staffed by people who clearly don’t know anything about the Procurement Market and who hire PR people who think it’s a good idea to push their press releases to a website that got its name from a misspelling of Sheldon Cooper’s catch-phrase (from the Big Bang Theory), you’re paying for advice that, if followed, will cost you many times more than what you paid for that “research” when you follow the advice and make disasterous decisions.

So what kicked off this rant? This press release on Benzinga.com by 360 Market Updates on the e-Procurement Tools Market that proclaims to know How the Market will Witness Substantial Growth in the upcoming years. Research over the last decade from Hackett, Gartner, and Spend Matters — where the doctor was a Lead Analyst for six (6) years — have consistently found, and predicted, year over year growth in the 8 to 12% range, at best, across all areas of Source to Pay, a rate that’s no better the consistent predictions of about 11% CAGR for the broader enterprise software market for the current decade, and in some cases worse.  (Note that the doctor is calling out the press release, not the firm.  He’s not going to bother researching yet another firm that offers yet another cookie-cutter report with no clear value if there is no clear press release or website on that value.)

In other words, while steady, consistent growth is expected, it’s not substantial growth under any interpretation and it’s on par with enterprise software as a whole, at best.

But even worse, if you believe the press release, it’s apparently based on a completely random, entirely mismatched, set of “e-Procurement Tool Vendors” which demonstrates almost ZERO understanding of the global Procurement Tools market.

First of all, if you include all of the Procure-to-Pay vendors, there are over 100. SI has listed the majority of them in Parts 7 and 33 of it’s 39 Part Series on where to start with Source-to-Pay where it listed over 70 e-Procurement companies and over 75 Invoice-to-Pay and Accounts Payable companies. Their press release only lists 15 companies but …

… doesn’t seem to recognize that e-Sourcing, e-Procurement, and Supply Chain Management are not the same thing at all, and one of the vendors included is Delta e-Sourcing whose primary offerings are baseline e-Sourcing/tendering and supplier management and offers only baseline e-Procurement, compared to Medius which offers Procure-to-Pay (Procurement, Invoice Management, and AP Automation). Even worse, it contains Archlet that is an analytics-backed Sourcing Platform with Decision Optimiation and which DOES NOT OFFER ANY e-PROCUREMENT TOOLS.

… isn’t up to date. It lists LetsBuyIt.NET GmbH as one of the 15 vendors (and if you’re saying who?, you’re not alone because it doesn’t exist anymore). LetsBuyIt.Net is now eBidToPay Schweiz, and has been for nine (9) months. (So is this a recycled report from 2022 or 2021?)

… includes a big vendor that doesn’t even sell a Procurement Application anymore! It lists IBM corporation as the first provider, and while IBM acquired Emptoris in 2011, it began to sunset it in 2017 when it worked out an agreement with SAP to migrate all the Emptoris customers to the SAP Ariba platform!

In other words, if the press release is accurate, then this report, like many of the two-dozen plus low-cost reports you can buy from the two-dozen plus Indian Market Research firms that have popped up over the last two decades, would be more-or-less complete rubbish and you’d be better off taking that $6K and sending two of your top buyers to a major Procurement event where they can hear from experts, network with peers, and learn something actually valuable.

And if you need REAL market insight into current vendors and their platform capabilities, and the Gartner/Hackett reports don’t meet your needs, you can always go direct to the experts (like the doctor or Xavier and Bertrand* at Spend Matters, who the doctor has publicly recommended in his list of analysts and consultants he recommends when he’s not the best expert to help you). Yes, you may have to pay a few K per day, but you get targeted advice to your organization which is worth ten times (or more) what you pay because it’s based on decades of research and experience that allows the analyst/consultant to give you the best targetted advice for your organization while filtering out the market information that is relevant to you.

* Bertrand could be the last great analyst in our space! Take advantage of this while you still can … after all, it’s not the analyst firm. It’s the analyst!

If You Want Good Procurement People …

TRAIN THEM!

A common problem among all Procurement departments is their ability to find good, educated, experienced people. The reason for this is simple: there just aren’t enough good, educated, and experienced people to fill all the Procurement positions that should exist among corporations world-wide.

Why?

1. Procurement isn’t Sexy

People go into careers that are attractive. These are careers that are held in high regard (like doctors and lawyers), careers that pay well (like finance and tech), careers that are currently in high demand where unusually high premiums can be found in the right locations (like nursing or remote mining/O&G positions), or careers that bring fame (like acting, entertaining, and professional sports). People don’t go into careers that no one’s heard of, careers that have a negative stigma, or careers that don’t pay well. Guess what bucket(s) Procurement falls into? The latter three. No one’s heard of it (who even advertises their world class Procurement, yet alone makes it sexy — that’s right, no company on earth). It’s still thought to be the Island of Misfit Toys. And many people think back office purchasing pay scales are akin to entry level AP clerks.

2. There are No Real Procurement Programs

Prestigious Universities have prestigious business schools. These focus on executive management and basic operations. The best of these will also teach classic logistics. There are only a few Supply Chain Management programs globally, and none of these teach modern Procurement platforms and processes as a general rule. A few have brief introductions to modern spend analysis or e-Auction or RFP platforms, but that’s literally two decades old tech in our field. No one coming out of University has any real understanding of modern procurement processes, best practices, or platforms.

3. Most Procurement People Have Very Narrow Skill Sets

When you’re in Procurement because you get put there, fall there because there was nothing else at the time and you needed a job, or voluntarily move there to help the company because you demonstrated a knack for buying certain categories and without you, the company would be suffering and possibly have to layoff your friends, you didn’t go there because you had the right education and experience and knew it was the best job for you. Furthermore, when companies don’t invest in the education you need to learn end-to-end processes, best practices, and category specifics outside of the area you came from, you end up developing, usually by trial and error, a very narrow skill set in terms of applications you can use, processes you know, and market interpretation to determine if the offer is reasonable in current market conditions. This makes it very hard to jump to another job and be a good buyer in another category, or even a similar category where you would have to buy a whole new set of parts from a whole new set of suppliers in a whole new geography.

Thus, it’s going to be very hard, for any intermediate position, to find the right person who can walk in and do the job at market average performance day one.

However, Procurement is not rocket science, open heart surgery, or CPU design. It’s not hard to find very smart engineers, mathematicians, technologists, pharmacists, chemists, etc. who can, with focussed training in best-practice procurement processes and platforms, very quickly pick up the basics of Procurement and use their deep knowledge of products and R&D/Engineering/Manufacturing needs to identify the best products, suppliers, and partners for the organization. These highly educated individuals will also have a decent background in mathematics, algorithms, and logic to learn the spend analysis / market intelligence platforms and quickly identify market average prices and costs for products and parts and be able to analyze bids against current organizational prices, market prices, and should cost models to identify those suppliers offering fair quotes as well as additional service-based value.

With a few weeks of focussed training on key processes and platforms, these resources can often be up and running effectively, and with a few months of training over their first few years, quickly progress to a top-tier performer. All you have to do is bring back the Learning & Development budget and train them by hiring appropriate analysts and consultancies to design/deliver the courses they need to be effective for your organization. And even though custom courses can cost considerable up-front dollars, 10K is nothing if it helps a top-tier resource identify a 10% savings on a 10M contract, as that’s literally a 100X return on your investment. (Remember this the next time someone considers cutting the training budget for Procurement as the return on proper training for a good resource will always exceed the investment many times over.)