Category Archives: rants

Don’t Use a Sub-Standard Sourcing Solution for Services!

If you know the Source-to-Pay software market, you know that most of the solutions out there were originally designed for indirect, commodity/finished good purchases, and most of the solutions are still targetted at those types of product-base acquisition today. (When we get to the list of sourcing vendors in our ongoing Source-to-Pay is Extensive series, you will see that this is the case.)

The reasons for this are multifold, but the main reasons [which often aren’t valid] for building, and maintaining, an indirect-focussed sourcing solution usually fall into one or more of the following:

  • for many non-manufacturing organizations and organizations that don’t require highly customized goods, indirect is the greatest percentage of external spend
    [often true, but not always the greatest savings potential]
  • it’s easier to do apples-to-apples with commodities and, thus, find the greatest savings
    [easy to do the comparison, but savings depends on the market and where the organization is overspending the most
  • services are the domain of CWM, right, so those platforms are likely covering it
    [they’re not, they’re focussed on workforce management, not project management, and that’s critical]
  • every organization has different services needs, and sourcing processes, so it would be hard to build a solution that wasn’t extremely specific to an industry and, hence, build a successful business
    [when you get specific, yes, but most organizations go outside for the same services: legal support, marketing support, tech support, facilities support, etc. and the types of work, and thus sourcing processes, are similar, its just the specific needs that differ (leasing vs. insurance vs. IP law, traditional media vs. web media, on-site vs cloud services and specific systems, etc.)]
  • it’s just too complicated and is best done manual
    [it’s certainly more work to design a solution, requires a different workflow, and most certainly the solution will requires customization on a client level, and does take more upfront build time, but services sourcing is not best done manual]

However, it’s likely that you were sold such a solution, and told that you can easily fit services into it with a bit of work, especially if the vendor also adapted it to support (limited) bills of material (BoMs) and direct (which they claimed was harder). The rigging to make it work would either be to create statements of work up front [which you should do] and getting all-in bids [which you probably should not do], or breaking the project done into phases and getting staged bids [which is good, if your stages are appropriate the time cost dwarfs the material cost], or offering it up as a time and materials and getting separate bids where you could optimize the material cost using third party market costs (and contract on behalf of the supplier) and the time cost by optimizing the resource rates against the expected hours/days, and then selecting the combined lowest cost [which isn’t bad, but extremely complicated and still leaves you with apples-to-orange comparisons later if sometimes the supplier did the material procurement and sometimes you did*]. And you can. Sort of. But it’s not a good solution, and you shouldn’t do it.

Why?

A whole host of reasons including, but not limited to:

  • force fitting square services into round holes is not a good solution
    [you’ll have to shave off the corners, and they could be important]
  • you’ll never know what part of the service is the most complex or costly if you can’t collect, and compare, the right, granular data
    [and, moreover, which suppliers are marking up the most and extorting high profits across the board because one part of the project is actually costly and complex and you have no way of knowing how big that one part is; that one part could only be 20% with the rest of the project being achievable with low-cost common cookie-cutter services]
  • when the project runs late or over budget, you’ll never really know why (unless there are a lot of change orders);
    [it might be just one of the phases or one task among 20 was considerably under-scoped or there was one part of the project in particular the supplier was just not suited for (even though they were for the rest of the project and were a stellar performer for mostly similar projects in the past, which didn’t have that one new/complex task; e.g. up until now, it was all simply enterprise system integration and installation and you used a different vendor for the security configuration and audits; but this time, the buyer baked it in to the core SoW, the supplier quoted as being able to do it, when they really didn’t have the expertise on hardening the product, configuring your firewalls, or fixing issues found by your third party security auditor)]
  • you won’t be able to build an accurate performance profile on your services providers and identify which ones typically come in on time, on budget, and to spec, while meeting any CSR/ESG or diversity targets set by your organization
    [and this is critical as those are suppliers you should be prioritizing for future projects, and those that aren’t performing as well, if strategic, are the ones that need to be the focus of development projects]
  • you won’t be able to manage, or even track, the project in the platform
    [and you should at least be able to look up where a project is with respect to milestones, whether or not it is on budget, and if the suppliers involved are involved with any other projects, and how much work a supplier has unfinished with you before you give them another award]

In other words, you should not use a sourcing solution that is substandard for services for your services projects — you should use one that is. And while this means you may have two sourcing solutions, this doesn’t necessarily mean you will need to have two data stores, SRM systems, analytics systems, etc. Modern Best-of-Breed solutions these days are being built API-first so they can plug into the solution you used for most of your sourcing and then punch out to them for specific projects, and push the awards back when you’re done. As indicated in our post last month that asked Where’s the Procurement Management Platform, you should be looking for a core solution that can serve as a platform, and then best of breed augmentations where needed, as no one vendor can do it all. And that’s okay. If they meet the majority of your need, and are willing to plug into an ecosystem, that’s where you start, especially since, as per our Source to Pay is Extensive series, you can’t implement it all at once anyway. But if you have significant services spend, you need to get it right.

* the doctor is fully aware you can compare apples to oranges, but the comparison is not very useful!

Carbon Tracking is Important — But a Calculator or a Credit is Not A Solution!

We need sustainability. But that’s a heck of a lot more than just calculating the carbon in your supply chain or buying credits from an unknown seller of dubious origin. However, in the last two years, we’ve seen dozens (upon dozens) of startups that, as of now, do just that — and only that.

If they have plans to do more, that’s great, we need more — a lot more, but for now, all they are adding is unnecessary duplication of capability and confusion to a space that needs more clarity.

First of all, you don’t need a custom “carbon calculator” to compute your carbon footprint. All you need is the data on the products you produce — specifically, how many units you buy, the carbon output by the factory on an annual basis, and how many total units it produces. Then, you can compute a carbon contribution by product. (Yes, this is a bit simplified, but you can have the factory track daily production by product and daily output and improve the estimate if you like. It’s still a simple calculation.)

And, most importantly, you can do all of these calculations easily in any Business Intelligence (BI) or Spend Analysis Tool. Just load the factory carbon / GHG output for a day and the number of products produced per day in a tracking table and create a derivation dimension for carbon and each GHG you want to track and that’s your output per product. Then, on your product purchase table you create a derived dimension that calculates how much carbon (and GHG) the products you bought contributed. Dump the table and there’s your report, which you can format how you like.

And you can even do all this work in, gasp, Microsoft Excel if you don’t have a spend analysis tool — you don’t need someone to build a custom mini spreadsheet tool to do this for you (or pay for it).

But even worse is an unregulated someone who will take your money and invest it in “carbon offsets” for you. Especially when the enterprises that someone invests it in may or may not be doing anything that’s actually reducing the amount of carbon in the atmosphere. The reality is that, today, many “carbon offset” investments are a complete and utter scam, as per this John Oliver segment, and many more that look like they are doing activities that will capture atmospheric carbon are just wasting time and money. For example, just planting a tree does nothing if the tree doesn’t survive. In many areas of South America and other locales undergoing rapid deforestation, especially where droughts are common, the climate quickly becomes similar to that of a semi-desert part of the year — and a young sapling in this climate generally won’t survive without irrigation. Also, if the entity doing the planting decides to plant a non-native species of tree that they believe should “grow faster”, chances are those trees won’t survive the climate either.

What we really need is a few internationally regulated organizations that create requirements and standards for an operation to be a real carbon offset operation and auditing requirements that must be met in order for an operation to be certified as being a true carbon offset operation — before it takes a dime of your money. Otherwise, yet another organization just wanting to do good is NOT enough.

And then, we need these companies that care to take the next step and provide meaningful guidance to global enterprises as to the steps these global enterprise clients can take to reduce their carbon footprint — technologies they, and their suppliers, can invest in to reduce carbon and GHG production, alternative raw materials and components they can use in their designs that produce less carbon in their mining and production, and ways to reduce consumer demand for carbon intensive products. (Which, by the way, doesn’t have to reduce profit — conscientious customers will pay more for sustainable products, especially if those products now last longer as a result!)

In short, we need actions, not calculations!

The 60 Minute Due Diligence Trend is Disturbing!

the doctor posted this on LinkedIn yesterday as a follow up to yesterday’s rant on how a 60 minute call is NOT due diligence, but is reposting it here because it’s something we should all be aware of and thinking about as progressive thought leaders (and while LinkedIn posts may get buried under the electronic sands of time, it will remain here).

Is anyone else disturbed and fed-up by the simultaneous trends of

  • “crowd-sourced due diligence” in 60 minute chunks from
  • the onslaught of new “global” consultancies that just connect you with “experts”
    … where these consultancies are staffed by recent graduates with literally no expertise in any of the areas they are finding the “experts” in and no capability to judge whether or not the “expert” they are connecting the client with has any real “expertise” in the area or not?

I’ve personally stopped responding to such firms altogether because

  • they’ve done nothing but waste my time in the past
    … (pestering me for days, and then when I finally relented, telling me the client, who apparently was insisting on me, was no longer interested — likely because I refused to drop my standard hourly rate for what was nothing but an interruption*)
  • they’ve done zero research as to what my expertise is
    … and when I’ve replied asking for more details beyond “supply chain” or “procurement”, I never received any relevant details beyond “these sample companies”, where I could often figure out that I was the last person they should be contacting if they wanted the true expert (I am a leading expert in Sourcing, Optimization, ML, and other advanced S2C tech [which coincides with my academic background], not in P2P [even though I know it very well, there are those, in this list, that know it better]; and in SC, it’s modelling, not the ins-and-outs of WIMS or Plant Management) …
    which forces one to conclude they are not doing any research on anyone else they recommend because they don’t have the skills to
  • given that they are essentially matching their clients with random people, there is zero reason to believe they are providing their clients with the quality insight that they’re promising
    … the doctor doesn’t care if they match a F500 with a dozen geniuses, if those geniuses have no relevant experience in the particular domain of interest to the client, how will the client learn anything. I know sometimes its “company x / product y” market research, but user experience is not deep insight into anything beyond *that* user’s experience — and if that user wasn’t trained, doesn’t have the right educational background to be using the tool, or was one stepped removed (the manager, and the team used it), it’s incomplete or second hand information.

It’s disturbing, and in some ways disgusting. What these firms should be doing is

  • finding and vetting a true market expert database against an appropriate taxonomy,
  • finding the right (leading) expert for the client (and, if no one expert can satisfy all of the client’s inquiries, identifying a team that will work with that leading expert)
  • having the leading expert put together an education session that covers the core information the client wants, possibly with the support of one or more other experts in related areas, and
  • ensuring the materials are delivered after the course is presented.

That’s worth a finder’s fee and a project management fee, and a rather large one at that given that an expert is worth more than gold, as obviously the client isn’t equipped to do this, and is thus reaching out to the “global” consultancy because of this.

But the model now is, to be blunt, sh!t as a client’s chances of getting what they need when they need deep insight are less than getting the toy of their dreams from a rigged arcade claw machine. It should not be accepted and true experts should disdain it!

* it’s hard to deliver real value in an hour, which is why the doctor typically contracts in a large multiple of days, and, yes, you will get a better rate if you contract for the amount of time needed to do the job right 🙂

A 60 Minute Call is NOT Due Diligence!

It used to be the doctor would only get a request once every month or so for a “call with a client looking for some insight into the space from an expert“, but now it’s the case he’s getting these every week, often multiple times a week, from yet another firm that “specializes in connecting clients looking for insight with experts” or some other such meaningless gobblydygook from a knock-off Dilbert Mission Statement Generator.

Maybe it wouldn’t be so bad in the grand scheme of events except,

  1. You can’t learn anything meaningful in 60 minutes. (We’re talking enterprise software solutions, not the results of an investigative whodunnit.)
  2. These requests are now coming from kids so young the doctor is wondering if they are still high school (despite the fancy LinkedIn titles their firms give them) … and not to be ageist, but there’s no way these kids have any deep understanding at all of any industry domain or what makes an expert (and how to judge if that expert has the right education and experience).
  3. It seems companies are using a handful of these calls as “due diligence” on a space or a company.

And a 60-minute call is NOT due diligence. the doctor does product and technical due diligence, and even a high-level due diligence on a company (which is just looking for potential red-flags and yellow-flags that will have to be watched) takes weeks of man power (as the team he worked with did market, strategy, product, and technology, and even though the doctor can do an entire product and technical diligence in S2P on his own — no team of 6 to 10 needed — it’s at least a week of effort on a single module to get enough certainty that there are no red flags and the important yellow flags have been identified). This is because a due diligence involves process reviews, document reviews, code reviews, focussed interviews, etc. etc. etc. and comparisons to standards, best practices, and market norms.

Given this, just what are you going to learn from a few call with external “experts” who don’t have any access to documents, processes and practices, and the internal stakeholders who make the decisions? Opinions. Maybe. But most likely, absolutely nothing!

In other words, if you need deep insight, find an analyst, diligence, or strategy firm that knows the space and, if you are interested in a company in particular, find an analyst, diligence, or strategy firm that that knows that company AND that company’s peers. And go with them. Don’t pay for the privilege of paying for the privilege to talk to someone who won’t end up being that useful to you. Especially if you need to be able to back up a(n investment [related]) decision that involves the company and prove you did your homework and the stars were aligned as well as they could have been when the decision was made (since no one can predict the future, just play the odds).

In other words, these firms, which the doctor will have nothing to do with, need to go away. A consultant who has the expertise to find the right analyst / diligence / consultancy for you and introduces you to the right individual in that firm deserves a finder’s fee, but doesn’t deserve a fee for the privilege of hooking you up with a random yahoo who can’t help you at all. (And even if that individual is an expert in their area, if it’s not the area you need, and they know next to nothing of relevance in the area and company relevant to you, they’re a yahoo from your perspective.)

And as you probably figured out by now, if you reach out to the doctor and he’s not the right expert for you, he’ll pass you on to someone he believes can (which could be one of the 40 experts he explicitly mentioned, and linked to, in yesterday’s post). It’s not about “sign the contract at all costs and hope to figure it out later“, it’s about helping your prospect because, even if they don’t become a client today, when their need is appropriate, they will become a client tomorrow.

How Can Indirect Spend *NOT* Be Well Managed in 2023?

the doctor gets a lot of press releases. Some of them contain a lot of BS (which is good, he writes best when he’s on an angry rant), others contain a lot of “findings” that, if true (and the findings usually are for the right for the right subset of the market), are simultaneously scary and ridiculous. In this particular case, as the doctor writes this, he received a press release that said the research finds that 82%+ of procurement leaders say their indirect spend is not well managed, leaving substantial cost savings on the table.

The question is, how is that number so high? We’ve had source-to-pay suites for a decade (which were originally designed to source indirect products and services, create catalogs of those sourced selections, support purchase orders only for items in the catalogs, and ensure invoices matched the item prices in the catalog. And for those willing to do custom integration, it was possible to integrate a best of breed sourcing solution and a best of breed catalog management solution and a best of breed e-invoicing solution and achieve this in the late 2000s.

Now, in a mixed solution, there was no guarantee that the sourcing event would choose the best mix (since early solutions generally didn’t support optimization or advanced analytics), that the catalog would force the lowest cost (or even preferred) selection when there were multiple options, or that the invoice management could detect when shipping costs were too high or handling fees shouldn’t be there, but there was still management and any overruns were not substantial (at least compared to pre-solution overages in indirect; an organization could easily cut out 80% of the fat, which could be as high as 30% in some categories; so if the overage went from 30% to 6%, that was well managed — and solutions have only become better over time).

What’s even worse is when the expected reality is put into hard numbers. According to the press release “two-thirds of suppliers (68%) report increased demand for their offerings compared to the past year and nearly half (43%) are planning to increase prices in 2023“. Thanks to global inflation, prices are going up as demand does (which is still pent-up post-pandemic), and we know it, but knowing costs will be uncontrollable to an extent is a tough one.

Of course the press release says that the key to cutting cost is to implement (autonomous) technology that saves on day one, which you should know by now, but the question is why have so many companies not yet implemented basic S2P functionality, either as a suite or as BoB integrations, as such technology would have ensured indirect was well under control, and reduced a likely organizational overspend by (85% of 15% of 35% =) 5% (est. realization * avg. savings * avg. indirect spend) of total spend, which would go straight to the bottom line! No autonomous tech needed!

For those interested, the press release came from a third party PR firm and was based on Globality’s “2023 Research Insights for CFOs”.