Category Archives: rants

Once Upon a Time, Not So Long Ago …

Investors used to look for the long term. Even Wall Street promoted companies that looked to the long term. Companies would form, and invest in, R&D labs that wouldn’t realize products for five years and returns for ten. Because they knew that, with the right investment, over the right amount of time, the payoff would be enormous. Maybe even gigantic. 10X would happen, and more. Maybe 20X or even 30X. Not over night, but over time. They didn’t expect 10X returns in 3 years. They were willing to wait a decade or more.

Who wouldn’t be willing to wait a decade for a 10X return. Especially when 10X your money every ten years means that in 30 years you’ve increased your money by 1,000. That means that 1,000 today nets you 1,000,000 in 30 years. Given an average rate of inflation of 1.35% per year, in 30 years, you’re 1,000, uninvested, would have depreciated by a third. And the thing is, if you invest in a relatively safe bet, your odds of getting that 10X return in ten years are quite high. Considerably more than the odds of investing in a random startup. Whereas the odds of investing in a new startup with barely an MVP, no track records, and essentially no real, paying customers might be 1 in 10, the odds of a company or product that is solid, growing organically, and currently experiencing year over year growth at a rate of 30% to 50% continuing to grow at that rate is likely at least 50% with the right investment. A growth rate of 30% over ten years increases your money by a factor of 13.79 and a growth rate of 50% over ten years increases your money by a factor of 57.67. If you started with 3,000 and only every third bet paid off, you’re still getting that 1,000,000. In fact, you’re probably getting 2,000,000 to 3,000,000. So why wouldn’t you play it safe and wait?

If you’re not a total idiot, you would. So, taking the same logic, in Procurement, why do you push for savings today over value tomorrow? Even though real savings go straight to the bottom line, fake savings don’t. And when you get taken in by a large near-term potential savings opportunity, chances are it won’t materialize whereas a long-term value-generation plan, that comes by way of supplier development that will lead to guaranteed savings through lean process improvement, elimination of a dependency on a rare earth metal or other raw material in limited supply, reduction in energy usage requirements, and so on.

So what do we mean by fake savings? Fake savings is the projected savings opportunity that comes from an award allocation that requires shifting a large part of supply to an unproven supplier, or an untested product, typically in a low cost country, that looks great during an auction, but will never materialize because the buying organization didn’t do a detailed cost analysis and doesn’t realize the extra costs with offshoring or switching.

For example, maybe the supplier doesn’t speak, or read, English as well as they claim and stated they could fulfill a requirement with their current manufacturing line, but couldn’t, and needs to make additional investment and production line upgrades, which will take the plant offline for a few weeks. This could result in a significant delay which would, in return, result in lost sales and possibly even lost customers. This is costly. Or maybe the supplier can’t produce products of the same quality, and the defect rate is not 1%, but 5%. Not only will this increase costs by almost 6% off the top as you will have to order 6% more product, but then there is the return processing and warranty costs and costs associated with dissatisfied, or defecting customers. Or maybe the supplier hid the true costs associated with the product by claiming their product fell under one H(T)S category, but actually falls under another, at double the tariff rate. Or maybe they gave you their office address and you modelled logistics costs based on that, but their factory is 200 miles away in the middle of freakin’ nowhere and your logistics costs are 30% higher. And so on.

The reality is that mega-savings don’t exist in big, strategic, established categories where experts have been digging for savings year over year. Generally speaking, you’re not going to find more than 10% to 12% in an established category, and you’re only going to find that level of savings once every five years on average, and only using strategic sourcing decision optimization which looks at the global category and all the viable options that go beyond what a buyer can consider or an auction can capture.

And once those big savings are found in the category, the next round of savings will only come from supplier development (and that’s why you have to cycle through all your categories over a three to five year period with optimization as the next round of deep 10%+ savings won’t come until new innovations materialize that more progressive suppliers adopt that can allow for the next level of savings in the category). And that’s why it’s often better to invest in long term value generation than short term savings. Big savings rarely materialize in the short term but investments in long term value, like investments in solid companies and products, almost always pay dividends year over year over year.

So, with the greedy Wall Street mindset running corporate America these days, will we ever return to “Once Upon a Time …”?

When Selecting Your Next Supply Management Solution Remember …

All opinions are not equal. Some are a very great deal more robust, sophisticated and well supported in logic and argument than others.
Douglas Adams

This is something that should always be kept in mind when soliciting opinions on a perspective solution for Supply Management. Consider who you are going to ask:

  • Your co-workers.
  • Your peers on a user group.
  • Vendor references.
  • Vendor representatives.
  • Analysts.
  • Bloggers.

Consider their average perspectives.

  • Co-workers: probably didn’t look under the UI covers of potential solutions because, like you, they are too busy …
  • Peers: stuck in a single world view provided to them by their vendor … and they are gonna love it or hate it …
  • Vendor References: peers who absolutely love the solution (or they wouldn’t be given to you) …
  • Vendor Reps: there to sell their solutions, so they will give you the best of theirs and the worst of their peers …
  • Analysts … will give you a reasonably fair comparative analysis of the vendors they know … which are typically the ones that made their quadrant … which are typically the biggest companies and/or their biggest customers …
  • Bloggers … who will tell you everything they know … but unless you pick the blogger who specializes in that area … it won’t be everything you need … but, with the exception of analysts, far better than the rest because they do their research on each vendor they cover …

In other words, when trying to select a solution and soliciting opinions from your internal survey, not all responses should be weighted equal. Insight from those who have done their homework should be weighted more heavily than from those who quickly assessed a UI and decided they like the Amazon-one best (even though a B2C interface may be totally unsuited for the task at hand) or from those with restricted world views (which make them experts on one vendor in the final three but not the other two).

Keep this in mind if you want to truly select the best solution.

Why Advanced Sourcing Is Not Progressing …

“Protect me from knowing what I don’t need to know. Protect me from even knowing that there are things to know that I don’t know. Protect me from knowing that I decided not to know about the things that I decided not to know about. Amen.” That’s it. It’s what you pray silently inside yourself anyway, so you may as well have it out in the open.
Douglas Adams, Mostly Harmless, Chapter 10

Regular readers will know that there are a couple of scary statistics in this space. First of all, almost 40% of Sourcing / Procurement organizations don’t have any modern, Sourcing / Procurement specific, applications tailored for their jobs and are still making do with e-mail and spreadsheets and Microsoft products. Ack!

Secondly, the number of organizations with advanced sourcing solutions, such as modern spend analysis (with predictive and prescriptive analytics), decision optimization, and contract analytics is much, much less. For the former category, we might hit 50% of organizations this year (as spend analysis is all the rage) but for the latter (which is what identifies the real missed opportunities and captures them), maybe 20% of organizations with solutions. Maybe. Ack! Ack!

All this despite the fact that SI has literally spent over a decade trying to convince organizations to buy these solutions, even though the first (and even second generation) were clunky and sometimes difficult to use. (Unlike e-Procurement, which has to be easy to generate value, if a solution can save you 10% on a 100 Million category, you can put up with a bit of pain to save 10 Million. Heck, you can put up with a lot of pain.) However, we’re at generation three now and they are almost as easy to use as search, click, buy e-Procurement systems. They have smart templates, smart workflows, and dozens of validity checks and while you still have to know what you are doing and what the solution does, what used to be days of setup can be accomplished in hours and processing that used to take days sometimes finishes in minutes. They should be ubiquitous, but they’re not.

Why? Because even though the solutions have improved considerably over the past decades, the staff of these Procurement departments have not. They still use old tools and they still believe the solutions now are just more colourful and fanciful versions of the solutions then. And thanks to an utter lack of training (due to budgets being cut year after year after year during crunch times despite all the lip service to the value of talent and training), they don’t know better. And like poor Arthur Dent, they just can’t fathom how the old man walks from pole to pole and crosses space like it’s just not there. (Because that’s what these solutions do. They literally cross hyper-dimensional solution spaces you can’t see like they aren’t there.)

And, like Arthur, they say their daily isolationist prayer because they can’t handle it any other way. But it’s not their fault. It’s management’s fault for cutting the training budget year after year and leaving their team in the Supply Management dark ages. And now we’re all suffering.

Free Procurement Isn’t Free — So Why Are We Going Through This Again?

Apparently SpendMap, a relatively unknown provider of Procurement software (compared to the big guys), has decided on the marketing strategy of “Free Procurement” to make a name for themselves and, hopefully, get their software known.

the doctor really wishes they would have consulted with him, or another knowledgeable analyst who has been around for a decade, before making this decision. “Free Procurement” doesn’t exist, and it’s just gonna bite them in the rear if they don’t do the smart thing, like Coupa did, and drop it.

This isn’t the first time, or even the second time, a company has tried this, and it didn’t work then for the same reasons it’s not gonna work now. Most people don’t remember, but way back when Coupa launched on Procurement Independence day, they offered a free downloadable, streamlined, do-it-yourself version of their software. Anyone could download this RoR (Ruby-on-Rails) code bundle, install it, test it, and use it for free as long as they wanted — if they could install it, configure it, get it working to their liking, and deal with any bugs that managed to slip though. (And installation wasn’t a breeze, mainly because you had to get the RoR stack working, which wasn’t a breeze to do in the early days of RoR.)

Then, a few years later, a company called Bupros (remember them, probably not, but they are still around) decided to make the same play. They also released an open source PHP community edition of their procurement software about 3 years after Coupa and still no one knows their name. (And installation of this, despite being three years after Coupa, was even more painful. PHP is a nightmare — unless you are using the same version on the same stack in the same environment it was developed and tested on, something is not gonna work right. Plus, their documentation didn’t quite sync up with their download and the doctor remembers spending the better part of a day for what should have been a 30-minute install just to get basic functionality going. [Remember, the doctor has a PhD in CS and has been a Chief Scientist, Chief Architect, and CTO and has been coding for over 25 years, so when he says something should take X time, and it takes 10 time, you can trust that assessment is reasonably accurate.])

So why isn’t there any such thing as “Free”? And why doesn’t “Free” work?

First of all, when it comes to Procurement software, especially do-it-yourself procurement software, as per our classic post on Uncovering the True Cost of On-Premise Sourcing & Procurement Software, it’s not just the license cost. It’s the cost of the hardware and middleware infrastructure (which could include databases, web servers, third party middleware, etc.) it runs on. It’s the cost of the installation, which, as per above, can take a lot longer than the provider will say it will (because only their developers know all the gotchas to watch out for and avoid), integration with any third party systems that need to push data in or pull data out, and maintenance. It’s the internal training and support costs. And these costs can often be substantially more than the license fee.

And don’t get fooled by a pure SaaS offering either. Just because the license is free and you don’t have to buy servers, there’s still the integration costs (as someone has to figure out how to use the APIs to push data in and pull data out and actually do it), the training costs, the maintenance (as the provider upgrades the platform and introduces new connectivity requirements) and re-training costs (as new features or modified workflows require retraining). And then there’s the back-up costs (it’s free, which means no service guarantees, including no guarantee the platform and/or your data will still be there tomorrow) and contingency plan creation, testing, and maintenance costs (what to do if the platform, or your data, disappears). These add up. And they might be considerably more than just licensing the lowest cost product on the market where you have service guarantees, initial integration, maintenance, and regular (web-based) training or free access to a complete self-training audio, video, and manual library.

So, regardless of the intention of the provider, who might be trying to move you up the ladder or increase the visibility of Procurement software (which is an important component of success), don’t get taken in by free. When it comes to Procurement (or Sourcing) software, there is no such thing as free. Low-cost, yes, because basic procurement and e-negotiation-based sourcing functionality is now a commodity, but not free. Either you’re paying a provider, who can take advantages of economies of scale, or your paying IT and support staff (and possibly paying for more infrastructure). And if you’re small, you’re paying more when you go the free route.

If a company really wants to help small and small mid-size businesses get on a platform and modernize, they’ll go the low-cost consumer-based SaaS route and offer low-cost monthly licenses per user that a user can put on their p-card or credit card and expense monthly and, as part of that service, offer all of the support and reliability of other online service offerings (like SalesForce, Zendesk, etc.). But they will never, ever, offer, or push, free.

No Solution is Completely Foolproof

A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools.
Douglas Adams

Source-to-Pay solutions are getting easier by the day and soon they will be so easy that some vendors will be claiming their solutions are so simple that even a fool can use it error-free. But that’s really not the case. No solution is foolproof. Never will be.

Why? First of all, it’s impossible to predict every action a person could take. So, no matter how many situations you plan and check for, if there is even one you missed, and if the application is complex enough there will be at least one, no matter how unlikely that situation is (or how nonsensical it is), there will be at least one user who finds it and either crashes the application or generates a scenario that is nonsensical.

The alternative is to lock the application down to an enumerable finite set of inputs in each state and limit the allowable actions to those that will allow a smooth, predictable, transition to the next state without fail. But if the vendor chooses this route, the result will be a very limited application with very limited possibilities. And given that the real world is not limited to a small set of situations with always predictable solutions, this is not a very useful solution.

Secondly, never underestimate the application stupidity of a potential user. First of all, the user could be a new transfer from another department with no training and a very shallow understanding of Procurement. What a vendor would assume to be obvious to an average Procurement user would not be obvious to a new transfer. Secondly, not all users are Procurement users. For example, shop floor users might have access to initiate requisitions. And these workers might have limited computer knowledge. And then there’s management. And consultants.

Thirdly, the more a vendor tries to make a solution foolproof, the more they end up throwing in way too much unnecessary code. The more unnecessary code that is put into an application, the more errors that creep in. Errors multiply with code. Always. Doesn’t matter if the code compiles. Doesn’t matter if the code passes the boundary tests. All that matters is that there is more code with more paths and more state transitions to track, to the point where eventually there are too many paths to track and test and something breaks when a user goes down the wrong path.

The moral of the story? Don’t fall for any vendor who says their application is foolproof. And don’t look for a foolproof application, because it’s not about how easy the application is, it’s about how much value the application can generate. The best applications, while easy and logical for most of the functionality, will not be foolproof. Nowhere close. So, value first. Because, at the end of the day, the only user a foolproof solution is for is a fool.