Category Archives: rants

Supply Management Technical Difficulty … Part IV.1

A lot of vendors will tell you a lot of what they do is so hard and took thousands of hours of development and that no one else could do it as good or as fast or as flexible when the reality is that much of what they do is easy, mostly available in open source, and can be replicated in modern Business Process Management (BPM) configuration toolkits in a matter of weeks.

So, to help you understand what’s truly hard and, in the spend master’s words, so easy a high school student with an Access database could do it, the doctor is going to bust out his technical chops that include a PhD in computer science (with deep expertise in algorithms, data structures, databases, big data, computational geometry, and optimization), experience in research / architect / technology officer industry roles, and cross-platform experience across pretty much all of the major OSs and implementation languages of choice. We’ll take it area by area in this series. In our first three posts we tackled basic Sourcing, basic Procurement, and Supplier Management and in this post we’re deep diving into Spend Analytics.

In our first three posts, we focussed just on technical challenges, but in this post, in addition to technical challenges, we’re also going to focus on technical stumpers (which shouldn’t be challenges, but for many organizations are) and technical by-gones (which were challenges in days gone by, but are NOT anymore).

Technical By-Gone: Formula-Based Derived Dimensions

In the early days, there weren’t many mathematical libraries, and building a large library, making it efficient, and integrating it with an analytics tool to support derived dimensions and real time reporting was quite a challenge, and typically required a lot of work, and a lot of code optimization that often required a lot of experimentation. But now there are lots of libraries, lots of optimized algorithms, and integration is pretty-straight forward.

Technical By-Gone: Report Builder

This is just a matter of exposing the schema, selecting the dimensions and facts of interest, and feeding it into a report object — which can be built using dozens (and dozens) of standard libraries. And if that’s too hard, there are dozens of applications that can be licensed and integrated that already do all the heavy lifting. In fact, many of your big name S2P suites now offering “analytics” are doing just this.

Technical Stumper: Multi-Schema Support

When you get right down to it, a schema is just a different indexing of data, which is organized into records. This means that all you need to do to support a schema is add an index to a record. This also means that all you need to do to support multiple schemas is to add multiple indexes to a record. This means that by normalizing a database schema into entity tables, relationship tables, and other discrete entities, it’s actually easy to support multiple categorizations for spend analysis including UNSPSC, H(T)S codes, a modified best-practice service provider schema for successful spend analysis, and any other schema needed for organizational reporting.

This says that all you need to support another schema is a set of schema tables that define the schema and a set of relationship tables that relate entities, such as transactions, to their appropriate place in the schema. One can even use general purpose tables that support hierarchies. The point is that there are lots of options and it is NOT hard! Maybe a lot of code (and code optimization), but it is NOT hard.

Technical Stumper: Predictive Analytics

Predictive Analytics sounds challenging, and creating good analytics algorithms takes time, but a number of these have been developed across the areas of analytics that works well, and the only thing they require is good data — since the strength of a good analytics application resides in its ability to collect, cleanse, enhance, and classify data, it shouldn’t be hard to just feed that into a predictive analytics library. But apparently it is. As few vendors offer even basic trend analysis, inventory analysis, etc. Why they don’t implement the best public domain / textbook libraries or implement third part libraries and solutions which have more powerful, and adaptive, algorithms that work better with more data for all of the common areas that prediction has been applied to for at least five years is beyond the doctor. While it’s a challenge to come up with newer, better, algorithms, it’s not hard to use what’s out there, and there is already a lot to start with.

Come back tomorrow as we continue our in-depth discussion of analytics.

Two Hundred and Thirty Years Ago Today …

… the British really, really got it wrong! Instead of sending their prisoners to a remote northern region (like the Russians did) or to work in the hot semi-deserts of India (that they controlled) and generally achieve the common goal (at the time) of making prisoners’ lives miserable (to deter crime), they instead decided to load a large number of their prisoners onto 11 ships commanded by Captain Arthur Phillip and send them to sunny, warm, newly discovered tropical Australia, while the majority of their population stayed behind in a climate which, for most of the year, is rainy, dreary, and just plain miserable.

Talk about messed up. Not only were they sending the message “commit a crime and get rewarded with a permanent, tropical vacation”, but they were saying it’s good to be wet and cold the whole year through! 😉

Oh well, I guess it paid off in the end. No other nationality can claim more stiff upper lips and reservation than the British, and few other nationalities are as able to endure pretty much anything. Still, I would have transplanted the British population to Australia, called it New Britain, left the prisoners behind, and controlled a landmass 30 times the size (even if 35% is unliveable, that’s still a liveable area 10 times the size of the UK).

Strategic Sourcing Requires Strategic Suppliers Selected Through Strategic Sourcing Events

And this will generally mean you have to deal with a lot of pushback from those individuals in the company that don’t want to deal with anyone but their preferred supplier (which can be due to bias, laziness, or, in some cases, legal bribes). There will be a lot of reasons given, of various levels of validity, but you will need to bust through them all. To help, here are the standard categories of push-back and how you tackle them.

Our Process is Approved Suppliers Only

This is usually the first response because the individual knows the new supplier approval process is typically an onerous one and not one anyone typically wants to deal with and, thus, has a great chance of working (on anyone except a dedicated buyer). However, a response of “we know, that’s why we’re going to do a multi-round qualification RFI first and we simply need your input on the core requirements so we can get the right suppliers approved” will typically do the trick with this one. Of course, the stakeholder who wants the same (set of) supplier(s) will just move onto the next excuse, but you need to take ’em one by one.

The Supplier Couldn’t Meet our Requirements Last Time

If the supplier was invited, or even considered before, and the conclusion was the price was too high, the product unsuitable, or the overall capability to meet total organizational demand insufficient, the stakeholder might like to use past performance to simply deny the supplier again, even if it’s been two or three years and the supplier might have improved (due to a lean effort they mentioned they were starting last time, new equipment and processes, or other factors). Plus, this doesn’t consider the fact that the supplier (if there were cultural/language barriers) might not have appropriately understood the requirements and put the wrong foot forward.

The answer here is “we understand, but the supplier has been doing X plus we are going to force them to go through the pre-qualification RFI that all new suppliers are going through to make sure they are actually capable of performing better this time before inviting a bid from them“. This will elicit a “grumble, grumble”, but you will be able to press on.

The Cultural / Language Barriers are Too High

Cultural and language barriers are often high, especially if you are going to new countries, but if both parties want to succeed and are willing to work together to succeed, they are not insurmountable, as long as both sides make the effort. You can’t just through a spec in English over the wall and say “you translate and give us your best effort on your own” and expect great results. You need to engage one or more product/service experts who are bilingual (or even trilingual) in the native language(s) (and who has some cultural understanding) for each geography you want to do business in.

This effort will go a long way into getting new suppliers in different geographies who speak different languages to put their best foot forward. The best suppliers will appreciate and reciprocate your efforts and put their best effort into their proposals and might even surprise you. The answer here is “we know, and that’s why we’ve engaged these individuals to be our interpreters and relationship managers — it might not work, but if it does, it could open us up to a whole new array of cost-control and innovation capabilities“.

We Don’t Have the Bandwidth

Once you get through the knee-jerk responses above, a belligerent stakeholder who really wants that preferred supplier will resort to rationalizing that there just isn’t the time to evaluate too many suppliers or re-create all the requirements in a supplier-neutral fashion. This will be hard to dismiss, as chances are the stakeholder doesn’t have the bandwidth and you will need some input from that stakeholder. This is where your negotiation and reasoning skills will be put to the test.

You will need to start by indicating we know you don’t, that’s why we in Procurement are taking on the majority of the workload — all we need is your input and expertise and review before each key document goes out. We realize that there might be some extra work for you, but if this works, we will help you identify new sources of supply (which will increase stability in the event of a disruption or customer demand surge), potentially new sources of innovation, and keep your costs — and your budget, under control. And if it ends up that the best choice is the current supplier, at what appears to be higher than market average costs, you will be able to say in confidence that you made the right choice with all of our efforts to back you up next time the C-Suite decides someone budget needs to be cut. You’ll have hard data while your counterparts, who chose not to work with us, won’t. And since the CFO says all arguments must be data driven … .

In other words, while you might feel the urge to thump out the stupidity, if you take a rational approach, use your negotiating skills, and demonstrate that you are going to take on as much of the extra work as you can, with time, you will be able to convince most of the stakeholders that your way is the right way. (And we say most because if the incumbent supplier is paying for the stakeholders yearly Hawaiian vacation in exchange for a single “talk” at their user event, well, there’s no way you can counter that as it’s completely unethical to source for the best favours. But, fortunately, this will be a very small majority of stakeholders.)

Procurement Won’t Advance Until We F*CK SAVINGS!

… and, in the same breath, F*CK CONSULTANCIES THAT ONLY PUSH SAVINGS!

Recently there’s been a big push by some parties, including Procurious, to lead Procurement into the future, and in Procurious case, it was through an online Big Ideas Summit where they convinced a number of individuals to webcast to digital attendees on the same day on Procurement topics. But Procurement is not going to go anywhere until we first deal with the number one problem, and that is our continual focus on savings because of management’s continual mis-focus on savings.

the doctor is as appalled as the public defender (who blogged his dismay in “Bain Company Insights”) to find out that yet another big consultancy, in this case Bain & Company, recently published an article on Unearthing the Hidden Treasure of Procurement that classified the value of Procurement as the good old consultant’s snake-oil of basic spend aggregation, consolidation, and tough-negotiation to find savings.

Which is another crock of bullsh!t. (Seems we’ve been blogging about those quite a bit lately! But I guess someone has to!) The value of Procurement is cost-control (not savings), demand management, product-and-service-normalization, and overall value generation and maximization. NOT SAVINGS! First of all, there is no such thing as savings — “savings” just means you are paying more than you should. Secondly, anyone who applies proper Procurement principles to a category for the first time can quickly get prices down (near) to market pricing. Thirdly, and most importantly, as the public defender points out, there is no such thing as savings anyway as all savings, and especially those savings that resulted from bringing initial prices below market average, will be clawed back by suppliers, or the [the] new supplier / product [will] turn[s] out to be unsuitable, or oil prices [will] rise or something else happens (like a disruption from new supplier / carrier unreliability).

And this brings us back to our secondary thesis, not only do we have to F*CK SAVINGS but F*CK CONSULTANTS THAT ONLY PUSH SAVINGS! Only two types of consultants push savings, those that don’t know any better (and will not help your organization grow over the long term) and those that have learned the best way to make easy money is to just push the savings agenda because that means that you can re-source the same category every two or three years and if you split the categories appropriately, you will have re-sourcing work negotiating savings on the same categories forever more (because, as costs rise, new, fake savings opportunities will re-appear)!

The only way to move Procurement forward is to shift the focus from cost savings to value creation, with a focus on cost-control (and avoidance, but not savings), demand management, appropriate value-add selection, new supplier identification, and joint product/service innovation — where the real organizational savings will come from. And, as we indicated at the beginning of this post, the only way this will happen is if Procurement forces the conversation away from savings and towards value, regardless of the cost and how many big consultancies we have to tell off in the process!

All Aboard the M&A Train!

It seems that the M&A train, once sporadic, is now running on a regular schedule (thanks largely to Coupa and it’s 1B valuation that allowed it to raise enough cash to scoop up providers left, right and center). Is this good or bad? The answer is it all depends who you are.

Generally, when a company buys another, it does so with an objective in mind that, should the acquisition help it to complete the objective, helps the buyer and usually the set of customers that the buying company wants to satisfy. This might also include a sub-set of the acquired’s customers, which would then be helped in the process, but may also exclude a set of the acquired’s customers, which would not be help. Then there’s the acquired. Depending on the strength of the company, the goals of the management / owners on acquisition, and the alignment with the buying organization, it might be a good thing, or it might be a bad (or very bad) thing.

What do we mean? Let’s take each affected group at a high level and indicate what could be good or bad.

Buying Company

Potential Positive: New Technology

New technology offers the buying company a host of potential benefits including, but not limited to, new technology to sell its current customer base, new technology to bolt onto in a potentially new customer base, and process insights it did not have before.

Potential Negative: Dis-satisfied Customer Base

Expanding the customer base is not always a positive if the customers being acquired are not happy customers from the get-go. Even if the customers are happy, they might be unsettled by an acquisition …

Buying Company’s Customers

Potential Positive: New Technology

Not only does the buying company have new technology to sell, the existing customer base has new technology, that they might desperately need, to buy, and, moreover, they might also be able to buy at a discount because they are already spending with the vendor.

Potential Negative: Less Support

If the company acquired an unhappy customer base, all of the resources might be tasked with making the acquired customers happy because the company was acquired for those customers. This means that support for current customers would drop. And that’s not good.

Bought Company’s Customers

Potential Positive: Vendor has a bigger piggy bank

If the acquiring company has more resources, those could be spent improving the situation for the bought company’s customers. Better support, tech upgrades, more integrations, etc.

Potential Negative: Acquiring company is Mega-co

… and acquired company is mini-co, acquired only because it’s technology posed a future threat and mega-co decided the best risk mitigation was to buy mini-co when it was small and cheap with just a few customers as the acquisition cost dwarfed the potential losses to market share if mini-co succeeded in their efforts. In this case, Mega-co wouldn’t care at all about the customer base and could just ignore them completely.

Bought Company

Potential Positive: Bigger Piggy Bank

… which could be used to further the mission … but

Potential Negative: Lack of Support

… if the mission of the bought company does not match the mission of the buying company.

So what does this mean for Coupa, Trade Extensions, and their customers? the doctor knows you want to know, but the doctor will not provide his thoughts until the acquisition is complete.