Category Archives: rants

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.

What’s the Real Reason for the Driver Shortage?

SI has regularly blogged about the driver shortage and the dire predictions that the shortage in the US alone could top 100,000 drivers in a few years. (See this classic post on how new estimates put the driver shortage at 240K drivers, for example.)

A lot of reasons have been given for this including, but not limited to:

  • low wages
    truck drivers make an average wage over 4K less than per capita income and 13K less than median household income
  • poor working conditions
    truck drivers often have to be behind the wheel up to 14 hours a day (sometimes sitting in traffic or in lines to load/unload for over half of that), six days a week, and they don’t often get to eat well
  • poor healthcare
    as they have the worst plans possible, can’t keep regular appointments, and can’t always see a doctor on the road
  • danger
    not only do truck drivers often have to sleep in their cabs in unsafe conditions, risk getting robbed on the road, but 12% of all work-related deaths in the US are from truck drivers in auto accidents

But is the real reason that we have a driver shortage perception and stereotypes? When you get down to it, almost 95% of truck drivers are men. Even though the stereotype of the driver as a brawny, macho man dressed in a lumberjack shirt has fallen by the wayside, driving is still very much a man’s world. And even if the majority of drivers are not perpetuating the man’s world stereotype, they certainly aren’t doing anything to counter it. Consider this article over on the BBC from late fall that asked Why Don’t Women Become Truckers?

All over the world it’s the same – a woman driving a lorry gets funny looks and has to listen to unfunny jokes.

How are we ever going to solve the driver shortage if 51% of the population doesn’t want the job?

In other words, the real reason for the driver shortage may be the industry’s own fault.

First Clue that the New Public Procurement Policy is Going to Cost Everyone Money

Effective immediately, our policy is to only buy “Made in X”, where “X” is the local country or state.

Why is this going to cost you money?

First of all, it’s going to eliminate competition. And we all know what happens when competition goes away. Suppliers, who know they don’t have to worry about being replaced, as there’s only a few alternatives, and they’re already in your door, stop working as hard to be as cost competitive, innovative, or valuable to your organization.

But if that was the worst that could happen, it wouldn’t be so bad.

The reality is that as soon as a “buy local” policy comes into effect, suppliers are going to also (pretend to) “buy local”, which of course is going to raise their costs, because their suppliers are going to also stop working as hard to be as cost competitive, valuable, or innovative because the market is small, they’re in the door, and they know their competitors will also be content to maintain the status quo so they won’t have much competition. And this will continue down to the raw material supplier.

But if this was the worst that could happen, it still wouldn’t be so bad.

The reality is that once a supplier knows that it’s effectively the only game in town, it’s not going to worry about cost increases. In fact, it’s not only going to stop asking how much it has to raise costs to cover its increased costs and ensure it maintains nice, fat margins, it’s going to ask how much it can raise prices and just how fat its margins can get. It’s borderline corruption.

But if this was the worst that could happen, it might still be something that could be grudgingly accepted and dealt with.

The reality is that not all suppliers will be content to inflate their margins. In locales where corruption is common, this is only going to encourage more corruption. As per the public defender‘s post on how “Made in Nigeria” Public Procurement Policy Will Simply Lead To More Corruption, this sort of policy provides the perfect cover for both parties in a typical corrupt procurement transaction. How so? Read the public defender‘s post. Simply put, the buyer can now get away with saying “I had to buy local, and this looked like the best choice” and use it as a defence when caught.