Category Archives: Sourcing Innovation

Source-to-Pay+ is Extensive (P1) … Where Do You Start???

Even though all core sourcing and procurement technologies have been available for twenty (20) years (although it is debatable just how good the initial versions of many of these applications were), there are still many mid-size or larger organizations that don’t have any modern applications to support Procurement, and the majority of organizations still do not have what any modern analyst would consider reasonable support for the full, core, source-to-pay process.

Given that inflation is back with a vengeance, anticipated savings is leaking faster than a bald spigot (see last Friday’s rant), and most organizations are in a cash crunch as a result of down sales during the pandemic (and now due to a lack of core inventory to sell), they need to update their procurement tech stack fast.

But they can’t do it all at once. Even if your organization selected a SaaS suite platform where the provider can enable a full end-to-end solution with the flip of a software switch, your organization still can’t do it all at once. Why?

1) these applications don’t work without data … and they don’t work well without LOTS of data … most of which is either historical data, which has to be located, cleansed, transformed, and enriched … or supplier / market data, which has to be requested, collected, verified, transformed, and loaded

2) these applications don’t deliver without user training … and I don’t care how much “AI” is included, how “autonomous” the vendor claims they are, or how “intuitive” the UI is supposed to be … everything’s obvious to an expert (who designed the system), but nothing is guaranteed to be obvious to someone without the same education and experience in Procurement and Technology

3) you need value out of the gate to justify the purchase and the continual license fees (SaaS isn’t about utility, it’s about being a utility which locks you in for life)

4) your users need to see results for them to want to continue using it, which is key for not only value out of the gate but value over time

So the reality is, even if you decide to go for a suite solution, you should implement it piecemeal over time (on a realistic schedule), as well as ensure that you don’t start paying for anything you can’t realistically use until you can start using it regularly and with value.

But where do you start?

Upstream? Here you have, at a minimum:

  • Strategic Sourcing, which can include RFP, e-Auctions, and hybrid multi-round events, with and without strategic sourcing decision optimization
  • Spend Analysis, where you can analyze your spend and find opportunities to address
  • Supplier X [Information / Relationship / Performance / Risk / etc.] Management, where you keep track of, interact with, manage, collaborate with, or eliminate suppliers
  • Contract [Lifecycle] Management, which can, depending on what you get, help you negotiate, create, analyze, and manage contracts

Downstream? Here you have, at a minimum:

  • Catalog Management / e-Procurement which allows your employees and buyers to order what they need, when they need it, off of contracts or pre-negotiated price sheets
  • Invoice and Order Management, which allows you to track your orders, manage your invoices, ensure you get the appropriate reviews and approvals, and make sure you get the right OK-to-Pay
  • e-Payment, which ensures the inventory/service is received, the appropriate ok-to-pay(s) has(/have) been received, the payment is appropriately scheduled, and made at the appropriate time and generally manages your AP from a Procurement perspective

Cross-stream? Here you have, at a minimum:

  • Risk Management, which allows you to track supplier, carrier, and other risks that could prevent you getting your stuff or getting it to your customer
  • GHG/Carbon Tracking, which allows you to be compliant with (coming) reporting requirements, and supports Scope 1/2/3 as appropriate
  • Inventory Management, especially in direct where you are doing build-to-order and need to ensure that product doesn’t get released just because it’s in stock (when it is part of an urgent build waiting on another product for a customer that ordered three months before anyone else);

Not an easy decision, eh? So where do you start? Stay tuned for Part II .

… And No Modern Platform Will be “Our Way or the Highway”

You’ve all heard one of the following lines from either your current or prospective vendor:

  • we do it this way because that’s the way all our customers want it
  • we studied dozens of customer processes and this is the best practice
  • it works better for everyone when we use one process we can collect standard metrics on and guide you
  • the more flexibility you have, the more chances of error, so it’s better this way
  • without a standard taxonomy, we can’t cultivate community intelligence

In other words, they know best, and if you’re not happy with their way, it’s the highway, but they are convinced that you won’t take the highway, because, well, as far as they’re concerned, they’re right.

But they’re wrong.

With the exception of the needs to:

  • maintain security and authenticity and audit trails
  • support any necessary regulations
  • enforce process integrity and organizational rules

NO process is fixed across all organizations and all situations. Nor does it need to be. Elements might need to be fixed. Key data elements might need to be fixed. Audit logs and security requirements might need to be fixed. Access might need to be limited by role or responsibility. But other than that, the number of steps the organization desires to undertake. The number of approvals. The order of each, that’s up to the organization. And to be told you cannot do it your way when there’s nothing wrong with your way is ridiculous.

And a modern vendor realizes that. That’s why they will offer you a platform that can be configured to your processes, your taxonomies, and your needs. If the vendor needs a standard taxonomy to support the community intelligence, insights, or metrics they offer up, they will map your taxonomy to theirs. If the vendor needs to track standard steps or actions for metrics or KPIs, they will map your steps to theirs. And so on. And the platform they offer will not only support the configurability you need to model your processes, but that they need to map the steps and metrics backs to what they need.

Configurability. Workflow. Apps/PaaS. These are among the core foundations of a modern platform. Don’t settle for anything less.

Furthermore, No Modern 2020 Platform Will Be Without What-if?!

As you may have noticed, the doctor has been on a bit of a bent lately defining what a modern S2P platform is as he’s completely fed up of all of the “digital” bullshit where marketers are trying to sell everything old like its new again and technically advertising solutions that are less powerful than the doctor could code on his 8088 three decades ago! (It had a 2400 baud modem so the requirement of network connectivity was even met.)

And if you think the doctor is being a bit extreme, go back and re-read the definitions of “digital” and “analysis”, ask some pointed questions to these vendors about what their solutions can really do, and you’ll find that maybe, just maybe, he’s not being that extreme at all. It’s sad how many vendors believe that a fancy new UX on a weak Procurement 2.0 solution all of a sudden makes it 3.0 and 4.0 ready when all they are really doing is putting lipstick on a pig (and no self respecting pig wants to wear lipstick)!

Yesterday we defined the levels of analytics and hopefully made it clear that there shouldn’t be a single platform on your consideration list that doesn’t have at least basic prescriptive capability and that you should also make sure the vendor is on a permissive journey before signing on the bottom line!

But that’s not all you need to demand in a platform. You also need to demand a platform with embedded What If? capability.

It’s going to be a while before the predictive analytics work across all the situations a procurement specialist need them to work in, and even longer until the platform supports the insights needed for permissive analytics. But, in the interim, the procurement specialists still need to extract value from analytics — and that value is going to come from What If?.

What If? the demand next year is the same as this year, what will the total cost be if the cost stays flat? What if demand rises 10%?

What If? the delivery is late by a day? By 3 days? By a week? What if the order is routed to the backup supplier? The backup location?

What If? the supplier’s financial woes get worse? What if the supplier goes bankrupt?

What If? the contract milestone isn’t hit? What is the impact? What is the risk?

The procurement professional needs to be able to ask What If? throughout the platform and, more importantly, throughout the analytics. Some Reports should be interactive and allow the user to project the next quarter, year, etc. of data using current data and advanced What If? algorithms. Anything less won’t be enough.

… And Advanced Analytics Should Be a Must in 2020!

Just like any vendor can claim to have a digital procurement solution because, as we clearly explained last week, email and spreadsheets technically count, any vendor can claim to have analytics. Consider the definition:

the analysis of data, typically large sets of business data, by the use of mathematics, statistics, and computer software

And then consider the common definition of analysis:

a presentation, usually in writing, of the results of this process

This means that any software that provides a canned report summarizing a data set (average, mean, etc.) qualifies. MRP software from four decades ago had canned reports that did this and qualify. Thus, since computers are modern in the grand scheme of human history, any vendor can tell you with a straight faced that they have a modern platform with a modern analytics solution if it runs on a computer, supports bid collection in a spreadsheet, and contains a canned report summary — especially if they were an English or Arts Major (especially since we are in the post-modern phase in their worldview).

DO YOU REALLY WANT TWO-PLUS DECADES OLD TECHNOLOGY?

Think carefully about this — because if you don’t ask the right questions and use the right measuring stick, that’s precisely what you might get if you don’t get beyond this “digital” and baseline “analytics” crap.

What you have to know is that there are levels to analysis. And while the number of levels might very depending on how granular you want to get, there are at least five in today’s technology platforms, and these are the seven levels the doctor likes to use.

1. Classificative
At this level, data is classified into buckets for the purpose of basic analytics.

2. Descriptive
At this level, basic statistics are run to compute summary, typically canned, reports on the data.

For decades, this is all you got, and many vendors still try to pass this off as sufficient.

3. Diagnostic
At this level, the user is either given the ability to define their own reports to drill in and find the potential root causes of issues identified in the reports or to run more advanced statistics (beyond just average and mean) to identify correlations between data to find potential root causes of issues.

Most platforms developed or upgraded in the last five years in S2P, Sourcing, and Spend Analysis have this capability. But this is not enough any more, especially when there are do-it-yourself software packages for under 1K that can allow you to get to the next level, which has been around in specialized demand planning and analytics for decades.

4. Predictive
At this level, the platform employs statistical trend analysis, advanced clustering, and/or machine learning to identify trends and predict future costs, risks, performance, etc.

A few platforms are starting to incorporate this, but this should be a baseline requirement considering ERPs, demand planning, and advanced BI tools have had at least some capability here for close to 2 decades

5. Prescriptive
At this level, the platform is not just identifying and computing future trends, but providing advice on what to do as a result of those trends.

Leading platforms are starting down this path, but given that the foundations of prescriptive analytics have been around for over two decades and that best practices in sourcing and procurement have been around almost as long, if a platform can’t provide not only insight and recommendations what to do with that insight, it will never even achieve 3.0 objectives … meaning 4.0 will never be a reality.

In other words, any platform without some prescriptive capability is behind and not one you should be investing in.

6. Permissive
At this level, the prescriptive analytics is used to power automatic actions based on embedded rules. If the platform determines a commodity that is typically on a one year contract is at an all time low, it might initiate the renewal event two months early to lock a rate in if a rule is defined that says events can be initiated up to three months early if prices drop below contracted rates and are projected to be within 2% of the projected low.

Few platforms are here, but you should be looking for a configurable platform with rules that permit simple automation based on both entered and derived data values from the application and the data it contains. Permissive analytics is a cornerstone of the Procurement 4.0 promise so make sure your chosen vendor is building in permissive analytic capability. It can be fledgeling to start, but something needs to be there or it won’t be there when you need it.

7. Cognitive
At this level, the platform embeds machine learning and advanced AI techniques to not only make good predictions but choose the right actions to take on those predictions without any user intervention for run-of-the-mill sourcing and procurement processes and events. When we reach Procurement 4.0, such systems will not only eliminate 98% of tactical work to allow buyers to focus on the strategic, but eliminate 90%+ of strategic work identified as relatively low value (at the time) and allow buyers to focus on strategic efforts that present the greatest opportunity to provide value … truly optimizing the limited Procurement resources available.

Insight is Good. Actionable Insight is Better!

In our last post we talked about how important insight is in a modern platform now that we’re in the third decade of the century and how any platform that delivers anything less should NOT be on your radar!

But you want more than insight. First of all, you want actionable insight. As per our last post, just knowing that an invoice doesn’t match a PO isn’t enough. You need to know why, and more importantly, what the typical action should be. Extra units? Over-billing? Unexpected Taxes? Higher-than-anticipated surcharges? Approve? Send it back for clarification? Send back a revised version for acceptance (that will result in instant payment)?

However, the ability to take instant action would even be better! If the platform gave you the ability to flip back with request for information, flip back with suggested alterations, or approve with one click, that’s good.

But this ability should be across the platform. When an event is selected, the platform should not only recommend the best set of suppliers, but allow them to be added to the event, and invited, with a single click. This recommendation should take all factors into account — incumbency, performance history, risk scores, environmental data, etc.

When the award is selected, the system should not only identify a template but automatically fill in all the relevant award data and meta-data, alter the clauses as necessary, and bring up an editable contract for buyer review with a single click.

Every insight should lead to one or more courses of action and the platform should provide a mechanism to immediately take the courses of action identified — with a single click if at all possible.

A modern platform doesn’t just provide insights in canned, or customizable, reports — it provides insights embedded in the platform that allow the right actions to be easily taken at the right time … without having to search for the way to make it happen deep inside the depths of the platform where few will ever have the patience to drill into.

Considering that this decade should see the emergence of Augmented Procurement Platforms based on Augmented Intelligence that not only provide insight into the right action to take, but learn to make better recommendations over time in more scenarios, the last thing a buyer should settle for is a platform that still provides “insights” in the form of one-off canned reports in a dark corner of the platform.