Category Archives: Sourcing Innovation

Have We Reached B2B 3.0 Yet? Part 7: Category Management Excellence

In the series so far we have:

  • defined the basics of B2B 1.0 in Part 1
  • defined the basics of B2B 2.0 in Part 2
  • defined the basics of B2B 3.0 in Part 3
  • defined the (basic) requirements for a B2B 3.0 Sourcing platform in Part 4
  • defined the (basic) requirements for a B2B 3.0 Procurement platform in Part 5
  • defined the (basic) requirements for a category management application in Part 6

in an attempt to determine whether or not we have reached B2B 3.0 yet. To that point, we haven’t reached a conclusion yet, stating that we needed to figure out just where we were in relation to where we should be and what B2B 3.0 really is. Plus, we’re still not ready to address this question because B2B 3.0 has to enable category management excellence, and this goes beyond just building the basic technical capability to support category management that was defined in our last post.

More specifically, while the requirements of:

  • multi-dimensional category taxonomies
  • global virtual “product” masters
  • centralized master data management
  • centralized risk (and compliance) management
  • supplier development and innovation program management
  • real-time on-line collaborative category plan creation

are necessary conditions for category management excellence, they are not in and of themselves sufficient conditions. Why? First of all, simply creating categories by lumping similar products into groups based on some arbitrary characteristic (such as proximity in the UNSPSC taxonomy) is not true category management, so it’s more than just taxonomy support – it’s the right taxonomy. Similarly, centralizing data in a global product master is pointless if that master cannot be used to accurately and informatively analyze category spend. Centralized risk and compliance management is good, but only if the right information gets back to the right systems that are used day-in-and-day-out by people in the field (that certainly aren’t using the Supply Management source-to-pay platform). Program management is good, but only if it is the right program being managed. And the plan has to be a strategic plan that generates value, not a tactical plan that just keeps the wheel turning.

As such, the platform also has to enable:

  • true category spend analysis
  • market analysis
  • forward-looking category requirements
  • linkages between the external customers, sourcing, and internal customers
  • deep workflow linkages with SRM and S2P

And it has to support the best practices that get result. For deep insight into what those are, we recommend the three-part series on Getting a Grip on Category Management by the doctor and the maverick over on Spend Matters+ (membership required).

Part 1: A History Lesson
Part 2: Some Basic Approaches
Part 3: Advanced Approaches

Higher Adoption is Where the True Value of Optimization Lies

Today, Sourcing Innovation (SI) released it’s latest optimization paper, sponsored by Keelvar, on Optimization: Higher Adoption is Where True Value Lies (registration required).

As SI has said repeatedly, optimization is the ultimate sourcing strategy, but optimization is still grossly under-utilized. And this is a crying shame. Because of this, an honest appraisal of its failure to become the de-facto standard approach in all mature Procurement functions is overdue. That’s why, unlike most of SI’s papers to date, this paper looks at the softer side of optimization and starts out by taking a look at why adoption rates are historically low before discussing what is changing in the marketplace and how a radical increase in adoption could be just around the corner. An increase in adoption that is sorely needed if the true value of optimization is to be realized.

So, while previous papers focussed on defining complex sourcing and what comes next, this paper focusses on what is critical to drive adoption: the needs of the average buyer and supplier. It discusses the need for flexibility, speed, and simplicity above feature-bloat and power. The need for user-friendliness over functionality (as only a few categories require the full power of today’s optimization engines). The myths that have been holding you back. And what a modern platform needs to increase adoption not only by Procurement organizations but, more importantly, by users within a Procurement organization. The maximum value is obtained when everyone uses the optimization-backed sourcing platform. Not just a few super-users.

We discuss, for example, how a platform that supports an instant analysis after each RFP is submitted that presents the lowest total cost of ownership taking all costs, capacities, and business constraints into account provides a buyer with considerable value as the buyer can go straight to negotiations, or contracting. These new platforms prevent the buyer from having to waste countless hours on side-by-side comparison reports and off-line analysis to identify the best buy for the organization. This usability allows the platform to be applied to every category, which not only gets more spend under management, but, at the end of the day, pushes more savings straight to the bottom line.

SI strongly recommends that you download Optimization: Higher Adoption is Where True Value Lies (Registration Required) today and then, if you don’t have such a platform, do something about acquiring such a platform.

For example, the vendors who have a true optimization-backed platform will happily demonstrate the power of their platforms on one or more categories you have run in the past. Pick a direct or indirect category (not transportation or packaging, every optimization vendor can do these over-analyzed categories well) where you’ve had issues due to stakeholders not being happy, actual savings being far less than expected, supplier relationships fraying, etc. Then, contact one of the few optimization-powered sourcing solution providers, provide your data, define your constraints, and watch them demonstrate in a matter of minutes how much you could have saved.

But since that won’t be enough, because every CXO says you could always do better in hindsight, kick-off a low-cost paid trial (see SI’s previous post on why paid pilots are the future) on a few jointly-selected current, critical, categories that typically hide large savings opportunities that the organization has never been able to tease out. As the provider helps you run these events on their turn-key SaaS cloud-based offerings, you’ll quickly see the power, the ease, and the real-world results that you can use to build an internal case for acquisition of an unlimited platform license that will quickly be followed by mass adoption. And since it doesn’t cost six (or even seven) figures to get started anymore, there’s no reason not to do it.

Re-introducing Keelvar, An Optimization Backed Sourcing Platform

Last summer, we introduced you to Keelvar, a provider of an optimization-backed Sourcing Platform with a strange name that produced uncommon results. A client of Keelvar’s with 30 year’s experience in ocean freight sourcing remarked that it was like their first generation sourcing suite on steroids, so Keelvar is definitely a platform that should be on your radar.

A spin-out from a research laboratory that built a next generation solver, Keelvar was formed as a SaaS (Software as a Service) company in 2012. Unlike the majority of sourcing optimization software providers, they realized from day one that the solution wasn’t a better optimization module, it was a better sourcing platform where ease of use was the most important driver of adoption. Their Founder and CEO, Alan Holland, believes that “every sourcing event with a possible split-award should be optimized but in a completely transparent manner so that it’s easy for both buyers and suppliers” to understand the award recommendation and the reason therefore.

The starting premise was that the average user wasn’t advanced enough to use the first generation strategic sourcing decision optimization (SSDO) solutions where optimization was a standalone module and you needed to be an optimization platform expert to set up the models and run the sourcing event. It had to be intuitive and easy. Moreover, these average buyers have much simpler categories. As a result, the models were simpler than what some of the first generation expert providers were throwing at them, and, moreover, the majority of these models for standard, “simpler“, categories were fairly standard and could even be mapped to a default template by a senior buyer that the junior buyer could start with, and sometimes use unaltered.

Unlike many platforms, the optimization-backed sourcing platform walks the buyer through a simple process for creating and executing a sourcing event that even a junior buyer will feel comfortable with, detailed in our introductory Keelvar post. This process is as easy to use as a powerful, weighted, RFX tool or e-Auction, which is something that cannot be said for the majority of optimization solutions on the market that still require a solid understanding of the underlying mathematics and operations research. It’s sourcing for the every-man.

And it’s not just for the mid-size company anymore. If you will recall, when SI first reviewed the solution, SI identified it as the perfect solution for the lower-end of the mid-market. However, over the last six months, the usability and power has been steadily improved, and now SI will also identify it as a perfect solution for the entire mid-market and a candidate solution for the Fortune 500 / Global 3000. Keelvar, which has a US presence in addition to its UK presence, has acquired a number of Global 3000 clients for whom the solution is perfect for. For the majority of categories, and spend, in these organizations, there is no need for overkill optimization and the solution is a perfect fit. That’s not to say that it can’t handle the more complex categories either, with a number of global logistics events for some of the world’s largest shippers already under its belt, just that it is perfect for those enterprises where the majority of events are not that complex and can be templated for the average buyer.

Plus, the Kevlar platform is under continual development and improvement. Not many SSDO platforms can say that either. When optimization is one module in a set, providers can’t focus constant development on it. When optimization powers a single platform, it’s a different story.

Any company that chooses Keelvar gets a solution that allows all spend to be subject to the appropriate level of optimization, which is what allows Keelvar to get fantastic results for some organizations and why they have progressed so fast. If you have a traditional, heavy, solution that can only be used by a small set of dedicated resources on a few large categories, the organization will struggle to get 10-20% of spend under optimization-backed management which means, at the end of the day, the savings potential of the solution (expected to save 10%) is a mere 1-2% on the bottom line. But if you have a solution that is lighter, streamlined, and useable by everyone in your organization, you can get 80% of spend under optimization-backed management. And while the simpler categories won’t hide the same opportunity, even if you squeezed out a mere 6.25% average savings, that’s still 5% to the bottom line and a much better investment. At the end of the day, it’s not the line item count that the product can support, but the amount of spend that flows through it. And the bravado claims by first generation solutions that their solution can support tens of thousands of line items have done more harm than good.

Keelvar is an agile company and is developing new product features and global coverage quickly. New developments in the last six months include …

  • RFI with bulk editing capabilities.
  • Bid data sanitizer to detect, correct and prevent erroneous bidding (via automatic identification of outliers).
  • Enhancements to multi-round RFQ capabilities.
  • Large scale e-Auction support for hundreds of lots and bid upload capabilities.
  • New support portal to cater for the growing global customer base.
  • Partnerships with benchmark data providers in Global Logistics.
  • A partnership with an e-Sourcing Suite provider.
  • New offices in South America and Australia (which give it a presence on four continents).
  • Paid trial offering for Global 5000 companies (and, as per a recent SI post, paid pilots, under the consulting budget, could be just what you need to prove the value of an optimization-backed sourcing platform and get investment $$’s to upgrade your platform, and your results).

As one of the few companies aggressively developing an optimization-backed sourcing platform, and one of the few companies in the Supply Management space focusing on adoption first, Keelvar is one of a handful of global companies that might just lead Procurement out of the dark ages (in which Procurement seems to perpetually exist as a resident of the Island of Misfit Toys) and into the enlightenment.

Have We Reached B2B 3.0 Yet? Part 6: B2B 3.0 Foundations: Category Management

In part 3 we exemplified our definition of B2B 3.0, simply defined as the first generation of technology that actually puts business users on the same footing as consumers, as the first generation of B2B technology that adds real content, community, and open-connectivity to B2B platforms through cutting edge technology like:

  • web services
  • intelligent agents
  • meta-search
  • real-time collaboration
  • semantic technology
  • mashups
  • analytics and
  • workflow

But we didn’t explicitly map these technologies to the different Supply Management technologies or workflows that you as a Supply Management professional have to use on a daily basis. That’s why Part 4 tackled some of the necessary, but not necessarily sufficient, requirements of a modern Sourcing platform (defined as the platform that is typically used from the time a need is identified until the contract is signed, covering the “planning” and “sourcing” phases of the strategic sourcing execution lifecycle if you will) and Part 5 tacked some of the necessary, but not necessarily sufficient, requirements of a modern Procurement platform (defined as the platform that is used from the time the first order needs to be placed until the time the last order is placed, received, paid for, and gone out of warranty). But it’s not Sourcing or Procurement, … It’s Sourcing And Procurement, and the organization not only needs an integrated Source-to-Pay process but a foundation for that process (and the execution that comes beyond). That foundation is Category Management, and today’s post is going to outline some key requirements that modern Source-to-Pay suites should possess if they are going to be considered B2B 3.0 platforms that support modern category management.

As with our last post, this list is not all inclusive, and simply possessing all of this capabilities will not make a suite B2B 3.0 (because it’s not a suite, it’s just the Source-to-Pay component of Category Management), but if these requirements are missing, then the suite will not make the cut. In mathematical terms, these are necessary, but not sufficient, conditions.

In order to avoid confusion, we are going to define a Source-to-Pay category management platform from a technology perspective as one that, possibly by way of multiple (seamlessly integrated) best-of-breed platforms, supports end-to-end category management throughout the Source-to-Pay process and enables key aspects of the execution phase of the strategic sourcing lifecycle. (For more details, download the free e-book written by the doctor and sponsored by Trade Extensions, registration required.)

From a historical perspective, the primary “capabilities”, organized into one or more modules, that such a platform would possess would include all of the capabilities described in the last two posts plus centralized master data management, collaboration portals for internal and external collaboration, and centralized risk and compliance management, among other advanced capabilities.

From this viewpoint, some key capabilities that such a suite must possess include:

  • multidimensional category taxonomies

    Sauron may have forged the one-ring, and hackers may be searching for the one ping, but there is no single one-size fits all taxonometric wellspring and there will never be – not even for a single organization; sometimes you’ll want to bury installation services under IT, sometimes you’ll want to bury them under services, and sometimes you’ll want to analyze them with contingent labour and BPO spend … and so on … the system must allow for a detailed multi-dimensional taxonomy that allows every piece of spend to be tagged with all relevant identifiers (location, department, spend type, spend sub-type) and rolled-up into the taxonomy de-jour (d’acheteur) … because nothing is static

  • global virtual “product” masters

    not just a centralized catalog, but a centralized master data system that captures each product description (and virtual product identifier) needed by the organization and each distinct supplier product that can meet that need (e.g. in F&B, tomato sauce can be canned or bagged, room temp or frozen, condensed or not, and packaged in different quantities; a supplier might offer three different FPGAs that do the trick, each with advantages and disadvantages [memory vs processing power vs battery tradeoffs]; etc) this will “power” the catalog, but the catalog visible to organizational users will only contain current(ly available) products (that are approved)

  • centralized master data management inc suppliers

    centralized virtual product masters are just the start, the organization needs centralized supplier data, centralized spend data, centralized performance and usage data, and everything needed to do meaningful category analysis to find opportunities beyond spend

  • centralized risk (and compliance) management, cross indexed by category
    including mitigation plan tracking and event monitoring

    there must be a place to define all types of organizational risks, the standard monitoring (and mitigation plans), and to cross index those risks against categories (and specific products) and then flesh out those risks on a category and product basis and evaluate the potential impact and cost of the risk as the drill down occurs (in a detailed risk taxonomy); similarly, there must be a way to track compliance requirements across categories and products independent of sourcing events, with added details upon drill down and cross-correlation to suppliers providing products and compliance status

  • supplier development and innovation program management

    relationship management is good, relationship development is better – whether in the core sourcing suite, core procurement suite, or the SRM bolt-on, this capability has to be there … it’s too often overlooked despite it’s essential nature

  • real-time on-line collaborative category plan creation

    planning is often the most critical phase of the strategic sourcing lifecycle – it doesn’t matter how well you source or execute if the plan is bad and will prevent you from ever realizing the value that exists in the supply chain; the best way to get a good plan, or at least a plan that will be accepted and implemented by all affected parties is to involve them in the process – there must be way for all parties to come together, share their piece, collaborate, and jointly work on a plan that will be accepted by all … as the musketeers said, it’s all for one (plan) and one (plan) for all

In other words, the requirements for a modern B2B 3.0 Procurement platform, even from this short list, are well beyond what has traditionally passed for an Category Management platform that, in the early days, was anything that incorporated sourcing and procurement capabilities and had the concept of a category. Do any of the platforms out there make the cut? We’ll get to that. But first we had to provide more food for thought.

Have We Reached B2B 3.0 Yet? Part 4: B2B 3.0 in Sourcing

In our last post we exemplified our definition of B2B 3.0, simply defined as the first generation of technology that actually puts business users on the same footing as consumers, as the first generation of B2B technology that adds real content, community, and open-connectivity to B2B platforms through cutting edge technology like:

  • web services
  • intelligent agents
  • meta-search
  • real-time collaboration
  • semantic technology
  • mashups
  • analytics and
  • workflow

But we didn’t explicitly map these technologies to the different Supply Management technologies or workflows that you as a Supply Management professional have to use on a daily basis. Today we are going to outline some key requirements that Sourcing Suites should possess if we are going to consider them B2B 3.0 platforms. This list is not all inclusive, and simply possessing all of these capabilities will not make a suite B2B 3.0, but if these requirements are missing, then the suite will not make the cut. In mathematical terms, these are necessary, but not sufficient, conditions.

In order to avoid confusion, for the purposes of this post, and this series, we are using Sourcing Innovation’s typical definition of a Sourcing platform from a technology perspective, which is defined as the platform that is used from the time a need is identified until a contract is signed. It is the platform that underlies the “planning” and “sourcing” phases of the strategic sourcing execution lifecycle (with Procurement, SRM, and similar technologies taking over during the “execution” phase).

From a historical perspective, the primary “modules” that such a platform would include RFX, e-Auction, optimization, analysis, and contract creation and management, but these would be integrated in one seamless process because, as SI has repeatedly said, it’s not a suite, it’s just sourcing.

From this viewpoint, some key capabilities that such a suite must possess include:

  • near real-time market intelligence
    integration with market (price) indexes, including commodity exchanges, public sector price databases (from public contracts), best price databases (that compare listed prices across multiple sets), energy rates, and labour rate databases (from government and published data)
  • automatic cost-model recalculation
    and alerts whenever there is a potential for costs to increase or decrease beyond a certain threshold
  • single-sign-on supplier portals
    where the supplier can manage all interaction with you as the buyer and submit invoices, query payment status, resolve conflicts, collaborate on NPD, discover upcoming opportunities,and provide new product and service information
  • automatic profile completion
    for current and new suppliers that uses IRS, credit and risk services, business directory, and other public sources to auto-fill missing data in a supplier’s profile, so all they have to do is confirm and correct data; also, automatic discovery of products and services they offer from online exchanges that they list on
  • visual supply chains for each supplier
    that allows a buyer to visualize the supply chain for each and all products sourced from the supplier based on all available data as well as the global supply chains the supplier interacts in based upon public trading data from government import/export databases and public sector contracts
  • auto-quote
    based upon current pricing, standard increases or decreases based upon market rates, and publicly available price data to simply initial supplier bids in an RFX or e-Auction
  • (near-)real-time decision optimization
    that is able to compute the lowest cost award taking all cost (model)s, (business) constraints, and goals into account
  • advanced spend analytics
    that can not only allow a power-user to slice, dice, enrich, re-categorize, and slice again the data any way they want to see it, but detect anomalies, project trends, and dig up insights that will allow new opportunities to be sourced in clever and valuable ways
  • contract obligation tracking and auto-verification
    most contracts require submission of insurance certificate, government (tax) forms, certifications, audits, and similar data upon award that needs to be tracked and validated by the buyer – this is a very time-consuming task; the platform should allow buyers to upload and use semantic technology, government, insurance agency, and other APIs to automatically validate uploaded documents upon receipt so that all a buyer has to worry about is chasing down delinquent suppliers or suppliers who don’t upload documents in the require formats (to allow for automatic verification and validity tracking)

In other words, the requirements for a modern B2B 3.0 Sourcing platform, even from these short lists, are well beyond what has traditionally passed for an e-Sourcing platform that, in the early days, was anything that could manage a few RFX forms, power a simple e-Auction on a few lots, and index a scanned version of a contract on a few meta-data fields. Do any platforms out there make the cut? We’ll get to that, but first, in our next post, we’ll define some of the key capabilities of a B2B 3.0 Procurement platform.