What is Spend Orchestration?

Spend Orchestration is all the rage. But what exactly is it?

Well, as we tried to point out in Demystifying the Marketing Madness for you, where we said it meant we don’t do anything different than all the other orchestration providers, but it sure sounds cool!, Spend Orchestration is essentially:

Clueless for the popular kids.

It’s a coming-of-age comedy where you have a slick looking, popular, over-funded new-age SaaS platform from fresh-out-of-college (dropouts) who want to do “good deeds” for the Procurement space by giving your Procurement department a “makeover” that connects all of your applications together so you can “manage your spend” and match stakeholders with the procurement professionals that can meet their needs (as the platforms try to justify their existence).

Upon implementation of the spend orchestration, there will be one fiasco, hardship, and falling out after another as you realize the platform doesn’t do anything if you don’t have core Procurement platforms for sourcing, supplier management, analytics, contract management, procurement, and invoice management/accounts payable … otherwise, it’s just intake to nowhere and orchestrating faster push and pull from your incomplete, outdated ERP/MRP. Also, without good platforms in place, it will just make it easier for the stakeholders to admonish you on a daily basis when your Procurement process doesn’t actually pick up the pace or perform more preferably. And you will be more jealous of your peers that skipped the orchestration platform and went straight for the S2P or P2P platform that actually solves some of your Procurement problems.

Now, eventually you will acquire the missing pieces (or these orchestration platforms will build basic functionality) and you will kiss and make up at a big fat Procurement Wedding like ISM or DPW, where they invite you on an all expenses paid trip to participate in their prestigious Power Procurement panel, but it will be a very rocky road on the way.

Our suggestion is that if a company comes knocking with “spend orchestration“, you tell them thanks and no thanks and save the comedy hijinks for the big screen. If you do need orchestration — which you won’t know for sure until after you’ve consolidated your applications, determined which are not easy to direct connect (due to a lack of [Open] APIs), which don’t allow easy access across the organization, and where orchestration might actually help — you want to get that orchestration from a company that has grown up, not one just starting it’s teenage high-school journey!

Orchestration Won’t Solve a Reckless Runaway SaaS Proliferation Problem!

In a recent LinkedIn Post, THE REVELATOR asked Why you need an Internal and External Metaprise Strategy for optimal Intake and Orchestration capability? and noted that:

  • Most large enterprises use between 10-25 procurement software platforms, with some complex organizations exceeding 25. Just for Procurement!
  • A 2022 study by Forrester Consulting found that large enterprises use an average of 367 software applications and systems.
  • A 2023 report by Zylo found that large organizations deploy an average of 660 Software as a Service (SaaS) applications.

Moreover, the doctor has seen stats:

  • as high as 87 individual SaaS products in a single department in larger orgs
  • exceeding 40 for Marketing or Sales … when you can’t find more than a half dozen apps that actually do something significantly different

All the doctor can say to this is that if the number of platforms you are using numbers is in the three digits, you don’t need orchestration, you need consolidation!

For example, Marketing and Sales is all lead generation/management and customer prediction/funnel/CRM. With no coherent strategy (beyond maybe SalesForce for CRM), every employee or team will purchase their own set of Apps and the organization will have 5 to 10 apps that more or less do the same thing with 90% overlap. And similar situations abound throughout the organization.

So yes, these organizations need a strategy, and that strategy should be to centralize app decision and management in each department to prevent unnecessary app sprawl. After all, each app you orchestrate costs you even more money than the app subscription cost (as the orchestration app will charge you based on the number of integrations, and how many of those it supports out of the box), which ends up ballooning your overspend to integrate apps you shouldn’t be using in the first place.

Which means that the first thing these organizations need is a SaaS App Optimization platform that can crawl their SaaS purchase and usage data, identify what’s used, identify more-or-less duplicate apps, and identify which app should be consolidated upon based on usage. This will not only reduce costs by over 30% once the unnecessary apps can be dropped (at the end of the current license or payment cycle), but increase productivity (as [cross functional] teams work in the same app ecosystem).

Moreover, this is just the tip of the overspend iceberg. Once the first round of consolidation is done, these organizations need to tackle SKU sprawl in their enterprise platforms, and their ERP, Cloud Host, and Back-Office Systems in particular where the common vendor strategy is to offer “bigger discounts” when the client purchases packages that contain modules they don’t need or more seats than they will actually use, which, even with the bigger discount percentage off of list price, are still designed to cost the organization more than they should be spending. To do this, they will need to use a vendor, like Green Cabbage that we recently reviewed, that are experts in enterprise software system purchases and know how to unbundle these consolidations and get you insight into market pricing on a SKU basis for hard-nosed fact-based negotiations.

Only once the organization’s platforms have been consolidated and optimized should the organization embark heavily into orchestration, as this is the only way to ensure they don’t do unnecessary work or pay unnecessary costs.

Gen-AI Won’t Work For Procurement … And Neither Will Agentric AI if the foundation is Gen-AI!

Right now every vendor is pushing “AI”, and the vast majority of that “AI” they are pushing is a Gen-AI LLM, and often that is just a wrapper of a third party Gen-AI LLM, like Chat-GPT (which only the French know how to pronounce properly).

And they are pushing this as a cure-all for all your procurement ills. It’s the new magic elixir. The new panacea. But, in reality, it’s the ultimate silicon snake oil, because it almost works. And it makes you feel really good when you use it. In medical terms, it’s not a treatment, it’s a psychedelic that takes all your pain away (until it wears off that is). But, just like the spoonfuls of LSD that allowed Bender to become the Iron Chef, it will only last long enough for the vendor to win the contract from you, and then it will start to fade. Until it fades completely when you need it most and fails you utterly when you need to figure out how to deal with a border closing that just happened, a critical raw material shortage due to an unexpected natural disaster, or a trade war no one saw (but should have seen) coming.

This is because, as we keep telling you, Gen-AI, which was built as a predictor technology to predict what block of text, in natural language, should follow an existing block of text (using chain-of-compute), based on training across a very large corpus of existing documents. It’s no more, no less. That’s why it’s only good for tasks that can be reduced to large document search and summarization. (And natural language translation tasks, because it understands basic semantics and can easily be trained to translate to and from any machine language you train it to.)

However, this doesn’t help you with any task that requires actual computation! It’s not analytical data processing, it’s not optimization, and it’s definitely not advanced machine learning for advanced mathematical pattern detection. These are the majority of your tasks and the tasks you need to do to analyze a situation. Buys should be based on the lowest total cost of ownership at the maximum acceptable risk level. Sales predictions, and thus demand, should be based on tried and true mathematical trends, not hunches or market hype. Basic invoice processing should be against business rules for validation, approval, and payment, and that should be primarily based on rules-based automation.

Note that none of these core technologies you need to solve the majority of your problems are AI, as we pointed out in our recent article that said you don’t need Gen-AI to revolutionize procurement and supply chain management. Not to say that these technologies can’t be enhanced by the right application of AI — for example, AI could predict the optimization paths most likely to arrive at the optimal answer, the right curve fitting algorithms to match the trend lines, and the right outlier analysis to identify missing, off, or fraudulent information.

Real solutions come from real tried-and-true AI technology developed over years, or decades, that was designed to solve a specific type of problem, not generic text processing technology that was not designed for the problem, has no understanding of the problem, and will make stuff up in an attempt to solve the problem (which is referred to as a hallucination, but is not a bug, but a core feature of Gen-AI / LLM technology).

This is also why Agentric AI built on Gen-AI won’t work — you can’t automatically build an RPA sequence from a chain of compute that could be completely hallucinatory, and you certainly can’t rely on it to solve your problem.

This doesn’t mean there isn’t a use for Gen-AI, it can be trained to be a natural language interface to these other tools that will work reliably the vast majority of the time (say 95%+ if trained over time), but the use is definitely NOT what you are being promised.

Why You Need BTCHaaS!

Nine years ago we told you that you needed MROaaS, and you most definitely do, but it’s not enough anymore, now that you can’t predict what your parts are going to cost now that you’re Back in the U.S.S.R, you also need BTCHaaS: Border Transport Cost Heuristics as a Service.

Basically, now that USA border tariffs (and counter-tariffs from Canada and Mexico) are more unpredictable than the weather (where 3 day forecasts in some areas approach 97%, East Coast Canada excluded, and 10-day forecast accuracy is approaching 50%), and come and go on a daily basis, you need a border transport (BT) solution that uses predictive analytics solution that minimizes your tariff impacts that uses cost heuristics (CH) derived from similar prior patterns in similar tariff announcements and withdrawals, costs per day of delay, and spoilage risk.

Basically, you have this dilemma. When a tariff is announced on the border your truck is scheduled to cross for the day it is scheduled to cross, do you

  1. accept is a cost of business, do nothing, and have it cross as normal
  2. send it to a truck stop and tell it to wait for a revised decision tomorrow
  3. turn it back around, unload, and do without (for now)

Depending on:

  • the value of what’s in the truck
  • the risk of spoilage
  • your contractual requirements
  • storage costs on the other side of the border
  • the tariff(s) that will be applied

Your best option on any particular day will vary. For example:

  • if the tariff is likely to be rescinded in the next three days, and you can wait a day or three, maybe you tell the driver to wait and pay an extra one to three days of salary/transport fee
  • if the tariff is not likely to be rescinded in the next three days, but likely within the next few weeks, and the tariffs would be in the tens or hundreds of thousands of dollars, and you can do without the goods for a few weeks, maybe you send the truck to a local warehouse and pay a temporary storage fee
  • if the tariff is not likely to be rescinded at all, and you can do without the goods in the short term, and you are not contractually obligated to take them (which might also be the case if the tariffs are so high that they qualify as force majeure), maybe you turn the truck around and drop them off where you picked them up
  • if the tariff is not likely to be rescinded, and you can’t do without the goods, then you should just cross the border

But that’s not an easy decision to make on the spot. You need to know

  • the transport, and waiting, cost per day
  • the (potential) cost of (additional) spoilage (i.e. 5% of produce may spoil)
  • the (potential) cost of any delay
  • the cost of the tariff
  • the cost of localized storage (plus the additional unloading and loading fees)
  • the likelihood of a decision change within a short time frame (3 days) and a mid-time frame (3 weeks) based on market data and sentiment analysis to tariff announcements

and do all the calculations and make recommendations based on the possibilities for you, a human with human intelligence (HI!), to accept or reject. After all, if the truck is carrying 2 Million of electronics or auto parts, a 25% tariff is 500K, and it doesn’t cost anywhere near that to make the driver wait an extra couple of days (and to hire a few security guards to keep it safe), and will be worth it if the likelihood of a reversal, or significant reduction, is high.

So yes, MROaaS is not enough anymore … you now need BTCHaaS!

Is this FINALLY the time of Specialized Supplier Discovery?

Supplier Discovery applications are not new. They’ve been around for quite some time. Two notable examples that you might not think of as Supplier Discovery are Tealbook and ScoutBee as Tealbook is now focussed on powering your procurement with trusted supplier data and Scoutbee X is now the AI-powered procurement network. Why? Because no one actually bought supplier discovery!

Why? Business have always thought they know their suppliers, they know who their suppliers’ competitors are, and that if they need to find a supplier, for the last 25 years, that’s what Google was for. And they kind of did. If they were sourcing from China, they knew all the major competitors in China. From South Korea or Japan, the same. If they were sourcing regionally in Asia, they knew enough. And if they didn’t, Google. They might miss one or two of the top 10, but if you knew 80% of the suppliers you might do business with, constructed a good RFP, vetted properly, you usually acquired a decent product at a decent price and went on merrily about your day, especially if you saved 2% on a category in the last RFP.

But that was a time of relatively free global trade. Yes there were tariffs, and yes they changed from year to year, but for any given trading partner pairing of countries, they were relatively static and predictable. With the exception of a country like Brazil that, for a while, was changing tariffs weekly, you knew how to compute your TLC (Total Landed Cost), where you wanted to do business, how to find the majority of suppliers, qualify them, and do business with them.

Plus, there were few countries with sanctions that affected you, and you didn’t have one of the major global economies cut off to you if you want to do business in the EU. Moreover, no matter where you did business, you did business in dollars if you wanted to. That’s because, for most countries, currency exchange rates were more or less stable for a period of time and easily predictable.

However, those good times in global trade are gone. Long gone. Not only did you have to deal with countries shutting down completely during COVID, but then you had to deal with sanctions against Russia, canal slowdowns and effective closures due to Panamanian droughts and Houthis in the red sea, dynamic exchange rates as a result of recent elections, and now rampant trade wars.

Your supply chain is in shambles, and, frankly, there is a portion of your current supply base that, even if it is still available, you can’t afford to use anymore. That’s because 25%+ tariffs in some category are just too crippling. So you need to find new suppliers, preferably at home, but most of the time that won’t be possible (as you were outsourcing because there wasn’t enough [competitive] capacity in your own country), so you at least need to find suppliers in a low cost, low tariff country — and likely one you haven’t done a lot of, or any, business in before.

And you need to find these new suppliers, and send them RFPs, fast. You should have done it yesterday. But you need to be 98% sure these suppliers can actually serve you before even sending the RFP because you don’t have time to wait for a response, review the RFP, and then realize they can’t do what you need and that you have to find another set of suppliers and repeat.

But you can only do this if you not only have deep data on what they make, but what equipment they have, processes they support, capacities they can meet, their tier 1 supply chain they have immediate access to, and so on. Some of this might be on their website, if they have one, in a language you don’t read, and a format you’re not used to.

In short, you don’t have the information you need, you can’t get it quickly, and that means identifying your next supplier is going to take months — months you don’t have — unless, of course, you use a Supplier Discovery platform that has all of the information on the global supply base you need to make this decision. That has the majority of suppliers in an industry. That has deep data on their products, capacities, equipment, processes, and factory locations. That can take in detailed requirements and/or a detailed BoM with production requirements and instantly identify 10 suppliers not in a set of regions that will meet your need. That will help you analyze appropriateness, cost differentials, and suitability to your business before your first contact. That has the contact information you need to make the right contact.

In other words, you need Supplier Discovery, and maybe even a market research platform like Forestreet, more than you ever did, there are platforms out there (a few old, a few new) that can help you, but will you wake up to the fact and finally incorporate these tools into your Procurement platform? (And let’s be clear, no matter what they tell you, Suites are NOT Enough.)