The Big Bad Blockchain is Here … Well Almost … Well, Maybe …

Blockchain, originally developed to support bitcoin (which heralded the digital currency revolution), is being considered, or at least proposed, for a plethora of uses as a result of the continual promise of the Internet of Things (IoT). It’s one of the most hyped, and to be honest, the most over-hyped technologies out there. (As the doctor originally ranted in his initial post on The Big Bad Blockchain back in March, the blockchain has huge potential, but the reality of the blockchain in today’s supply chain is proprietary proposals that are akin to the most “open” supplier networks, which, as we all know, aren’t that open. In fact, one such network is famous for having prisoners, not customers.

But, as the doctor pointed out in We Need BlockChain, But Not for the Reasons You Think, we do need blockchain, and, in particular, a truly open, truly decentralized, truly open blockchain auditable by anyone and everyone (probably operated by a truly global non-profit conglomerate). Because, with that block chain, we could realize the secure transfer of IOUs between multiple supply chain parties. (And that would allow a return to a modern form of barter where supply chain partners could trade debts until they were ready to collect. [After all, one way to hedge currency exchange losses is to trade debts until you can buy or sell in your currency.]

But until we get there (as this is apparently very forward thinking even though trade started with barter), in the meantime there are three very good uses for a proper, open, block chain.

1. Transportation (Cost) Management

All affected parties in a supply can see who has what, when, what charges were applied, when, and how the total landed cost is affected.

2. E-Document Management Between Partners

In addition to the standard fare of purchase orders, acknowledgements, shipping notices, goods receipts, invoices, and payment notices, you also have e-Contracts, e-Agreements, dispute resolution communications, and other documentation critical to regulatory compliance and future lawsuit prevention.

3. Open Innovation Management

Right now we have a lot of crowd-sourcing networks and innovation management platforms where all sorts of parties can post and respond to all sorts of challenges. However, while they have their advantages, they have their disadvantage — in that not everyone wants to give a solution away without some confidence that, if their solution is best, they will get paid and, most importantly, even if it is not, their solution will not be stolen or used without renumeration or, at least, without acknowledgement. But with blockchain, the origin of each submission can be uniquely identified and verified throughout the network, which will help an organization maintain confidence as the ownership of IP can be proven and access can be tracked.

The big bad blockchain is coming, let’s just hope that it the right instantiation of it appears.

Seventy Years Ago Today …

John Bardeen, Walter Brattain, and William Shockley invent the point-contact transistor (when they first observed the effects) and pretty much paved the way for the modern electronics revolution as the transistor is the fundamental building block of modern electronics technology.

As defined by Wikipedia, a transistor is a semiconductor device (with at least three terminals) used to amplify or switch electronic signals and electrical power. A voltage or current applied to one pair of terminals controls the current through another pair of terminals. When they are combined in integrated circuits, as they normally are today, they can create logic gates, and that’s the fundamental building block of modern computers. (The other primary components of an integrated circuit are diodes, resistors, and capacitors.)

Without transistors, we’d still be computing using vacuum tubes using machines that take up entire rooms and only using computers for mathematical calculations. The inventors were truly deserving of their nobel prize.

Why You Need to Capture the Flag Sooner Rather than Later

This week we have been talking about how Procurement is in vogue but that the only reason it is in vogue is because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. But we’ve also been talking about the fact that even though Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money since their customers are buying a lot of solutions, butt this alone isn’t enabling savings, or at least the savings the organizations should be seeing.

And the reason is that technology, GPOs, and consultancies don’t capture the flag. Particularly when the technology has no constraints on data, the GPOs don’t even give you any data (assistance) beyond what you can buy off of the master contract, and consultancies only cleanse and categorize enough data to find enough savings opportunities to justify their worth — and a continual retainer.

But, as we explained in our last post, dirty data is costing you big $$$. For any organization over 10M in revenue, it is literally costing that organization Millions. For any organization over 10B in revenue, it is likely costing that organization Billions. You read that right! Billions! When you add up the cost of maintaining that data, the cost of trying to integrate, cleanse, and categorize that data, and the lost Sourcing and Procurement opportunities, it will literally exceed One Billion Dollars in an organization that doesn’t have it’s data under control. And that cost will be paid year after year after year. (In fact, dirty data probably costs governments more than terrorist groups demanding multi-Million dollar payouts. Even Dr. Evil’s One Billion demand is cheap in comparison.)

Some studies have found that persisting and maintaining a single data record in some organizations can cost up to 4 dollars a year! Now consider the fact that many Global 3,000s have 50K, 60K, and even 100K supplier records, many of which are duplicated, each of which have dozens to tens of thousands of associated contracts, purchase orders, invoices, payments, disputes, etc. Consider how many of those are duplicated, incomplete, unnecessary (as good data can prevent disputes), etc. and how much of that cost is purely unnecessary.

Consider the cost of integration and categorization across the dozens of disparate (ERP, MRP, Accounting, S2P, etc.) systems the organization has and how much it costs to even do a basic global spend report, yet alone a complete analysis.

Now consider how much is being lost on every purchase. Without good data all of the following will happen:

  • on-contract / preferred products and services will not be found / purchased
  • unnecessary RFXs will go out (instead of purchasing standardized services / product customization projects off of approved suppliers through standard forms)
  • opportunities for product / category consolidation will not be noticed
  • organizational users will bend, if not break, the T&E policies (and some organizations have found that up to 2/3s of users will do this) … and this can be anything from staying at non-preferred hotels (where there are master service agreement rates) when there is an option to filing kennel receipts as hotel expenses
  • regular MRO buys that can be automated will not be noticed, and buyer time will be wasted
  • true market cost will be unknown and when there is no contact / preferred option, chances are a higher price option will be bought on spot-buy
  • fraudulent invoices will slip through the cracks, especially for services, as AP is used to not being able to process and match all invoices
  • etc.

And that’s why you need to get your data under control, and capture the flag sooner rather than later.

The Key to Cost Reduction? Capture the Flag! Part III

In this series we have been discussing how Procurement is in vogue but that the only reason it is in vogue is because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. As a result, Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money.

But not all companies are getting the returns they expect from their S2P platform, and it’s not always the fault of the provider — it’s often the fault of the data. Bad data. Dirty data. Data that causes you to miss over billings and duplicate billings, opportunities for volume consolidation, opportunities to spot new trends, and so on.

But how do you get that data under control? Especially when most systems allow any user to enter any data they want in description fields, not populate key SKU or cost center fields, and so on.

The traditional answer has been process, but process has continually failed, especially when organization’s have tried to scale it.

So what is the right answer? It’s hard to say, but it becomes less important if the opportunity for creating bad data is minimized. So how do you do that? You minimize the need for the end user to enter data in the first place.

This means you need a P2P system that not only minimizes the need for end users to enter data, but makes it easy for the admins to correct any oversights that would result in the end user entering data.

So what are the requirements for such a P2P system?

It depends on not only what you are buying but how you are buying it — for whatever procurement functions you support, they must be designed to minimize, if not eliminate, data entry. For example, if the organization has a lot of MRO and back-office purchases, the catalog must be complete, easy to maintain, and guide the buyer to the needed product, not an e-Form or RFX. If the organization needs a lot of services, then there should be well defined e-Forms for requesting standardized services which have all the requisite details, codes, and descriptions. If the organization needs specially configured products (like cars, computers, etc.), there should be standardized requests to preferred suppliers or standardized RFXs. And so on. The less user entered data, the better.

Moreover, it’s not just buyer users who create user error, its supplier users as well. So such a system must minimize the data required by the supplier. Once the supplier receives a PO, they should be able to simply and easily flip acknowledgements, shipping receipts by checking the boxes (and only overriding quantities if needed), invoices (from POs or shipping receipts), payment receipts, etc. with button clicks. The less, the better.

Anything that can be standardized and entered once should be standardized and entered once. And anything that isn’t standardized should go through a review queue to see if additional standard products, services, forms, etc. can be added to minimize future data entry requirements. The goal is single entry, and the use of correct single entries, as much as possible.

Only when data is under control can savings be identified, and realized. And only then will you have captured the flag.

The Key to Cost Reduction? Capture the Flag! Part II

As per our previous post, Procurement is in vogue. But, as we bluntly stated, only because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. As a result, Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money.

And the money is deserved if those providers deliver the ROI they promise. But the ROI only materializes in the right circumstance when the solution is properly applied, but this is the kicker. Right circumstance, proper application. And this is easier said then done. Because the proper application of the solution needs to be applied from the start of the, strategically chosen, sourcing project to the final procurement of the final product or service deliverable.

Because, as we indicated in our last post, sourcing only singles out the savings opportunities, which should be negotiated and put into a contract, it doesn’t realize them. That’s the job of Procurement.

But Procurement can’t do it’s job without good, clean, relatively complete, data. But that’s something it rarely has. Procurement usually has bad, incomplete, scattered data which is often more misleading than not having data at all and going on a whim.

Typical POs consist of just buyer SKUs, typical invoices contain either (different) supplier SKUs or short descriptions, what gets entered into the AP system is usually a buyer’s shorthand for this, and then when it comes time to m-way analysis or spend analysis, it’s almost impossible. The data is bad, incomplete, and, simply put, dirty.

And, as a result, m-way matches fail, over-billings don’t get detected, overspend happens, and the strategically negotiated savings don’t get realized. Plus, as more and more data gets mis-classified, opportunities for spend consolidation don’t get identified since the true spend on a product, category, or supplier is never known.

But over-billings and lack of spend consolidation or strategic sourcing opportunities is just the beginning. The bad data can lead to poor procurement decisions when the wrong data is in the catalog (and an off-contract item is chosen when such a purchase should have been prevented), when not enough data leads to the selection of poor service providers who deliver inferior services, and when insufficient specifications result in large project, and thus cost, overruns.

There’s a reason why many organizations are still losing 0.30 to 0.40 on every dollar of negotiated savings, and it’s not (just) bad Procurement, it’s (bad) Procurement data. So if you want to capture the flag, you need to get your data in order.

But how do you do that? We’ll tackle this topic tomorrow.