Procurement is Doomed! Entombed! Marooned!

Apparently the recent Procurement Pub Debate, summarized in a recent post from Mr. Smith, ended up with a win for the pro side. But the harsh reality, is that Procurement, at least as we know it, is doomed, ready to be entombed, and marooned on a desert Island. The pro side can be as blindly optimistic as they want to be, but it doesn’t change Procurement’s future.

As the supporters of the doomed side note, with modern web platforms:

  • it’s easy to buy what you want, when you want, for the price you want,
  • up-to-date market information lets you know how the price compares to other offerings on the market, and
  • peer reviews and opinion crowd sourcing lets you know how likely it is to fit your needs.

In other words, from an average employee’s point of view, who needs Procurement?

Furthermore,

  • inflation is back, so Procurement is not going to be able to negotiate significant cost reductions, or do much better than a market auction across a sufficient supply base,
  • risk is increasing, and organizations’ think it’s more important to focus on Risk Management in the Supply Base than Procurement, and
  • the market is becoming more digitized by the day and the organization would rather focus on expanding sales through the largest sales channel out there than worry about cost control as they see increased revenue as the quickest path to greater profit in a time of inflation.

So, despite the continued need of an average organization to insure that the organization can continue to acquire the supply necessary to meet customer demand, Procurement is increasingly being seen to be of secondary importance in an average organization and this trend is only going to continue. As it stands now, Procurement has peaked well below the level it should have reached. There is no future for Procurement. Unless, of course, it evolves. How? Stay tuned!

Is Your SRM Program Leaving Hundreds of Millions on the Table?

With external spend in an average company between 60% and 80%, a considerable amount of an organization’s value is dependent upon its supply base. Quality, reliability, and attractiveness are all dependent upon the supplier’s ability to create a quality product for your supply base. Service, repair, and timely customer interactions related to such all rely on the suppliers ability to deliver quality service and quality, timely, communication.

Moreover, the average organization is not only relying on its suppliers to create its value, but is losing out on hundreds of millions of dollars of value due to inefficient, and sometimes ineffective, supplier relationship management. For example, a recent study by Vantage Partners found that the top ten performers in SRM reported an average of $298 Million in financial benefits from SRM in 2014. That’s a lot of cash. As summarized in this article over on My Purchasing Center, there is a lot of value to be had by investing in better supplier governance.

For example, companies with good supplier relationships have suppliers who alert them to potential issues or potentially late deliveries at the earliest sign of trouble and jointly work with them to identify a resolution. But this is just the tip of the value iceberg. Joint cost reduction initiatives. Joint innovation. And so on.

But how do you get there? According to the article, the starting points are

  • supply base segmentation
  • policies and procedures
  • alignment with sourcing, category, and contract management
  • (designated) executive sponsors
  • (designated) relationship managers
  • strategic business plans

which is true, but this only addresses three of the six pillars of SRM, namely

  • stakeholder engagement & support
  • governance & process
  • business driver and value

but doesn’t really address the other three pillars of SRM,

  • people and skills – talent matters
  • information and technologies – platforms enable process
  • relationship development and culture – management is just the start

But, fortunately, there’s still time to get a handle on all of this and, more importantly, find out where your organization stacks up with respect to its peers as you still have one week to participate in the 2015 SRM Survey by State of Flux. Taking this survey, which is the most extensive survey out there on SRM, will not only give you first look into the survey results, but also give you first access to what has become the largest, most in-depth, SRM report on the planet. The 2014 SRM Survey Report clocked in at 216 pages of data, results, and expert interpretation and was full of valuable, actionable, insights — including the pillars and the ten essential starting points, not six — that your organization can use to launch an SRM program — and it’s free to all survey participants as well! Moreover, you’ll also get the full 2015 Report as soon as its available – and this will be invaluable as it will be the first report focussing on what a Supply Management organization can do to gain the executive sponsorship and support it needs for success, and the first report written with the C-Suite in mind. You will be able to use it in your quest for purchasing fire.

So don’t delay and take the 2015 SRM Survey today, before it’s too late!

Just What Can Strategic Sourcing Decision Optimization Do?

That You Can Not Do Without It?

the doctor has explained this many times, but it seems that some people still have difficulty understanding exactly why they need this technology. However, a recent article over on CNN on Hello Games and their upcoming ambitious sci-fi adventure game No Man’s Sky might help him explain the necessity of decision optimization to you.

In the recent article 18 quintillion planets: The video game that imagines an entire galaxy, CNN explains how the next generation of open-world gaming is expanding to take on the entire universe and offer players an online game with 18,446,744,073,709,551,616 algorithm-generated planets. That’s a number so large that a person would have to live 584 Billion years to visit each planet for a single second. That’s also the number of possibilities that an analyst might have to consider if she wanted to consider every possible selection of suppliers, products, carriers, lanes, pricing tiers, and allocations to optimize the entire spend of a global Fortune 500 multi-national corporation.

A large multi-national organization might

  • deal with 10,000 global suppliers
  • operating in 100,000 global locations
  • shipping to 20,000 retail outlets and warehouses
  • with 50,000 different global carriers at their disposal
  • to transport the 50,000 unique SKUS required to meet their needs
  • that can ship over an average of 10 lanes between point to point
  • at 2 different LTL rates and a FTL rate
  • and 4 different volume tiers

and this generates 600 quintillion different ship-from, SKU, carrier, lane, price break, ship-to combinations.

And, with appropriate category definition and model partitioning, Decision Optimization can handle this complexity.

Get it now?

One Hundred and Fifty Years Ago Today

One Hundred and Fifty years ago Alice’s Adventures in Wonderland was first published. This classic novel, written by Charles Lutwidge Dodgson, is about a girl name Alice who falls through the rabbit hole into a fantasy world. This book, which is considered to be one of the best examples of the literary nonsense genre ever published, is a seminal work in logic and mathematics, even though it is not traditionally recognized as such.

The author was a mathematician, and unlike Edwin A. Abbott, who, nineteen years later, decided to take a more traditional approach to the creation of a satirical mathematical novella with his (also pseudonymously published) Flatland, he decided to take a
less traditional approach and predate satire with a creative philosophical treaty wrapped in fantasy that, to the average reader, looks like gibberish.

For example, infinitesimal shrinking of distances is how we are taught limits when leaning (pre)calculus. The word play that explains that the semantic value of a sentence is not the same value of the converse talks about the different truth values of a statement, its converse, inverse, and contrapositive. The changing of seats is a reference to a classic combinatorics problem, where the goal is to count seats at the table. (Not to be confused with another famous circular combinatorics problem that is contained in the dining philosophers problem.) And the race gives us an example of the importance of one-to-one mapping if one is trying to get to the finish line and fully define a mathematical system.

It’s a great book, and one that will hopefully stay in publication for another 150 years.

M&A: Is What’s Good for the Shepherd, Good for the Flock? Part II

In Part I, we noted that the prophet has a different take than the doctor on the recent M&A (merger and acquisition) frenzy that is again gripping the Procurement space and, contrary to the doctor‘s opinion, the prophet believes that, at least in the long term, it brings more clarity than confusion. We then summarized the cons that the doctor sees with the M&A frenzy and the pros that the prophet sees. The points that the prophet made were all valid points and they definitely presented opportunities for the firms in question, but is what’s good for the shepherd good for the flock?

While it’s obvious that any of the advantages brought up by the prophet bring great value to the new organization, do they bring great value to the customer as well? (Let’s face it, while the doctor loves innovative and customer-focussed vendors, he loves innovative and customer-focussed solutions even more.) The Supply Management space will only advance if the organizations doing Supply Management can advance. And to advance, they need the right (transitional) processes, the right technology platforms, and the right talented people to run the function. Does a merger necessarily improve the processes, the platforms, or the people? Let’s take the advantages proffered up by the prophet one by one.

  • Differentiation by way of a broader solution offering
    If you were relying on the vendor for its great sourcing platform, and the merger was between a platform provider and a services provider that allows the new organization to offer a full (outsourced) sourcing solution, how much does this help you if your organization was a leader in sourcing process and capability and doesn’t need any of the new service offerings? Or let’s say a sourcing provider and P2P provider merged but your organization already has a superior P2P platform implemented and integrated with the sourcing platform. Does the merger help you?
  • New Points of Entry
    While it’s great for the newly merged company that they have more opportunities to secure more customers, except for the fact that this may lead to increased financial stability for the provider (which will make your risk management department happy), that doesn’t do anything for you as a customer. The only thing that you care about is whether there are new products, functions, or services that make your operations better.
  • Lower-Cost foot in the door
    With the exception that this lowers the provider’s overhead in the long term and the provider is willing to reinvest this savings in innovation that results in free platform / product upgrades, this doesn’t do anything for you as a customer.
  • Stealth-Transformation
    While this is great from the perspective of an acquiring company that can use the acquiree’s personnel and capabilities to transform itself into a big league competitor under the radar, what does this do for the end customer? Maybe nothing!
  • A Better Executive Team
    If the executive team understands your needs and support requirements better and actively works to improve their service offerings for you, this could be a good thing, but not every new thang will be right for your organization.
  • New Products / Solutions
    If the new products / solutions complement the products / solutions that your organization is using and can be utilized by your organization to increase organization capability and maturity, this will be a good thing, but the new products / solutions might be focussed on a completely different type of customer base and leave you hanging high and dry.

In other words, while all of these benefits are arguably good for the shepherd, there is no guarantee that any of them are good for the existing flock. And even if some of these benefits are good for some of the herd, there’s no guarantee that they will be good for each individual sheep. So, again, the doctor must ask, from a customer perspective, M&A: Confusion or Clarity?