This is a repost/follow up of the classic post SI ran two years ago on Sourcing? Yes! Sourcing Tool? Maybe ….
If you missed this post the first time around, you’re probably confused as this blog has been advocating the acquisition and implementation of strategic sourcing solutions since day one, tirelessly explaining the benefits they can bring to one and all if they are appropriately selected, implemented, and utilized.
The reality is that a system that doesn’t support your needs and organizational processes, that is cumbersome to use and costs more in organizational inefficiency than it returns in savings or value identification, or that just sits on the shelf because your employees refuse to use it en-masse has no value. It has to be the right system for you. This system may be a low-end system, even though, as pointed out by The Prophet over on Spend Matters in his three-part series on Lower End Sourcing (Part I, Part II, and Part III):
these tools often lack more advanced capabilities, including tighter integration into third-party tools; supplier collaboration processes and overall project management; category management and comprehensive knowledge repositories; advanced workflow support and automation; access restrictions and audits beyond the basics; and advanced data collection and bid analysis
because, if an organization is just (gasp!) beginning its sourcing journey, is at the low end of the mid-tier and has relatively simple buys, or is understaffed and just needs to get the job done and get some quick hits to get more budget and support for a bigger and better system, it might be the right tool for the job.
But the best tool for the job is a system that contains all the capabilities the organization will need as it progresses through its sourcing journey, and, more importantly, can be adapted to new and improved processes as the organization matures. Fortunately, some of the more innovative mid-market providers, and even some of the more aggressive enterprise solution providers have realized this and are now offering Sourcing and Source-to-Pay solutions with adaptable, extensible workflows that also support out-of-the-box integration with existing ERP, AP, and even P2P solutions.
This way an organization, just beginning its sourcing journey, can implement the foundations, mirror existing processes (even if not optimal), and have the team up and running as fast as possible. As the team gets comfortable with the tools, more and deeper, functionality can be enabled, processes enhanced, and analysis intensified.
And the best platforms are enabling enhanced functionality workflow templates where senior buyers can customize workflows, RFXs, cost, and even optimization models for simpler categories often sourced by junior buyers so that junior buyers can apply best practices and advanced learnings and the organization can make the right buy every time without wasting the limited time of senior buyers needed for the large, multi-million dollar buys.
Not only does this allow sourcing platforms to be properly implemented, and proper processes followed, but it allows an organization to not only get more Spend Under Management, the ultimate key to sourcing success. In fact, it can allow an organization to start tackling tail spend, the bottom 20% of spend which often contains up to 30% overspend, years ahead of its peers.
This is in contrast to organization that selects the wrong tool for a job. Such as a large multi-national organization with complex category buys with a significant amount of products coming from Asia that selects a rigid, English only, platform designed for buying finished goods through third party distributors.
So, while the doctor still fully supports sourcing systems and believes every company should have one, like a work shoe, the system has to fit (like a glove). Otherwise, just like a dancer with two left feet, the organization will be constantly tripping over itself and see no benefit at all!
As more Procurement organizations begin to mature, it’s imperative that they revisit this new classic SI post from three years ago as confusion on this subject can lead to poor decisions.
An article over in S&DC Executive on The Four Vs of Fixing a Decentralized Procurement Model noted that implementing a centralized model from nothing is no mean feat and then presented the Four Vs” as a good starting point to begin their path forward to centralization of selected spend categories. Centralization of spend is a necessary step on the path to a centralized sourcing model, but that’s all it is – a step.
In order to have a centralized sourcing model, you have to centralized:
all of the Sourcing and Supply Management Personnel have to be in the same business unit
- Technology, and
all of the operations, even if they are decentralized all over the world, need to run on a common base technology platform
all of the processes need to be migrated to common sourcing and supply management processes, with local sourcing only taking place on categories that are truly local (otherwise, sourcing should be center led)
Now, when you are transitioning processes, you should start with sourcing and procurement, as this one-two punch will give you the biggest bang for your buck. The application of good advanced sourcing techniques to categories never sourced this way, or to significantly larger spend volumes, will typically identify savings opportunities in the 10% to 12% range. Then, good procurement systems will make sure that the savings are captured by preventing maverick spend (if the spend has to go through the system and appropriate rules are in place) and making sure the invoices match the POs which will need to match the contracted rates.
And the first step in a good sourcing process is spend analysis, which, if you want to get it right, does require:
into all of the spend in the category being sourced
on the spend between sites (which will give you a quick estimate of savings potential)
- Velocity, and
to savings which results by choosing categories where contracts are expiring or have expired and where there will be little resistance
generated from the process in a way that can be measured, tracked, and reported to the CFO.
The four V’s covered in the article are indeed a good starting point on your journey to centralized the sourcing process, but that’s just one aspect of transition, and it doesn’t even address technology or talent, two key factors in the centralization of a Supply Management function.
This post originally ran four years ago. But since a critical mistake is still being made, it’s time for a repost.
How Not to Excel at Forecasting?
Simply put, use Microsoft Excel. It’s appalling that a survey by ToolsGroup and the Global Market Development Centre (GDMC) found that even though two-thirds of companies in the consumer goods supply chain consider demand volatility and forecast accuracy a high businesses priority, half still rely on Excel spreadsheets for forecasting.
Relying on Excel for forecasting is like relying on:
- a Longship to get you across the Atlantic
- your first guess on Let’s Make a Deal to be the right one
- a shareholder proxy getting on the ballot at a Fortune 500
- Florida surviving a hurricane season without any major city suffering damage
- the price of fuel going down and staying down for an upcoming series of spot buys
- natural resource supply to be consistent and predictable year-over-year
- a flip of a fair coin to come up heads seven times in a row
Now, it’s true that:
- the Vikings did make it across the Atlantic in a Longship, but a single storm could sink it
- the first door you pick, with one-in-three odds, could be the right one, but the odds are actually twice as good if you switch
- an activist shareholder can sometimes get a proxy on the ballot if he or she has enough time and money, but as pointed out by John Gillespie and David Zweig in Money for Nothing (How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions), examples are few and far between
- even though no storms made landfall in Florida in 2011, this is Not a common occurrence
- gas prices did consistently drop in the USA between September 2008 and December 2008, but have been otherwise steadily rising for the last five years
- in some years the rice, sugar, and corn crops are almost the same as in the previous year, but given the increase in hurricanes, tsunamis, droughts, and other natural disasters in recent years, this is not a common occurrence
- yes, heads can come up seven times in a row when flipping a fair coin, but the chances of this happening are less than 1%
In other words, you can forecast with Microsoft Excel, but your chances of doing well, especially given that 90% of spreadsheets have non-trivial errors (and collectively cost enterprises billions, as Fidelity and Fannie Mae found out), are (vanishingly) small (as the complexity of the forecast increases). One has to remember that there’s no intelligence behind a spreadsheet and they are just a source of peril that can cost your organization millions without anyone noticing.
Recently we published two guest posts from Charles Dominick of Next Level Purchasing on Assessing a Procurement Team’s Skills and Training a Procurement Team, but these were not his first. Nor his only good work. Five years ago we ran this post targetted not at procurement organizations, but procurement professionals who want a better job based on a great post on 5 [Common] Ways to Screw Up a Purchasing Job Interview that he published over on his Purchasing Blog.
Charles’ must read advice indicated that the following WILL screw up your interview:
- taking an interview late in the process
as all future candidates are compared to the one once that candidate is identified
- not being prepared for the most common interview question
which, succinctly, is tell me about yourself
- not distributing eye contact
when being interviewed by multiple people
- saying anything negative
as you will not be seen as the proactive team player they want to hire and
- using slang inappropriately
as there is no guarantee that an interviewer is going to understand what you mean, and if you say you are hotter than a fox in a forest fire for the job, and the interviewer isn’t familiar with that phrase and a strong PETA advocate …
In addition, the following will also screw up the interview:
- not dressing appropriately
even if the company has a very laid back atmosphere in the workplace, don’t show up in shorts, a Hawaiian shirt, and sandals (as they need to know that you can make a good impression in front of a supplier)
- over-stating your skills, experience, or knowledge
as you will be interviewed by the best and brightest and they will find you out
- not knowing the market for the common Procurement categories
if the job is in the electronics component division and you know nothing about the state of the semiconductor market, that’s not going to look good when they ask if you have any ideas to control costs in that market
- not knowing what the company does
if they are an engineering company that primarily makes electronic components for personal entertainment and the automotive sector, but you only know them for their video game division, that’s not going to look good when they ask how you plan to reduce costs in the automotive division
- not knowing the competition
and this is doubly damaging if you walk into the offices with the product or logo of direct competitor anywhere on your person.