negotiation

Bid Ops Interviews Rich Eggers on #TheFutureofProcurement

rich eggers.jpg

Edmund Zagorin: All right folks, today, on the interview, we have Rich Eggers who is a leader in the Chamber of Commerce here in Cincinnati, also a mentor at Ocean Accelerator, and has spent some time as a business leader in the procurement world in his role in raw materials procurement for Mars at the senior Director level. So we are lucky enough to be able to grab a few of his minutes today and ask some questions that we've been asking folks who really know their way around the industry. So Rich, a first question for you is just- what do you see changing over the next five and 10 years in procurement generally? Where do you think the biggest shockwaves are going to come?

Rich Eggers: First of all, thanks for having me and giving me an opportunity to share a little bit about my story. So, I think Purchasing is moving more towards a business integration and really playing a key role with the leadership team and in driving value for their customers.  I see Purchasing’s unique external focus on the supply chain really starting to leverage a couple of different things. One is mega data sets -- and where they're looking to find a unique insights from those data sets. I think this is going to be a continuing theme into the future -- how can you look at the broader collection of data, both within the company and also external to the company to find unique capabilities and connections that you can leverage. I also think that efficiency is going to continue to be an important driver. Coming up with tools and approaches and work processes that make the process more efficient is going to be super important as we try to do more with less every year.

Edmund: Fantastic. Yeah. I think we definitely see the theme of doing more with less across the board, especially given how many companies are trying to hire more folks in the procurement department as workloads increase in what is, of course, a very tight job market. So I want to just ask kind of on that topic - where do you see leadership priorities in procurement moving today? What do you see today, or even the new leaders who will be rising through management ranks over the next 10 years? Where do you see their priorities really focusing?

Rich: Yeah, I think the thing that's unique for Purchasing as a skill set, it's really about linking those business needs that are ever changing more directly with the marketplace in which you're trying to procure your goods and services. And so I think the one thing that is a challenge in that is not knowing exactly where the business is going to go, but still having an important priority to come up with the right strategies to deliver against that. I think in order to do that, what's going to end up happening is they're going to have to do a better job of looking at overall spend. Some of the big dollar amounts will have more strategic focus and more time put into where the long tail of other things that need to be bought are going to have to be automated. So I think the leaders are going to be looking to drive that clarity around what is in the tail that needs to be automated and then what is kind of in the core that needs to go through a tool-enabled approach for strategic sourcing. I think that kind of ties through the two main pieces - really continuing to stay focused on strategic thinking, tied to the business needs that are ever changing and as well, putting a strong focus on those top priorities and systematizing of the tail.

Edmund: I think that comment about tail spend is really profound, especially as you see a certain types of spot buys and smaller purchases increasingly  managed through a more delegated and decentralized framework, particularly in very large organizations. There are some tools that a procurement department to use today that won’t be used ten or twenty years from now in their current form, kind of like the kind of manual calculator once was prevalent and now that same calculator exists as a virtual machine or a set of abstract commands in Microsoft Excel. Are there tools that are used in procurement departments today -  I mean one perhaps could say something like a fax machine or something, but, maybe even heuristics or cognitive tools - that we’ll see phased out over the next ten years of changes?

Rich: Yeah, I think the marketplace is evolving more rapidly every day. So tools that require a lot of time in order to implement are going to fall out of favor, if you will. Tools that are restricting the boundaries of the marketplace are also going to be less important as you look to leverage the relationships that you have. It's about being able to share those unique needs as efficiently and with the level of clarity that's needed, so that you can collaborate and partner with external capability or drive even competition in a way that makes it really clear what the deliverable is that you're looking for. So I think a couple of things are gonna change. One thing is if you're working in processes right now that are kind of email focused, I think that's going to have to change in the future.  You're not going to be able to deliver the full scale of requirements with a standard email type of solution. So I think that's going to be a thing of the past. It's going to be more of a relationship management tool that you’re going to have to use. If you're doing a lot of your work on paper, that's also gonna be a tool of the past. We just don't have the time or the ability to touch that many pieces of paper on a regular basis. Not to mention the environmental impact as well. I think finally a piece that's going to be important for the future is recognizing that the change happens daily and, and with those changes, a lot of volatility in the market places, a lot of volatility in relationships and you're going to have to be much more responsive to that. And so I think tools that also don't take into consideration those market movements and what your requirements are, are going to also fall out of favor. So it will be important in the future that's your ERP systems are integrated with real time market information so that you can make the best decisions over the short run and the long run.

Edmund: Wow. I love that last point you made. I think enterprises talk a lot about creating very large repositories of data. You hear the term “data lake” thrown around. I think it's always interesting to ask the question - is that data actually a) accurate and b) actionable?  How recent is it? How relevant is it to the decisions that are being made every day? And I think as those questions get asked more and more, it will put increasing pressure to, as you said, to make sure that data is relevant, make sure that it's coming from the market, and that people can use it to be more adaptive and responsive. So this is the final question, and I'll admit that there's perhaps a certain bias on my part in asking it,  but I think it's those real $64,000 questions in the procurement world today: where do you see artificial intelligence and machine learning playing a role in a procurement’s future?

Rich: So I think it's going to be really an important part of the future for several companies that are really focused on fast paced industry change. If I think about procurement, some of the pressure for the strategic procurement organizations, is to be more tactically efficient with large data sets. Artificial intelligence is going to help move to a more efficient execution. So for them it's going to be incredibly important.  I think for teams that are more tactically efficient, and that's where they spend a lot of their effort. I think they need to be pushing more towards a strategic mindset. And those businesses, what's going to be really important is to be able to get rich feedback out of the data sets, which they don't have today. And so I believe where your company is today and where your strengths are, it's going to change how you need mega data or artificial intelligence. It'll be interesting to see as we go forward where the innovation occurs. Is it that they both occur at the same pace in both sides, or is one gonna lead the other? And depending on the advancements of mega data understanding, in or out of artificial intelligence, it'll drive a competitive advantage you want versus the other. So I think this will be something that'll be important for the purchasing organizations to consider in their business interactions in the future, to the point where if artificial intelligence ends up dominating the path in the future, it may have an implication on what your organizational design and what you're buying approach in the marketplace. And I think as well, if a mega data analysis and that kind of strategic insight gathering comes out to be in the forefront, pushing beyond the artificial intelligence capability from a speed and delivery standpoint, then if you don't have that insight into the business then you're going to have to really probably modify the way which you're purchasing organization comes forward and does its work. So I think it will be a profound impact in the organizations. And so it'll just be interesting to see which ones respond to those external capabilities as they get to create in the marketplace.

Edmund: Rich, terrific insights here. Alright, folks. Well that's it for the interview. Thanks for checking in to learn about the future of procurement with Rich Eggers and the Bid Ops team.

Why Your Legacy Procurement Software Has Become An Albatross Around The Neck of Your Savings Potential

Not to strangle to proverbial albatross from Coleridge’s Rime of the Ancient Mariner, but if you believe in the myth that “everything must integrate” with your legacy procurement software, you are probably already suffocating your procurement org’s savings potential.

Coleridge's feisty albatross

Coleridge's feisty albatross

 

Here’s a real story. Years ago, I was doing some consulting at a medical company’s procurement shop and needed to pull a few purchase orders from Accounting to see if they matched what I was seeing in the ERP data. By consulting the company directory, I got a phone number in Accounting. That directed me to an analyst who happened to be on vacation, then I ended up losing an hour playing phone tag with the vendor trying to pull the invoice (rather than the purchase order). Instead of sending more emails to nowhere, I decided to just walk down a couple floors to Accounting to see if another analyst might be able to help me out.

This Accounting department was neither terribly modern nor terribly antiquated. The company was publicly traded, and the office layout was a cube farm with centralized Break Room and Copy Room. Each cube had a huge number of file cabinets, all bulging with pieces of paper and I figured I might be in luck as far as locating my troublesome purchase order. Asking around, I discovered the Cube of an analyst who could answer my question, and inquired as to the location of either physical or digital purchase orders.

“No,” she said. “That’s not on-site, anymore. We’re going paperless.”

Noticing that she seemed to be drowning in an off-white ocean of papyrus, I asked if hers were merely the last vestiges of a bygone era, or… what?

My question must have confused her.

“Oh no,” said this analyst. “These aren’t purchase orders. All these papers are e-mails.”

“E-mails?” I asked, incredulous. “Why do you have file cabinets full of e-mails?”

“Because,” she stated flatly. “We’re going paperless. But there’s also a rule that says you can’t keep an email in your inbox for more than 30 days. So every month everyone prints out their e-mail inbox and files it away. Officially, we aren’t really supposed to, but everyone does because there’s information in those emails that we need to get to. If we can’t save them in our inbox then we still need some way to access them.”

In other words, the office’s E-Mail Deletion & Paperless Policy had resulted in two outcomes: all of the former paper (including the purchase orders) had been removed from the building and placed in storage elsewhere. The resulting empty file cabinets had been promptly filled with printouts of the emails themselves.

These emails were bulging from every filing cabinet in every cube around the office. The whole experience left me thinking: if you give a group of people a bunch of arbitrary and contradictory constraints, their workaround will often undo the very purpose of the initial solution. People will figure out how to do their job well enough to not get fired, and will figure out how to maintain access to the information that they need to do it. They'll use email, they'll use paper, they'll use Post-It notes and telephone calls. You will not know everything that they are doing with your org's money, time or other resources.

For every employee, actually taking an action is almost always more important than tracking/reporting it, and that is why every effort at data centralization ends up being an exercise in creating newer, less visible channels of communication outside of the central platform. If you use an ERP system and think that's truly an accurate representation of the sum total of your "master data", I have some really terrific swampland down in Florida with your name all over it.

What does any of this have to do with either Coleridge’s albatross or legacy procurement software?

The albatross in Coleridge’s poem is a giant bird who starts to lead a boat full of lost sailors out of treacherous and freezing Antarctic waters . Perhaps for reasons of hunger, one of the sailors shoots and kills the albatross. This decision means that the whole boat of sailors is basically screwed as far as getting home. Instead of a feathery navigation win, all they have left is a very massive and very dead bird. Due to poetic justice, the other sailors make the guy who shot the albatross wear the dead bird around his neck.

The whole albatross scenario is exactly how legacy procurement software uses the short-term transactional benefits (e.g. eating an albatross) to keep an entire organization shackled to an outdated business methods (e.g. a directionless ship). By “requiring integration”, the legacy procurement software prevents the organization from spending less than six figures on any new piece of software (certainly any software created in the past 3-5 years), and by restricting the pace of its own evolution (relative to, say, any consumer application), the software inevitably becomes a bottleneck.

Much like the burden of a carrying a rotting albatross carcass, or the necessity of printing your entire e-mail every month, people figure out a way to make it make sense. And the way it makes sense is the following sentence: “We need everything to integrate so that all our applications talk to each other.” By prioritizing this constraint, buyers fail to recognize that the reason that they wanted software in the first place is to save time and money, to make their lives easier. If “integration” is always the priority, eventually everything else falls away until the new software doesn’t make much of a dent in the procurement productivity stack: practically the only thing it does is integrate.

The day that legacy procurement software falls behind on enabling best business processes for the enterprise is the day that it becomes a bottleneck to effective collaboration. In effect, the legacy software platform becomes an albatross; from a beacon of hope for survival to a rotting bird. In a world where adaptation is synonymous with survival, any enemies of adaptation (including legacy integration requirements) can be lethal for the business customer. The albatross learned this lesson the hard way, and frankly, so did the sailors. 

To sum up, Coleridge is neat and procurement software can be cool but only when it’s making your business better. The day that you want an integration more than you want a solution is the day you've decided that killing the albatross is more important than surviving the lethal ocean of competition.

The End of "End-to-End"

Stop me if you’ve heard this one before. It’s a myth called the “the end-to-end solution.”

This myth states the following (inaccurate) premise: one *single* software platform can enable greater productivity for every set of tasks that a person does while they are at their work.

Let me take a second to quickly disprove this myth:

Your Microsoft Excel is software.

Your email client is software.

Your web browser is software.

Your smartphone is software.

Your office calendar is software.

These are all *different* pieces of software.

These different pieces of software talk to each other to varying degrees.

If your team uses SAP in addition to *any* these, your relevant data is already living in multiple distinct pieces of software, none of which are mutually integrated.

And yet, there is a cadre of VPs that nevertheless believe deep down that they must centralize all role-based workflow in a single software application (nominally for the purpose of master data management and eliminating data silos).

This has been a drumbeat of digital transformation for the past few years. But I’ll let you in on a little secret: it’s wrong, and in many cases, this myth can do great harm to a procurement team’s digital transformation roadmap, setting everyone involved up for horrific failure.

How does “end-to-end” hurt procurement’s digital transformation? To understand the pain this myth causes, we need to know why it was created in the first place. Widely acknowledged within Silicon Valley, the myth of “end-to-end software” was created by a group of very clever enterprise salespeople to justify funneling all possible upsells towards a single solution provider (e.g. themselves). “Platform doesn’t do something? We'll be happy to tell you that the platform could potentially do *anything* in the future! Don’t go out to evaluate the market, instead come back to us, your "end-to-end solution" and we’ll add it to our roadmap and if we ever end up building it then we'll just charge you a ton for it!"

Customer gets more features and salespeople get more money. Sounds like a win-win, right?

Wrong. The result of this misalignment of incentives is that enterprise software becomes tremendously vulnerable to feature creep, and eventually bloated with a ton of poorly architected and hastily assembled features that make the applications nearly impossible to use.

These features are frequently one-offs and tend to obscure the core functionality that made the software application a winner in the first place. Over time, these features create a hurdles to basic workflow, especially for new hires or cross-functional roles, and build in a huge drag on productivity.

( DILBERT © 1994 Scott Adams. Used By permission of UNIVERSAL UCLICK. All rights Reserved)

( DILBERT © 1994 Scott Adams. Used By permission of UNIVERSAL UCLICK. All rights Reserved)

At Bid Ops, we know that this is no way to make a winning product — that’s why our automated negotiation solution only does one thing, and it does it dramatically better than any other solution on the market (hint: it negotiates the vendor contracts that your negotiating team doesn’t have time for). But there’s a bigger lesson here than just product design, and this is where “layers of productivity” comes in.

This idea will sound familiar to anyone from the consulting world who knows the magic of “low-hanging fruit,” or people familiar with Kotler’s 6 D’s of exponential technology. The core idea of “layers of productivity” is that added productivity only becomes possible after you have already gotten the wheels turning (e.g. you can only go faster once you’re already moving in the right directions. This is certainly true for our process of qualifying customers. For example, if all of your procurement workflow currently lives in paper, I am sorry to say that you cannot use our product. We simply would not sell it to you. At this point in our growth curve we are only looking for leadership case studies that will allow our customers to leapfrog ahead of the pack for their digital transformation. We want to point to dramatic, astonishing changes in specific, measurable results. Which is why we know that you need to have “layers of productivity”, one on top of the other, working towards profound inflection points where our customers begin asking questions like:

· What if I could run all my bids for the rest of the year starting today, using asynchronous automated communication?

· What if I could use artificial intelligence to benchmark success against my organization’s size and spend, rather than getting someone else’s comps?

· What if I could take the three parts of my job that I like the least and make them go away, not just for me but for my entire team?

That’s why “layers of productivity” is so important — because it gets away from the “end-to-end” idea of change management. In the old world, people would buy enterprise software that would fundamentally change people’s entire workflow, and it would be tremendously disruptive and time-consuming and headache-inducing and would have a negative effect on team morale and productivity.

Those of you who have labored under the yolk of an ERP integration know exactly what I am talking about. Those of you who have had to manually migrate data from one legacy system to a new soon-to-be-legacy system know exactly what I’m talking about. And I’m here to tell you that it doesn’t have to be this way. The old way of buying enterprise software is coming to an end, and a new era is dawning, one that uses cloud-based apps, bots, blockchain, deep learning and artificial intelligence to implement best practices in procurement. Imagine your team’s most productive week. What if that could be every week, and with only a fraction of the cognitive and administrative overhead? That’s our vision.

True solutions don’t displace existing workflows or require painful integrations, rather they layer on top of one another, enriching enterprise supply chain data and weaponizing negotiating teams to gain market share and competitive advantage. This is why literally all of our customers already use SAP Ariba, Oracle, Coupa, Lawson, even ScoutRFP (a company that many people assume is our direct competitor) — because like many frontier technology solutions, we provide an added layer of efficiency that is only compelling because it pays for its own annual cost in the first day of implementation, and then drives savings on savings on savings.

Our philosophy is that if we can’t deliver 10x+ improvement in measurable, quantitative results, then we aren’t the right fit, period. The reason is simple: the market has to move 10x ahead of whatever your existing workflow is otherwise it’s not worth the headache of change. And the reality is that there is simply no “end-to-end” software application that can move super fast on everything at once. Never has, never will. It’s a different approach to buying software, but it’s one that has tremendous spoils for the victors. Because in the era of exponential acceleration, “layers of productivity” can enable strategic sourcing teams to realize exponential efficiencies in places where bigger companies simply haven’t yet thought to look.

Procurement’s Exponential Future: From Transactions To Strategy

The other day I was chatting with a senior procurement executive at one of the niftier Bay Area technology unicorns (if you’re a millennial, you probably have their app on your phone) and the topic came up: what’s this whole procurement game really going to look like five or ten years from now?

On a good week I get to have meaningful discovery conversations with between 5–20 procurement executives in various types of enterprises, spanning retail to healthcare to automotive to construction in both the private and public sectors. Unless the person I’m speaking with sets the agenda with a specific category, I usually try and ask some version of the following qualifying questions:

· How does your procurement team measure success?

· What core tool does your team currently use to track that metric?

· What’s your biggest bottleneck while running a bid?

Nine times out of ten, the person I’m talking to thinks that they are winning if their procurement team is putting out fires faster than new fires start. Cognitive time horizons are typically 3–6 months ahead, (maybe a year, two years if they are in the midst of implementing some new big ERP system).

Their success metric, common throughout the industry is (no surprise): savings, savings, savings.

Their core tool, also common throughout the industry, is Microsoft Excel spreadsheets plus long email chains, plus maybe some project management software with Gantt charts.

And their biggest bottleneck is that they have to spend too much time herding cats to gather the correct baseline data, too much time herding cats to get workable specifications from end-users and too much time herding cats to source vendors for their bids using the approved one-size-fits-all workflow.

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(A lone procurement cowboy, literally herding cats circa 2018)

Sound familiar? If you work in most procurement organizations, you’ve seen this movie before. So that’s why I was so impressed by this particular procurement executive who actually had a ten year vision for the future of his organization. It just wasn’t the usual conversation. At the outset, he stated in no uncertain terms that he considered savings to be a necessary but not sufficient metric of a successful procurement organization. Procurement, he felt, should and will rise to the occasion of fulfilling higher enterprise imperatives.

Feeling emboldened by his invitation, I asked him to describe a vision of what procurement work will look like at top enterprises in five or ten years. Without missing a beat, he painted a shocking picture.

 

procurement_future_enterprise_bid_negotiation.jpeg

Zombie Categories and The Humans That Once Managed Them

Category Management has been a buzzword in procurement for at least the past decade, and a heuristic for thinking about the fundamental process of establishing a baseline (or Current State Analysis) in the strategic sourcing cycle. “Defining the category” is often listed alongside “Stakeholder engagement” in courses on best practices in strategic sourcing, and category managers have been elevated to refine and optimize buying patterns within their particular fiefdoms of spend.

Not for much longer, according to this executive. Category management has run its course, and while “defining the baseline” will remain a fundamental of sourcing cycles, the role of “category manager” will give way to savvy business strategists who will behave more like internal management consultants than transactional sourcing managers. Think about it: anyone who has had a consultant from Deloitte or AT Kearney can come in and save them millions just by looking through their contracts hates the idea that as soon as that person leaves they’ll once more begin leaving money on the table. Strategic procurement roles will become a powerful internal function at top orgs, who will incorporate regular audits to continuously improve their sourcing over time.

procurement_bid_negotiation_clones.jpeg

Value Beyond Price & Cloning Success Across A Procurement Organization

The difference between the best and the rest is a subject of perpetual fascination for keen students of procurement leadership. Xeeva, a procurement software company, has as its tagline “Clone your best buyer”, and that sentiment resonates strongly in the C-suite. If only we could clone our best buyer, our best vendor, and never have to look at another spreadsheet again — what would our organization be able to spend its time optimizing?

Again, this executive had an answer. Procurement will drive solution discovery and change management, he said, and effective solution discovery means using new metrics.

Instead of benchmarking the success of a bid based on pure savings (a cost reduction as compared to a three year baseline), to thinking the way that markets think: return on investment.

Practically speaking, this means that if a solution has a return on investment through labor-saving automation, through using less electricity or less water or less solid waste or less toxins or less risk to the enterprise’s brand or business operations, then it will become procurement’s job to measure, manage and optimize sourcing projects based on those metrics.

The buzzwordy heuristic is Total Cost of Ownership (TCO), and it’s an idea in folk wisdom that’s older than dirt. Don’t be penny wise and pound foolish. One way or another, the enterprise usually gets what procurement pays for.

As Bloomberg and numerous other impact investment groups move to integrate more procurement data into 10K reports that affect the appetite of investors for buying the stock of publicly-traded companies, these high-impact metrics will become decisive kingmakers. And as leading organizations anticipate a world where purchase orders generate themselves, send themselves, match themselves and approve themselves based on definable rule-based processes, the far more rewarding work of business strategy will become procurement’s bread and butter.

Once measured, evaluated and verified, an emergent best practice can quickly be disseminated across a procurement organization through dynamic process templates, visualizing all the data associated with a sourcing cycle for executives in one place. The opportunities for business to tap into a world of efficiencies by leveraging procurement for greater competitive advantage are growing increasingly tangible. But without Total Cost of Ownership metrics baked into the everyday processes of contract negotiating, vendor management and performance forecasting, these outcomes are difficult to measure and impossible to manage. That, the executive finished, will be the task of procurement leaders for the next ten years: value beyond savings.

2 Techniques Procurement Leaders Can Learn From Design Thinking

Design thinking is a set of approaches to problem-solving. Long used by creatives, architects, brand strategists, writers, over the past ten years it has become popular among business executives and software developers. Why?

Design thinking offers a more satisfying explanations for problems and helps leaders organize data to plan how to fix it. Rather than playing a blame game, design thinking encourages leaders to tinker with incentives, requirements and functional processes to achieve the outcomes that best serve the organization’s needs. This has amazing potential for accelerating beneficial outcomes in procurement organizations.

At a high level, design thinking is characterized by the following:

  • Iterative Process. Rather than trying to shoot for a perfect final outcome through deliberation (read: long meetings, analysis paralysis), iteration allows a group to put together something that works well enough to test, get feedback from users/customers/stakeholders and then change it throughout the course of a structured feedback process. Iteration means that leaders can admit when a guess is just a guess, groups resist becoming psychologically invested in dead ends and no one has to die on their sword by building consensus to commit to a course of action with insufficient data.
  • User-Centric Thinking. Design thinkers often put a big emphasis on the role of empathy in understanding why people behave a certain way under certain circumstances. This makes sense: if you can “put yourself in the user’s shoes” then you can understand why the user acts, or at least have a better idea. Like many aspects of design thinking, user-centric thinking may seem obvious, but anyone who has heard a product team gripe about the persistence of “user error” knows how easy it can be to blame the user for not understanding an interface, rather than taking responsibility for making the interface simpler/more accessible.
  • Fail Fast & Cheaply. Testing something doesn’t mean building it and watching it fail. Ideating, prototyping, experimenting and gathering feedback using precise, structured processes can happen in a variety of ways, using a variety of representations that are cheap, easy, and de-risk the possibility of failure.

What can procurement leaders learn from design thinking?

Before delving into suggestions for procurement professionals generally, I want to talk briefly about how our team at Bid Ops uses design thinking for our own platform development. Prior to adding a new feature to our product roadmap, we conduct detailed interviews with experts and realworld users to make sure that there’s a true pain point that our functionality will be able to resolve. Basically, if the feature eliminates a text field or adds relevant data to an evaluation matrix, we are usually eager to prototype it and then deploy it in a test bid environment where we actually go through a complete, live, timed rehearsal.

1. “Agile” Procurement.

The concept of “Agile” is an application of design thinking to the software development process. “Agile” is distinguished from “Waterfall.” In Agile, you create a Minimum Viable Product (MVP) as soon as possible, test it, gather data, iterate and then begin building the actual system. In Waterfall, you spend a lot of time deliberating, make a long timeline and the build a product without ever knowing if it’ll work until it’s been launched! To many Agile thinkers, that’s adding a tremendous amount of risk to the product, and increasing the likelihood that users will find bugs in the product later on.

Here’s a useful illustration (Waterfall is the top, Agile is the bottom):

 

procurement_bid_negotiation_agile

(Source: Henrik Kniberg ,  Agile Coach, https://twitter.com/henrikkniberg/status/691932339354599425)

Agile is distinguished from Waterfall.

Now think about this in terms of procurement. The traditional RFP process is essentially a Waterfall process: you develop the specs, perform the Current State Analysis, solicit a pool of vendors to qualify, gather pricing, evaluate award scenarios and all without knowing if the vendors will be able to deliver the goods/services or how well they will perform! This is the definition of Waterfall and it’s why you hear these horror stories of vendors low-bidding an RFP and then get stuck being unable to deliver at the promised performance.

Solution: Proof of Concept (PoC) procurement. The notion of paid pilots for a new technology solution has been prevalent in the start-up world for some time, but fundamentally the same principles ought to apply for a new vendor. If there are ways to see how a vendor will perform, either through a trial period or an “onboarding audit”, then you will potentially be able to draw out the award process for large, important purchases to gain additional insight into vendor performance and to explore the possibility of multi-award or collaborative scenarios, all of which reduce the risk involved with putting all of one’s eggs into a single vendor’s basket.

2. Progressive Onboarding.

Apps can be difficult to learn right out of the box, and there’s often just a lot of information! Visually, a screen with a lot of text can be overwhelming. Where to begin???? Well, designers came up with the idea of progressive onboarding, which means that you teach the user how to use the app bit by bit (rather than all at once) and the more they use the app, the more they unlock greater/advanced functionality. Here’s an example of how the popular collaboration app Slack does this, by only showing users how #channels work after they’ve logged in and begun poking around:

 

procurement_negotiation_vendor_onboarding

(Slack, image taken from Appcues, 2017)

Overwhelmed with too much information? Sounds like a couple RFQs I’ve read :) Much like old-school software, procurement documents tend to overwhelm the vendor with a huge number of requirements, asks for detailed information and chores in order to even submit for qualification. From a functional evaluation perspective, most of this information is simply not useful, and requiring vendors to enter in additional data means that fewer vendors will bid. That’s part of the reason that many procurement systems suffer from the problem of adverse selection: they foist byzantine administrative requirements on a group of users who are results-oriented sales people with limited time to devote to an abundance of opportunities. Progressive onboarding can and should be a way that procurement professionals increase the number of vendors competing for their business, by only asking for information on a need-to-know basis (e.g. at the point the evaluation process where such information could be win-qualifying).

Procurement Gamechangers To Watch in 2018

If the Bitcoin boom that swept the end of 2017 showed us anything, it’s that large groups of people can create tremendous value simply by deciding to do so at the same time. Rapid, irreversible change is only ever one tipping point away.

Whether or not crypto will displace global fiat currencies before 2030 irrelevant — the fact is that Bitcoin has dominated the news cycle, and compelled a huge number of people to take action in a short a window of time. Within a few mere months, those distributed actions created enormous financial value, minting crypto millionaires overnight and causing many a corporate executive to confront the question: what is my enterprise blockchain strategy going to be in 2018?

If you operate in an industry where decentralization, provenance and transaction history are important, you should be asking this question, too.

Crypto’s run in the financial markets demonstrates the explosive potential of technological disruption, as well as the fashion in which skeptics and naysayers tend to get stuck with sour grapes. Experts agree that numerous tectonic shifts in global enterprise commerce created by blockchain, the Internet of Things, AI/ML and robotics will rapidly accelerate in 2018.

Those who are preparing for these changes today stand to reap enormous profits tomorrow. Those hoping to survive without upgrading their enterprise technology stack may have their lunch eaten by a swarm of lean, bootstrapped, quickly iterating newcomers. Companies are either leveraging the probability of this technological change, or will be left at its mercy.

Last July, I surveyed a number of AI trends in the enterprise procurement space as part of a series for TechEmergence. After seeing some astonishing new platforms by entrepreneurs in Texas and the Midwest as well as Silicon Valley, I figured it couldn’t hurt to take the new year as an opportunity to make a three more detailed forecasts for the future of B2B commerce technology.

1. Voice Chatbots & Amazon Alexa for Business.

It’s perhaps obvious to say that Amazon is a “disruptor”, but as far as enterprise procurement goes we’re still very much at the tip of the iceberg. Amazon for Business, the B2B e-commerce interface for Amazon, only launched in 2015. That’s the same year that its famous voice-interfacing chatbot Alexa became available on the Amazon Echo, launched June 23, 2015. Only two year later, Amazon for Business boasts over 1 million enterprise customers, leveraging a user-friendly shopping interface that has become a benchmark for the e-commerce industry. This year at Re:Invent, Amazon announced the roll-out of Alexa for Business, along with a campaign to put an Alexa in every office so that corporate workers can place an order with vendors without even having to type an email. For business units that deal with a high volume of purchase orders, Alexa for Business represents a disruptive opportunity to leverage labor-saving technology to dramatically improve productivity and decrease drudgery. If the competition between enterprise procurement platforms like Procurify and NetSuite has come down to a contest of functional interfaces, Amazon/Alexa will force the B2B software market to answer the question: why shouldn’t you use the same e-commerce experience at your business that you use at home? The growing ubiquity of voice interfaces and the speed of order creation, placement and reconciliation means that soon Alexa will be able to perform all of the job functions once assigned to a Supply Chain Assistant.

netsuite_bid_management_procurement

(NetSuite Procurement interface, 2017)

 

Job Functions of Supply Chain Assistant — From SampleResume.com. From a business operations perspective, ask the question: Which of these functions does Amazon for Business not solve?

  • Execute supply chain assistant functions to move products from suppliers to retail outlets.
  • Reconcile physically all supply chain products with that of invoices and supply documents.
  • Prepare invoices and documentation of products to be supplied to retail outlets.
  • Perform physical stock checks in a warehouse or stockroom setting.
  • Check and examine quality of materials before arranging dispatches through supply chains.
  • Supply materials on time to meet production schedules and deadlines.
  • Troubleshoot and resolve customer issues relating to supply of products.
  • Check, inspect and manage material returns from customers and retail stores.
  • Document all materials return records to troubleshoot quality issues.
  • Implement best standards in supply chain activities.

2. Blockchain Distributed Ledgers For Supply Chain Professionals.

Perhaps also obvious, but any market that depends upon provenance, transaction history and decentralized coordination will likely have to reckon with blockchain. NB: I would distinguish supply chain (decisions about what physical goods/services will move where and how) from procurement (decisions about which vendors shall supply what goods/services, how they shall do so, and under what terms both parties shall measure success).

Why? Because supply chain decisionmaking is all about the data. For those curious, the below video from IBM explains exactly why blockchain massively changes the format, accessibility and utility of supply chain data:

procurement_negotiation_bid

(Amazon for Business interface, 2017)

3. Programmatic Buying & Auctions.

The most technologically sophisticated area of human commerce is, perhaps surprisingly, the market for digital advertising.

This is because the market for clicks, eyeballs, mindshare and coveted conversion rates has long been the purview of companies like Google, Facebook and Twitter who support a secondary market of “search engine optimization” and automated social media marketing providers, solutions that are constantly adapting to technological macroshifts in their commercial ecosystems.

In the digital advertising world, “…programmatic buying is similar to programmatic stock trading insofar as buying happens as the result of a computational proxy bidding on behalf of human masters.” (George John, CEO of Rocket Fuel). The application to procurement comes from applying predictive analytics to enterprise spend categories — if you can anticipate and extrapolate regular changes to order volume, then you can place orders earlier and even create standing orders for recurrent buys, making sure that the correct inventory is on hand.

One example of an innovative company that has mastered this technique in a very specific vertical is Bloodbuy, a marketplace software platform that connects hospitals with blood banks, enabling them to optimize their blood supply. By analyzing a hospital’s blood spend and then creating standing orders for times of high demand (such as the Fourth of July, New Years’ Eve, and so on), Bloodbuy offers massive savings for hospitals that would otherwise place stat or rush orders for blood when local banks cannot meet their needs.

Whether you think of programmatic procurement through the lens of IBM’s so-called “cognitive procurement” or simply as the robotic process automation of administrative tasks, procurement systems will soon be able to suggest what ought to be ordered and when, as well as suggest commonsense best practices for savings and performance improvements. These prompts can then easily be bid out to vendors to rapidly complete price negotiations, as well as automating the paperwork for every step of ordering, paying, recording and validating the procurement cycle.

The organizations that best leverage new technology in enterprise procurement will be able to do more with less, automating and accelerating the pace of savings.

As more and more new technologies enter the procurement stack, we must remember to not be too dismissive of hype/buzzwords on the one hand, or on the other extreme, allow ourselves to be seduced by brand marketing slogans that offer excessive promises with little substance or underlying improvements. Whenever I evaluate a new technology from the perspective of the strategic sourcing & procurement cycles, I always try to ask the following questions:

  • Does the technology allow me to save time assembling more data to reach an informed decision about which vendor or product is the best fit?
  • Does the technology allow me to save money either by negotiating better prices or aggregating more demand within a single vendor or coop contract?
  • Does the technology eliminate or shorten the number of administrative processes or consultative engagements that required during a strategic sourcing cycle, all without diminishing the likely quality of the outcome?

Hopefully these questions can provide some guidance as you encounter new procurement technologies and evaluate them for use within your own team. Happy 2018!

Edmund Zagorin is Founder/CEO of Bid Ops Inc. and a subject matter expert in supply chain benchmarking, eAuctions, sustainable sourcing, and procurement software. Please email him with any questions at edmund@bid-ops.com.