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Bid Ops Interviews Brent Maas for #TheFutureofProcurement (Part 2)

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Edmund Zagorin: That’s terrific because I was going to ask about what you recommend for writing procurement job descriptions next.  You actually anticipated the next two questions that I had teed up here.  But to zero in a bit, I think what jumped out at me from your description is the term “cross-functional”. There are certainly times where one gets the sense that in procurement, along with local government and even corporate enterprise positions as well, the sense that people have their lane, have their channel, have their silo, and they’re very much encouraged not to look beyond their purview to build value and create opportunities for the organization. And the reason for that is that, if people have a clear understanding of what is and is not their responsibility, then there won't be conflicts over authority, or ambiguity over responsibility and accountability, which can cause frustration. Silos don't exist in a vacuum, after all -- they evolved to meet a need -- they help people have good interpersonal communication. But now, particularly as you look towards the adoption of technology platforms, a lot of times the value that is most delivered is beyond a single role or function, e.g. it is "cross-functional." I saw this in some of my work at Responsible Purchasing Network looking at sustainable procurement initiatives for local government. There the value is really to the organization, in some cases to leadership who have set aggressive targets, for example, for carbon reduction or waste reduction, etc.  But in some cases, when such an initiative it is one small part of too many people's jobs, then it fails to gain traction among people who are very focused on what is or is not their core area of responsibility. This might be a long way to a ham sandwich, but my question is how do you see procurement leadership working against these silos, working towards this "cross-functional" idea where everyone is part of a team that has strategic enterprise value and customer service as its North Star, and how do you hire for that kind of a team? 

Brent Maas: I tend to think in terms of outcomes.  Let’s talk about the hiring process itself, for example.  Having conversations where they talk about outcomes- how did what you did impact your staff, your teammate, your superiors, other departments, etc?  I think engaging in the conversation is really about hearing whether or not folks are relatively fluent or articulate in talking about their understanding of impacts and because of the job that they do, they are contributing in some manner to the organization.  If their experience is restricted to a particular category of product or service and they don't seem to indicate much awareness of any other attribute of organizational function, in fairness, you can ask some questions, probably reviewing to probe a little bit to find out whether they hadn't been given an opportunity to form much awareness and are therefore ignorant (I don’t mean that in the negative connotation), especially in an entry level type job.

But the more they could reflect the capacity to understand- “I recognize there’s multiple stakeholders across the organization and I can’t figure out why we can’t, to use your earlier example, seem to move the needle on carbon emissions related programs?  Why aren’t we doing that?" Well, there are a lot of reasons - not just within single organizations, but across communities we see problems like this, where getting groups of people to be motivated enough to take difficult actions and make tough choices is what leadership is all about. And I can come up with a bunch of reasons but I think part of it is having a conversation with folks to help facilitate their thinking to go beyond what their immediate task is or what their immediate charge may be. There are some folks that can’t go beyond the hypothetical or get into a creative mode where they are conceptualizing beyond the black and white, and that’s OK, you need people like that, too.  But in terms of looking for those you might develop into roles that could conceivably be formal leadership roles, you are looking for those who naturally drift into talking about problems and challenges from multiple perspectives, seeing a problem like an organization. And then cultivating that person and giving them opportunities to get more insight and understanding into the functionality and the processes and culture, the strategic goals throughout the organization. Then hopefully they express “Hey, I have an interest in pursuing this further or any opportunity for me to contribute, but I haven't been invited to participate.” And then you start getting into, what I think, are issues for organizational leaders to ensure that they are developing the culture that allows for that kind of development opportunities for his or her people. That may or may not exist, but asking: how can we create opportunities for people to own the outcomes of their own work? It’s not always the procurement piece at all, it’s really very much about management issues - how does the organization manage power?  How do organizational leaders influence the environment in which the work is being conducted? Are you helping your people perform in a highly effective manner? Do your people have the desire to go above and beyond?

Edmund Zagorin: That’s a pretty profound set of questions. And we're starting to see a shift in a lot of organizations, where it's about of a culture of opportunity discovery.  If people can find problems, brainstorm creative ways to solve them and then get the backing of leadership to execute, that's the sign of a great culture.  Because sometimes the best ideas in an organization come from people who are closest to the work. A true leader's realizing that suggestions from workers are not a challenge to their authority, and that these suggestions can actually be a source of tremendous value. Now, of course not all of those ideas are going to be that great, but some of them will. And having the patience to hear people throughout the organization on things that they want to try and even create,  in some organizations we're beginning to see the emergence of something like a Chief Innovation Officer or someone who is simply tasked with allowing the organization to execute on opportunities for value. What is that role if not: get some projects, define roles and responsibilities, brainstorm what success looks like, define metrics, define outcome scenarios and then once you've gotten decently close to clarity, then begin executing. I think that that is partly due to the rapid advances in certain sectors of technology, but I think it's also due to just a general recognition that people genuinely prefer to work for an organization that is willing to at least hear them out on an idea and potentially, that could be an area where they can see themselves in the organization as part of having launched an initiative.  Everyone ends up benefiting from that approach..

Brent Maas: Certainly the opportunity to meaningfully contribute to something new or to elevate an existing program is a very rewarding kind of experience.

Edmund Zagorin: Absolutely. I just looked at the time and realize that I want to try and stop close to the top of the hour here. To close out, I had two quick questions which are more take-aways from this larger picture that we're painting.  So the first question is what is one thing, it could be a device, machine, institution, process, really anything that exists in public procurement today that you think won't exist in 10 years?

Brent Mass: This is making my brain spin because, particularly in the public sector, the less well off agencies will hang on longer to legacy everything than would a bolder and well-funded and well-managed agency.  We know demographically there is a higher percentage of college grads than was 30 years ago anyway, look forward 10 years, the number of college grads in management roles will probably be a bit greater than it is today.  There are a number of things I wish would go away, in some manner. What should go away is making decisions in a vacuum - I think there’s no reason that any acquisition decision should be made without having ready access to comparative price data, at a minimum.  There is just so much latent data and should be sufficient to provide an expansive resource to make comparisons. The challenge is to bring together that data from the myriad of disconnected sources and being able to make that data available to whomever might be interested.  I think acquisition decision-making will be gone - people will set parameters but computation will do much of the rest. Anyone who continues to do that will be because they have stuck their head in the sand and refuse to pull it out.

Edmund Zagorin: To me, it seems almost counterintuitive to me that everyone doesn't already have access to at least some form of benchmark for that, but I hear you on that. Procurement that doesn't beat the market, at a minimum, I think will start to receive more scrutiny, especially in the context where it seems like there's an unfulfilled mandate for free and fair competition.  

Brent Mass: I’m speaking about making purchasing decisions with comparative data, whether you are "in procurement" or not.  Anybody might engage in the activity, specifically authorized or not. Overall I think people want to make more informed buying decisions, and I think that will involve a lot of changes.

Edmund Zagorin: Last question here - If you were to make a two or three point checklist for any procurement leader of things to make sure that you're either doing over the next couple of years or are doing regularly, what's on that checklist for you? It could be anything from a type of meeting or a type of administrative procedure to looking at a particular category. In other words, where are some low hanging fruit that you think potentially are no-brainers across some of the portfolio of change management initiatives?

Brent Mass: It really comes down to data.  What am I doing to aggregate the data to be most helpful for me to be able to assess performance. Outcome, as it relates to performance outcomes, as well as procurement specific, what is that data and how can I go about getting it?  And in particular, what I have in mind contextually, is that, at minimum, you should work regionally, whether that’s through local government or if you have to do direct outreach, work with multiple agencies share the data and extract from that data what would be most informative to you in helping your agency.  It’s about data analytics. Number two - How are you aligning your activities with the goals of the organization? Are you talking with your people about that regularly? Do they understand how what they do aligns with what you are trying to do? Number three - What are the ideal activities or things that “if only we could do” this would help us be closer to meeting those goals?

Edmund Zagorin: That last point was particularly helpful - asking: what if. Taking initiatives to look outside your department, lift your head up and see the bigger picture.  Incitements to do that are, in 2018, much needed and as we look towards the future, there's going to be more opportunities for folks who get good at doing that regularly and build a culture that honors and rewards seeing that bigger picture. So I want to just say a big thank you from the team at Bid Ops for your time today.  It's been a pleasure as always, getting to chat.

Bid Ops Interviews Damian Beil on #TheFutureofProcurement

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Edmund Zagorin: Today we’re speaking with Damian Beil, a practitioner and professor specializing in strategic sourcing and operations at the University of Michigan’s Ross School of Business. Damian’s research focuses on multi-phase procurement auctions and the discovery of uncommon value in common requests for goods and services up and down the supply chain. Damian, is there anything you'd like to add to that, that introduction?

Damian Beil: Mostly right. Uncommon value sounds grandiose, but we do try to teach business students at the University of Michigan how to identify and create value in supply chain relationships. Happy to chat with you today.

Edmund: Excellent. Well, Damian, I'm only going to ask you a few questions because I know your time is very valuable.   I'll just dive right in. What do you see as happening in the next five and 10 years in supply chain, particularly in the Source to Contract phase as a technology becomes more sophisticated both in the gathering of data and of course in use of digital commerce networks?

Damian: Good question. I think data is going to be increasingly important in a lot of different areas. One major way is that data will to allow us to make better predictions about things. If you put that into the context of procurement, you could, for example, better predict which supplier is going to perform well, under what circumstances. At scale, you could predict what a certain market is going to look like in the next six months, maybe even what the outcome of a certain auction would be. Of course, we developed a lot of models on outcomes in markets like auctions, but I think with more and more data available, it will become easier and easier to do that well. The data may be slow in coming, but I expect it will come – eventually, emerging technologies like blockchain will probably help here. So I really think the big change is mostly is going to be around making better predictions and it's going to be a question what are the ingenious ways people think of to use that in in sourcing settings.

Edmund: Absolutely. Very insightful. I’d tend to agree with that and would be interested actually in at another time digging more in on the types of models that you’re using today for these procurement auction forecasts. Shifting gears for a second, I’d like to also ask what you see as the biggest priority for a procurement or a supply chain leader today? I know historically it's saving money and, and delivering bottom line revenue. Are there other leadership priorities that you see emerging?

Damian: I think one big area that is really hot right now is risk management around global supply chains. With all the movement on tariffs that is a big issue on people's radars. And it has huge implications for sourcing and procurement. It's unclear how long lasting this will be but that's definitely something important right at this moment. Taking a 30,000 foot view, talent development will continue to be important.  There's still a lot of firms out there that have talent needs in the supply chain area, sourcing in particular. So it will continue to be a priority to grow talent and invest in people who can add value to the firm.

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Edmund: Absolutely. And out of curiosity and I know you train, teach and coach folks that are going into the field in the Ross MBA program, so I wonder if you could share one question that you could ask someone to determine their kind of aptitude or in a job screening process for procurement?

Damian: That one is pretty easy. I think it would be a question devised to assess, for whatever industry I’m recruiting for, whether or not the candidate is able to identify the business case - the value add - between a buyer and supplier relationship.

Edmund: Absolutely, yeah. Holistic analysis.

Damian: I think that is what separates the wheat from the chaff. It's all about “why” a buyer and supplier are doing business together - understanding really clearly what the case is. The details are less important, but if you have clarity on the case, the details will work themselves out. I think that's where a lot of people struggle --- to identify or think at that kind of strategic level from the get-go.

Edmund: Right, to kind of see the value both short and long term in a decision.

Damian: Yes. It’s the ability to identify the value/business case/opportunity and to be able to understand it and articulate it. And then the rest of it is execution. The identification of the opportunity in the business case is where the creativity and seeing the big picture come into play. That's what justifies the high salaries that the people who are really talented in supply chain deserve.

Edmund: Completely agree. Shifting gears for a second,  I wanted to get your view on the future of procurement with a different phrasing of an earlier question: are there any tools that you see used by procurement or supply chain practitioners today that you think will not be used, say 10 or 20 years from now?

Damian: Airplanes. By which I mean that I think eventually we'll get to the point where virtual meetings do a sufficiently good job replicating face to face relationships that people won’t need to travel so many days a year in these positions. For other market mechanism tools, I think the tools are going to get more sophisticated. Simple tools still have a place in your toolbox, like your price only auction, but you may become more sophisticated and use it for fewer applications than you would today as you becomes more sophisticated and can incorporate more aspects like full cost and value and all that stuff. That’s going to continue to become more widespread. I think it will probably supplant some of the simpler manifestations.

Edmund: Haha, I think many folks in the industry would be just fine with fewer travel days, not to mention our families. And my last question, well, I can't not ask you about this. Where do you see any leading indicators of the role that artificial intelligence and machine learning is going to play in supply chain and procurement today, or in the near future?

Damian: I think it gets back to how you identify creative applications of better prediction abilities. You can think of a self-driving car. Why does that work? Because we’ve had computers looking over the shoulders drivers for millions of miles and eventually they became able to predict what a good driver would do in any given situation. Right? So if you can have a computer look over the shoulders of procurement agents for millions and millions of transactions then maybe you could do something similar, in other words, you can predict when suppliers are going to have a problem and take proactive steps to counter that or predict what the market is going to be, when an event's going to be successful, when it's not. These aren't necessarily the best applications. But I think the really interesting things will happen when people get creative about what cool things you can get data on, and therefore when you can make good predictions. That's where there's going to be a lot of applications and new value created. Have to call out blockchain again (sighs) it might help with the data needs.

Edmund: Damian, that’s a fantastic note to end it on. It’s wild to think about what the procurement landscape and the economy as a whole will look like when more of the business commerce is transacted automatically, even autonomously. Thanks for talking with us today!

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.

 

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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.

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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.

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.