supplychain

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.

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.