The Dangers of False Spend Religion
Some criticize the increasing polarization of classes and wealth in the US. I don’t personally – I love the free market and think the fundamental reasons we’ve seen this exacerbation is precisely because of overt policy meddling and regulation, but that’s an essay for another day. The polarization topic of the day I find more disconcerting – and difficult to address from a root cause perspective – is how procurement organizations are likely to increasingly divide along the line of “have” and “have nots” in terms of good procurement outcomes.
And here’s the most insidious part: the “have nots” will think they’re doing just fine, thank you very much. Consider just a few areas that are already leading procurement organizations to think they’re headed down a path of spend salvation when they’re actually worshipping a false (or incomplete) spend deity.
Reverse auction and strategic sourcing processes? Check. The poor sots will think they’re covered when it comes to identifying savings. But good luck fully implementing the results, let alone capturing the type of results and creativity that more nuanced and clever advanced sourcing approaches can bring. For example, the type that is surfaced by leveraging a model that can truly tackle more strategic spend areas through the ability to gather creative supplier responses and the running of different award scenarios based on real-life business constraints. Incidentally, based on recent cases we’ve learned about, the more advanced customers of CombineNet, Trade Extensions, and BravoSolution have rolled out new sourcing techniques (e.g., expressive bidding, scenario creation, optimization, truly “big data” analytics, etc.) across categories in their direct and services spend portfolios. And they’re running circles around those using more antiquated sourcing approaches, capturing new spend areas, and leading to implemented savings in other categories that legacy approaches can’t touch…
Transactional efficiency? They’ll check that box too. Sure, a company might have Ariba. Or Coupa. Or SAP. Or Oracle. But the question to ask is not what system is in place, as that tells you nothing. Nor is it to ask “how much spend is under management” (shoot me if anyone says that phrase again). No, the question to ask is how is an eProcurement system (and associated tools – catalog management, search, budgeting, real-time compliance check-ups, etc.) is truly influencing better spending and supplier management habits. And how, for that matter! Those that are just capturing spend as opposed to impacting and influencing it (e.g., changing SKU preferences, rationalization, real-time price/term auditing, matching, etc.) are sealing their own spend reduction, cost avoidance, and transactional savings coffin.
Spend and supplier visibility? Even true spend fools could say they’ve got this covered with a tool and a crack spend data analyst burying himself in cubes fueled by Mountain Dew at wee hours of the night. But real spend and supplier visibility doesn’t come from measuring PPV every quarter – or every month. It comes from true visibility into total cost models, supplier, and spend master data management (e.g., as we reference on Spend Matters PRO last week in tackling MRO, the ability to get to a manufacturer’s part number rather than the distributors’ part number – what typically shows up in a regular spend analysis). But don’t tell that to the analyst who just got his monthly refresh back! Welcome to purchasing, where all the women are strong, all the men are good-looking, and every PPV is above (or is that below?) average. Extra points for being the first to name the source of this last reference.
I could go on. But the entire topic depresses me. I saw it last week at CombineNet’s conference. The stories of what some of the most creative and forward-thinking sourcing teams are doing these days sharply contrasted with the usual questions I have to answer about deploying sourcing tools for a much more limited effect. These more advanced sourcing teams are not a few years ahead of their peers in influence and results. They’re decades ahead. And the gap is only growing.
Here’s the problem in a nutshell: more procurement organizations are latching onto what they believe is good spend religion when in fact they’re taking an incomplete, short-cut laden path to results. This in turn is distracting them from what they need to do if they want to achieve procurement enlightenment – hint, it doesn’t happen overnight nor through procurement transformation programs alone – while at the same time, their top performing peers are pulling away, often quietly, leaving little trace of just how far ahead they actually are.
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