Before concluding the last post in this series (see Should We Kill or Evolve the Catalog and Are Catalogs Fleecing Procurement of the Best Deal? Five Arguments in Favor and Against the P2P Catalog), I posed the question: Are current catalog approaches helping suppliers or procurement more?
Today, I would argue that first-generation catalog approaches are more of a tool to make procurement a tool than anything else. (My colleague Pierre Mitchell, who played counterpoint to my “point” in my previous commentary, might disagree.)
But this point — if you agree with me based on the arguments thus far — begs another question: Is there a better way to control (and minimize) expenditure in meeting the same business user buying requirements than using a catalog?
That First Baby Was Ugly: Toss It Out With the SKU Bathwater
I think the answer is clear if you want to stick to the catalog technology path: Ditch the first generation-catalog and actually implement catalogs properly. But the truth is few companies leverage their current (or likely, new) catalog technology assets to enable a truly guided buying scenario that optimizes procurement outcomes.
Short of this, perhaps the best chance we have to put procurement back in the driver's seat is to have buyers determine the best way to fulfill a business user’s requirements, which might include requiring a specific SKU number delivered against specific terms (e.g., two-day shipment). But even when special terms are required, giving procurement the discretion to achieve the outcome while minimizing time and effort involved is key.
To be fair, under this scenario, we should note that shipping terms are often pre-negotiated, including standard and expedited. The seller's logistics capability will dictate that during negotiations. Regardless, managing catalog changes, including shipping charges, can be a bear — and can be improved.
Putting Procurement Back in Charge
Taking the argument up a level, there are many ways to put procurement back in the driver’s seat to fulfill business requirements in a situation where current catalog approaches are coming up short. A “mix” is likely the best possible outcome. These include the following three suggestions (note: I’ve also asked my colleague Pierre Mitchell to play counterpoint once again here):
Point 1: Using group purchasing organization (GPO) models to drive negotiated terms (including rebate structures) without having procurement negotiate all contract line items directly or actively manage terms presented to a buyer.
Counterpoint: How do you know a GPO is getting the best price? Also, why deal with rebates at all and volume discounts, which encourage “spaving”? There are broader issues to debate on whether you (or your GPO) want absolute pricing or percent off list (or percent off the "Amazon price"). The catalog is just the implementation vehicle. However, this is a valid argument if the catalog tail is wagging the sourcing dog by not enabling the scenario that makes most commercial sense. For example, if I can use price comparison agents like in the B2C market, then I can check the Amazon price and either use it directly or use it to keep the catalog updated with market competitive rates? Where a GPO sits in this as an optional or required intermediary is important to consider.
Point 2: Leveraging a supplier network that matches against contract and other tolerances (and can automate a recovery process in the case of overbilling or, ideally, prevent it in the first place)
Counterpoint: Really? I would argue you don't need a supplier network, but rather a better catalog capability to prevent overcharging (e.g., the punchout scenario with no item/price controls) or to enable a better way to enable a "meet or beat clause" (i.e., an agent ensures that a SKU from a supplier is served up at a lower price than spot price — and if not, then there are different ways to handle it.)
Point 3: Having a tail-spend buying desk (which could be an internal shared service or outsourced to a third-party) to competitively bid certain purchases based on cost, terms and requirements.
Counterpoint: All you're doing under this model is shifting the problem to someone else — it doesn't change the issue with catalogs. However, like we've written about before, catalogs are morphing so that you can have standard SOWs for recurring services from your approved suppliers. There can be tolerances for pricing, but everything else is standard. A third party can certainly help manage all this, but separate the process from the catalog discussion.
What to Do?
Arguably, one answer is to take a portfolio strategy. But it’s one that cannot just benefit procurement at the expense of our customer, the end-user in the business. As such, perhaps the riskiest element we face in creating such a model is the perception that procurement is all about saying “no” or slowing down a process. Any approach that intercepts catalog buying activity — or a requisition that does not involve a catalog — needs to be just as streamlined for the business user — with appropriate controls. One technology approach we’ve seen demonstrated, but not yet used inside procurement organizations at scale, involves “buy where you like but still get it quickly approved while you have an active cart” that maintains controls. Under this model (and travel is an ideal example), standard suppliers and rates are served up, and the user can override with appropriate controls supported by flexible technology.
Regardless of technique, the key is masking complexity for the frontline user, making life as simple as possible, while achieving the outcome procurement desires — and arguably shifting the paradigm of shopping and fulfillment by making procurement the supplier to the business rather than vendors themselves.
There’s another critical reason to do this well: how suppliers game the actual buyer by enticing them to feel like they’re doing the right thing by buying “on contract” or “getting the best deal” when in fact they aren’t. But arguably, the real root cause of this problem is not catalogs (they are just a symptom). It's the fact that we over-rationalized the supply base with the “winner take all” approach of rewarding mega suppliers and never really getting stakeholder buy in. And these suppliers are sophisticated at gaming the system and actually use procurement's metrics against it.
One example here is how catalogs actually encourage price creep. My old friend Chirag Shah (AT Kearney, Trading Partners, MarketMaker4/Xchanging and now Simfoni) likes to cite the following scenarios and example: how often you go onto a catalog to buy an item (safety glasses) and ended up buying larger quantity than required (12-pack instead of single item) because you think it's better “value.” Or a higher spec item (rollerball instead of biro) because the catalog has enticed you to buy the nicer product. This price difference can be enormous in percentage terms.
Chirag wrote me the other day on this and suggested I try his “Bic challenge." Take it as follows: “Go into your office and pick a member of staff. Tell them you've run out of Bic pens and they need to order some more. Time how long it takes and what price option they come back with. You can use any catalog — here's the one from Amazon (and don't forget to include the shipping charge!)”
Likely, your results won’t vary. In short, suppliers manage buyers better than vice versa.
Deep Catalog Thoughts With Jack Mitchell
Of course, this begs some larger questions (courtesy of Pierre) to ponder as we conclude this series.
First, does procurement really want the best deal? Or does it want the deal that most easily tracks cost savings against SKU? More dynamic pricing means fewer baselines and less ability to get favorable PPV (i.e., catalogs are basically item masters with standard costing).
Second, can any master data keep up with the increasing dynamism of the world that the data is modeling? Supplier master data gets stale quickly. Contract data can get unwieldy and cannot keep up with realities of dynamic relationships/environments.
And third (and most important), how can such master data not be stale descriptive data which loses touch with reality? What if master data objects were actually goal seeking entities (i.e., agents) that wanted to keep themselves “alive” and accurate and serving the user?
What if the catalog item’s sole purpose was to be a re-usable item or service — and sought to keep itself relevant with only the data it needed based on what it was and the context of how it would be used?
Food for future catalog thought. But the current line-level catalog smorgasbord that most organizations are using today is certainly not helping our procurement cause as well as it could be; rather, it’s making us stuff our faces blindly.