Procurement Strategy & Planning Content

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Long-term ROI from Spend Analytics: 3 Places to Think Outside the Box

Spend analytics solutions often get passed over when it comes to claims of ROI. But spend analysis can provide just as much value as better-explored options like e-procurement or sourcing systems, sometimes providing ROI immediately after being turned on. Yet quick wins and short-term value are only the starting point.

To help procurement pull its head out of the past and begin to see (and plan for) the future, here are three outside-the-box areas where spend analysis can unlock new sources of long-term value.

AI in Optimization Tomorrow [PRO]

Our last article recounted the story of artificial intelligence in optimization today, or, more accurately the lack of AI in optimization today.

While AI in its most basic form of "assisted intelligence" is readily available in many modern procurement and sourcing platforms, as evidenced in our previous briefings (AI in Procurement and AI in Sourcing), it has not yet creeped into optimization. The most advanced platforms have limited themselves to easy constraint creation, data verification and detection of hard constraints that prevent solutions — as in the case of Coupa — or easy data population, wizard-based scenario creation (using standard model templates), and automation — as in the case of Keelvar. In the former case, the underlying statistical algorithms can be found at the heart of some modern machine learning technologies (but aren't quite there), and in the latter case, the robotic process automation (RPA) is nothing more than an automated, manually defined, workflow.

But that doesn't mean that AI won't creep into optimization tomorrow. While it may not with the current vendors on the market (for different reasons with each vendor), that doesn't mean that the next vendor to bring an optimization solution to the market won't learn from the oversights of its predecessors and bring some obvious advancements to the table — especially when certain vendors are releasing their platforms with an open API to support an Intel-inside-like model where sourcing or AI vendors can build on leading optimization foundations to offer something truly differentiated.

And what could those differentiators be? We'll get to that, but first let's review the premise.

Simply put, in the traditional sense of the abbreviation, there is no AI, or artificial intelligence, in any source-to-pay application today, as there is no AI in any enterprise software today. Algorithms are getting more advanced by the day, the data sets they can train on are getting bigger by the day, and the predictions and computations are getting more accurate by the day — but it's just computations. Like your old HP calculators, computers are still dumb as door knobs even though they can compute a million times faster.

However, with weaker definitions of the term, we have elements of AI in our platforms today. Assisted intelligence capabilities are beginning to become common in best-of-breed applications and platforms, and “augmented intelligence” capabilities are starting to hit the market for point-based problems. For example, tomorrow's procurement technologies will buy on your behalf automatically and invisibly, automatically detect opportunities, and even identify emerging categories.

But if AI is going to take root, it has to take root everywhere, and that includes sourcing optimization. So what could we see tomorrow?

Let's step back and review what optimization does. It takes a set of costs, constraints and goals, and then it determines an award scenario that maximizes the goals subject to the constraints and the costs provided. So where could AI help?

The CPO’s Conundrum (Part 1B): How Outside-In Issues are Shaping the Course of Procurement [PRO]

As we noted in yesterday’s Spend Matters PRO article, if you were to ask a roomful of CPOs what was their top concern was, for this year or even the coming decade, chances are the majority would lead with cost management and supply assurance. And while this makes sense, supply assurance and cost reduction are just two of a host of broader issues that are being pushed to the front of mind for today’s CPOs. So we are dedicating a series to the broad scope of issues that the modern CPO must face, starting with an overview of how they break out in the common PESTLE framework. Yesterday we addressed the “PES” — Political, Economic and Social — and today we will address the “TLE” — Technological, Legal and Environmental.

The CPO’s Conundrum (Part 1A): How Outside-In Issues Are Shaping the Course of Procurement [PRO]

If you were to ask a roomful of CPOs what was their top concern was, for this year or even the coming decade, chances are the majority would lead with cost management and supply assurance.

This makes sense. Within the hierarchy of procurement value, providing the right goods and services at the right time and place, preferably at the right (or better) price, constitute a foundation without which organizations cannot function.

Because of this requirement to secure and manage supply markets, procurement’s value proposition to the business is ultimately defined by its ability to access and derive value from markets. This means procurement value, then, is driven heavily from an outside-in perspective. That value starts with assurance of supply, just as top-line growth and brand development are foundational to sales and marketing.

The problem, however, is that supply assurance and cost reduction are just two of a host of broader issues that are being pushed to the front of mind for today’s CPOs. Because the CPO must manage multiple changing supply markets, and because those supply markets are affected by numerous external forces over which the CPO — let alone the business or even some governments — has no ability to influence, the CPO’s agenda is in reality much broader than assuring supply and reducing costs.

This brings us to what we call the CPO’s conundrum: Procurement organizations are primarily measured by the C-suite on supply assurance and cost control, but the agenda that the outside world is setting for the CPO is far bigger than just that. How, then, can procurement leaders meet the agendas recognized and prioritized by management while also addressing the equally (or perhaps more) important agendas of the changing, external supply world?

This Spend Matters PRO series examines the roots and resulting challenges of the CPO’s conundrum. In this brief, the introduction to this series, we discuss the current items on the CPO agenda, as well as the outside-in forces that are most notably butting their way in.

In subsequent installments, we will analyze overarching issues on the new CPO agenda individually, including corporate social responsibility (CSR) and sustainability, digital business strategy, political and economic instability, and regulatory risk.

Exploring ‘Total Cost’ as a Productivity KPI for the P2P Process [Plus+]

Total cost of ownership of the procure-to-pay process is not simply about measuring the costs associated with acquiring a P2P platform, it’s about tracking all P2P processes and managing them as a business key performance indicator. Managed well, the TCO P2P KPI can positively impact the bottom line of any business. Many organizations think that when acquiring a P2P platform, a firm business case needs to be constructed based on the total cost of the platform and high-level benefits that are reasonably achievable. But there’s actually a more effective way to think about the cost and returns of P2P technology. In this Spend Matters Plus brief, we explore this new way of measuring P2P returns and cost through a modified TCO approach.

HGPII’s Report: Medical GPOs Focusing on Cost, Innovation in Healthcare Supply Chains

healthcare

The Healthcare Group Purchasing Industry Initiative (HGPII)’s 2019 annual Public Accountability Report released Thursday found that healthcare's group purchasing organizations (GPOs) continue to advance business practices that promote growth, transparency and innovation. The annual report also explored the sector's ethics.

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The Past, Present and Future of the MSP Industry: A Visual Guide for Procurement

procurement consulting

As the world of work changes rapidly, so too must managed services providers (MSPs). The “same old” execution of a traditional contingent workforce program that includes VMS technology is no longer cutting it, and MSPs that fail to realize this risk being replaced by new entrants intent on disrupting the old industry model.

In a world of accelerating change, enterprises expect their service providers to be right there with them, successfully navigating those changes. Enterprises cannot compete with an eye on the past — they need value-added solutions that help them to succeed now and into the future. What does this look like? Check out the infographic below to learn how the MSP industry is evolving today and tomorrow.

Best Practices for Your P2P Implementation Project And How to Keep it From Becoming a Nightmare [Plus+]

complex sourcing

Editor's note: This is a refresh of our 2015 series on running a successful P2P implementation, which originally ran on Spend Matters PRO. Read Part 1 here.

In the Spend Matters webinar “Nightmare on Procurement Street,” we discuss how to successfully implement a procure-to-pay solution (P2P) and avoid the process from turning into a terrible experience. This 2-part Spend Matters Plus series lays out what tips we suggested for procurement organizations embarking on a P2P project. This is not meant to be an all-inclusive, step-by-step implementation guide, however. We simply want to share our best practice ideas based on our experience and our discussion in the webinar. Today, we will focus specifically on project management as a procurement responsibility, as well as ensuring finance and accounts payable (A/P) are included in the P2P implementation project. Other areas we will cover are remembering the importance of supplier integration, system testing and user training in the P2P process.

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Preparing Supply Chains for Climate Change: Top Risks and Strategies for Adaptation

supply chain disruption

On Nov. 23, the Trump administration released the findings of the fourth National Climate Assessment, which detailed a dire set of predictions for U.S. businesses over the next several decades.

In addition to the headline statistic projecting that the U.S. economy will shrink 10% by the year 2100 due to effects from climate change, the report, which was compiled by leading climate scientists and 13 federal agencies, warned that numerous facets of global supply chains are at risk for disruption. These include not only common problems from natural disasters such as wildfires and hurricanes but also breakdowns in critical logistics infrastructure, geographic shifts in resource availability and volatility in global trading relationships, to name a few.

The report paints a bleak picture, but it also offers several takeaways that can help businesses get a grip on how to understand the supply chain risks of climate change and begin addressing them. Key among these is the suggestion that material, facility and logistics planning will all need to begin adapting today to effectively tackle climate change-related effects in the near and long terms.

To help you get started, here are the top three areas that procurement and supply chain organizations should examine when assessing the risks that climate change poses to their supply chains, as well as the NCA report’s key recommendations about how to address them today.

Why 2019 is the Year for Companies to Address Working Capital Challenges to Avoid 2020 Crisis

Spend Matters welcomes this guest post from PJ Bain, CEO of PrimeRevenue.

“Hello transformation. Meet reality.” Those four words sum up where the global business climate has taken us in 2018, and where it will lead in 2019. Whether in the context of industry or geopolitical transformation, the economic implications of transformative change have exposed vulnerability. How can companies fund transformation in an economic climate that’s equal parts encouraging and concerning?

5 Areas for Services Procurement Professionals to Watch in 2019

platform

As we start off 2019, more procurement professionals may want to be on their toes with respect to the changing contingent workforce and services environment. With that in mind — and recognizing the wicked challenge of making even short-term predictions in this space — we are not offering predictions per se but rather commentary on several broader trends. No promises, no New Year resolutions. Instead, we’d like to point to some areas we will be (and perhaps you should be) watching in 2019. To avoid being caught flat-footed as new developments and opportunities arise, practitioners need to keep their eye on five areas in particular.

Beyond Supplier Risk Management: How Procurement Can Take a Leadership Role in Enterprise Risk Management (Part 2) — Aligning Enterprise Risk to Supply Risk [PRO]

risk

In Part 1 of this series, we described the process that most progressive procurement organizations use to relate enterprise risk to supply risk. Throughout such transformations, a single theme pervades: alignment. The premise here is that while value chains are, in fact, a chain of value that flows across multiple stakeholders, the “signal” often gets lost as the components of that value go across organizational and functional boundaries. We’ve written before about this concept of “supply performance management” (i.e., where the definition of supply and the supply scorecard gets translated from the customer-facing value chain all the way down to a supplier/contract level) in terms of measuring and managing supply value, but this same concept also inherently applies to risk management.

Risk management is about protecting those value streams, and therefore the commensurate investment in risk mitigation should align with the value streams themselves. Unfortunately, they often don’t, because stakeholders are not typically measured on risk management explicitly (although they can be measured on it implicitly).

Procurement itself faces this problem. Based on our research, only 8% of procurement organizations are formally measured on supply risk reduction. Instead, they’re measured on overt reward (vis a vis savings) but not on protecting those improved supply outcomes. So, if procurement wants to protect supply outcomes, it will need help and resources from the natural risk owners (i.e., those who are measured on the business outcomes affected by those risks) — and that help will not come unless there is visibility, commitment and action. As such, in this installment of this series, we’ll discuss two critical frameworks that organizations can use to gain alignment.