Great acquisitions — and how technology helps us avoid bad buying

We are delighted to feature this guest post from our friend and former colleague Peter Smith, author and Managing Director at Procurement Excellence Ltd.

Anyone who reads Spend Matters knows that technology makes a vital contribution to effective procurement these days. Not using it properly can also lead to problems, and in my new book, “Bad Buying — How Organisations Waste Billions Through Failures, Frauds, and F*ck-ups,” I talk about some issues where technology can undoubtedly help us avoid problems.

This isn’t a book aimed solely at procurement professionals; I hope it is interesting for any executive, public or private sector, who controls a budget or has any input into the procurement process. So I avoided too many procurement jargon terms – you won’t see many mentions of “purchase to pay” or “vendor master data management,” let alone “multi-dimensional, multi-criteria sourcing optimization platforms.” But sometimes there is no doubt technology can help stop Bad Buying in its tracks.

For instance, many of the frauds we’ve seen over the years in the procurement space could have been halted or avoided by robust “vendor master data management” and some sensible processes. The number of people within organizations who simply created fake suppliers and fake invoices, then authorized payments which went straight into their own bank accounts, is startling!

There are other “failures” though that I felt were too complex to explain to a non-expert audience. The weakness of some traditional sourcing processes is one example. I wrote about this at length in Market-Informed Sourcing: A game-changer for Procurement, which was sponsored by BravoSolution (name from the past there …). BravoSolutoin offered “sourcing optimization” and I was impressed by the options that technology opened up for procurement. It is still very much a live issue, and it was interesting recently to read erstwhile Spend Matters commentators Jason Busch and Michael Lamoureux discussing that same technology in:

• Optimization is not optics — it’s obligatory!
• You can’t optimize for products that are a rounding error in a broader P&L
• Vendors will never make money off optimization unless they originate the opportunity!

My premise was that much of our approach to sourcing was traditionally driven by what we can handle. We simplify how suppliers can bid, purely because we can’t cope with anything more complex, so we narrow down the options. That has led for instance to considerable focus on spend aggregation. We have bundled together work in part because of a belief in economies of scale (often misplaced), and in part because it makes our sourcing task easier. That in turn has led to unhealthy supplier dependence in too many cases – and there’s a whole chapter on that in the book.

But sourcing optimization is a good example of how technology gave us the opportunity to promote “good buying” and move away from that less-than-great practice. At the heart of the optimization (or “market informed sourcing” as I called it) approach is the ability for the market to reflect back true economic factors in a flexible manner that benefits the customer. Even when the sourcing optimization experts Trade Extensions was a very small firm, huge businesses such as Walmart saw the benefits they could gain from that product and approach.

I was reminded of this the other day when I saw Coupa announcing a big client win, with Walmart signing up to a major new contract. The press release said this:

“Walmart currently uses Coupa to optimize the sourcing of significant third-party spend in North America. The company will now embark on a phased rollout to expand adoption of the Coupa BSM Platform with procurement and advanced contract lifecycle management solutions.”

Now going back a few years, before it was bought by Coupa in 2017, I said that Trade Extensions “has a client list that probably includes more of the world’s top 50 firms than perhaps any other procurement software vendor except SAP or Oracle.” Walmart was one of those clients, and it seems likely that the Trade Extensions sourcing optimization product was the way that Coupa first became a supplier to Walmart, and obviously Coupa has been able to build on that with the new contract. And the Walmart deal caused Coupa’s share price to leap around 10%, adding almost $2 billion to the firm’s market value, incredibly.*

So, whilst I didn’t look at acquisitions under the Bad Buying heading, I think we can say without a doubt that Coupa’s purchase of Trade Extensions has turned out to be an example of very good buying indeed. And sourcing optimization remains a powerful example of how technology can support progress in our journey towards procurement excellence – and away from Bad Buying.

* I don’t own any Coupa shares, more’s the pity!