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July 28, 2016

Torque to horsepower: A practitioner's perspective on cataloguing

Jay Leno once said "Horsepower sells cars, but Torque wins races!" Being an auto enthusiast myself, I was pondering over this statement in the context of procurement..

Jay Leno once said "Horsepower sells cars, but Torque wins races!" Being an auto enthusiast myself, I was pondering over this statement in relation to one aspect of procurement, that of bringing more spend under management and realized how true it was in the context of what I was thinking.

One of the key challenges of a procurement professional, a CPO in particular, is to establish a framework within the buying organization to bring more spend under a preferred buy pay channel. One of the many channels that could be defined and a structure weaved around it, to enable the organization make purchases in a streamlined way, is a catalogue.

A catalogue is simply a preferred channel comprising of a listing of items, products or even services that can be used by requestors to make purchases. I will restrict myself to sharing some of my views on internal catalogues in this blog, in the capacity of a practitioner and share a few additional perspectives on punch out catalogues implementation, as we move up the value chain in some of my upcoming blogs.

Why Organizations might choose to go with internal catalogues?
Quite a few organizations, including medium to large ones, have introduced internal catalogues as a way to manage purchases in line with their overall buying strategy to bring more spend under management. Some organizations take the internal catalogue route, which we will realize in a moment, is so cumbersome (should I say tiresome!), inefficient and fraught with complex and challenging handoffs, especially given that some large organizations still use internal catalogues, even when they know they have the option of moving to a more efficient way - that of punch-out catalogues or punch-outs as they are called. The complexities get even more magnified when these organizations are trying to roll out catalogues as a channel of buying to some of their own internal business units, affiliates or geographical entities. Why would they do internal catalogues in the first place? The reasons looks to be multi-fold.  However, the key one is that organizations think that the next logical step to not having a catalogue is to first have an internal catalogue in place since they have (they think they have!) the required resources and wherewithal to manage internal catalogues and then move on to punch outs as a second step. The next reason that I understand is that they like to have complete control over price movement of items in the catalogues that is assumed to be better controlled if managed internally vis-à-vis punch out catalogues. There could be other peripheral reasons including getting to have the business get a flavour of using a new channel that gives a little bit of flexibility to experiment "new ideas" as much as it does to increase adoption! It will be interesting to know whether you feel this is intuitive!!

Identifying and establishing internal catalogues . . . just repetitive buys?
One of the fundamental drivers for identifying a catalogue item is the frequency of the purchase. A repeatable purchase generally qualifies to be an item in the catalogue. An item or a product that is purchased 25 times in a year could be "catalogue-able". However an item purchased even 6 times in a year could be catalogued depending on what the buying pattern, buying behaviour or the purchase value of the item suggests. A spend analysis of the historic spend data (at least one year) at a transactional level, that even includes spend and transaction fragmentation and a demand analysis of the requirements of the key requestors (what the business or the business units are buying) become the key constituents of the inputs needed to determine what can be catalogued and what cannot be. So the result of this exercise is to come up with a list of the key categories and sub categories of items, products and services that can be catalogued. Talking to key stakeholders in the business and obtaining invoice descriptions are key enablers, one should remember, to arrive at the granular level details. A quick exercise to check if the items were purchased from preferred or non-preferred sources will give a quick initial inkling of what the supplier catalogues could be at this stage.

Kraljic Matrix: are you only talking low value-low risk?
It is generally better to select a few initial categories and declare them as a preferred buying channel as part of a catalogue - even a target of 10 catalogues as an initial set could be a good target, if that covers 15% of the transactions rather than waiting for the next two months to select 5 additional suppliers that will take the coverage to 30%! Here is where the Kraljic Matrix comes handy. As we know this is the 2x2 matrix of value versus risk. Most of the catalogue items will fall in the lower left part of the matrix of low risk and low value, which might constitute 60 to 80% of the transactions but anywhere between 10 to 30% of the value or thereabouts. It depends on the spend profile of the organization.

Office stationery, personal protective equipment, computer accessories, bearings, hand tools, packaging material, industrial gases etc. are all "catalogue-able". The standard, off the shelf items can all be part of the catalogue very easily. The list is almost end-less so much so that if we have services, even those can be catalogued as long as they are standard services. For instance, some of the training, cleaning and material handling services can also be catalogued!! Of course, some of key next steps in the path of implementation includes supplier selection through a sourcing event (if preferred suppliers do not already exist), communication to suppliers about the catalogue, their buy in (after resolving some challenges, of course, that they may have) and also officially communicating to requestors in the business about the catalogue and how they need to purchase the items from the respective catalogues.

In my next couple of blogs I am going to share a few more perspectives on the value chain of catalogue maintenance, measuring effectiveness, improving catalogue penetration, utilization, enrichment and adoption across business units/entities, the key challenges and also about punch out catalogues implementation. However, for now I reckon that the best way to enhance utilizing a buy channel is to start the incremental steps of moving from zero catalogue usage to even 5% catalogue usage through a continuous process of identification of items and moving them into a catalogue. The fear of making mistakes shouldn't deter one. There isn't any harm if the item doesn't get bought but if it does, it will help to boost the utilization of the catalogue! This is what I call torque - the will to implement a buy pay channel - it is this torque that will propel the engine forward in small bits from an absolutely level zero. But once it gets moving on its track, you can add more categories, items and services in scope, and that will give the much needed horsepower that will keep the momentum on. It is indeed torque that wins races . . . .

Please feel free to leave your comments so that we can continue in our quest to unravel various other perspectives on this topic. This is just the beginning  . . .

July 20, 2016

How sacrosanct is the 'evaluation criteria' in a sourcing project?

If you have been a buyer, have you come across a situation where the score card clearly recommended a particular vendor, but the management decided to select another vendor....

If you are a seller, have you come across a situation where you were certain that you were ahead in the race by a mile, and at the last moment, some other vendor walked away with the deal, and the client desperately tried to convince you of the decision, owning to subjective factors such as 'cultural alignment' and 'synergy with existing relationship'? And if you have been a buyer, have you come across a situation where the score card clearly recommended a particular vendor, but the management decided to select another vendor, due to similar reasons?

Such situations often reflect the weakness of the 'evaluation criteria' or the process, or both. For each sourcing event, an evaluation criteria is developed beforehand, parameters listed, weightages assigned and sourcing team scores each vendor on those parameters. The criteria includes all subjective parameters too, and should anyway take into consideration all such aspects, as per assigned weightages. So, if any one parameter swings the deal at the last moment, it means that the weightages have been tampered with, or the evaluation criteria has been kept aside in the process. In any case, it is not a fair process and the Procurement person should challenge this and handle it appropriately.

What should be done to avoid such situations? Usually such situation happens when a certain stakeholder was not aligned in advance, and he or she disregards the evaluation criteria eventually. So, time and effort should be spent to identify all relevant stakeholders early on in the process and align them on to the evaluation criteria. The other reason for such a situation is when a certain parameter appears very important to the stakeholders later, while the score card doesn't give it the due weightage. So again, time and effort should be put in early on to ensure that the weightages are correct and reflect the intent of the process fairly.

What should a Procurement person do if such a situation arises? Fairness and transparency is the cornerstone of any sourcing process. If it is felt that the evaluation criteria is recommending a certain vendor unexpectedly and the 'favourite' vendor is scoring low, Procurement person should stand by the evaluation criteria and challenge any suggestions which dilute the sanctity of the score card. If however, certain aspect of the criteria was genuinely wrong, then it should be recorded in alignment with all stakeholders. Similarly, if management wants to over ride the score card due to 'relationships' or 'cultural' or any other such reasons, it again should be recorded for fair audit purpose. In no situation should the evaluation criteria be modified retrospectively, to accommodate a certain vendor.

Would like to hear from the procurement and sales community if they have encountered such situations and what did they do to handle it!

July 12, 2016

Divided they fall - master data, category strategies and e-procurement tools

Most of the purchasing functions fail miserably in tightly uniting three important resources together.

Do you face or hear about the situation of procurement with all its might of ERP, e-procurement and other infrastructure element engines not able to crank up enough power to generate delightful performance? Well you are not alone. The good news is that there is enough help, sound approaches and good people available to help you manage such a situation better.

The classic scenario looks like this at the headline level. Most of the purchasing functions fail miserably in tightly uniting three important resources together - standardized and e-commerce centric master data, robust category strategies created based on such data, other external & internal analysis and their flawless execution through ERP/e-procurement tools (e.g. Ariba, Emptoris). Their stakeholders and bosses complain like this. "We have invested heavily into Ariba but aren't getting results; the adoption of these tools is not increasing; I am still not able to know how much is the spend that I incur on third parties" etc.

At a deep dive level, you find that the devil is in the details. Master data is often not "master" or related to sound underpinning standards but remains a "vulnerable deputy" whose form and shape can be freely altered by anyone inside ERPs. Category strategies are cosmetic exercises then, as poor quality data generates poor reports not amenable to generate even good tactics, leave aside the question of any strategy. Last but not the least, e-procurement tools are easily not used or less used to convert robust category strategies and good quality master data at day to day supply planning to fulfilment and performance measurement levels.

So reflect and contribute. You may agree or agree to disagree. Itching to communicate? Over to you.

July 1, 2016

Should you reshape your procurement career in the middle of AI and automation?

What's the silver lining your procurement career has in such turbulent times? You can still save your career by following at least one of two approaches.

A number of you may be hearing about it while some may yet be ignorant about the impact of automation and artificial intelligence (AI) on the procurement function and the jobs of procurement professionals. In any case you must know that your procurement career is seriously at risk now due to the rising power of these techniques to make most of judgemental and rule based business processes man-less.

If you are a P2P (Procure to Pay) side professional, you must worry the most. Tasks like PR validation, e-catalogue content updating, price file maintenance etc. are getting executed more and more by computers than humans. If you are an A2C (Analyze to contract) side professional, your jobs are not safe either. Tasks like bids comparison, spend analysis led opportunities identification, supply market intelligence are being piloted already for partial to full automation with AI.

So what's the silver lining you have in such turbulent times? You can still save your career by rechristening yourself through following at least one of the two approaches. The first approach is to study about both techniques, invite your procurement services partner to gauge solutions available and embrace them into your function immediately. Your managers will be pleased and news will go up to your CEO and CFO making your popularity soar. The second approach is to enhance your cognitive and strategic sourcing skills through related specialized education and training programs. If you can't beat them, jump into them. Simple!

All the best and join me in this procurement profession sustainability linked conversation.

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