June 2018

The supply chain that goes into manufacturing and distributing a popular product must be solid and resistant to any problems that may arise, from unexpected natural disasters to the straining effects of demand spikes. Reliability is at a premium, and the increasing complexity of modern logistics can make it difficult for organizations to create a solid pipeline between their products and eager consumers.

Putting together a solid and failsafe-laden supply chain can be accomplished via advanced technology, with digital tools helping businesses bring their ambitious plans to fruition. These efficient methods may be especially helpful for organizations launching new products into the market.

Laying groundwork for a launch
EBN contributor Vishal Patel recently suggested laying the groundwork for the supply chain is an absolutely essential part of introducing a new item on time. When an organization shows weak practices in selecting its partners, the resulting launch may be delayed. Patel indicated picking the lowest-cost supplier is a problematic strategy when introducing a new product, as that bargain-priced supply partner may be forced to compromise on either timeline or quality. A failure on either level would damage a manufacturer's credibility.

Visibility and control are two elements Patel prizes highly in complex product supply chains, and he indicated using advanced procurement technology is a good way to attain these traits. Companies that deal with their supplier networks using too many manual processes may not be able to make accurate and timely assessments of the best possible partners for their product launches. Furthermore, they may not be efficient enough in their dealings with downstream companies. Organizations that aren't easy to work with - or don't pay invoices in a timely manner - may find their relationships with partners compromised.

All of this effort is in the service of products that must have complex functionality. Patel explained the simultaneous expansion of the supply chain and deepening of device features have created a high bar for companies to clear. Furthermore, consumers and regulators are asking pointed questions about where materials and components originate from. Businesses without a fully visible and developed supply chain for their new devices may find unethical practices occurring.

A factory produces goods.Production supply chains should be solid before items launch.
Learning from Apple's moves
One reliable way to master the art of new-release supply chain management is to watch the moves made by experienced, industry-leading companies. When it comes to technology product launches, there's no corporation that draws the same level of attention given to Apple. With its much-publicized refreshes of its iPhone line, Apple is essentially launching a product every year.

This year brings an interesting twist on Apple's annual releases. According to Supply Chain Digital, the latest round of iPhones is being produced on a staggered schedule due to the dual nature of the line. The 2018 version of the device will, per rumors and leaked information, be divided into OLED and LCD screen models. The OLED version will be a premium, more expensive iPhone. Last year, there were delays involving phones with this screen type. Apple has responded by starting final assembly of the OLED model well in advance, in July, while the LCD version is set to be assembled in August.

Before big data analytics there was just data, where procurement organizations complied mainly internal, structured data from transactions. Today, big data analytics has expanded the sources of data to include much more incongruous set of both internal and external, structured and unstructured data obtained from automated processes executed within hours, or in many cases, in real time. Analytics helps tie together internal and external data sources; for that reason the first step for procurement in using big data analytics should be to tie in the internal data sources such as spend data, contract data and SRM data, with external sources such as the Internet, supplier databases and various news feeds in order to have “anytime, anywhere” information about supplier markets.

Though, understanding big data analytics and transitioning to this idea may propose some challenges, the potential to gain valuable, detailed and competitive insights about market conditions can bring great value to procurement. A few specific areas where procurement can gain additional value and drive their procurement practice to the next level includes:
Spend data has really become the bread and butter of procurement for some time now, but big data analytics can bring a new meaning to spend data analytics. Implementing a successful data solution will not only enable a greater number of data sets for a more detailed analysis, but will allow for the filtration of mass data into meaningful and actionable insight. In result, spend analysis becomes more than simply delivering metrics, but identify trends, performance improvements and implementing fact based decision making.

Supplier Management:
Supplier selection and management can be a difficult task for procurement. At times, it is difficult to know who the most efficient supplier may be, or who is currently providing the best quality service and can bring new innovation to the table. With big data analytics, this information will be assessable at hand through an analysis of internal and external data sets from non-conformance reports, to customer complaints, or delivery trackers…the list is endless. Having this information at hand when selecting a new supplier, or renewing a contract with an incumbent supplier could be priceless and bring additional leverage during negotiations.

Predictive Analytics
The greatest opportunity for procurement lies in the ability to accurately forecast and run predictive analytics. A comprehensive analysis of the market could help accurately predict the direction of certain markets and allow procurement to adapt strategies accordingly. Though, the real value of a big data solution is the ability for data to be collected and analyzed in real time, meaning that as the market evolves, the dataset will reflect any market changes as well.

The value of big data analytics can bring transformative changes to procurement and allow for more informed decisions to be made when it comes to spend, market conditions and managing suppliers. It is clear that procurement should take advantage of big data analytics and begin developing a solution to effectively transition in order to drive their procurement practice to the next level.

Cognitive procurement has been touted as one of the most disruptive practices of the future. However, some people would argue that their benefits are unsubstantiated as is the case in this thread over at Procurious. This is very true. The benefits are unsubstantiated if your evaluation criteria is that of a software solution that has wide-ranging implications across all of procurement. That is not to say that cognitive procurement does not have use good practical use cases. Just that the use cases exist in disparate states of development, often for specific functions, and have not been wrapped up into one single solution with lots of bells and whistles to make it useful for the average person.

Understanding what cognitive procurement and its value proposition

Artificial intelligence is not a new topic. It has been pretty well researched since the 1950s. Its evolution has gone from neural networks, to machine learning, to deep learning as of the writing of this paper. The reality is that we are very far from the human-like robots depicted in science fiction. AI is not particularly smart. That is not to say that it’s not highly useful.

What is it?

One simple way to think cognitive procurement is the act of executing procurement utilizing an automated adaptive decision-making process for support. An overly simplistic representation is as follows:

Data is captured, processed, and manipulated. A ruleset is then applied to the data. Finally, either a computer or an individual uses an established metric in order to make a decision based upon that result. For ease of understanding, let’s consider the commonly used and easily interpreted machine learning method that is known as logistic regression. The result of running a logistic regression is a number between 0 and 1 and may effectively be interpreted as a probability. We decision based upon some pre-specified threshold – say a result greater than 70 percent. This process is typically updated after new information arrives. Therefore, with more data one is typically more able to appropriately decision. Again, it’s worth reiterating that this is an overly simplified view of the complexity and decision points involved in building a solution.

Why is it important?

AI is implemented via computers, so it can be run non-stop. There is simply no way that a human can process the volume of data that a computer can at the same levels of speed and efficiency. Most readers are probably familiar with the game based milestones achieved by Watson and AlphaGo. Just recently a new milestone was established – OpenAI beat humans at Dota 2. There is a really important component of this achievement that’s worth emphasizing:

OpenAI Five played the equivalent of 180 years of Dota 2 each day during the training process.

Given this level of simulation and analysis, think about how much more knowledgeable one could be making business decisions, going into negotiations, or executing some other business practice given the appropriate data and computing resources.

What is the current state of procurement?

Before driving into ongoing work that has an impact on procurement it’s worth it to align on the functions that exist within procurement.


A buyer is an individual that manages the purchasing process for good(s) or service(s) within a company. This function handles generating purchase orders with a pre-specified supplier base.

Category Manager

A category manager is responsible for strategic oversight and execution of procurement. They decide what commodities and/or services to buy in order to achieve organizational objectives while also implementing and enforcing protocol around these decisions. They manage the relationships between both vendors and internal stakeholders. It is common for a category manager to specialize in a specific area such as IT or Marketing.

It stands to reason that the function of a buyer is tactical while that of a category manager is strategic in nature. With the growth and adoption of technology some of the tactical work of the buyer is being automated. While in its infancy, it is through robotic process automation (RPA) we can automate repetitive actions. An example of this from the world of web development may be found here. In theory the increased reliance on automation therefore frees up time to focus on strategy – determining what the ruleset behind the tactical execution should be. However, with the deluge of data that comes with expanded computing power we are also increasingly the strategic demands of a category manager. Beyond simply ensuring that quality product is available, category managers are now having to increasingly manage against more esoteric organizational considerations like risk, innovation, and diversity.

Where is procurement headed?

It is better to have more information to make a decision than less. That is, generally speaking, all things being equal, knowing the price point of that 20 suppliers would be willing to give you for a particular product is better than knowing the price point for only 2. This is where big data and cognitive procurement shine. Similar to our Dota example above, if one acquires and manages against good data then they are able to process a large amount of it and generate insights from it in a short period of time because simply put we can run many computers in parallel and none of them need to sleep. In essence, the decisioning process for procurement and ultimately the supply chain can become near real-time. Alternatively, by leveraging artificial intelligence one might be able to incrementally and continually improve tactical processes such as RPA.

Data and the procurement function

Before concluding it would be worth it to mention a few practical examples of where cognitive procurement can have a clear impact. Consider for a moment the earlier claim that risk is increasingly becoming an important factor in procurement strategy. Examples of risk include but are not limited to weather risk, political strife, and supplier sentiment. It is possible to for an organization to hedge against each one of these risks by leveraging external data sources and tying them back to their existing supplier base. One well known example of this is measuring supplier resiliency through weather data. IBM purchasing the Weather Channel for this exact purpose. Political risk factors can be considered through news aggregators. Finally, a combination of social media, geographic, and historical data can be used to quantify risk levels associated with the possibility of your supplier possibly generating unwanted press coverage. Data that is highly correlated with the decisioning process, but perceived as unimportant and often not even recognized as relevant, is a valuable nugget that will ultimately create arbitrage opportunities for your organization. Want to know the current state of the national corn market? Consider using satellites images to detect crop health.

When I manage the spend analysis process for clients, I typically use a hybrid approach to develop the spend category taxonomy put in place. First, I apply a Procurement-focused taxonomy to the data at large – in other words, classifying spend not by what a supplier does, but how Procurement buys from them. Then, I blend in information from the client to ensure any unique, client-specific vendor relationships are properly represented in the taxonomy. This sometimes takes time to accomplish, but the result is a highly targeted analysis that best serves Procurement’s needs.

Yet I often get a question at the outset of a new analysis: “Why not just use UNSPSC?” This is a valid question. UNSPSC is a popular choice. SIC or, more recently, NAICS codes are also prevalent. While these standards have their advantages, they may not be best suited to Procurement’s purposes. Why?

What Do We Want to Accomplish?
We want to a consolidated view our supplier base and spend profiles organization-wide – this means using a commonly understood taxonomy so every level of management across all business units have the same interpretation of the data. Adopting and sticking with any taxonomy helps alleviate a common problem organizations face: no longer will various silos speak a different language when describing suppliers.

It is important to note, however, that this is only a step in the process. The goal of a spend analysis, beyond bringing this clarity, is to support Procurement in identifying strategic sourcing initiatives. If a taxonomy can’t help Procurement identify strategic sourcing initiatives and save money, it is not valuable.

Where Standardized Taxonomies Fail
Standard taxonomies like UNSPSC, SIC, and NAICS are a great start to developing a taxonomy. However, there are three common problems that prevent them from being as valuable as a custom built taxonomy:
  • They weren’t built to alignment with strategic sourcing goals.
  • Their rigid structure likely doesn’t align with organizational profiles – featuring categories of spend that don’t apply to a specific organization, and not delving into the detail needed for other crucial categories.
  • The highly granular level of detail, while being useful for some purposes, is often overkill for spend analyses. Time spent adhering to such a granular system is time not spent executing on initiatives to save money.
These issues make sense. Any standard taxonomy was created, first and foremost, to apply broadly. Accounts Payable may use UNSPSC because they know that the rest of Finance uses it. They also know that any third party providers, software solutions, and consultants are also familiar with and use it.

Procurement, however, needs a system that speaks to our needs. By developing a taxonomy that speaks to our vendor relationships, specifically, we are building something that can provide key insights and allow us to better understand the opportunities available to us.

Choose a Taxonomy That Serves Procurement
When developing a taxonomy, make sure your goal is to build something that supports Procurement directly.

UNSPSC is easy. The taxonomy exists, and can be implemented immediately. There is value in this from a speed-to-implementation perspective, and can make an organization’s first dive into spend analysis easier.

These gains in speed, however, will be lost later on. If you aren’t able to clearly outline actionable takeaways from a spend analysis because the taxonomy used isn’t well suited to doing so, you’ll be spending all that saved time (and then some!) piecing together your sourcing strategy later on.

Source One's new whitepaper series offers insights and reflections from a number of Supply Management's most notable thought leaders. Taking a look at Procurement Transformation through various lenses, they provide an overview of the conversation surrounding the subject and offer strategies to organization's at every maturity level. This week, we're taking a closer look at Part 4 of the series. Titled "The Road Ahead," it center on next steps for post-Transformation Procurement teams.

Source One Director Diego De la Garza opens the concluding section of "The Road Ahead" by discussing the "assimilation phase" of a Procurement Transformation. This is the period, De la Garza writes, in which "Procurement has reached peak potential and executive buy-in." Riding high on the momentum of a successful Transformation, this stage is where Procurement can showcase its value and solidify its new place within the organization.

De la Garza writes, "I'm a firm believer that perception is reality. Whatever state your Procurement department is in, its perception across the organization will have a direct impact on its performance." He goes on to suggest that just because a Transformation has taken place doesn't mean leaders from internal business units have transformed in how they view Procurement. If certain business units have long considered Procurement a tactical function, they might prove hesitant to abandon that notion. Relying on their old misconceptions, they may neglect to proactively seek out Procurement's support.

"In short," De la Garza remarks, "[Procurement] will need to manage every business unit's perception, and they'll need to do so in different ways." To accomplish this, he recommends developing communication plans focused on "Enablement." Procurement should work to inform stakeholders from each business unit how exactly Procurement will support them in reaching their objectives. Delivered properly, this messaging should encourage them to engage Procurement earlier and more often in search of strategic support.

De la Garza emphasizes the importance of "translating" Procurement's messaging into the language of other business units. For example, the function should speak in terms of budget optimization to better encourage collaboration with Marketing. Marketing, in particular, often hesitates to align itself with a Procurement team that talks in terms of "savings." By familiarizing itself with the metrics and goals that matter to Marketing, IT, Legal, and other departments, Procurement can better frame itself as valuable asset.

It's also essential, he suggests, for Procurement to manage its perception within the department itself. De la Garza recommends first developing an impactful value proposition for the department. This mission statement should align with the organization's core values and resonate across every business unit. Additionally, embracing digital innovating and hands-on talent management can help ensure Procurement's value is recognized and articulated both within the unit and throughout the company.

Procurement, he concludes, cannot afford to take its perception for granted. Building Procurement's reputation and empowering it for success requires constant care and calibration. De la Garza describes the importance of this process, "Without momentum, a valuable, strategic department can easily find itself faced with disengaged business units and disappointing results." No one, whatever their perception of Procurement, can afford this for long.

To read more about Procurement's post-Transformation journey, check out Part 4 of Procurement Transformation: Industry Perspectives

June 29, 2018

Here's a look at where Source One's cost reduction experts have been featured this week!

New Whitepaper Series:
Source One's new five-part whitepaper series gathers the insights and ideas of Supply Management's most celebrated thinkers and leaders. Leveraging their decades of experience, these experts look into the hot topic of Procurement Transformation. Highlighting numerous angles on the subject and moving the conversation forward, they contribute observations, suggestions, and actionable best practices for organizations of all maturity levels. 
Jim Baehr of Sourcing Strategies Group dives into Supply Management's continuous strategic evolution. He suggests that Procurement Transformation's definition has matured and evolved over the last few decades along with the function itself. Baehr notes these changes, reflects on Procurement's current state, and makes his predictions for Supply Management's next era.
Unfortunately, many organizations experience shortcomings while pursuing a Procurement Transformation. Joe Payne and Phil Ideson identify Procurement's typical mission, motivations, and mindset as the likely culprit. In order to truly transform its operations, Procurement must reflect and adjust the way it views both itself and its role. 
Planning a Procurement Transformation, organizations tend to target specific aspects of their department's operations. The thought is that focusing on the areas that need the most attention will generate a greater strategic value. No transformation can succeed, however, without attention to Procurement's people, processes, and technologies. Aligning these three components is essential for both short and long-term value generation.

Developing an optimal Procurement function requires consistent effort. Completion of a successful Procurement Transformation is only the initial step in the trek to reach the function's full potential. The process in its entirety calls for unceasing momentum, constant attention, and an innovative spirit. Tom Rogers of Vendor Centric, Michael Lamoureux of Sourcing Innovation, and Diego De la Garza of Source One talk about what's in store for the ‘transformed’ Procurement team.

Part 5 - The Last Word (For Now)
Source One's Procurement Transformation Lead, Jennifer Ulrich, concludes Procurement Transformation: Industry Perspectives with some additional insights on the subject. Focusing in particular on the critical importance of reporting and metrics, she suggests these aspects are essential for building a business case in Procurement. Ulrich holds that proper utilization of these factors will help keep teams motivated throughout a Transformation and help make Procurement's evolution part of a broader conversation.

Recent Blog: 
A Guide to Phased Procurement Technology Investments 
Anthony Mignona, Technology Advice, 6/27/18
Technology often looks like the obvious answer for optimizing Procurement's effectiveness and efficiency. Even the most strategic teams, however, can face challenges when identifying what is needed and how to obtain it. With limited resources and endless speculation, organizations can become quite overwhelmed in pursuit of best-fit technological solutions. Anthony Mignona outlines the factors involved in the process, providing insights and suggestions in order to make the search as painless as possible. 

Recent Podcasts:
The negotiation stage is one of the most essential and instructive steps in the sourcing process. It's here that suppliers truly begin to reveal their potential value as business partners. Though countless blogs and books have offered best practices for negotiating, they rarely discuss the point at which these conversations become a waste of time and resources. Senior Project Analyst Jennifer Engel knows that it's sometimes in Procurement's best interest to accept contract terms "as is" or walk away from the table altogether. She joins the Source One Podcast to offer her insights and outline a few of these scenarios.

For companies looking for ways to maximize efficiency, the first thought is often to leverage a tool. As procurement professionals, what sounds better than a consistent and easy way of managing contracts, overseeing supplier relationships, and more? eProcurement offers a seamless solutions for streamlining processes and improving compliance - all while reducing costs.

But, just as all Procurement departments are not the same, neither are the various eProcurement solutions available in the market. What may be the ideal tool for one organization may not suit the needs of another. Navigating the eProcurement landscape can be challenging, especially if you're unsure of your requirements. Be sure to take the time to define what challenges you're looking to solve and fully assess the market landscape before jumping in to implementation.

In addition to proper planning, check out these tips from our Procurement Technology Advisory experts!

All around the world there is a sense that becoming an entrepreneur is the ultimate adventure, that working all your life for another person is obsolete and that you should take control of your future; of course this sounds great, but the reality is often overshadowed by idealism. Nowadays we are lucky that a good economic environment, pro-entrepreneurship policies, and a completely different mindset from the one we had 20 years ago facilitate entrepreneurship.

For today’s risk takers, the prevalent word is meaning, doing things with meaning or purpose is more important than a successful career. The meaningful movement has empowered many young entrepreneurs to try out their luck in the business world, most will lose and that is to be expected, the fact is that it is not easy, but having that drive to try again and again teaches that Entrepreneur how to ride the complex wave of self-employment, ultimately increasing his chances of landing a successful venture. Learning from your mistakes is the most honest and humbling experience you can have in your professional career, and it’s critical that we don’t associate it to failure, but as part of our growth experience.

This is not a call for all of us to deliberately start failing in order to learn or that there are no shortcuts to be taken in this matter, but we have to be clear that the ultimate deciding factor of whether you will be successful at your chosen line of work is your level of experience, so how can we gain it and avoid losing excessive time, money, and effort?

The quick answer, procure experience.

If you have chosen to walk the path of entrepreneurship you need to come to terms that you are not an expert at everything, you can certainly switch from one hat to the other, but in most cases you need to be able to cover multiple roles and responsibilities, and that is more complicated. The first step is to be conscious of what you are good at and compensate your weaknesses with someone else, today’s labor market is robust, you have many people who have reached the age of retirement and are looking for part-time jobs in order to keep themselves active.

Many of them have a plethora of experience in multiple areas, and the prospect of starting or helping a younger generation in a new project might be quite exiting, especially if you are willing to listen and are able to effectively transfer your meaning or purpose to them. Having the opportunity to learn from a retired accountant, lawyer, manager, or procurement agent can greatly improve your chances of survival and speed up your learning curve, especially when money is tight and every dollar needs to be maximizes to its full potential.

Think of how they can bring good practices, knowledge of what a good investment is, how to negotiate with your suppliers, what things to avoid, how to get loans, how to sell your idea to potential investors, and many of the positive recommendations.

You would be surprised how many new business owners think they have all the answers and attributes to be successful and refuse to listen, most of these ultimately go under because of their pride and idealistic goals of being self-made, so swallow that pride, invest on experience, and nurture your business and yourself.

Last week was the annual Cannes Lions festival where advertisers from around the world gather discuss the latest trends in branding and marketing, receive awards for creative work, and meet with industry leaders. One of the main topics of discussion during this year’s event was the recent announcement by Procter & Gamble  that they would revolutionize the way they work with their agencies – this year they will be testing out a model where they will no longer be working with various agencies each falling under a different holding company umbrella. Instead, they are creating a dedicated agency with the top talent from each of those holding companies, all working together as one group. The new agency will support the P&G Fabric North America division and will be comprised of talent from agencies within the Publicis and WPP networks. 

This unprecedented agency structure could be viewed as the next evolution of the ever-changing model for how companies work with advertising agencies. The client-agency relationship has seen many variations over the years as both brands and advertisers adapt to changing customer demands, technologies, and more. 

During the golden age of advertising (think Don Draper) the agency of record (AOR) model was most common amongst marketers, where one agency was responsible for all advertising across all tactics and channels. For brands, this meant there was only one or a few agencies to manage and there was consistency in branding and messaging as all creative work was coming from the same place. 

With the dawn of the internet and technology age, independent agencies and boutique shops emerged on the scene to cater to these new advertising needs. This trend expanded beyond just digital advertising companies, with niche firms being created to support specific industries or subcategories of marketing (i.e. PR, event production, pharma marketing, etc.). These agencies had resources who were dedicated to staying on top of the latest trends in their respective areas of expertise. This meant that companies were no longer working with one or two agencies to fulfill their needs – they could be working with a different agency for each tactic, channel, or project based on the requirements. While this added a layer of complexity to managing these partners, it meant that they had access to top talent to execute their campaigns. 

In order to stay competitive in the market, the large advertising holding companies began acquiring these specialized agencies to bolster their capabilities and capitalize on their client’s demands to work with firms that are experts in their field. For clients, this has presented a new challenge of trying to stay abreast of M&A activity in the advertising landscape. At Source One, part of our process in reviewing a clients’ marketing budget is mapping out, not only what agencies they are working with, but what umbrellas those agencies fall under to identify consolidation opportunities. 

Following a similar line of thinking, many companies have started bypassing “child” agencies and approaching holding companies directly during the agency search/review process. Companies like Campbells Soup, Unilever, Ford, and McDonalds have adopted this model in recent years. Each company contracted with a specific holding company who in turn created a client-specific agency with top talent from all of the agencies within their network. This model provides clients with the ease of management, consistency of branding, and access to subject matter experts for executing their campaigns. 

Procter & Gamble has taken this methodology to the next level by not only contracting with the holding company directly, but mixing talent from competing groups as one single AOR team. By doing this, P&G is hoping to further enhance the creative work developed by their agencies while reducing operating expenses through streamlined management and improved transparency. Some are arguing that it is because of their spend leverage that P&G was even able to attempt this operating model, but as a major player in the market, this could be viewed as yet another indicator that the agency landscape is evolving to adapt to the changing demands of their clients. 

Of course, with such a innovative idea there are many questions about how this model will work. With each agency having their own P&L, how will they get paid? How can they assure that there are no conflicts of interest? How will intellectual property be shared? It is still too soon to know how this move by P&G will pan out, but rest assured the advertising world is paying close attention. 

The following blog comes to us from Lacey Lyons of TechnologyAdvice.com.

Mark Perera, CEO of Old St Labs and founder of the Procurement Leaders Network, defines cognitive procurement as “the application of self-learning systems that use data mining, pattern recognition and natural language processing to mimic the human brain…around…the process of acquiring…goods, services or works from an external source.” Given its definition, the practice has both positive and negative implications for workers and businesses, depending on the manner in which it is used. Since cognitive procurement uses artificial intelligence and machine learning to automate as many tasks as possible, workers should prepare for its continued evolution as technology is refined.

A survey conducted by Accenture Strategy in 2015 found that managers are unsure of their abilities and needs when asked about working alongside machines. “They will need to learn how to interpret the analyses and recommendations those machines provide to ask the right questions and improve decision making. And they will need to develop, coach, and collaborate with others to drive experimentation and innovation across the organization.”

This professional development needs to occur quickly, because cognitive procurement is not an abstract wave of the future. It is already being used in fields such as management and education. According to the International Journal of Scientific Engineering and Research (IJSER), “A lot of cutting-edge AI has filtered into general applications, often without being called AI, because once something becomes useful enough and common enough, it’s not labeled AI anymore.” The question, then, becomes: What is the role of the human in a workforce that is increasingly automated, and how can workers best play that role?

One of the benefits of cognitive procurement is that when computers behave in an informed manner, they eliminate “manual work that would otherwise be required, cutting costs for your procurement team while also making it more efficient.” Some examples of tasks expected to be automated in the next five to seven years include: “setting up and conducting requests for proposals; finding relevant suppliers; and catalog maintenance and approval.” Accenture Strategy’s survey says “the overwhelming majority of managers believe machines will make them more effective and their work more interesting.” If they can educate themselves and their team members in ways that are not intimidating, cognitive technology will augment business practices.

Cognitive technology’s potential is also being used in human resources in applicant tracking systems and performance management software to find qualified employees and predict which ones will stay with the company after a given period of time. However, contrary to the perception employees might have, the technology does not encourage the company to shed employees who are at risk of job-hopping. Instead, the technology provides HR with ways to incentivize the employee to stay.

AI’s successes in the workplace are due in part to the nature of computing. AI is able to solve problems that arise in the procurement field, as well as other sectors, because it breaks large issues down into smaller ones and solves the problem that way, rather than bringing emotion into the problem-solving process, as humans sometimes do. IJSER reports, however, that obstacles to technological advancement currently include the limits of algorithms “to make connections, to determine which sets of data should be connected, and even to abandon irrelevant data when necessary.”

This is why, despite the fact that computer-assisted instruction is already being used in some educational settings, AI works better in fields like procurement. IJSER elaborates, “Inevitably, certainly if there are children involved, it would get questions such as, ‘Yes, but why?’ If related to the topic, it would answer appropriately, but inevitably, it would come to the point of no return.” Thus, cognitive procurement’s educational potential is limited without human interaction.

Aided by the increasing prominence of the cloud, cognitive procurement will continue to advance. However, cognitive procurement will never move forward if human workers are not open and agile. “Technology will replace a lot of roles in the near future, and we’ll need new skills in procurement,” said Barry Ward, senior procurement brand manager at IBM Global Procurement. Experts in cognitive procurement, suggests TechEmergence's Edmund Zagorin, imagine a future in which artificial intelligence similar to Siri or Alexa can be available twenty-four hours a day, seven days a week to consumers and clients.

This hypothetical future has obvious advantages for shift workers working undesirable hours. The Deloitte Review argues in its article “Reconstructing Work” that even this idea is too limited in its scope. “Treating humans as task-performers, and a cost to be minimized, might be conventional wisdom, but…a number of firms across a range of industries-including well-known organizations such as Southwest Airlines, Toyota, Zappos, Wegmans, Costco, and Trader Joe’s-were all able to realize above-average service, profit, and growth by crafting jobs that made the most of their employees’ inherent nature to be social animals and creative problem-solvers.” This is the goal toward which the current generation of information technologists should work: Enabling employees to engage creatively with their positions so that technology can take care of the rest.

Lacey Lyons is a writer for TechnologyAdvice.com. She is a  freelance writer and editor based in Nashville, Tennessee. Her work has appeared on the blogs of Empower Tennessee, Disability Rights Tennessee, The Charlotte Viewpoint, and HealthLeaders Media. She can be reached at lacey.b.lyons@gmail.com.

Negotiations are among the most essential (and potentially frustrating) stages of the sourcing process. While researching the market and distributing RFx documents can teach organizations a lot about the supply base, negotiations are often where the real lessons are learned. It's at this all-important stage that suppliers start to reveal their true willingness to enter a strategic partnership. A supplier who remains communicative and collaborative throughout the process will likely prove an exceptional ally once you've reached an agreement.

There are entire books dedicated to negotiation strategies. Advising readers on identifying leverage points, entering conversations with confidence, and reaching an agreeable compromise, they've got best practices to spare.

 According to Senior Project Analyst Jennifer Engel, however, the discussions around negotiations rarely touch on one very important topic. She writes, "What these strategies fail to address is when to understand that furthering a conversation is a waste of resources." Though negotiation tips and tricks are published almost daily, few help Procurement recognize when it's best to accept an agreement "as is" or even walk away from the table altogether.

Engel joins the Source One Podcast to fill in this gap. Leveraging her years of successful, strategic negotiations, she presents a number of scenarios in which Procurement should call it quits. If, for example, a supplier has grown unresponsiveness, it's safe to assume they've checked out of the conversation. Whether Procurement should accept the current terms or walk away will depend on their category and objectives, but it's clear that reflection and action are necessary.

However negotiations proceed, Engel recommends leveraging the process as a "trial run" of sorts. A suppliers behavior throughout the process suggests a great deal about how they'll perform as a business partner. Knowing when to conclude negotiations could keep your Procurement team from aligning itself with a stubborn, non-communicative, or overly rigid provider.

Listen to the full episode today.
Operating within the telecom category is a game of cat-and-mouse. The carriers shake things up just often enough that you can never feel like you've reached homeostasis. In order to have a fighting chance, there are some fundamentals that need to be exercised, but are often overlooked or poorly executed upon due to the dynamic operational nature of the category. Unfortunately, failing to follow these best practices means money is left on the table, often in significant sums. Being aware of but failing to exercise best practices is disappointing enough, but too often we see clients flying in the face of them on rare occassions for otherwise practical or imperative reasons, but more often than not for reasons completely inexplicable. It's those companies we ought to take a look at in order best explore what not to do when managing telecom spend.


There are a lot of benefits to consolidation: improved supplier relationships, reduced costs, increased efficiency, gained visibility, simplified infrastructure, etc. And while consolidation comes with risks, it also comes with a loss of leverage. As you consolidate and focus on your "preferred" carrier, you are losing touch with alternates and lack the ability to posture or demonstrate a willingness to move services away from your preferred carrier. This is not to say you cannot compete business; you can definitely still do that, but don't expect your preferred carrier to come to the table with as attractive an offer as they would if they were routinely tested against one or preferably a few of their competitors.

Be a Captive Customer

Not to be confused with consolidation, you will compromise leverage as a captive customer by consuming critical services that cannot be easily decoupled from the rest of your infrastructure. Large-scale custom fiber builds to support head ends of an MPLS wide area network (WAN), deeply integrated SIP and Cloud-connected services, carrier provided colo space with restrictive cross connect policies/costs, etc. are all good ways to make sure the carrier knows you're unlikely to go anywhere anytime soon. Similarly, allowing the carriers to spread service/circuit terms across multiple years leaves you in a similar bind. Through service deployments and contractual hooks, the carriers will gain the upper hand and can confidently be more reserved with their renewal proposals.

Renew Near the End of Term

Waiting too long to begin working on a renewal will compound your consolidation and captive customer woes. The best way to enhance your leverage is to leave yourself plenty of time to identify and move services to an alternate if your incumbent won't come to the table. Often, that means planning about two years before renewal and starting sourcing and negotiations about 18 months out. Any longer a deferment will show your incumbent you're not serious about moving and likely can't move within the timeframe you have, so you should expect any offers you receive from them to reflect that.

Don't Mind the Market

The telecom market is notoriously challenging to keep up with. Mergers are happening all the time, new services are being rolled out and rolled up daily, and as technology shifts, so does pricing. Anyone who has worked in the telecom category knows that pricing trends downward. What's more difficult to track, though, is how much pricing has shifted downward, and if a renewal for existing services makes sense or if an upgrade may be possible with an alternate technology while still saving money. These types of questions are not easily answered internally as being tuned into the market over the entire course of a 3 year agreement is impossible while keeping the lights on and all the plates spinning.

It takes a lot of time to plan for and manage these facets of your telecom spend. Even with the best laid plans can be easily sent off track by carrier tactics, operational imperatives, and other priorities and distractions. For help developing and managing a long-term telecom category approach, contact Source One.

Supply chain breakdowns can happen to companies of all sizes. When they affect large organizations, the ripple effects are much more noticeable, with potentially millions of consumers inconvenienced. When these headlines come around, it's important for logistics leaders at all types of companies to study them carefully for lessons and key takeaways.

Major supply chain interruptions can be tracked back to their sources - maybe natural forces made a route impassable. Perhaps a change in trade relations caused a company to rethink its network of suppliers. Potentially, either regulatory action or an in-house investigation could reveal a problematic partner organization that must be removed or reformed.

It's also important for supply chain leaders to consider why the instigating incident led to a slowdown. Would more redundancy have helped? Should the company have foreseen the issue while performing risk mitigation? The recent U.K. interruption to Coca-Cola and other companies' supply lines gives a chance to run down these questions.

CO2 shortage hits UK
The BBC recently explained that there is a carbon dioxide shortage in Europe. With five CO2 producers shut down for maintenance, the U.K. has a single organization in operation. Companies such as Coca-Cola have had to halt temporarily, without access to the gas they need. Coca-Cola has worked to intelligently focus on production of high-need products to make sure all orders are filled.

The behind-the-scenes moves have been carried out in close contact with supply chain partners.
Uses for CO2 in food production go beyond putting the bubbles in soda. The BBC explained the equipment used to kill animals on industrial farms is powered by CO2. Beyond edible products, medical suppliers could soon be concerned, as certain health care procedures call for CO2.

The food and beverage industry as a whole is grappling with what to do without sufficient CO2, and according to the BBC's report, the effects on other companies could be more drastic than what Coca-Cola has had to contend with. The Food and Drink Federation issued a warning that production from the farm level could suffer, and the British Poultry Council warned three-fifths of poultry processors could have to pause soon.

A bottle of soda.Soda bottling has slowed due to a lack of CO2.
Breaking down the breakdown
Gasworld, cited by the BBC as the first industry news source to pick up on the CO2 crisis, traced the roots of the disruption. The problem goes back to market forces in the ammonia sector. Ammonia plants are the main avenue for CO2 production. The current low cost of ammonia, especially when coupled with high prices of natural gas, a critical ingredient, has encouraged these companies to take more downtime for maintenance than usual.

Yet another factor has made this slowdown especially problematic for soft-drink companies. There is currently a wave of hot weather sweeping Europe, and customers are buying sodas at a brisk pace. The companies responsible for making these drinks, Coca-Cola among them, are being forced to slow or stop their production of beverages when they would rather be picking up the pace. It's clear the CO2 crisis has been caused and exacerbated by a number of factors all reaching critical mass at once.

Source One's new whitepaper series presents reflections from a range of Supply Management thought leaders. Looking at Procurement Transformation through numerous lenses, they provide a survey of the conversation surrounding the subject and offer strategies to today's Procurement teams. This week, we're taking a closer look at the series' fourth installment. Titled "The Road Ahead," it focuses on the next steps for post-Transformation organizations.

Part 4's second section, written by Sourcing Innovation's Michael Lamoureux,  is "targeted at the average tech-enabled sourcing organization." He elaborates, "They've 'transformed' in the sense that they've embraced e-Sourcing . . . Relatively speaking, they're early on their e-Sourcing journey." That's not to say these organizations are doing anything wrong. Lamoureux acknowledges that some are certainly thriving. Even these basic e-Sourcing technologies still "identify savings and new sources of value." These organizations are not, however, deriving the maximum possible value from their efforts. Simply put, these tools cannot "empower Procurement's transformation" or support a transformed Procurement team on their own.

To realize "next generation opportunities," Lamoureux writes, Procurement requires advanced sourcing technologies. Offering Should-Cost Modeling, Decision Optimization, and Predictive Analytics, they'll refuel the function's cost reduction efforts and "provide the foundation for cognitive sourcing."

Currently, Lamoureux suggests, Procurement lacks true insights into its pricing and payments. While asking for current bids is often sufficient, more accurate cost models will impart enough insight and added security to transform the sourcing process. Providing dependable cost models based on production and material requirements, they'll help Procurement determine "the true cost drivers of a product." Procurement can leverage this knowledge to tailor its cost reduction strategies.

Most current-generation sourcing suites also encourage a shortsighted focus on unit cost. Focusing on unit cost alone, Lamoureux reminds readers, "typically leads to cost increases over time." The best most Procurement teams do in response is shift their focus to landed costs. This, too, leaves money on the table and often saddles Procurement with unexpected costs. To achieve the best possible value, Procurement requires a tool that makes it easy to calculate total cost of ownership. A "modern Decision Optimization-backed sourcing system" will do just that. Taking all conceivable costs into consideration, these tools will help guide Procurement in making the most strategic awards decisions possible.

Lamoureux continues, "There are more savings to be found with the right addition to your advanced sourcing suite, and that addition is Predictive Analytics." Traditional spend analysis applications, he writes, "simply describe spend over a certain period of time." Augmented with Predictive Analytics, however, these tools will not only map historical spend, but "also predict future costs based on incremental changes in the spend profile and changes in market pricing for corresponding commodity categories." This look into the future will permit Procurement to make more informed, strategic sourcing decisions than ever before.

He concludes, "Traditional e-Sourcing platforms are good, but platforms that include advanced sourcing technologies are better." These, he asserts, are the ones that will provide for Procurement's continued transformation in the coming years. These are the ones that will set the function apart as an indispensable value generator.

To read more about the road ahead for post-Procurement Transformation organizations, check out Part 4 of Procurement Transformation: Industry Perspectives

Within procurement from a negotiation standpoint, one of the worst things a procurement professional can do is let a supplier have the upper hand. This is prone to happening with a single source or majority source supplier. Especially if the product or service they are providing is critical to your finished goods. Typically long term contracts are locked in with these suppliers controlling price, but what happens when the contract nears the end of its term? This is the supplier’s opportunity to increase price - and if you’re not careful they’re going to use their position as leverage.

The supplier will most likely site that they’ve held pricing and have postponed passing along increases due to raw material costs, inflation wage increases, etc. This may be true but if you don’t do your due diligence beforehand you have no way of validating it and have to trust the supplier. So how do you create the leverage you need to keep the supplier in check? The best way to do this is to identify a second competitive source. By doing so you have established a potential threat to the incumbent. However, if the incumbent is that critical to your operations they may stand pat and hold their position. Let’s explore some ways that we can strategically apply pressure to these suppliers without damaging the relationship. Side note, the majority of suppliers understand that even though there is an important human component to the relationship, in the end it’s a business and sometimes business decisions have to be made.

One key element is timing. It’s imperative to know when your contract will reach end of term. If your contract is about to expire with any strategic supplier you’re going to have issues. Depending on the category, estimate the timing you will need to properly evaluate alternatives. For example, if engineering is required from a testing and validation standpoint ensure that this is factored into your overall evaluation timeline. You should be preparing for negotiations well before the current contract expires. Whether this involves actually going to market or locking up an extension it’s important to ensure that you have all your ducks in a row well before. Keep in mind many contracts have termination clauses requiring you to submit a notice of cancellation well before end of term. The closer you get to end of term without a resolution the more leverage the supplier has.

As I alluded to earlier, you need to create a viable alternative to your incumbent supplier in order to create real leverage. The word viable is important because if it comes down to it you need to be able to actually switch suppliers. In many cases this means that the product must be properly tested, evaluated and approved. Everything must be in place prior to your incumbent’s contract expiring otherwise you could risk significant supply chain disruption. If an alternate is being evaluated typically the incumbent catches wind of it, which increases your leverage during negotiations. In a nutshell be conscious of when key contracts are coming up to term, don’t be caught off guard, ensure you have a strategy in place well beforehand and don’t let the supplier drag out the process. If possible, always have a secondary source in order to avoid disruption.

Whether you are a business customer or retail consumer, there can be many considerations when sourcing a product or service that not only delay your decision of who to buy from but when to buy. However, there can be situations that come up mandating a more immediate purchase. For example, your contract is expiring and you do not want to default to high cost “rack rates” or, there is a big sale happening and you MUST get that dress you wanted before your size and color preference is gone. Therefore, I have identified a few tips and examples to help assess and identify the best way to make a quick decision that should produce a financially favorable outcome for your business or shopping pleasures.

1.Confirm what you have versus what you need - Do a quick inventory check to see if a product or service is actually being used and is needed.

  • Example: Telecommunications – if you are looking to renew phone services with a supplier that typically warrants a contractual commitment, take a look at the phone numbers billing today and see if you can determine if the lines are in use, are published anywhere, or can be disconnected. A quick rationalization run through can result in immediate terminations and savings without doing much work. Depending on the depth or your inventory, a more formalized timely review might be necessary but a quick check could lead to immediate opportunities.
  • Example: Closet Check – how many button down shirts or jeans do you own from the Gap? Do they fit? Do you have a need for something new or more business chic? You might not have taken that deep dive into your closet from some time and could either find that 1990’s neon striped shirt you NEVER wear or realize your little black dress has now faded to a washed out noir color and there are some new clients to visit in upcoming weeks.
2.Do your research - What are the latest market trends and is competition on the rise.
  • Example: Office Supplies – how are businesses shifting their purchase of office supply products and how are they leveraging suppliers to consolidate “other” administrative expenses such as furniture, equipment, and supplies? Consider looking at alternate solutions than the most obvious based on your actual needs; possibly consider Amazon vs a Staples or Office Depot.  If you do not need global support and volumes are low, find out who provides supplies to local businesses and asses pricing from more regionalize suppliers. Sometimes the bigger players want commitments to offset aggressive pricing and it may not be necessary based on your actual demand.
  • Example: Diapers – having a non-potty trained 3-year-old has taught me to source EVERYTHING from diapers to toddler clothes. Before I would buy formula and diapers from the supermarket, Walmart, or Babies"R"Us. Now I buy most items on Amazon through their subscription service where I pay not only an already discounted price but even lower pricing for auto shipments…and yes these are recurring requirements. I continue to spot check the market to see if there are any shifts in pricing on my recurring purchases or find out what other moms are doing to save a buck here and there.
3.Everything is negotiable – if you just ask the question. Being direct with suppliers or retailers can produce a lot of value in understanding more about the service/product you are purchasing but can also offer an opportunity to get it a lower cost.
  • Example: Telecommunications – while looking to reduce inventory as discussed above, you should also understand what all of the associated costs on your bill are for, if they are necessary, and if there is room for improvement. You will have to pay for the monthly phone service itself but what about those hefty ancillary costs that can equal up to 50% of the total monthly service cost. Is the supplier mandated by the state or FCC to charge this fee and if so to what extent? Are other suppliers doing it differently allowing you to leverage other rates for negotiations? What about newer technologies available that provide more efficient service and allow for deeper discounts as suppliers are looking to sunset older legacy technologies. Lean on your supplier a little for feedback and recommendations.
  • Example: Price Check – last week I bought an expensive shirt from the Gap in-store. This week there is a sale for buy one get one 50% off. I wanted the same shirt in a different color but did not want to buy anything else, so this was not that great of a deal for me. However, I checked online and saw that same shirt was on sale for 40% off…on a single item. Typically you have to buy one way or the other so I just asked the store manager to match the online price and they did. Some stores will price match not only their own online pricing but competitors pricing, like Amazon online deals…you just need to ask the question.
So what do the above tips all have in common? Spending time doing your due diligence can produce a refined and “cleaner” inventory, encourage an engagement with suppliers/retailers to help in decision making, and allow for a successful cost effective purchase. Never be afraid to ask for help or see what is hiding in your closet. You never know, 90’s fashion could make a big comeback!!

Over the last several weeks, Source One has shared insights and reflections from some of Supply Management's most highly-regarded thought leaders. The four installments of Procurement Transformation: Industry Perspectives have looked at the ever-popular subject from every conceivable angle in hopes of eliminating confusion, cutting through the hype, and providing strategies for today's evolving Procurement departments.

Jennifer Ulrich, Source One's Procurement Transformation Practice Lead, brings things to close with Part 5. "The Last Word (For Now)" explores the importance of tracking Procurement's performance and reporting its success across the organization.

"In a sense," she writes, "metrics and reporting provide the bookends for a Procurement Transformation." Without demonstrating a clear, sustainable ROI, Procurement will always struggle to build the business case for a Transformation. Before organizations will commit to refining the department, they've got to recognize both its current value and its future potential.

Reporting can also boost morale and help maintain momentum throughout the life of an initiative. Both Procurement and its business partners can easily grow exhausted if an initiative grows long and drawn-out. If results and improvements are not readily apparent, enthusiasm could fizzle out and lead to the death of an initiative. That's why Procurement, Ulrich suggests, should take the same attitude toward metrics that it takes toward people, processes, and technology. Embarking on a Transformation, they should not only aim to produce better results moving forward, but also evolve the way they track and communicate these results.

With more thorough metrics and more impactful reporting Procurement can expect to make its Transformation an enterprise-wide concern. As other units come to understand the functions strategic potential, they'll engage with it more closely and invest themselves in its evolution.

This whitepaper series has ended, but the conversation surrounding Procurement Transformation is far from over. Source One's team of Strategic Sourcing specialists look forward to engaging clients, partners, and peers in this engaging discussion for years to come.

Did you miss an installment of Procurement Transformation: Industry Perspectives? Read all five today.