Over the past several months we have been focusing on contracting practices ranging from transparency in the public sector procurement process, to the importance of creating a clearly defined RFP with concise performance requirements, and of course the fair or equitable distribution of risk between buyers and suppliers.
While each of these areas have their own inherent elements of importance ultimately, their convergence in the form of a successful transaction requires a level of professional expertise that leverages rather than relies on emerging technologies. In short, you still need a pilot regardless of how technologically advanced the plane might be (I could have used the driver with a car or any other related analogy . . . but I think you get the point).
The key here is that as purchasing and related supply chain practices have been elevated from an adjunct financial function to one of strategic importance, the required skill sets of those in the profession have evolved out of necessity to a higher level of business expertise. The by product of what we will call an elevation of competency, is the change that has taken place in how we view technology or as IACCM’s Tim Cummins would say, the tools of our trade.
In the past, many of the projects that failed to deliver the expected results (more than 85% actually) were not solely tied to vendor inability but instead (perhaps equally) to client abdication. A kind of shared don’t ask, don’t tell implied arrangement where vendors promised the world with their clients willingly going along for the ride.
Today of course, the dynamics have changed considerably where vendors are now called upon by an increasingly knowledgeable purchasing community to deliver more than technological bells and whistles. Specifically, vendors must offer a high degree of procurement expertise within the framework of the pay-for-actual-use, on-demand models where tangible results are substantiated up front instead of at some to-be-determined future point down the road.
These “immediate” results however are not solely tied to the relationship between software or application vendor and the end-user client. In fact while this relationship is undeniably important, it ultimately means very little if external “trading partners” re suppliers are not on-board with the project as well.
Take my often referred to discussion with a senior executive from Colgate-Palmolive, who at the conclusion of one of my seminars indicated that despite a heavy investment in Ariba, when the time came to actually engage their suppliers through the automated bid process, they did not receive a single response. Needless to say, the project was invariably scrapped and filed away in the dark recesses of the corporate consciousness. This is a perfect example of the client (Colgate-Palmolive) investing a substantial sum in a vendor solution (in this instance Ariba) without verifying if the suppliers would actually come out and play.
This is also a scenario which continues to be played out in both the public and private sectors as demonstrated by the December 2007 article in the Defense AR Journal by Timothy T. Nerenz titled “Government contract bundling: myth and mistaken identity.” In the article, Nerenz refers to a U.S. Small Business Administration “SBA” report which “estimated that 34,221 new bundled contracts were awarded from 1992-2001, transferring $840 billion of contract revenue from small to large businesses.” The end result the SBA report concluded was “a 56 percent decline in the number of small businesses contracting with the government.”
In an even more recent example, Canada’s procurement ombudsman indicated that that country’s federal government may have “unwittingly” implemented strategies and practices that have led to the creation of oligarchical monopolies that have sufficiently shut of the SME market from bidding on government business.
This is the very disconnect to which I was referring above when I had indicated that “vendors must offer a high degree of procurement expertise.” Had that expertise existed beyond the realms of a slanted features, functions benefit analysis, then both the vendors and their end-users would have realized the importance of what is referred to as meaningful access for suppliers.
At the end of the day, and regardless of the amount of money and resources that are spent on implementing the latest and the greatest technology, even those which are now being increasingly offered under a Software-as-a-Service (SaaS) model, it is generally understood that vendors must also demonstrate a broader understanding of how the market works beyond a product specification perspective.
This is one of the reasons why I have always been somewhat skeptical regarding an Ariba, SAP or Oracle announcement that they are now in the on-demand business. After all, has the DNA transformation to a SaaS-based solution provided Ariba with the expertise that was found lacking with the Colagate-Palmolive initiative. Is SaaS the actual lens of enlightenment, or is there something more? Something that is indigenous to those organizations whose background and understanding is based on practical supply chain expertise versus technological wizardry.
In the second of this 2-Part series we will examine the differences between procurement expertise and technological innovation, including what meaningful accessibility across the spectrum of spend means and why it is important.