Change is difficult.

Why Now?

The key question confronting anyone in a sales or procurement role is this: why is change necessary now?

It is because risk is pervasive today in ways that it wasn’t before the Pandemic.

We used to take supply chain stability for granted, enabling us to employ “just-in-time” purchasing. Now, supply chain disruptions persist and we speak increasingly of “just-in-case” acquisition. Some blame extraordinary demand. Others talk of the “ripple effects of disruption.”

The one thing on which everyone seems to agree is that supply chain issues are here to stay.

The simplest answer when speaking to people about the need for immediate change is that companies need to replace an approach built for a low risk world with one designed for managing a high risk one.

Consider this analogy.

Before 2019, people made a living in financial markets by selling options (on stocks, on rates, on commodities, on everything). Effectively these options sellers provided other people with insurance against a change in market conditions from calm to wild. Many options sellers lost tremendous amounts of money in 2020, as they paid out claims to those they had underwritten previously.

Financial markets now exhibit a different “volatility regime.” There are fewer people around to sell options translating into lower competition on price. The sellers who survived remember their losses and charge higher fees. Buyers are willing to pay higher premia because they now know how this kind of insurance pays out in choppy conditions. There are new buyers who only know turbulent markets.

Similarly, markets for real goods and services are in a new phase.

This explains why enterprise buyers and suppliers need to change now. Covid managed to inspire a sense of urgency where previously there was none.

When Discussing Change, Flip the Script

When we make the case for change, we’re talking about the status quo.

The status quo is the default choice.

Agents for change must defeat the status quo first. This note from Seth Godin explains the approach well.

The standard defense case is simple: talk about the benefits of the status quo (while ignoring the costs) and highlight the costs of change (while ignoring the benefits).

Let’s consider the case where the status quo is a buyer using email and spreadsheets to manage reverse auctions in the acquisition of goods and services.

Imagine a buyer defending the use of email and spreadsheets when someone presents an alternative approach.

“We use email and spreadsheets for lots of purposes. So does everyone else. It’s easy and no cost. It’s familiar. It works. Moving to a sourcing platform takes time, incurs huge implementation and training costs, and requires a risky commitment to ongoing subscription fees for a bundle of features of which we will use only a fraction.”

Typically, the person trying to sell the sourcing platform will emphasize its benefits (while ignoring its pitfalls). Given the history of low-risk supply chain environments, the argument was always the same, at least before Covid.

“Our platform enables you to manage reverse auctions in a way that generates an increase in competition, leading to cost savings.”

If you’re unconcerned about risk, then it just comes down to buying at the lowest cost.

Here’s Godin’s key argument:

“And the danger is pretending you’re being fair, when you’re not. In this silly article from the Times, the author (and their editors) are wondering if oat milk and pea milk are a ‘scam.’

“This is a classic case of defending the status quo. Here’s a simple way to tell if that’s what you’re doing: imagine for a second that milk was a new product, designed to take on existing beverages made from hemp, oats, or nuts. Defending oat milk against the incursion of cow milk is pretty easy.

“The author could point out the often horrific conditions used to create cow milk. ‘Wait, you’re going to do what to that cow?’ They could write about the biological difficulty many people have drinking it. Or they could focus on the significant environmental impact, not to mention how easily it spoils, etc.

“Or imagine that solar power was everywhere, and someone invented kerosene, gasoline or whale oil. You get the idea …”

How best to change procurement technology? Proponents of change need to ensure that there is a balanced, complete conversation around costs and benefits by challenging the standalone case for the status quo approach.

What Would This Different Approach Look Like in Terms of Procurement Technology?

In the example of defending the status quo approach to procurement, advocates of a new approach should highlight all the issues that lead to failed outcomes.

“Our traditional approach to purchasing fails on every relevant dimension. We don’t end up buying the right solutions from the right suppliers at the right price.

“The traditional approach is bureaucratic and it takes far too long to execute. Time is value and if we have to wait months for the thing we’re looking to buy as the solution to a problem then that means we have to live with the problem for the additional length of the purchasing cycle.

“The traditional approach is expensive to transact. Specialized procurement staff and senior line managers spend too much time managing these reverse auctions by hand, distracted from other value-additive activities.

“There is no structured data that we can exploit firmwide. Instead of a data lake, we have cesspools of loosely connected spreadsheets. They vary in quality, consistency, and relevance.

“From their perspective, suppliers will tell you that the sales cycle is too long. Six months for technology? That’s even if they see the RFP. Most of the time, we only send RFPs to suppliers we have vetted previously because the process for onboarding a new vendor is itself time-consuming and bureaucratic, taking up to several months to navigate. Do email and spreadsheets make it easier to vet suppliers the way the platform does?

“Often, we send the RFP documents to the wrong suppliers, ignoring the right suppliers. We don’t have good, up-to-date information about who does what. Do email and spreadsheets mitigate this problem the way that the platform does?

“Suppliers make an investment decision in deciding whether to respond to an RFP. They have to weigh the cost of responding to an RFP to the expected benefit of winning. They assess the value should they win: size of the contract, expected margin, etc. They estimate the probability of winning. Do email and spreadsheets give them additional confidence to bid over a platform solution?

“Does using email and spreadsheets lower the supplier’s cost of onboarding and responding? Do suppliers have an easier time on the platform?

“Suppliers also shy away from responding to poorly written RFPs that ask the wrong questions and don’t ask the right ones. Does using email and spreadsheets help us obtain useful market intelligence that leads to better buying decisions? Does the platform have tools for getting smart about a particular category?

“What about opportunity costs for us as buyers? If using email and spreadsheets makes it difficult for the right suppliers to respond to our RFP (or to even know of its existence), how do we know that we’re getting sufficient competition on price and solution? If we don’t get competition on these dimensions, aren’t we overpaying for a second-best solution that we’ll have to live with for years?

“How are we measuring procurement right now? Is that the right way?

“If we had a sourcing platform in place that required no implementation, no training, and no ongoing subscription fees, but permitted us to solicit a wider band of suppliers, with a faster cycle, usage-based pricing, and market intelligence that led us to write more enticing RFPs, would we ever switch to email and spreadsheets?”

We’re Sympathetic

At EdgeworthBox, we feel for buyers who are under pressure as market conditions change across multiple categories simultaneously. Changing the approach to purchasing can feel like replacing the transmission on your car while you’re driving down the freeway.

We built EdgeworthBox to help make procurement collaborative and effective. It’s an exchange with tools for hosting structured procurement data; standardizing and simplifying onboarding and RFx; and speeding up the sourcing process.

Our approach increases the quantity and the quality of responses buyers receive when they solicit vendors. Sellers like the simplicity and exposure to potential customers with the right product-solution fit.

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What is the value of technology? One key benefit is the automation of boring, less valuable activities to free up time for more productive uses. One day, we will have safe, self-driving cars freeing us to do more with our commuting time. Before automatic washing machines, people wasted a terrible amount of time cleaning their clothes. 

The more actions we can automate, the more we are free to focus on things that have greater impact. Counter-intuitively, when implemented properly, automation can give your employees more meaning by liberating them from routine tasks so that they can focus on the truly strategic parts of their jobs.

In addition to automation, there is tremendous value in promoting collaboration across the enterprise. Historically, procurement has been segregated as a quasi-clerical function despite its significance to the firm’s outcomes in terms of product differentiation, total costs, and firmwide risk management.

The common foundation for automation and collaboration, when it’s done well, is structured, standardized, shareable data.

Get your data right and you can realize exponential benefits in terms of automation and/or collaboration. Data about vendor risk management, pricing, contract performance, etc.

People rely too much on emails and spreadsheets in procurement departments in corporations of every size. Everyone uses email and spreadsheets for something. Roughly half of organizations use Excel or some other type of spreadsheet for data storage and analysis.

There is a logic to this. It’s easy to use Excel to use and it keeps the individual in control of the data. For organizations with different systems, spreadsheets are the common glue used to patch them together when it comes to sharing data. It’s much easier to work with data in a spreadsheet than it can be to try to customize it within a software platform or, God forbid, across multiple software platforms. These platforms might have functional gaps, for example. Many of them are difficult to use, for buyers and/or suppliers. And when you start to have problems working with data on a platform, Excel is that much more comforting.

When everyone is looking to cut costs and procurement departments are looking over their shoulders for the next round of restructuring, it’s all about running-in-place. Innovation is a dream. Particularly when there is a history of platforms that companies implemented at tremendous cost only to fail to get sustainable, sticky traction with end-users. This can happen if, for example, to start using a particular technology, you ask your procurement staff to change the way they do things.

But, all of this spreadsheet dependency comes with a cost. And that cost is risk, hidden iceberg-like beneath the general consciousness of enterprise operational risk.

When spreadsheets are dominant in the management of procurement, it makes it much more difficult to remove functional silos; Bob in sourcing has tremendous power over data that is the property of the company if he is the only one with access to and control over certain types of data.

When spreadsheets are dominant in the management of procurement, it’s tough to do analysis in real-time; you need to take it offline. It’s difficult to collaborate with partners, either inside or outside the firm, because the data you need to share may not be in a structured, commonly understood format.

When spreadsheets are dominant in the management of procurement, the enterprise (and the leaders especially) likely do not know even what data they possess.

When spreadsheets are dominant in the management of procurement, there is tremendous risk of inaccurate data that comes from multiple sources, some of which have not been validated. There is also the problem of version control. How do you know you’re dealing with the most recent version of the spreadsheet? “In fact, both PriceWaterhouseCoopers and KPMG report that more than 90% of sophisticated corporate spreadsheets have material errors in them, with an average cost to the corporation of $165,000 per incident. How much larger is this amount in the case of a failed launch or a supply chain disruption?”

When spreadsheets are dominant in the management of procurement, the firm is exposed to the significant risk that the employee responsible for some critical dataset leaves the organization, forcing the rest of the team to try to interpret the highly personalized and almost certainly undocumented collection of information. It might have made sense to structure the sheet the way Judy did, but when she’s gone, good luck figuring out what she did.

All of this is complicated further by the sheer speed of business today. We’re all moving so quickly that it’s easy to get sloppy. For example, a survey by Dow Jones Risk & Compliance into the third-party risk management practices of UK companies found that 31% were considered high-risk and 50% cut corners on vetting suppliers because they didn’t want to slow down the business. This is only going to get worse as the volume of business increases; spreadsheets can’t cope with the volume, as it is.

Arguably the biggest tax on the enterprise from a persistent use of spreadsheets in the management of procurement projects is the friction to change that it creates. How do you automate your processes without clean, structured, high-quality data to train the machine? Spreadsheets keep enterprise procurement staff mired in the busywork when they should be focused on monitoring contract performance, developing category knowledge, expanding supplier lists, and, most importantly, collaborating with the business to ensure that the firm obtains the best value-for-money defined broadly in terms of strategic issues like product design and engineering and marketing, not just in tactical cost savings.

And who would want the advice, especially when it comes to technology, from a department that relies so heavily on spreadsheets to manage its operations? It doesn’t exactly convey sophistication, does it?

Email is just as risky. Why is it reasonable to expect suppliers to discuss sensitive IP over email? How many suppliers has your organization discouraged from replying to an RFP by using email as the principal mechanism for communication? And when you put their data into a spreadsheet, why should they trust that you can keep that information out of the hands of their competitors? What is to stop someone from your procurement organization from sharing it, either inadvertently or malevolently?

The ugly truth is that the use of email and spreadsheets reduces and restricts procurement to the purely tactical province of lowest price. On the face of it, what’s wrong with that? At least, one can measure cost savings. But savings are not strategic. Strategic sourcing means helping the firm design the best possible product by being mindful of the input markets. It means helping finance understand completely the risks the firm faces enterprise wide. It means assessing the performance of suppliers after the contract is signed, particularly when it comes to complex, long-lived contracts with complicated deliverables. You need data and collaboration tools to really make this happen.

It’s not enough even to have this data residing in an ERP system. The C-suite and others in the organization need to access this data in a format that helps them with their ability to make decisions. Are they really going to access that data from the ERP system? Is it in a usable format? Can the ERP system cope with the volume?

So, what’s the solution?

The ideal fix to this mess would be a platform that contained a common repository (with security, enabling a partitioning of public and private data), collaboration tools, and centralized functionality for supplier risk management and administration. Data would exist in a structured format, ideally one that adhered to a standard used by multiple organizations. Collaboration tools would facilitate sharing of procurement data across the firm and communication regarding sourcing actions, all within a secure framework. Duplication across firms in things like vendor risk management would be minimized (if not eliminated) for members of the platform and suppliers could showcase their wares to buyers, including real-time dynamically updated information about their capacity and capabilities to ensure they were included in potential RFP distributions.

That’s what we built at EdgeworthBox. We have taken key features from financial markets and laid them on top of a marketplace engine for executing RFPs. These features include a central clearinghouse for administration, a partitioned central clearinghouse for data, and social networking tools. All of it offered for a fraction of the price of the incumbent solutions in the marketplace. Come give us a spin with a free trial, or better yet, reach out for a chat and we’ll share some of what we’ve learned with you about sourcing and how we can think you can do it better.

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