3. Data differences

This is the third in a series of five blogs taking an in-depth look at procurement technology and data. I started by considering the range of procurement technology that is available. In this blog I compare data generated by procurement systems and social media.

It seems not a week goes by without another revelation about the use of data. The latest story to hit the headlines is Facebook’s harvesting of personal data. If some of the research is to be believed, “it just takes 150 Facebook likes for psychometrics software such as Cambridge Analytica to know your needs, fears and hopes better than your parents do, and just over 300 likes for such software to know you better than you know yourself.”

And yet everyone in procurement seems to be frustrated by the lack of the good quality spend data and the way it’s presented. This frustration seems to be felt most acutely in organisations that have invested heavily in enterprise resource planning (ERP) software.

So why does personal data appear to be having a much greater impact than spend data? Are Google and Facebook better at handling big data than SAP and Oracle? Or did large organisations realise the value of data a long time ago and consumers and governments are playing catch up with regulations like GDPR?

I think there are a number of reasons: the availability of data, the quality standards applied and the way in which it is used.

Personal data is gathered from a variety of sources: search engines like Google, websites like Amazon, and location based services like Garmin. As more devices like fridges are connected to the internet, even more data will become available. Spend data, however, is only created when transactions are made in ERP systems. These rely on accurate master data on users, suppliers and contracts and high levels of compliance to processes and controls.

When researching this blog I was surprised to learn that “most marketing data is between 10% and 20% accurate.”. Without doubt, Facebook and Google’s data is a lot more accurate but it hard to get concrete evidence, for example, there are claims that Facebook’s gender data is 99% accurate. This figure comes with a caveat that there is “a bot problem”. So is it 99% accurate or not? From a personal perspective, I’m occasionally surprised at the accuracy of online ads but more often bemused at how they ended up in my feed.

I cannot imagine sitting in front of a CFO trying to explain that only a fifth of the spend data presented was correct. Furthermore, I’d expect suppliers responding to a tender to build in a significant risk premium to their pricing. I’m not saying that spend data is perfect. Even investing a lot of time improving the quality of spend data, I often apply Pareto’s principle, that is, 80% of the effect comes from 20% or the cause. But spend data has to give a reasonably accurate picture because budgets and savings targets are often based on it.

Big data has changed much in the world of advertising but John Wanamaker (1838-1922) quote still seems holds some truth: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half”. Big data has also changed much in the world of procurement but for most organisations big improvements are still required. It seems we all face the same challenge but have different ways to tackle it.

2. The chicken crossed the road

On 18 Febuary KFC tweeted: “The chicken crossed the road, just not to our restaurants. We’ve brought a new delivery partner on-board but they’ve had a couple of teething problems – getting chicken out to 900 restaurants across the country is pretty complex.” In the subsequent days, more than half of KFC’s outlets in UK were closed.

Without wanting to pick over the bones of this crisis, I wanted to use this as a case study as part of my series of blogs on procurement technology and data. What went wrong at KFC and can anything be learned?

KFC’s tweet led the media to point a finger at the reliance on a single distribution centre and the logistics provider, however, this appears to be an over-simplification and ignores the complexity of modern supply chains.

Using a single distribution centre in the “Golden Rectangle” between Milton Keynes and Rugby on the M1/M6 is a well-established and proven means of getting products into a network. A lorry that’s loaded up by 7pm in the evening will be able to deliver to anywhere in UK by the morning.

Bidvest, a specialist in food delivery and the incumbent, lost a tender to DHL, the world’s largest logistic supplier.

There are four key components to a supply chain: the processes, the infrastructure like warehousing and transport, the information systems that run it, and the people involved.

Under KFC’s new approach, DHL provided the infrastructure and QSL the software for the information systems. By all accounts, the new supply chain solution came together for the first time on Tuesday 13th February (5 days before the tweet).

Like any complex machine, such as a car, you can test the engine, brakes, air conditioning and they all work. Bring them all together and suddenly one element isn’t working properly with another element and the whole machine stops working.

It is too early to say what exactly went wrong in the case of KFC. Supply Management proposed some generic areas to consider. In time, we will be able to scrutinise the tendering process, how collaboration was established and handover carried out.

Perhaps the most important lesson for now is one about the reality of modern business. Individual businesses are dependent on their suppliers in a way that some find difficult to comprehend. Competition takes place between entire supply chains, each comprising a range of specialist business collaborating to deliver the final product.

Hopefully, this has helped you digest the KFC’s supply chain crisis and brings an end to all the fowl jokes.

1. An introduction to procurement technology and data

“Technology is a useful servant but a dangerous master” according to Christian Lous Lange, the Norwegian academic and Nobel Laureate.

This is the first in a series of five blogs taking an in-depth look at procurement technology and data. I start by considering the range of procurement technology that is available and show what happens when it all goes wrong. I go on to compare data from procurement systems with those from social media and customer systems. Finally, I consider what the future holds.

When considering the range of technology available, it is difficult to find an area of procurement that remains untouched. As the market matures, technology providers are pushing into areas resulting in considerable overlap. CIPS compiled the list below with the exception of blockchain. Although some of the terminology has changed since 2013 I think it still serves as a useful summary:

  • e-commerce; more specifically, e-sourcing, e-procurement, e-purchasing, e-auctions, e-tender, purchasing cards, purchase order systems
  • Marketplaces/business exchanges
  • Contract registers/databases
  • Knowledge portals/supplier databases
  • Business intelligence
  • e-invoicing/e-payables
  • ERP (Enterprise Resource Planning) systems
  • MRP (Manufacturing Resource Planning)/Inventory systems
  • EPOS (Electronic Point of Sale)
  • Bar coding/RFID (Radio Frequency Identification)
  • Intranets
  • Extranets
  • Blockchain

All this technology generates data. Many procurement professionals ask themselves if technology makes them more efficient? Then they go on to ask whether the vast quantity of data generated provides any insights that can those be used to increase value to the buying organisation. I will try to answer these questions in the following series of blogs.

My mess for less

WHAT does the Royal Opera House, MoD homes and hospital dinners have in common? Perhaps not much, which may be one reason for the dramatic collapse of Carillion, the construction to services group. On 15th January the firm went into liquidation, jeopardising the prospects of its 43,000 employees, 30,000 subcontractors and the fulfilment of 350 government contracts stretching three decades into the future.

Governments from Margaret Thatcher’s to Theresa May’s have wanted to expose moribund state monopolies to the competition and innovation of the market. This theory might sound very attractive in Whitehall but the reality is somewhat different. I’ve worked for a number of outsource providers and it feels more like government wants to trade “my mess for less”.

Although much of the work seems mundane, it is often difficult to automate and relies on long complex supply chains. This means that cash flow becomes the most critical factor. In the case of Carillion, it was liquidated with just £29m cash and more than £1.5bn of debt, leaving pensioners and creditors with big losses.

Although all the evidence is yet to be gathered, the fact that Carillion funded dividends from the sale of assets in 2017 and the shares have been shorted for longer suggest that there was a failure in management.

The last words goes to Walter Howells who runs Howells Patent Glazing: “Carillion was reviled among subbies. There will be those who are dancing on its grave. They were always late paying, it was always 120 days. You got the impression their accounts department’s job was to delay payment as long as possible.”


Data and oil have much in common. Both require pipes, careful temperature control and have the ability to generate vast fortunes.

EU regulators have cottoned on to this and have been busy drafting the General Data Protection Regulation (GDPR). In the UK this will replace the Data Protection Act 1998 and introduce tougher fines for non-compliance and breaches, and give people more say over what companies can do with their data. It also makes data protection rules more or less identical throughout the EU and come into effect on 24 May 2018.

There is plenty of advice for procurement professionals, for example, Supply Management’s article with the eye catching title of When data is breached the CPO will be fired first.

Consumer choice

A recent report by KPMG called Me, My Life, My Wallet provides insight into changes in customer behaviour which procurement professionals will find interesting.

Procurement has two customers: the end customer who consumes the products that their organisation provides and internal stakeholders responsible for budgets. In my experience the end customer leads on new trends with organisations trailing behind. This is based largely on technology adoption – compare the experience of Amazon to SAP or Oracle; or smart watches to spend analytics.

Perhaps unsurprisingly, KPMG found that technology is the biggest single driver of change. Demographics and geography play a part but mostly in the context of technology adoption.

In its relatively young lifespan, the smartphone has grown at a staggering pace, with China becoming a distant leader. The first smart phones appeared in 1995. Today there are more than two billion active devices around the world.  Almost 90% of smartphone users say their device never leaves their side. And more that 70% of Chinese would rather lose their wallets than their mobile phones (probably because their phone is their wallet). The message is clear – if you want your consumer to do something then you have to ensure that it’s mobile enabled.

Homer Simpson once observed that “Every time I learn something new, it pushes old stuff out of my brain.” 4 out of 10 consumers surveyed feel totally overwhelmed with information and avoid it if they can. So if you want to avoid alienating a significant proportion of your customers then think hard about how you engage them and what you say to them.

The report says that “Most businesses have built their operating model based on life event norms, and those are primarily based on the boomer generation that created the mould.” These norms do not apply to generation X or millennials who, for example, don’t regard their first car as a milestone in the way that boomers did. On average, KPMG estimate, millennials are 10 years older than boomers when they buy their first home – and 10 years older than boomers when they have their first child. Even boomers are affected – although they are the first generation to retire on defined contribution pension plans and are living longer, they are haunted by what KPMG calls FROOM (Fear of Running Out Of Money). Millennials are putting an unexpected strain on family finances: 22% identify their parents as a source of income. Is your operating model fit for an era when millennials have the most spending power?

Very few procurement professionals will have been told that their buying process is simple and easy to use. Far more familiar is the compliant that it’s difficult to find the right vendors, that items are wrongly categorised and payment takes too long. Most consumer experiences are no better: over two out of three online shopping carts are abandoned before purchases are completed. Procurement organisations and organisation that can make their ordering process frictionless stand will be favoured by their internal stakeholders and customers.

Best practise in procurement

This is for all those people who haven’t worked in procurement or have worked for organisations where procurement feels more like a barrier rather than an enabler.

Before describing some examples of best practise, it’s worth looking at the reasons for creating a procurement function in the first place. If you’ve worked in large organisations then these problems will be familiar:

  • Suppliers aren’t paid on time and they refuse to deliver until payment is made
  • A supplier is no longer able to provide a critical item. There are a number of possible reasons for this, for example, products like software reach end-of-life and support is withdrawn, a supplier is acquired and the new owner replaces the item with a more expensive one or the supplier goes into administration
  • Someone, like a finance manager or an internal auditor, starts to ask questions about what’s being spent, how is it being controlled and whether they’re getting value for money. A profit warning or suspicion of fraud may have sparked these questions.

So what is best practise in procurement? Below are some examples of the three key areas: policy, people and systems.

  • It sounds a bit dull but a clearly defined policy and set of procedures and processes is essential. Everyone in an organisation has a stake in procurement because they’re either responsible for ordering items or managing the budget that pays for them or use the items during their day to day work. The only way to avoid chaos with so many people involved is to agree on the rules that govern the main processes. The policy should be drafted in such a way as to help people do the right thing and not to catch them out
  • Once the policy is agreed then a team is needed to work with the business to implement it. The individuals in the team should have good relationship management skills, enjoy analysis, whether that’s numbers (spend reports) or words (contracts), and be commercially minded
  • Procurement involves two main processes, source to contract (S2C) and purchase to pay (P2P). The only way to ensure compliance to the policy where there are a high volume of transactions is to use systems with the rules built in. IT systems generate high quality data which enables the procurement team to look for opportunities to improve the price and reduce the risk.

By implementing best practise procurement, organisations will avoid the problems that often arise when they work with others and generate greater value for everyone involved.

Step down from your ivory tower

Academic and consultancy research seems to be pre-occupied by the question of whether procurement’s success within a company is a function of organisational status or strategic alignment. Some of it offers interesting insights into changes in procurement but a lot of it is irrelevant.

Some research argues that procurement should work towards getting greater recognition by the business. This feels a bit like asking for respect without having earned it. Furthermore, there is no evidence that procurement performance is related to status.

Strategic alignment is the term used when the procurement strategy is derived from and aligned to the company strategy. This assumes that the company strategy is clear and that everyone is executing it properly. In practice, there are many factors to consider when developing sourcing strategies and some categories of spend are simply not strategically important for the company.

The article called Procurement at a Crossroads – Disrupt or be Disrupted by Soren Vammen, CEO of The Danish Purchasing & Logistics Forum and Lars Bjerregaard Mikkelsen, Professor at Aarhus University, is a case in point. Ironically they argue that procurement should be “more relevant to their organisations”. At no point do they consider factors that limit procurement’s effectiveness such as poor data or inadequate systems. It’s almost as if they’ve never run a sourcing process.

If this type of research is going to have any value then it must be based on a genuine understanding of the challenges facing procurement professionals and good empirical data. Many academics in this field would be well served by adopting Peter Drucker’s approach when he admitted that “My greatest strength as a consultant is to be ignorant and ask a few questions.”

Poacher turned game keeper

Reading about the careers of different people in marketing in CMO’s Developing your skill set on the other side of the tracks made me wonder how many procurement professionals have moved from industry to consultancy or vice versa.

Deloitte’s global outsourcing survey suggests that more are doing so. Respondents said that they planned to double outsourcing from 15% in 2014 to 29% in 2016. Furthermore, supplier relationship management has become an increasing important source of savings suggesting that CPOs are placing greater value on softer skills.

Anything that broadens your experience is a good thing. Having an in-depth understanding of your business partner’s position makes the relationship more constructive by reducing unnecessary friction and enabling a win-win outcome to be reached more quickly.

Not seeing eye to eye

I often work with Finance, partly because Chief Procurement Officers usually report to Finance Directors, but also because my role requires me to facilitate better ways of working between those doing the deals, those using the deals and those trying to report on them.

It came as no surprise that a recent survey found that Procurement’s “rosy” view of what the function contributes to an organisation’s bottom line is often not shared by their colleagues in finance. According to a study called Bridging the Gap between Finance and Procurement, nearly half of finance leaders claim that a fifth or less of procurement savings wind up contributing to their companies’ bottom line.

Perceived shortcomings in the way procurement functions track and communicate savings, how they collaborate with finance departments and how they work with the wider business were responsible for the disconnect.

In my opinion, too many organisation rely too heavily on spreadsheets. Effective systems drive compliance to policy. System generated reports provide accurate data which help decision making.

British Prime Minister Benjamin Disraeli said that “There are three kinds of lies: lies, damned lies, and statistics.” It’s time for more organisations to invest in the systems that properly support their business.

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