Procurement Technology: An Update from Spend Matters in Baltimore

Today I travelled to Baltimore to attend the ISM/Spend matters Global Procurement Tech Summit.  I will be speaking on procurement analytics tomorrow, but got to attend a set of great sessions over the first half of the day.

The first speaker was Anne Rung, Administrator from the Office of Federal Procurement Policy. In this session, she mentioned that the federal government handles over $445B of federal contracts. The approach is to begin to think about how to apply category management to leverage spend across agencies. The initial focus has been on IT hardware and software. Anne centered much of her talk on federal IT procurement, which within the Office of Management and Budget (OMB) represents over 10% of the overall Federal procurement budget — $51 billion in IT spend, to be precise. Initially the idea was to halt any new PC contracts, and then identified a standardized approach to ensure that 80% of desktop PC needs could be consolidated into 5 configurations. On software, there is a move towards government-wide software licenses, to begin to appoint individuals to manage software license inventory, and establish government-wide solutions that are smarter on refresh cycles. She pointed out that this is a massive undertaking, but that the agency is also emphasizing the importance of creating more flexibility beyond the mythical inflexibility associated with the Federal Acquisition Regulations.

Next up was Dan Carrell, Vice President of Global Procurement at IBM.

The annual IBM facts and procurement figures that Dan shared boggles the typical procurement organization mind:

  • 15,000 suppliers managed (after decades of rationalization efforts)
  • 22,000 sourcing events
  • $50 billion in spend managed
  • 148,000 active contracts (buy side); “hundreds of thousands” on the sell side
  • 740,000 purchase orders

Dan discussed the major transformation going on at IBM, that is focused on three big changes:

  1. Data is becoming the world’s new natural resource, transforming industries and professions.
  2. The emergence of cloud is transforming IT and business processes into digital services.
  3. Cognitive computing is unlocking new insights and enabling optimized outcomes.

He emphasized to the audience that “As procurement we have to enable this transformation. Procurement is much more focused on open technologies and high-value solutions, and now trying to leverage strategic partnerships and make it smarter through data and cognition.”

One way this will happen is though the use of big data analytics (Watson) and cognitive computing. “We believe that cognitive computing is going to change industries and the way work gets done –and we can deploy systems that learn and become smarter through time and perform the jobs we do. Cognitive systems learn behavior through education, using structured and unstructured data.  IBM is working on an approach called the Watson Buying Assistant. These are early stage pilots that start with understanding natural language, structured and unstructured data. This generates and evaluates hypotheses for better outcomes, and then adapts and learns from user selections and responses.  A hallmark of a world class approaches enabled by a smarter front end to the process will create a differentiated experience. An example was provided to show how a requisition can be generated in 90 seconds and drive locked in savings through a preferred source, and avoids over-specifying the requirement.

Next, Prentice Wilson, Vice President at Amazon Business, discussed Amazon’s latest foray into the B2B world.  What is Amazon business? “We took everything that people like about Amazon – and brought it into business. We created a B2B marketplace, vendors, and a whole suite of business-friendly technology to spend on Amazon with the controls people expect. We now have 100’s of millions of products on Amazon – and people can log in and buy lab equipment, a snow plow, industrial hoses, art work, and toys for lobby – all on one shopping cart. This leverages Amazon fulfillment (90,000 full time employees working in fulfillment centers, including robots and other technology.)   Same day shipping is now in 16 metro areas.   If you are used to buying from Amazon – we will be leveraging that same technology for business.”

Jason Busch, Found of Spend Matters, also spoke on the latest procurement ‘megatrends’.  First, he noted that there is still a big disconnect between procurement and what we call supply chain – yet we talk about them in the same lens.  In fact, supply and spend should not be separated, and he sees that these roles are converging.  Second, he talked about the information supply chain and the need to drive compliance to guidelines, laws, process, policy, rules, and regulations.  “It matters what our suppliers do three levels down – and it depends on the country.  So this concept of the information supply chain is key and we have to manage it, even though it is largely unmanaged. It started with risk of our suppliers – but now all these other areas are involved.  Finally, he spoke about the financial supply chain.  Trade financing is here to stay. But we haven’t seen invoice discounting and other factors as would make sense.  How money moves through the economy is critical. It is not just about getting cash into supplier’s hands, but also seeing how our suppliers throughout the entire supply chain have access to capital!

Silvia Fang, Head of Technology from Google shared that their goal is to organize the world’s information and make it universally accessible and useful. They have barely started on their mission. Google gets snapshots of what is coming in the market, and Google docs has enabled collaboration on the cloud. “At Google, we deal a lot of the same problems that I’ve heard here today – with data problems and predictions about the future. In one minute, we have more than 4 million search queries, more then 300 hours video uploaded, and more than 1 million Google play app downloads.  A tool at Google is used to show how many people have joined, and its spend is massive.  About 2% of suppliers represent 80% of Google’s spend, but it is highly fragmented in terms of stakeholders.  500-2000 suppliers are 13% of spend, 2000-1000 is 6%, and 10,000-22,000 represent less than 1% of spend.  Its’ categories include data components, construction, and facility services, and others.  It’s spend is chaotic, and to become a trusted advisor – we have to create the space, segment the customer base and focus on platinum/stakeholders, and then focus on those key stakeholders to build relationships.  Cost is important – but not everything!  To ensure they are understanding customers, they have CSAT surveys, CSAT customer parties, and data collection to identify attribute maps.  You can’t be good at everything, so have to pick what they need to be good at.  Agile response process, category knowledge, transparency compliance, global coordination, rate reductions, delivery model consulting, supplier management, and long tail projects are examples.  Google realized they need invest  in category knowledge, but divest in long tail projects.  CRM is about synching with our stakeholders to drive action.

Those interested in learning more about procurement analytics can download my white paper.

Great stuff!  My fingers are aching from typing so much.  More to come…