On the Bubble

Posted by Andrew Bartolini on March 15th, 2010
Stored in Articles, General, Process, Procure-to-Pay, Strategic Sourcing, Strategy, Technology

March Madness is upon us. The NCAA Division I Men’s College Basketball Tournament kicks off this week with a field of the top 64 65 teams taking to the courts over 19 days to play for the National Championship. There is a serious rumor floating around that the NCAA powers that be are seriously considering expanding the tourney field from 65 to 96 teams. I shudder at the thought. There is a certain symmetry to the tournament structure of the past 25 years that makes it such a compelling event:

(1) While major upsets are unlikely, some “Cinderella” teams really do have a chance to win a few games.

(2) Different school programs can be tremendously satisfied with different results – getting to the tournament, winning a game, playing a close game, getting to the sweet 16 – can be legendary achievements for the players and coaches at different schools.

(3) The fact that the current number keeps some good teams “on the bubble” (meaning on the threshold) makes the regular season and conference tournaments more important and more exciting.

Expanding the current field would be subtraction by addition. But, with the dollars involved, it is a certainty.

There are however, many cases in supply management where you can get ‘addition by addition’ 🙂 – compensation, vacation, supplier savings,  compliance, spend under management – you get the idea. But there are also a few areas where some given number is commonly viewed as acceptable, as good enough. I want to challenge the notion on two of these areas today.

(1) Supplier Enablement and the Pareto Principle: In the case of supplier enablement, there is a standard view that after the 20% of suppliers that account for 80% of purchase order spend (in the case of eProcurement) or for 80% of invoices and payments (in the case of ePayables) have been enabled, the team can focus on other things. I could not disagree more. Supplier enablement should not be an initiative for the initial years of a program only, but rather, an ongoing process that does not end until you are approaching full enablement (orders and payments to one-off suppliers should use p-cards).  There is a “network effect” on compliance, on efficiencies, and on spend under management that occurs when enterprises move well beyond that first 20% of suppliers. Supplier enablement is not easy and third-parties can help. The ROI on enabling suppliers in the next 10% is there even if the network effect has not kicked in. It’s there on the next 10% too and the next 10% too. Keep at this, deliberately. Set annual goals and in a few years you will look up to find yourself performing at Best-in-Class levels.

(2) eSourcing events with three bidders: eSourcing 101 teaches that a competitive sourcing event can be structured with three qualified bidders. eSourcing 101 is not incorrect; a competitive event can be structured with three bidders. In the case of a small dollar requisition that requires a bid, three bids are all you need and probably all you want – “three bids and a buy” fills a need quickly and efficiently enough to match the opportunity. But there are risks in applying this commonplace sourcing strategy on larger dollar opportunities. Simply put, including only three suppliers in an eSourcing event leaves little to no margin for error in your qualification process and in how you structure the business rules of your event. These are risks that are not worth taking. In my experience eSourcing more than $500 million in goods and services, expanding the number of qualified suppliers has the greatest and most direct impact on improving results. When you adopt the eSourcing 2.0 mindset and conduct all of your negotiations that result in a contract on an eSourcing platform, process efficiencies will enable you to invest more time in supplier discovery and qualification. The wonderful complexities of sourcing different categories make it all but impossible to generally define the ‘correct’ number of qualified bidders. That said, I believe the minimum should be greater than three (More to come on this).

Sometimes, having a “bubble” makes crossing the threshold a more significant and valuable accomplishment and sometimes there really can be too much of a good thing (tequila and sunshine, for example); in the case of supplier enablement and qualified bidders, too much is never enough.

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