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Cloud Computing, procurement, strategic sourcing

Procurement in Google Age

My first glimpse of procurement function happened roughly 20 years back (the days when my moustache was black!). I was working at a Government department at India. I needed to buy electronic components for a digital circuit I designed. (Electronic engineers out there – do you still remember, Karnaugh map?). I had to travel from my work location to a city which took around 2 hours by public transport. I have been asked to get 3 quotes. I took a quote from the first vendor. When I shopped around I found that there was only one another vendor who had this component.

Seeing my confusion, the second vendor “solved” the problem. They gave me two quotes with two different company names with the different values. I realised that it is a well accepted practice. I do agree there was a bit of ethical dilemma. However, there were only two vendors selling this component. The value of the component was less than $2! If I take only two quotes, I need to write a justification and jump through hoops.

Fast forward 20 years, I had a chance to be sitting at the other side of the fence at Australia. (well, these days no moustache to avoid dyeing!). I was helping a software vendor to respond to RFT. The purchasers were Government organisations. I expected the procurement function to be more efficient. After all, twenty years is a long time and you expect advances in the way the systems operate.

The vendor had to respond in three different categories of questions. The first category of questions is for assessing the credibility of the organization. Some purchasers will require a copy of Professional indemnity and public liability insurance. Others will ask for a company annual report. There would be questions whether the organization has “work cover” for its employees.

I understand the necessity for a basic checklist. But, asking for actual evidence is not within the scope of RFT. The purchaser is playing the role of auditor. Hypothetically, if there is a breach, it is the responsibility of the vendor to rectify the breach.

The second set of questions were about the local support, client references etc. I do not have major issues with this category. Again, the details of the references can be asked at a later stage in the evaluation.

The third category is about the product features and cost. Typically it product features list will have 300 to 600 questions – mostly in Excel spread sheet. Do I need to say more?

One need not be an expert in procurement to see these inefficiencies.

The problem with spread sheets

The core of the problem is that the procurement is still thinking in “structured” documents. That is why it is not able to move beyond Excel spread sheet. ( For the record: I love Excel. I use it actively in my Six Sigma projects for performing statistical analysis. Spreadsheets are designed for data manipulation; not for text and figures.)

There are fundamental issues with spread sheets used in procurement:

  1. The error rate of spreadsheet is very high. Panko (Panko, 2008) predicts that 88% errors in operational spread sheets.
  2. Spreadsheets are designed for numbers. In procurement, we use it for feature description, compliance checklist, self-evaluation etc. Spreadsheets are NOT designed for text manipulation.
  3. Spreadsheets lack readability. When a product/service is described in a word document it is possible to add supporting diagrams, table and formatted description.
  4. Spreadsheets are not designed for team collaboration. Procurement is a collaborative decision making process.

Procurement in Google age:

I hope we now mutually agree on the problems with spreadsheets used in procurement. I have seen technology solutions that solve this problem by providing a user interface to enter structured data. For example, the vendor will be asked a set of questions in a web interface. The vendors will then upload their responses. The purchaser will go through these documents and enter their ratings in the user interface. The tool will spit out colourful graphs.

Well, in my opinion, this solution is just a glorified spreadsheet with a web front end.

We need a different/elegant solution in this Google age.

  • Vendors need not respond to detailed product description questions. They should be able to point to an existing manual/product sheet in their web page
  • The evaluator should be able to search the product specifications based on keywords. They should be able to compare different vendor specification based on multiple criteria
  • Word documents playing the role of spread sheets: For example, I should be able to insert a cost table, and a tool should be able to sort the responses
  • The evaluator should be able to direct the search and rating. For example, if they are searching for a laptop, they should be able to assign a higher rating to Core-i7 processor, than for a “Celeron”.
  • The solution should support team based assessment

We have developed one such a tool. Introducing….. Kloudax Comparsion Assistant (KCA). (drum-roll)

The basic work-flow is given below:

The core concept behind this solution is search based comparison. It is designed specifically for procurement for selecting vendors that closely match the selection criteria.

It gives a boost to your RFT documents by making them comparable for specific fields. For example, consider the Word document that has the following cost tables:

Vendor1:

Item Description
Total Price
Hardware 100
Software 100
Sub Total A
$200

Vendor2:

Item Description
Total Price
Hardware 100
Software 200
Sub Total A
$300

Vendor 3:

Item Description
Total Price
Hardware 200
Software 200
Sub Total A
$400

KCA generates the comparison matrix:

Imagine the convenience of inserting a cost table in a Word document! For both vendor and purchaser, this will save effort.

Well, this is only a “nice to have” feature. You can still do cost comparison manually or with Excel. Here is an example of a “cool” feature that will blow you away.

Let us say you want to compare 10 features among 3 product manuals. In KCA you can do the comparison elegantly, with in-built reuse and instant generation of a comparison report. The tool gives you “seed rating” based on key-word analysis. You just review and make amendments as needed. Voilà !
Your detailed recommendation report is generated!

Resources Summary user_training Repository driven PDF outputs process-Notation Workflow Active content Templates Web publishing Integration version control
Vendor1 Weighted Rating :

Rating :

40.2%


2.01

46.0%


2.3

100.0%


5.0

0.0%


0.0

0.0%


0.0

44.0%


2.2

66.0%


3.3

0.0%


0.0

34.0%


1.7

48.0%


2.4

64.0%


3.2

Vendor2 Weighted Rating :

Rating :

17.2%


0.86

32.0%


1.6

0.0%


0.0

0.0%


0.0

0.0%


0.0

14.0%


0.7

0.0%


0.0

100.0%


5.0

26.0%


1.3

0.0%


0.0

0.0%


0.0

Vendor3 Weighted Rating :

Rating :

86.8%


4.34

100.0%


5.0

46.0%


2.3

100.0%


5.0

100.0%


5.0

100.0%


5.0

100.0%


5.0

22.0%


1.1

100.0%


5.0

100.0%


5.0

100.0%


5.0

Test-drive yourself:

If you are procurement professional who is tired of Excel spreadsheets and going through tons of documents, please do contact us.

Warning: You are going to fall in love with the capabilities of KCA.

Here is an introduction video: (www.kloudax.net.au/software).

Contact us: (www.kloudax.net.au/contactus)

References:

Panko, Raymond, (2008) What We Know About Spreadsheet Errors. [online] Available at: http://panko.shidler.hawaii.edu/ssr/Mypapers/whatknow.htm [Accessed: 21 May 2013].

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About Murali Ramakrishnan

Murali is the Managing Director of the boutique consulting firm "Process-Symphony". Process-Symphony specializes in IT enabled business process orchestration. http://www.process-symphony.com.au http://www.kloudax.net.au

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