Exciting news from the Frechette Family; Rach and I welcomed Callie Grace Frechette (aka “Cal”) to our family a few weeks ago and I’m just coming off paternity leave. Before talking shop, I wanted to share that having a baby is as-advertised from a sleep and schedule standpoint. We thought we’d be able to bring our normal daily structure and routine to the parenting world, but on a daily (and nightly) basis, Cal takes joy in blowing up any routine we thought we’d have. We’re still learning how to navigate this whole parenting thing, but it’s been a blast so far.
Additionally, I wanted to thank the Fairmarkit Family for all the love and support over the last month. The team all sent their favorite baby books, and even went as far as adopting a Bald Eagle in Callie’s name!
Coming back from the time off, I thought it made sense to write a level-setting blog to hopefully provide a concise and clear overview of the problem we solve, why it’s a meaningful one, and how we’ve chosen to attack it. Also, I thought it would be a great time for a blog like this as we’re coming off just being named a Gartner Cool Vendor in the June 2020 Cool Vendors in Sourcing and Procurement for Supply Chain, and named to the Gartner Hype Cycle for Procurement and Sourcing Solutions, 2020 as a sample vendor in the tail spend procurement market. With that said, here we go.
Procurement from 40,000 feet
Undoubtedly, across every industry, the number one most valuable and scarce resource is people and time. Let’s face it, in procurement, getting headcount approved is hard. This has driven to a wave of digitalization and transformation initiatives. In short, leveraging technology and improved processes to get more value from your existing team. In the past, the answer was to look for a wall-to-wall suite to transform your procurement organization, but in 2020, the shift has been to operate with a laser focus on specific areas of opportunity, and then implement point SaaS solutions with global coverage to achieve your executive’s teams desired KPIs.
The problem Fairmarkit solves
Since the 1980s, the procurement industry has been focused on delivering solutions to resemble the workflows and processes that were done hard copy. They’ve given procurement teams plenty of approval flows, templates, and check-points to make sure purchases follow a desired process. With that, the procurement department’s staff has evolved around solutions, allocating time appropriately across your Ariba, SAP, PeopleSoft, Coupa, and other P2P systems, trying to balance getting the most bang for your buck on time. Naturally, procurement teams gravitated towards what they viewed as the highest risk and largest impact: RFP’s for large strategic purchases, vendor risk, and management approval flows for different types of purchases.
As technology and vendors evolved, the most recent wave of improvement was targeted towards very small purchases that were all under $500 but made up a large majority of the POs being executed. That tail-of-the-tail market is now filled with players like Coupa Guided buy, Ariba spot buys, and Amazon business (all great solutions for very small and commoditized items). All these solutions still require human resources, but less than the strategic spend. Fast forward to today, now procurement teams are back at full capacity, but their executives (especially in 2020) are pushing for additional value.
Logically, if your team has done strategic spend management for the last 15-20 years, and in the last 5 years set up a full or partial tail-of-the-tail spend management strategy, the next meaningful place to recognize value from is the middle of the tail spend. For 95% of companies, this is non-contract, non-catalog, and not sourced via RFP spend.
No matter what P2P you’re using, the best way to describe this opportunity are purchases where an end-user or procurement professional enters free-text into a requisition form or shopping cart, and if the vendor is signed up in your system and there is budget allocated, the PO gets approved. Historically, this has been the best process available, as procurement staff doesn't have the headcount to look through every single free-text description and vendor to identify:
- What is this?
- Is there a preferred vendor that we’d like to drive this purchase through?
- Is there a diverse vendor we’d like to drive this spend through?
- Are there additional savings that can be realized if we sourced it out?
- Is this the best lead time for the good or service?
- Do we already have an existing catalog or contract that this should be purchased on?
- Is our company concurrently buying the same or a similar good or service where we can consolidate purchases for scale pricing and decrease your total PO count?
To add to the complexity, for most teams this equates to hundreds of millions to billions in spend, thousands to ten-thousands of requisitions annually, and across thousands to ten-thousands of suppliers.
Solving this problem and optimizing this space is the exact reason we founded Fairmarkit and the reason that we’ve grown 300%+ YoY over the last 4 years and now work with 50+ large enterprises including organizations like ServiceNow, Blue Cross Blue Shield, Thomson Routers, Boston University, Univision, and Snowflake.
Why the tail spend problem is an important one
I recently participated in a webinar with Walter Charles (former CPO at Kellogg, Kraft, Biogen, and Allergen) and Greg Tennyson (CPO at VSP Global and former CPO at Oracle and Salesforce) and we really dug into why people should bring in technology to optimize their tail spend. Here’s the high-level overview:
- Automated sourcing technology can increase the reach and sourcing capacity of your existing team by 10X (classic do more with less)
- Sourcing 10X more purchases lead to cost savings of 7%-10% on average
- Sourcing 10X more purchases ensures your company is going to the optimal vendors that help de-risk the transaction
- Sourcing 10X more purchases helps to collect significantly more data on vendors to make strategic corporate decisions around diversity inclusion, vendor performance, vendor rationalization, source-to-PO cycle time, and several others
- Sourcing 10X more purchases gives procurement more visibility to better manage your buying team
How we attack tail spend
Early on, with help from advisors, we realized a few key truths. First, we’re not going to rip and replace a P2P that’s been implemented for the last 10-15 years, so let’s use all the work already done to our advantage. With this mindset, we made the decision to integrate (offering options behind and in front of the firewall) with all the largest P2Ps to enable a controlled flow of data between systems. This allows our customers to decrease the impact to end-users (less change management), leverage their existing approval flows, and better leverage all the data that’s been established in your supplier database. Net-net, we needed to be a value-added complement to existing systems.
The second truth, our technology needed to be the most intelligent when it came to ingesting data and executing automated actions with that data. Essentially it needed to be able to think for itself and be an AI (artificial intelligence) buyer for this non-strategic spend. We realized that the platform had to be automated enough to either reduce headcount or 10X the throughput of existing headcount when it came to this space.
Third, customers need to be able to control the level and scope of automation over time and be able to measure and report on the value (especially as automation is increased).
Finally, fourth, if we wanted to play in the enterprise space, we had to be eager to expand globally fast, account for different currencies, scale to ten-thousands or hundreds of thousands of requisitions for each account if necessary, and in real-time communicate and aggregate data with dozens of existing systems across different geographies and departments for customers.
So that’s what we built, then revised, then revised again, and now continue to revise while staying hyper-focused on our market. At the core, our IP uses machine learning to recognize what’s being purchased, then intelligently identify and rank the optimal vendors or routes for that purchase to be sourced and/or optimized. Finally, we developed it to self-learn so it continuously gets smarter over time.
Most parents want their kids to be professional athletes, astronauts, and doctors. Based on the fact that Callie proofread this blog and provided some pretty harsh critiques in version 1, she appears to be the first baby of all time to be on a career track within procurement and supply chain (with a specialty in tail spend management :)).