Daily Archives: July 4, 2007

Eye-For-Procurement Technology For Procurement Highlights II: Case Studies

June’s Technology for Procurement Forum in San Francisco, put on by EyeForProcurement, had some really good case studies. In this post, I’m going to convey some of the highlights, and associated insights, in order to encourage you to consider attending this conference next year. (A couple were only so-so, but it was the first year of this particular conference, so one has to cut a bit of slack. However, since conferences that adequately focus on technology, which is a vital tool for today’s sourcing professionals, are few and far between, it’s important to recognize when someone tries to pick up the slack.)

The BMW case study (presented by Jason Trevison) showed that taking the time and patience to get it right from a technology perspective can have incredible payoffs on performance. The first automaker to use SAP, one of the first to build their own custom enhancements to cover the processes SAP didn’t, and one of the few to focus on automating anywhere they could get value, saw BMW reduce manual processing and intervention on purchase orders, invoices, and payments from 60% down to under 30% in a six-year period. They also benefitted from streamlined processes and continual supplier development, in part due to an automated supplier rating system that provides feedback to suppliers on a regular basis.

The Chevron Phillips case study (presented by Richard Roberts) told us that with the right approach, there are often significant savings to be gained in freight payables. According to the presenter, errant invoicing is common in freight, and this could be your biggest opportunity for savings. This is often due to complex contract pricing and dynamic efforts, but is also often due to manual errors and, sometimes, underhanded efforts by your supplier to get more than you bargained for. (The “what they don’t catch is our profit” tactic. Just like some office supply suppliers who give you a “best price” quote will, if prices are not carefully monitored, fail to reduce prices and sometimes even creep prices up as time goes on.)

The presenter indicated that the best way to reduce errant invoicing, and thus get instant savings, is to adopt, and standardize, a workflow process, move from paper to electronic invoicing (he promoted EDI, but it really should be XML – add an XML to EDI adapter for your out of date supply base if you need to), perform regular audits, adopt best practices and use multi-way matching and, if possible, third party providers to automate the task, and understand the costs associated with complex pricing terms.

The Timken case study (presented by Dean Devine) on commodity strategy development told us that there are great rewards to be reaped, but that it’s a lot of work to get there. The lessons learned were quite insightful:

  • Just Get Started

    It will never be “the right time”, you’ll always be too busy, but you won’t reap the rewards if you don’t start working towards them

  • Reach Conclusions

    Regardless of how much or how little data you find, draw a conclusion and act on it. Use what you learn from going forward on the next buy.

  • Don’t just develop tactics

    You need a concise strategy and action plan

  • Review with stakeholders frequently

    This is required for buy-in, alignment, and, if required, mid-course corrections

  • Give your staff the time they need

    Strategies take work, and can’t be done in off-time, spare-time, or (when overworked) in over-time

  • Strategy development is a competency

    It needs to be developed – it doesn’t magically appear

  • Use the process to assess the results

    Be willing to change. You won’t always get it right the first time

The McKesson case study (presented by John Visaya) on procurement system selection and implementation focussed on the importance of a good business case in obtaining buy-in both for the project and system adoption. It also provided a good check list for building the business process:

  • Don’t forget the Financial Factors (NPV, IRR, EPS, etc.)

    This is what the CFO wants to see, and he controls the budget

  • Understand that Benchmarking is NOT Baselining

    You need to baseline your current performance before you can

    determine how well you are performing to market average

  • KPIs

    This is how you’ll measure your success

  • Emphasize the Benefits

    Cost Avoidance and Cost Reduction in particular

  • Quantify the Hard vs. Soft Benefits

    Cost Savings and Efficiency vs. buy-in and ease-of-use

  • Determine the Impacts and Objections and the Mitigation Strategies
    Solve your dilemmas before they strike

Again, nothing you haven’t heard before over the past year both here and on Spend Matters, but us bloggers always appreciate knowing we got it right!