Hackett, Hast Thou Forsaken Us?

I was very disappointed after reading this recent article on process matters too in the CPO Agenda which discussed the recent findings of The Hackett Group with respect to P2P transactional channels as well as their recommendations for procurement organizations wanting to improve overall source-to-settle performance. If the article is to be believed, Hackett has fallen for the classification trap.

According to the article, Hackett says that a company must:

  1. Possess a unified spend category taxonomy.
  2. Define a rationalized set of transactional purchasing and payment processes that are then explicitly mapped to spend categories and/or associated suppliers.
  3. Ensure that individual P2P transactional channels balance cash, cost and stakeholder satisfaction.
  4. Integrate a channel strategy selection and implementation plan into the category management process.

In reality:

  1. A single taxonomy is not enough as each business unit will need its own in order to be effective. Moreover, taxonomy is irrelevant. The only thing that is important is that the spend is captured and available for analysis. Every department and user will want to see the data rolled up differently. This is the classification trap, and those who fall into it never advance to real data analysis, which is where true savings are discovered.
  2. While the company must define an accepted set of purchasing and payment processes, and while spend must be associated with the appropriate suppliers, the mapping should not be made to an explicit fixed category. Assignments must be able to change as needs change (spend by supplier, spend by commodity, spend by category).
  3. Channels must balance cost and stakeholder satisfaction, but the amount of cash flowing through is not relevant. If the cost of maintaining the channel is too high (relative to the value), the channel must be abandoned.
  4. This is good advice. Planning greatly increases the chance of success.

So, if you really want P2P success:

  • Come up with a channel plan.
  • Implement the appropriate channels and insure all spend goes through an approved channel.
  • Make sure all of the spend data is accessible from each channel.
  • Analyze the data in a true data analysis tool to determine which channels are performing well, which aren’t, and adjust the plan over time as necessary, and
  • allow each business unit to use their own taxonomy.

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