This week we have been talking about how Procurement is in vogue but that the only reason it is in vogue is because organizations need cost reductions and/or greater profit, and Procurement is currently seen as the ultimate path to profit. But we’ve also been talking about the fact that even though Procurement technology providers, GPOs, and consultancies — particularly those consultancies with a track record — are getting a lot of interest, and in the cases of some technology players in particular, a lot of money since their customers are buying a lot of solutions, butt this alone isn’t enabling savings, or at least the savings the organizations should be seeing.
And the reason is that technology, GPOs, and consultancies don’t capture the flag. Particularly when the technology has no constraints on data, the GPOs don’t even give you any data (assistance) beyond what you can buy off of the master contract, and consultancies only cleanse and categorize enough data to find enough savings opportunities to justify their worth — and a continual retainer.
But, as we explained in our last post, dirty data is costing you big $$$. For any organization over 10M in revenue, it is literally costing that organization Millions. For any organization over 10B in revenue, it is likely costing that organization Billions. You read that right! Billions! When you add up the cost of maintaining that data, the cost of trying to integrate, cleanse, and categorize that data, and the lost Sourcing and Procurement opportunities, it will literally exceed One Billion Dollars in an organization that doesn’t have it’s data under control. And that cost will be paid year after year after year. (In fact, dirty data probably costs governments more than terrorist groups demanding multi-Million dollar payouts. Even Dr. Evil’s One Billion demand is cheap in comparison.)
Some studies have found that persisting and maintaining a single data record in some organizations can cost up to 4 dollars a year! Now consider the fact that many Global 3,000s have 50K, 60K, and even 100K supplier records, many of which are duplicated, each of which have dozens to tens of thousands of associated contracts, purchase orders, invoices, payments, disputes, etc. Consider how many of those are duplicated, incomplete, unnecessary (as good data can prevent disputes), etc. and how much of that cost is purely unnecessary.
Consider the cost of integration and categorization across the dozens of disparate (ERP, MRP, Accounting, S2P, etc.) systems the organization has and how much it costs to even do a basic global spend report, yet alone a complete analysis.
Now consider how much is being lost on every purchase. Without good data all of the following will happen:
- on-contract / preferred products and services will not be found / purchased
- unnecessary RFXs will go out (instead of purchasing standardized services / product customization projects off of approved suppliers through standard forms)
- opportunities for product / category consolidation will not be noticed
- organizational users will bend, if not break, the T&E policies (and some organizations have found that up to 2/3s of users will do this) … and this can be anything from staying at non-preferred hotels (where there are master service agreement rates) when there is an option to filing kennel receipts as hotel expenses
- regular MRO buys that can be automated will not be noticed, and buyer time will be wasted
- true market cost will be unknown and when there is no contact / preferred option, chances are a higher price option will be bought on spot-buy
- fraudulent invoices will slip through the cracks, especially for services, as AP is used to not being able to process and match all invoices
And that’s why you need to get your data under control, and capture the flag sooner rather than later.