In our first post we noted that inflation is back with a vengeance, anticipated savings is leaking faster than a bald spigot, and most organizations are in cash crunch as a result of down sales during the pandemic (and now due to a lack of core inventory to sell), and they need to update their procurement tech stack fast. And they needed to do it yesterday …
We also noted in our first post that no company can do all of Source-to-Pay at once (it’s not as easy as the SaaS vendor just flipping the switch and giving you access to the 10+ modules you need to exhaustively cover Source-to-Pay and related processes) and noted in our second post that, if you ask, everyone will have a different opinion, based on a reasonable (and often valid) argument, as to where you should start, but you need a definitive answer. Not all technologies are created equal, especially when the top four reasons you can’t do it all at once are considered. You need a clear starting point, but it’s not easy to figure it out when every vendor and consultant and analyst has a different opinion, and the right answer only comes with considerable experience.
Then, in our last post, in Part II , we covered eight (8) of the ten (10) upstream, downstream, and cross-stream technologies in detail in an effort to try and understand the right starting point, and started off thinking it might be strategic sourcing. But then we dived into downstream, and after reviewing e-payment and order management, realized that e-Procurement is extremely critical and could be the starting point. So today we dive into both and tell you which one you start with, which will be, for many of you intuitive, counter-intuitive, or both after yesterday’s post.
e-Procurement: makes the order for the good or service you need, it’s certainly critical, but strategic procurement is all about getting costs under control and not just finding a product or service, but securing it at market price and keeping costs under control, which means you need to identify the suppliers, the products and services you’ll accept, based on the price they agree to, which means that …
We need to return to upstream because
Strategic Sourcing is obviously the answer to where you start after looking at each application and realizing it is what you use to identify what you need, from who, where it will come from, at what price, and allow you to start without much data (just get the requirements and bid in, satisfying requirement #1), or training (as it’s a process a senior buyer will understand, it’s just learning the tool, satisfying requirement #2), while identifying value within weeks (satisfying requirement #3), in a manner that allow users to see the value they are getting (satisfying requirement #4). So we have our answer, right? Wrong!
Even though many experts will say this is the right starting point, especially all of the strategic sourcing / upstream providers that started building their solutions with this belief, and the consultancies that use them, it’s only the second best starting point.
The best starting point is plain old e-Procurement.
Why? The goal is not identified value, but realized value, across all spend, not just some of your spend. When you dive into the situation in detail,
1) Strategic sourcing does not realize value out of the gate, if it does at all. First of all, there can be a long time delay between award, contract, order, receipt, and payment — which is where the value is realized or not. Secondly, the value is only realized if the organization orders against the contract at the contracted value, only accepts the invoice if it is for the contracted rate, and only pays at the contracted rate when the goods are received. Sourcing applications don’t ensure any of this, but e-Procurement applications can be populated with the contracted products and services at the contracted rates, be referenced when the invoice comes in for invoice verification, and will allow goods to be marked as received (even though it won’t manage the physical location of the inventory or what happens to the goods after they are initial received).
2) Strategic sourcing only address high-dollar or strategic categories, but the organization needs to realize value on ALL its spend categories. e-Procurement can be used for all product and services being purchased, not just those sourced (or under contract). The organization can typically integrate allowed catalogs/vendors, force approvals for products/services not pre-approved or above a threshold, and make sure the spend going out the door is, where there are contracted/approved rates, at those rates (and eliminate the considerable overspend from lack of management).
e-Procurement gets all of your out of control spend under control the day it’s implemented, prevents overspend on existing agreements, and allows your buyers to focus on ensuring high-dollar orders are not only for approved products / services at approved rates, but also for products and services that are actually needed. While it may not identify any new savings opportunities, when you consider the fact that organizations without e-Procurement only ever realize 60% to 70% of potential savings identified in a sourcing project, that’s an immediate 30% to 40% improvement on savings realization. If the average savings identified was 6%, that’s 2% straight to the bottom line before a single new sourcing project is executed.
When it takes most large organizations three years to do spend projects on the majority of their high-dollar / strategic spend categories, that’s three years to address 80% of the opportunity, with “savings” going down the drain every day there isn’t an e-Procurement system in place. So start with e-Procurement, and then do (optimization backed) strategic sourcing (with advanced analytic capabilities) next. The day e-procurement is up and running with the majority of organizational spend is the day you start getting the strategic sourcing platform up and running. No exceptions, no delays. That’s the one-two punch you start with, and how you realize the greatest value potential as soon as possible.
(Spend Analysis, one of the only two advanced technologies that has consistently delivered savings and cost avoidance of 10%+ for two decades [and a specialty of the doctor‘s], sadly, comes third because most senior buyers who know their spend categories can identify 8 of their top 10 spend categories, 6 to 8 of their initial top opportunities, and 4 to 6 of their top categories not under contract that should be analyzed to determine if they should be analyzed, or the organization should continue to spot buy. They’re not very good at identifying wave 2 opportunities, and even worse at identifying wave 3, and, as we just pointed out, will miss some biggies, but they generally know where to start so until they are going [and efficient with the sourcing application], they can hold off on spend analysis for a bit [but not too long]. And this really should be the third module/technology that you implement, because the longer you wait, the less likely the buyers are going to select the next best opportunity.)
So that’s it. And if you need help identifying the right e-Procurement vendor for you, feel free to reach out to the doctor for a list of vendors you can look at and some insight into them, and if you need deep expertise, these are the analysts that focus heavy just on e-Pro/P2P/Procurement that the doctor recommended in his recent post on who he recommends when asked:
|Pete Loughlin||Purchase to Pay / Procurement / Coupa & Ariba||Independent|
|Xavier Olivera||Procure-to-Pay/LATAM Market||Spend Matters|
And then, when you’re ready for advanced sourcing (which should immediately follow), remember that’s one of the doctor‘s particular areas of expertise (as an expert in optimization, modelling, analytics, RPA, ML, and Advanced Tech in general, including “AI” to the extent it actually exists and is not BS).
On to Part IV!