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Spring Will Soon Be Here. Time to Clean Up Your Procurement Operation. Part II

Spring is on the way, and that means that it’s spring cleaning or not, and whether you want to admit it or not, your Procurement operation has a few messes that can be cleaned up, or at least minimized. And, as we indicated yesterday there is no better time than the present to clean those messes up … as much as you might want to leave them behind.

If you’ve taken the first step, you’ve identified (the worst of) the messes you have. Now you get to tackle them. How depends on the mess in question, but we’ll help stimulate some ideas by discussing how you might deal with the messes we mentioned in yesterdays post.

People – Maverick Buying

If the maverick buying is due to the fact that buyers just don’t know about the contracts in place, then make sure they have easy access to a centralized e-contract repository with powerful, free-text, search which understands product and services similarity. This way, a single search should identify the majority of products and services they should be buying on contract. They may still miss some contracts for obscure products or services which can only be uncovered with obscure keywords, but the majority of off-contract purchases going forward will be intentional (and then you have a different problem).

People – Master Data Degredation

Hold mandatory training sessions for all employees on procurement and data management processes, insure that the processes are adequate to prevent data degradation, and that only the right people have approval authority. This will keep data clean and useable.

People – Denied Party Dealings

Put processes in place where the only people with contract signing authority have been trained in denied party searches, sign a statement indicating that they will always do a denied party search before signing a contract, and have them immediately report potential denied parties to appropriate legal counsel in the company. Not only will the chances of a denied party transaction be greatly reduced but if, by some chance, a transaction ever occurs with a denied party, the organization will be able to show best efforts to prevent such a situation.

Process – Piles of Paper

This is an easy problem to remedy — install a modern e-Invoice management solution with EDI, XML, PO-flip, intelligent OCR, and m-way matching and the organization will not only approach 99% e-Invoice rates, but 96% straight-through processing (where suppliers deal with routine exceptions and small errors and resolve 90% of those without purchaser interaction).

Process – Slack Sourcing

This is another easy problem to ready — a modern e-Sourcing or e-Source to Pay platform with easy RFX and e-Auction creation, customizeable workflows and lots, as little or as much detail as you want, bulk attachment uploads, templated projects and weightings, and everything else an average buyer needs to get a 3-to-6 bids and a buy event configured and launched on tail spend that would normally just go to the first supplier identified.

Process – Quality Quarrels

Another problem easily remedied by technology — scorecard technology to be exact. Keep good data on all key metrics, monitor them monthly, and automatically alert the buyer and supplier when a threshold is hit or a downward trend (defined as lapses in performance over 3 regular measurement periods) is detected. This allows both parties to collaboratively identify, and correct, a root cause before slips become falls and minor losses become major losses.

Platform – No Platform

Get one — and if you’re starting from scratch, get one that supports a Virtual Procurement Center of Excellence.

Platform – 1st Generation Platform

If the budget is there and the right stakeholders can be convinced, upgrade, if not, bolt on missing functionality from best of breed providers to cover the key components of the end-to-end source to pay cycle as well as deep analytics.

Progression – Change Management

Make sure the organization has a great competency in change management. Hire someone if needed.

There is no silver bullet, or should we say, silver dustpan that can clean up every mess, just like there is no one-size fits all

Spring Will Soon Be Here. Time to Clean Up Your Procurement Operation. Part I

Spring will soon be here, that means it’s spring cleaning time and, chances are, somewhere in your Procurement organization is a mess … maybe a whole whack of messes. And there’s no better time than the present to clean those messes up … as much as you might want to leave them buried.

The first step is to identify the messes you have. Chances are they fall into one of the following buckets.

People

We’re not saying that your people are a mess, and should be let go (although that is sometimes the case), just that, probably due to lack of experience or lack of training, they are contributing to the mess. For example, they might be regularly ordering off contract or from non-preferred suppliers (because they don’t know how to look up contracts cut by the centralized CoE), screwing up the master data (because they don’t know the proper procedures for requesting data updates that can be properly verified and approved), or even signing contracts with denied parties (because they don’t know how to check the lists).

Process

Maybe you are getting a third of your invoices on (e-)paper when only 3% should be coming in on (e-)paper, maybe you are only sourcing 30% of your buys when you should be sourcing 80%, and maybe your return rate is 10%, when it should be 2%, as a result of poor quality control processes.

Platform

Maybe you are lucky (given that only 6/10 Procurement organizations have any Procurement Technology at all) and have a first generation e-Sourcing or e-Procurement platform and have primitive RFX, e-Auction, or Supplier Information Management technology, and maybe you are not so lucky. Anyway, without the right platform, you’ll be impaired day in and day out.

Progression

Maybe you have some sort of process / technology review, and / or some sort of change management capability, but chances are you don’t. In most organizations, any evolution of the function is literally seat-of-the-pants, and that’s a recipe for chaos and even disruption. Change management is critical for procurement success as modern supply chains are the most dynamic entities on the planet, with disturbances and disruptions occurring on almost a daily basis, and the severity never known until it hits.

In other words, you need to take stock of where you are and what you need. Then you need to do something. What? Come back tomorrow for part II.

Procurement is Global. Platforms should be Global. Truly Global.

And, in particular, as previously noted, those platforms should form the foundation for Virtual Procurement Centres of Excellence. But just acquiring a platform is not enough. It has to be adopted — and not just in the center of excellence, but in every local purchasing department around the globe.

This means a global rollout, but not an instantaneous one. Big bang roll-outs usually end up in big blow-ups. The biggest supply chain disasters in history have often been the result of big-bang ERP or technology projects that tried to update the entire system all at once, often in a bet-the-company endeavour. Such a project even brought down a 5B company. (Remember Foxmeyer? Probably not, but that’s because a big bang ERP project resulted in a big bust.)

Now, a global Procurement platform roll out is not replacing the ERP and a failure likely wouldn’t bankrupt the company, but it certainly would be very costly and knock Procurement back into the dark ages it’s trying to crawl out of. So it has to be done right. So how do you do it right?

1. Take it in steps.

Start with just enabling the center of excellence so that the Procurement leaders can get familiar with the platform before the questions start rolling in. After all, they will be the trainers, leaders, barkers, and bugle-men of the solution, and need to be prepared the lead the charge. After that, enable just a few locations at a time until each is up and running.

2. Get the data model right before a single implementation.

Remember, you have to control the information and financial chain with the platforms, and this will require integrating with data from dozens, if not hundreds, of systems and sources. Without a good data model, integrations will be difficult and time consuming.

3. Identify the systems of record for each data component.

The days where the ERP is the system of record are long gone in leading organizations. These days, organizations have a financial system as the system of record for invoices and payables, a supplier management system for supplier (and sometimes catalog) data, local catalog management for products and services that are primarily sourced locally, a CAD/CAM system for product designs, a MRP system for custom product designs, and so on. Make sure the integrations with each of these core platforms is complete and accurate before using the new system for the first Procurement event.

4. Define small test projects that can be used to evaluate the implementation adequately before continuing with the roll-out.

Pick a few representative, but not mission critical, projects that can be completed in weeks (not months or years) that will adequately test the system, define milestones and checkpoints, and evaluate at each stage. Only continue when any issues or bugs are identified and corrected.

5. Make sure you have experienced, expert help for the roll-out.

Each office will have its own particular process needs, regionalization (in terms of language and currency), audit trail requirements, and so on. Expert help can not only help you identify these requirements but appropriate system configuration options for maximum performance and minimal complexity at each location.

In other words, create a reasonable plan, with expert help, and stick to it. Things will generally go smooth if you realize that, like every evolution before, the advancement of the Procurement function is a journey. You can’t always afford to stop and smell the roses, but you can’t afford to run through the thorns either.

Procurement Produces Platinum when Engaged Early

We all know the statistic that 80% of the cost is defined the first 20% of product design, and that engaging Procurement early can significantly attack and reduce these costs considerably. But leading organizations are learning that engaging Procurement during New Product Design (NPD) is not early enough. Real success comes from engaging procurement during the Market Needs Analysis and New Product Definition phase.

Engaging Procurement after the product specs and initial design has been more or less determined limits Procurement’s capability to add value and extract cost. Once you’ve decided on a 9.7″ tablet with 64 GB of memory and a 5.1 MP camera limits Procurement to going to market for 9.7″ casing, 64 GB of memory. and 5.1 MP cameras and boards that support processors that can stay cool in a 9.7″ tablet. You’ve already limited the universe of potential. Moreover, you haven’t really defined what the real value is from a customer point of view (specs, reliability, brand value, sizzle), why, and how Procurement could add to
it.

Procurement really needs to be involved from the inception of a new product introduction project. It needs to be both a sounding board and the voice of reason to help the organization zero in on the right mix of what will sell and keep the costs in line with market expectations (or at least market acceptance). Value to the organization is maximized when profit is maximized — which is maximized when profit per unit times number of units is maximized. This requires balancing cost with consumer values, not just optimizing cost, which is all that can be done if Procurement is not engaged until the final design / pre-manufacturing stage of the product lifecycle.

So, for real results and greater success, engage Procurement early and engage Procurement often. Sometimes the perceived market requirement isn’t worth the cost, and other times it is.

For more information on the product lifecycle, as well as some of the results Procurement can deliver not only early, but at each phase, you can check out Source One’s latest paper on Strategic Sourcing Throughout the Product Lifecycle. It’s a quick read, and if you want to go deeper, they have hundreds of projects they can draw on if you reach out to them.