Category Archives: Best Practices

Why Should Small Businesses Invest in Procurement Software?

Plenty of reasons, but the doctor was surprised to see that one of the best articles for a small business layperson that listed some of these reasons was an article on Intelligent Living on 7 Reasons Why Small Businesses Should Invest in Purchasing Software. While e-Procurement vendors are usually targeting mid-size, or larger, organizations (as they want 6-digit deals, and small businesses can’t afford more than 5-digit deals, and micro businesses not more than 4-digit deals), e-Procurement software, especially turn-key self-serve software, is beneficial for small (and micro) businesses as well because it helps organizations of all sizes.

All organizations spend money, and as a result, all organizations can overspend, get defrauded, spend too much time on tactical (thunking) tasks, etc. Low-end baseline 80% e-Procurement solutions can help them immensely, even those that cost as little 500 to 1500 a month. (Yes, they exist. After all, why did the doctor say that 120K is enough for full Source-to-Pay.)

The article points out the following seven (7) benefits of e-Procurement solutions in everyday layman terms which an average small business person should be able to understand.

Automated Purchase Orders
Quickly generate accurate purchase orders from catalog items or repeat buys and push the orders into your Accounts Payable (AP) and/or inventory systems.
Vendor Management
Unified view, complete order and contract history, and automated alerts.
Budget Control
Set budgets, monitor spending against budgets in real time, and set alerts when budgets are (close to being) exceeded.
Real-time Analytics
Real-time spending reports against up-to date data with simple trend analysis.
Enhanced Security
SaaS providers that have industry standard security certifications need to stay on top of cyber security, something the average small business would really struggle with.
Integration with Other Systems
Most small businesses are not very tech-savvy and a platform that integrates with the other systems they use is very useful to them.
Scalability
Most of this software can scale up to support more users, more catalogs, more POs, more transactions, etc.

In fact, as a small business, the only other things you would care about starting off is:

Invoice Matching
to make sure the invoice matches the PO (or is from a known vendor if it’s for a one-time off-catalog product or service you wouldn’t normally do a PO for)
Contract Tracking
basic governance with document storage with searchable, indexable, metadata for quick location for price and term verification

Again, e-Procurement is great for small businesses (and some of the providers in Part 37 of our Source-to-Pay+ Series are priced right for smaller businesses). It’s even greater to see plain language explanations of the benefits that small business owners can understand.

A CPO Leading a Spend Management Strategy is a Key to Organizational Success

Not that long ago, the doctor gave you THE SIGN that you need a CPO which, directly put, was that your organizational spend was over 10 Million a year. No ifs, ands, or buts about it! Not long after, he found this article over on CXOtoday.com which pointed out that empowering business success was The Art of Mastering Spend Management. This article stated that companies should consider implementing a spend management strategy, regardless of their size and it made him happy (even though the article looks like it was written by a junior copy-editor* who just cut and paste standard spend management summary sentences from generic spend management publications as it was not very deep or specific) because CXOs need to hear this at a high level over and over and over again until they get it. (Note that the doctor doesn’t get happy often. Most articles just make him angry. Sometimes very angry, especially when the conscientious invoke their right to dare to be stupid and embrace artificial idiocy, but that’s a rant for another day.)

The article starts off by clearly stating that a spend management strategy plays a vital role in today’s economic reality as it enables companies to control costs, boost financial efficiency, and make informed decisions. It ensures resource optimization, agility, and long-term stability, enhancing competitiveness and adaptability in a rapidly changing business landscape.

This is most certainly true. And all one has to do to see that it is true, and it would have been so much better if the article said this, is remember the first formula they teach you in business school:
Profit = Revenue – Expense

Since Spend Management allows you to minimize expenses, this helps you maximize profit. And when you consider that
Margin = Sale Price – COGS      and that
Margin % = (Sale Price – COGS) / Sale Price      and that
Margin % for most industries <= 10%

This says that every $1 saved in expense generates at least as much profit as every $10 increase in sales. As a result, spend management is at least ten times as effective as sales or marketing and key to get a grip on early, even before you can afford the full time CPO. The CFO and COO should develop best practices for any decisions that result in spending, monitor the decisions, ensure corrections are made (and employees [re-]trained) when mistakes are made, and baselines generated for all recurring costs. Even though they might not realize the same level of success as an experienced and dedicated CPO, the baselines they generate and the knowledge they capture will be key when the CPO starts as the knowledge will allow them to dive in quickly and find near-term and mid-term opportunities for improvement (and cost reduction) and the benchmarks will allow them to not only prove it, but ensure that all bids received are competitive.

The only thing we want to note is that the important aspects of spend management, especially for smaller organizations, are:

  • strategy,
  • process (that implements the strategy), and
  • governance (that ensures the process is followed and the strategy implemented)

Technology is not critical (or even necessary), and only technology that supports the process (and collects the appropriate data) should be implemented.

This is important to note because this article is sponsored by a particular vendor in an effort to promote a particular product (which is only good for T&E spend, not all organizational spend) and you don’t necessarily need that technology (or any other instance of that technology) to have a spend management strategy and do proper spend management, especially if you are a smaller organization. (However, larger organizations do need good T&E spend management, and spend analysis, because flowers should not be $5,000 unless it’s a greenhouse.)

* but what should one expect considering it was sponsored by SAP to promote SAP Concur (and routed through their PR Agency)?

Need Some Procurement Principles? Balfour Beatty Published a Great Starting Point.

Google sometimes digs up the strangest things when you ask for Procurement News. One thing it recently dug up was the Balfour Beatty “Procurement Strategy” page, which wasn’t so much a strategy, but a set of principles that every organization should subscribe to. (Regardless of what industry they are in.)

So, if you’re wondering what principles you should adopt before you set your Procurement organization strategy, you can start with these seven principles:

  1. Become the customer of choice
  2. Ensure that we have the right, skilled people for the job, a strong talent pipeline and that we provide an environment where they excel
  3. Put in place processes that work, are compliant and transparent, making the best use of technology to deliver for our business and for our supply chain partners
  4. Mitigate and manage risk through early and closer integration with our supply chain partners
  5. Work together to identify market risks and forecasts
  6. Keep safety and wellbeing at the forefront of all that we do
  7. Prompt Payment for Suppliers

The great thing is they will lead to a great strategy as:

  • it covers talent, technology, and process transformation
  • it places importance on the supplier, the relationship, and the supplier sustainability
  • it covers CSR (corporate social responsibility)
  • it covers risk

In fact, the only principle that is missing is Sustainability, so if you add this eight principle

  1. Embrace sustainability in all that we do

We’re pretty sure that if you were to start here, you won’t go too far astray in the creation of your Procurement Strategy.

There are Three Primary Parts to Procurement Orchestration

Procurement Orchestration is the craze, presumably because Procurement shouldn’t operate in a vacuum. There are a number of startups just focussed on orchestration, a number of analyst firms are jumping on the orchestration bandwagon, and a number of enterprise automation platforms are all of a sudden claiming to be procurement orchestration platforms to get in on the buzz. But there’s a lot more to Procurement Orchestration than just application automation. A lot more.

Procurement Orchestration, which we included in our 39 Part Series to Help You Figure Out Where to Start with Source-to-Pay in Parts 34 to 36 and 39, MUST Address, at a minimum, the orchestration of:

  • procurement data
  • procurement process
  • procurement stakeholders

First of all, good Procurement needs to be data-informed. (Not data driven, data informed. Data driven means that all decisions based on the available data, which is never complete. You can accurately capture all bids in an RFP, previous OTD metrics, previous defect metrics, subjective quality ratings, ESG data, etc. but you can’t capture relationship data, innovation support, etc. and these are also factors that are important in Sourcing and Supplier Selection.) This means that all available data needs to available to the Procurement team. It doesn’t have to be centralized in one system or pushed to a data warehouse / lake / lakehouse, but the source system (that holds the golden record of truth) for every piece of data needs to be identified and integrations created to allow the necessary data to be accessed as needed by the Procurement system currently being used.

Secondly, good Procurement needs proper processes. That’s more than just application orchestration as not all Procurement teams will have applications for every step of the process, and even those that have major applications for every major stage (intake / need identification, spend analysis / opportunity / procurement process identification, sourcing, supplier onboarding / management, contract negotiation and governance, e-Procurement/PO Generation and Management, Invoice Management and OK-to-Pay) will still need to orchestrate intermediate process steps such as stakeholder collaboration, external vendor risk/ESG review, etc.

Thirdly, good Procurement needs to involve all of the relevant stakeholders. The category manager, the risk manager, the budget holder / executive, the in house counsel, etc. All of these individuals need to be able to interact with the procurement process and artifacts at the right time, and through their applications if they have special tools to do the risk analysis, budget analysis, contract review, etc. Thus, supporting procurement goes beyond just supporting procurement applications and processes, but peripheral applications and processes as well so that all stakeholders can be part of the process and effectively contribute their expertise and experience.

Remember this the next time a jazzy tool tries to lure you in with pre-built Procurement platform integrations or easy, visual, procurement workflows. That’s just part of the puzzle.

THE Sign That You Need a CPO

The Supply Chain Management Review recently published an article on the top 10 signs that your organization needs a talented chief procurement officer. They were all good reasons, but they kind of suggested that you needed multiple reasons to hire a CPO. The reality is that you only need one reason, it’s very straight forward, and it almost needs no explanation. In fact, most of you will get it right away, so we’ll give it to you straight away, and you can stop reading now if you like.

The Sign That You Need a CPO: Your organization spends over 10 Million a year.

That’s it. Easy, eh? No top ten list. No long winded explanations. No complicated requirements. Just one number. Just one check.

Why is it this easy? Simple. Good Procurement practices will save your organization at least 10% across the board, regardless of current market conditions. Why? Even if costs are going up, if best in class Procurement practices weren’t deployed in the past,

  • even previously sourced categories will not have maximized savings
  • the process will have been inefficient, which would have cost the organization time, resources, and opportunity costs on other categories
  • most tail spend categories would have been completely ignored
  • many orders would have gone out without POs
  • most invoices would not have been closely checked, resulting in over-payments
  • etc. etc. etc.

So, if you’re spending 10 Million, a CPO is going to save 1M at a minimum. That’s going to be 3X or more the CPOs fully burdened cost in a smaller organization. Simple calculation, simple rule.