Category Archives: Procurement Innovation

Invoices are still costing you money!

Six Years Ago we pointed out that:

  • You’re probably overpaying your suppliers by 1%
  • There’s a 2 in 3 chance you’re being defrauded of 2% of your revenue
  • Up to 75% of your AP overhead is completely wasted
  • At least 1 in 10 invoices are erroneous
  • One Million Invoices requires at least 100 standard 4-drawer filing cabinets

But things aren’t much better.

  • PRGX and other leading recovery firms still recover 0.3% of total spend on average which means the over-payment average is still the same using the rule of thirds (1/3 not recoverable because contracts expired, 1/3 goes to the audit firm in fee based recover, 1/3 goes to you)
  • PwCs recent Public Procurement:: Costs We Pay for Corruption, average loss to fraud is 3.5%, with a UK average of 4.76% … and while private companies might think they are better off, the cyber crime economy keeps reaching record highs (and is 1.5 Trillion in the US alone) and private fraud losses in the UK almost equal public fraud losses according to a CIPS study
  • Based upon recent data from the 2019 Payables Friction Index, a good portion of your AP overhead is completely wasted
  • The number of erroneous invoices hasn’t decreased

Furthermore, according to the 2019 Payables Friction Index, in collaboration with Corcentric, PYMNTS surveyed 2,570 firms on AP processes and found the following:

  • Paper Still Dominates
    • 81% of firms still use paper checks to pay invoices
    • 45% of firms still use cash
  • e-Cash is still in the minority
    With the exception of ACH, that has finally penetrated more than half at 62%, all other methods (including credit cards / p-cards) are still less than 50%!
  • e-Invoices are increasing
    but up to 34% of invoices are still paper (in organizations under 100M in particular)
  • OCR, on average, is still under 50%
    (as low as 37% in organizations under 10M) and, more importantly,
  • utilization of basic automation, ML, and/or AI is even less
    when modern RPA + ML systems exist that can automate e-Invoice processing through simple rules, m-way checks, bounce backs for correction, completion, and verification, to 98% … and
  • approval times of one or more weeks averaged between 16% and 45% across respondents, depending on the number of approvers needed and organization size … when the majority of invoices should be auto-processed and auto-approved …

In other words,

  • You’re losing money on overhead,
  • You’re losing money on early payment opportunities,
  • You’re losing money on over billings and duplicate billings, and
  • You’re losing money on fraud …
  • … when the majority of this loss is easily preventable!

So why not get a modern e-Invoicing solution, standalone or part of a S2P platform, and stem the bleeding and use that money to hire more A-class talent to identify long-term strategic savings build on a supply resilience strategy?

The CPO Agenda May Be Gone …

… but it’s checklist for staying center stage is still valid 10 years later.

Ten Year’s ago SI published the below, and every word of it stands today. (Of course today you have to do even more, but you still have to do the below.)

The CPO Agenda’s Procurement Checklist for Staying Center Stage

Now that Procurement has received board attention as the greatest potential for cost savings in the organization, CPOs need to start planning on how they are going to keep that attention once the recession ends and the spending monkeys try to steal the spotlight again. Thinking (way, way) ahead, the CPO Agenda recently put together a good checklist for staying center stage that summarizes some of the key strategies that CPOs will need to pursue to help the board see Procurement as a driver of growth, innovation, and long-term cost reduction and not just a one-trick cost-saving pony.

  1. A Vision for Growth
    • Value Chain
      As the central point of the organization, Procurement is in a prime position to define organizational needs, asses the capabilities of internal resources, and define organizational core competencies. What other business unit touches not only every other business unit, but all of your partners as well?
    • Solution Procurement
      Procurement can source solutions that leapfrog current best-in-class and create a paradigm shift in customer value.
    • Innovation
      As the glue that binds modern organizations together, Procurement can play a critical role in the innovation process by bringing partners and ideas together.
  2. Customer Relationship Management
    As the one business unit that has every other business unit as a customer, Procurement is in a prime position to help the company better meet its customer expectations.
  3. Supplier Relationship Management
    Procurement is already managing supplier relationships on a daily basis … it just has to help the organization understand that it needs to be the central point and the channel by which supplier capabilities are secured to support the company’s growth agenda.
  4. Supply Chain Optimization
    Without an efficient supply chain, companies cannot support the chosen customer needs. In order to achieve its plans, all aspects of a company’s supply chain MUST be optimized. Procurement is in the best position to do that.
  5. M&A Due Diligence
    The ultimate success of a merger or acquisition depends on whether or not the combined organization will be able to deliver more savings and more value … Procurement is in the best position to help make that call.

Have You Mastered the 4th T of Tracery Yet?

Regular readers will know that the time of PPT — People, Process, Technology — has long passed. In today’s fast paced world where product life-cycles are sometimes over as soon as they hit the market, and where your competitors are constantly striving to outpace you in both sales and supply management, you can’t live on processes anymore — they go stale almost as soon as you’ve got them figured out. And in a knowledge economy, just having a butt in a seat or a worker at an assembly line isn’t enough to succeed — you need a worker who, at the very least, is smarter than the average worker and, preferably, smarter than the worker employed by your competitor. And your technology cannot get out of date.

That’s why SI has been promoting the 3 T’s for years — Technology, Talent, and Transition. You need a solid, regularly updated, technology foundation upon which to build your modern Supply Management Organization. You need talent to put together good operating procedures, properly use the technology, and to constantly identify new opportunities for cost reduction or value generation. And you need great transition management as even best six sigma process today won’t cut it tomorrow when you need to upgrade your product offering, switch suppliers, change distribution methods, and make sure your product is Designed for Recycling from the get-go as new regulations are forcing you to take back your product at end of life and recycle it as you are using chemicals and / or rare earth minerals that are heavily regulated.

But while these are necessary conditions for Supply Management success, they are not necessarily sufficient. As we noted five years ago when we first asked if you have mastered the 4th T of Tracery, while it is true you will not succeed without a mastery of technology, talent, and transition management, as per our first post on Project Assurance many years ago, organizational success also depends on selecting a superior strategy and seeing it through until the desired results are achieved (or the organization changes its strategy, which hopefully wasn’t done arbitrarily on the whim of a CXO after talking to a buddy on the golf course).

However, in order to properly implement a strategy, you have to not only see it through from start to finish, but you have to make sure all of the process streams necessary for success are both completed and properly synched. Just like the key to a good weave, as one might find in Egyptian Cotton, is a skillful interleaving of the thread, the key to a good strategy, is a skillful interleaving of the process strands into an effective transition plan from where you are to where you need to be.

And this, dear readers, is Tracery — the “delicate, interlacing, work of lines as in an embroidery”, or, more modernly, “a network” — the glue that not only binds the Technology, Talent, and Transition Management that your Supply Management organization needs to succeed, but that interleaves these threads in a way that causes each of them to reinforce each other and make a stronger whole.

And, hopefully, monitors them through a common network-enabled platform that can not only bring your internal stakeholders together on one platform, with appropriate views and collaboration features for each function, but also your partners and suppliers who have the data and best practice insights you need to actually get your supply chain in shape. Because it’s not something you can do alone, and it’s definitely not something that will never happen unless carefully monitored, as it’s always easier to “do it the old way”, even if the old way is unsustainable and will lead your down a path to organizational oblivion (through bankruptcy).

The Category Sourcing Scorecard – Still An Essential Tool for Category Sourcing

As we noted when we discussed this topic seven years ago, if you want a successful event that generates significant savings, you have to select the right category — and the best way to do that was often to evaluating them with the right scorecards that could predict savings opportunity.

But success requires more than just selecting the right category, it also requires executing a successful event, and this requires:

  • selecting the right sourcing event and
  • adapting quickly if market conditions change

However, today, to be successful, a sourcing scorecard is more than just a point-in-time snapshot of market factors, buying factors, supplier factors, internal factors, and category-specific factors. It’s historical data, even if anonymized, on past events with respect to size, savings, geography thereof, relevant market conditions, and event type.

This way a buyer not only knows the potential savings associated with a category at a particular time, but what type of event will be needed, and what market conditions need to hold throughout the event to maximize the chance of success. And if there are good projections as to how long conditions will hold, the buyer knows how long he or she has, or doesn’t have, to complete the event to maximize chances of success. And if conditions change unexpectedly, the buyer can halt the event and decide what to do next.

Plus, sometimes you can’t just select the category with the greatest sourcing potential, you have to select the category where the contract is going to expire in 60 days and you can’t be without a contract or risk a production line shutdown. Even if the market conditions are the opposite of what you’d need for best results, you still have to proceed — so having the best information possible on the option likely to give the least unsatisfactory outcome is still a positive. And having a platform that can use a modern category sourcing scorecard to enable the right workflows to drive the right events is most likely to minimize a less-than-ideal event as well as maximize an ideal event when it comes.

Knowledge is Power

So why would you want a platform that doesn’t embed any knowledge?

There is not a product or service in existence that cannot be made more valuable with information, and in technology, there does not exist a solution that cannot be made more valuable through embedded information. So why would you ever want a platform without it?

In fact, if the platform has enough embedded information, and can use it to power adaptive workflows built on top of robotic process automation, you’ll find that you might not even need any AI at all (especially if all it equates to is Applied Indirection). If the platform comes embedded with leading market knowledge for the majority of your categories, and you can define, and embed, rules with the help of experts to cover the rest, then you have the majority of what you need.

Because, at the end of the day, the best value comes from not only getting Spend Under Management, but making the best Sourcing / Procurement decision possible for the organization — and that can only be done if the organization has the right information. No organization has expertise in more than a few categories, and it definitely doesn’t have all the information. So having a platform that comes equipped with the best should cost models out of the box, integration to current market data feeds, and historical data on previous events (anonymized if necessary) to help organizations select the right type of even tfor current conditions is very beneficial — versus just a piece of dumb software that executes a canned one-size-fits-all workflow.

At the end of the day, the more you know about your raw materials, your components, your assembly / manufacturing options, your products, your shipping, the import and export restrictions and costs, and the inherent value of each product versus your other options, the more accurately you can model your options and make a good decision. The more accurately you can model your options, the better chance you have of determining the solution with the lowest cost, the lowest risk, the highest value, and the best value (defined as risk reduction, profit generation capability, etc — whatever makes sense) to cost ratio.

This is how leading Supply Management organizations can save 12%, off-the-top, in an optimization-backed information-enabled sourcing event — and even more if they collaboratively work with their peers to identify all of the options that may be available and all of the associated tradeoffs.

Plus, good, timely, information allows an organization to:

  1. constantly improve products and services by way of the fact that they are able to
  2. collect more relevant, timely, accurate, detailed, and integrated data.So get an information enabled platform – at the end of the day, it’s better than all the platforms with the fake “AI” that do nothing more than automate static, dumb, one-size-does-not-fit-all, workflows!