Category Archives: Procurement Innovation

Should You Be Sharing the Risk?

A recent article in the Supply Chain Management Review on “procurement risk management: what it takes to be a leader”, which correctly states that risk is part of business, noted that, even though procurement has become a frequent topic in the risk management conversation, few companies are translating their trepidations into formal procurement risk management capabilities. Considering that risks have grown considerably in recent years and that at least 7 in 10 companies will experience a major disruption this year, with almost 9 in 10 experiencing some form of disruption, this is not good. Risk management needs to be front and centre in supply chain planning.

But is that enough? Let’s say you put it front and centre, identify your top ten risks, and outline your risk mitigation and/or recovery plans for each risk. Classic thinking would say you’ve done a great job, but have you? If it’s a natural disaster, you’ve probably done all you can do since it’s an event that no one has any control over. But what if it’s a production line breakdown at a key plant of a sole-source supplier? Have you done everything you can? Maybe there’s nothing you could have done to prevent it, but, chances are, there was something your supplier could have done to prevent it.

And maybe they would have if they had more incentive — which leads me to believe that the leaders identified in the referenced 2009 Accenture Study who insist on risk-sharing clauses and back-to-back contracts might be on to something. If both parties agree to share risks, and the costs associated with such risks, both parties are more likely to be alert to risk signals and to take action before a minor interruption becomes a major disruption. If both parties are serious about risk, it’s the right way to go.

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Procurement Tasks are Not Clear-Cut Regardless of Organizational Size

A recent article on SupplyManagement.com on “Making Waves” which tries to compare and contrast procurement at SMEs and procurement at large companies seems to suggest, a few pages in, that buyers in large organizations are less willing to sit down face-to-face and negotiate as it’s all about getting the RFP, doing an assessment, and then getting someone in and talking through their proposal while their counterparts in a smaller organization see it as more a case of negotiating face-to-face and you can do two or three of those a day.

 

It also seems to suggest that procurement at most large organizations is a mature function with a systemized approach to procurement while most smaller organizations have almost no process in place for procurement.

The reality is that the state of procurement is very organizational dependent and that the preferred methodology is very buyer centric. If a buyer is an introvert, doesn’t like face-to-face negotiations and has access to modern e-Sourcing and e-Negotiation tools, then the buyer is going to focus on events. If the buyer is an extrovert, doesn’t believe in new-fangled technology that removes the human element, and believes that the best deal always results from face-to-face negotiations, then the buyer is going to focus on negotiations. Company size be damned in either case.

While the article has some good examples of real-world scenarios faced by procurement professionals, it is dangerous to draw broad conclusions from just a few interviews with a scattering of procurement professionals. It’s never clear-cut.

 

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Coupa: Crouching Cheetah, Hidden Hippo

For those of you who have been following along, I recently did a 3-part series on Coupa (Part I, Part II, and Part III), a company that has been taking off like a rocket in the e-Procurement space (growing almost 200% year-over-year with one stunning customer win after another), where I asked if their strategy had shifted to customer acquisition first and building a better platform second, as it seemed to me that their rate of product innovation over the past year has not kept pace with their historical rate of product innovation. And while I will freely admit that the most important thing in business is customer acquisition and retention, and that this often means focussing on customer requests, which usually fall under the category of renovation, first and innovation second, I really admired Coupa for their devotion to innovation first and figuring out what the customer needed before they asked for it.

I’m happy to say that Coupa took me up on my challenge and decided to spend a few hours reviewing in detail not only what they have done, but what they are working on now and future directions they have mapped out. The short story is that the product team has been very busy not only fleshing out the core platform, but on finding ways to take its accessibility, usability, and generality to the next level.

From an accessibility viewpoint, they’ve started porting to the Force.com platform. While they haven’t announced it yet, and don’t plan to for a few months, Coupa Expenses is now available on the appexchange2, and can be found by a simple search. Force.com users can now use Coupa Expenses to accurately determine their cost of sales (which allows them to more effectively forecast revenues, estimate expenses, and allocate resources). This app not only allows you to track expenses, assign them to opportunities, and get up-to-date reports against budgets at any time, but also includes the “frugal meter” that lets an employee now when a cost is frugal or high compared to averages and / or limits. And there’s more to come.

They’ve also been working extensively on their API. This may sound boring as all get out, but the real value of a Procurement platform is only realized when all of the spend is accessible through that platform. In other words, unless you have an integrated view of spending that includes direct, indirect, Contingent Labor/SoW, and T&E spend, you really don’t know how much you’re spending and, more importantly, the TCO of categories where the products you are buying require support services and T&E expenses to manage both the manufacturer and/or services provider. If a company is using one (Best-of-Breed) platform for direct, one for T&E, and one for indirect and/or contingent labor, then the spend is distributed across multiple systems and no one system gives an accurate view, unless it is integrated with all of the other relevant systems. Generally speaking, these integrations are expensive as most of these systems (and classic ERP systems in particular) don’t have good APIs and only experienced, expensive, third parties can accomplish the integrations. But with fully documented open and transparent APIs that expose all of the data elements and core capabilities of the platform, any decent development team can accomplish the integration. Not only has Coupa fully exposed and documented their API to allow for easy integration with ERPs and Supplier Networks, but they have also built an extensive site at integrate.coupa.com to allow their customers to integrate with any systems they need to quickly and easily. (And with their Boomi partnership, most customers can integrate Coupa with their ERP systems with very little effort.)

From a usability viewpoint, not only is the current instantiation of the UI (intelligent-)search based, but the UI workflow is being streamlined to make regular tasks as quick, easily and painless as possible for the average user. From auto-calculating miles in expense reports (using Google Maps) to auto-classifying receipts (using OCR when possible), it’s all about making it even easier to use than Amazon or eBay, so that organizations get the adoption necessary to make their eProcurement initiative a success.

From a generality viewpoint, they’re working on features and functionality that will take e-Procurement to the next level in the average mid-market company, regardless of vertical. Look for a few announcements late this quarter / early next quarter on how they’re going to do that (and how they’re going to not only address the weaknesses with their new benchmarks and budgeting capabilities, but take them to a new level as well). The development cheetah has been running at full speed in the background, and once the product management hippo gets excited, it’s going to charge with an almost unstoppable force.

Want More Influence? Ask the Right Questions!

In a recent post over on Commitment Matters on getting to the top table, Tim penned a great post on where a CPO should be placed on the organizational chart, and why. Nine paragraphs in, after discussing the standard view of Procurement as a cost centre (which never gets direct reporting status to the CEO), the department that’s only visited when something goes wrong, and a barrier to getting things done, Tim made a great point. A CPO is only going to get a seat at the top table if it makes a significant contribution that visibly improve organizational performances.

This is only going to happen if Procurement shifts its emphasis from cutting costs to adding value. This requires Procurement professionals to change the types of questions they ask, the data they collect, the conversations they have inside and outside the department, [and] the areas in which they invest in skills. When Procurement approaches Engineering, it can’t be about “how can we help you cut cost” because, in Engineering’s mind, that translates into “how can we help you cut quality and increase risk of failure”. It has to be about “how can we help you source the highest quality products and services within your budget”. Similarly, when Procurement approaches Manufacturing, the focus has to be on “how can we help you ensure supply at the highest levels of service”? If a production line shuts down, that could cost a lot more than paying an extra 2% on the raw material costs. This isn’t to say that cost shouldn’t be a factor, as value can monetarily be defined as profit contribution – total costs of operation, but that cost can only be one, small, component. Once Procurement is trusted, then the questions can shift to “how can we help you get the level of quality and service you’re currently getting at a better price, so you can show a year-over-year cost savings and look like organizational heroes”.

I’d strongly encourage you to read Tim’s post on getting to the top table. It’s a great thought-piece.

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You Don’t Need a Genie to Fulfill Your Wish!

Nor do you need the CFO to give you a big fat check either! If you want more automation in your supply chain, and according to the recent A.T. Kearney Indirect Procurement Study titled “Higher Visibility, Greater Expectations”, most of you do, all you have to do is call up one of a few dozen e-Procurement providers with a (new) SaaS offering and tell them you’re ready. Not only can you start for a small monthly fee, but the savings will pay for the system many times over.

And if you don’t know what system is right for you, just re-read SI’s recent series that provides A Hitchhiker’s Guide to e-Procurement. It will assist your organization in determining what is really important, what functionality the organization should be looking for, and how the solution compares to other solutions in the marketplace.

Stop waiting, and start buying. Considering you can pay by the drink, quit any time, and take your data with you … in the worst case, you select a system that only enables part of the efficiencies that are available, but that allows you to determine the full extent of the efficiencies the organization could reach with a system more in tune with the best practices the organization identifies as appropriate for adoption. In this case, you simply cancel the monthly contract and migrate to the new system, and triple the organization’s savings.

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