Category Archives: Procurement Innovation

What are The Drivers of Procurement Excellence? Part II

Yesterday’s post discussed the recent article in the Supply Chain Management Review on “The Drivers of Procurement Excellence” that discussed seven megatrends that are currently exerting their impact on the global procurement function which the authors claimed to be driving procurement excellence by way of the pressures they are exerting on procurement departments across the board. While I agree that all of the megatrends are driving the need for a greater procurement function, and while I believe that each of the five elements that they listed as being core to a procurement transformation are necessary, I do not think that megatrends drive procurement excellence.

As far as I’m concerned, procurement excellence is driven by one thing — and one thing alone. Talent. People drive excellence — and although this excellence generally needs to be supported by kick-ass processes and kick-ass technology, excellence is driven by people first, process and technology second, and external influences third.

Face it, as the SCMR article deftly notes, the skills and capabilities required in today’s procurement function are vastly evolved and nearly unrecognizable from those of 10 to 15 years ago and no technology or process is going to come close to meeting a fraction of the requirements, or deliver the results today’s procurement functions need, without a very talented individual at the helm. An individual that is an experienced, collaborative, customer-focused market zen master team player who is driven to succeed. An individual that is adept at analysis, skilled at strategy, and focussed on sustainability and who will seek out the knowledge she needs, consult with experience, and innovate all the while. A new breed of professional who is a jack-of-all-trades and master of one — spend and supply management!

Of course, given that there’s a talent crunch, and maybe even a talent war, for A-level procurement professionals that has already progressed to the point that only 11% of executives are confident that they will be able to recruit and retain the needed talent they need, attracting the talent you need might be easier said than done. That’s why true leaders will take their intelligent, hard-working, driven B-level players and provide them with the training (possibly through industry-leading certifications such as the SPSM offered by Next Level Purchasing) and job experience they need to become A-level players and kick ass. (And when you consider that, as pointed out in this Supply Excellence piece, A players, who only cost 40% more, often deliver an overall return of 100% or more in a given year, the payback on talent acquisition and development is almost exponential!)

So hire the best, train the best, and retain the best … and you will achieve procurement excellence, because the best will accept nothing less.

What are The Drivers of Procurement Excellence? Part I

The Supply Chain Management Review recently ran an article on “The Drivers of Procurement Excellence” that discussed seven megatrends that are currently exerting their impact on the global procurement function. More specifically:

  1. Managing Extreme Competition and Pressures for Deep Cost Reduction
    There’s a widespread sense of incessant urgency to take steps that help reduce prices for end consumers. This is challenging in an era of rising energy and commodity prices. Oil and certain metals categories (that had reached ridiculous highs) may have dropped recently, but energy production costs from non-renewable sources have increased across-the-board and many commodity categories are still climbing.
  2. Addressing the Accelerating Pace of Globalization
    Globalization has multiple impacts. It drives some organizations to expand markets, others to move closer to their customers, and others to improve their global sourcing capabilities.
  3. Addressing the Proliferation of Unique & Dynamic Relationships with Customers, Supplies, and Outsource Partners
    Profound shifts are happening with respect to supply. Some suppliers are customers while others are strategic suppliers for direct competitors, and in both cases the supplier might be strategic or critical. It’s not enough to consider a supplier just as a source of supply anymore.
  4. Coping with the Rapid Advance of Technology in Products and Services and (in) Procurement Operations
    Technological advancements arrive now so quickly that the right technology for any given product or service may change dramatically nearly overnight. Procurement organizations have to constantly deal with the obvious technology-driven dichotomy: a strategically focused sourcing function must simultaneously pursue both closer collaboration/partnership and yet maintain greater flexibility.
  5. Assisting with Revenue Growth and Innovation
    New products and services, key drivers of revenue growth and innovation, directly relate to technological innovation and similarly, companies are pursuing revenue growth through globalization and new markets. Procurement is smack-dab in the middle of both of these trends.
  6. Managing Constantly Changing Customer Demand
    Customers want the newest and most effective products possible and customers want companies whose products and services seem responsive to their individual needs.
  7. Dealing with Complex Regulatory, Environmental, and Ethical Requirements
    Procurement functions take the lead in helping their organizations navigate an ever more complex web of issues such as corporate responsibility.

In response to these challenges, the article notes that many procurement departments are:

  • beginning to rethink their business and organizational models to deliver organizational break-throughs, including center-led procurement.
  • considering outsourcing or off-shoring non-critical procurements, or transactional processes (which free staff up to focus on more strategic initiatives that offer greater savings opportunities)
  • rethinking global sourcing strategy and global supply chain structure
  • brushing up on current, and upcoming, global regulatory requirements and refining product lines for global acceptance
  • considering innovative supply configurations to simplify production, distribution, and supplier relationships
  • thinking differently about materials, commodities, components and/or services that they’re buying and throwing sustainability, green, and CSR requirements into the mix
  • realigning with business strategy with a focus on product/service development and IT
  • streamlining processes on a channel-by-channel basis, optimizing the mix of methods by category, and not relying on too few or too many options for sourcing, buying, and paying
  • implementing well-defined balanced scorecard for the internal procurement organization
  • partnering with the business at-large to find relevant sources of supply to enable these growth strategies
  • spending more time identifying who their current and likely future customers are and what they are most likely to buy
  • collaborating with engineering and suppliers to optimize packaging, reduce shipping weight and size, use low-environmental impact materials, and design for sustainability
  • beginning to develop the talent they’ll need internally using formal training, rotational assignments, and international appointments

This is because, as the article points out, the era of incremental improvement is passed and companies need to focus on the megatrends of global procurement to identify and extract breakthrough performance. The game is no longer simply about better sourcing strategies or merely greater efficiency in transaction processes. Today, the goal is an end-to-end approach featuring optimized business models, metrics, people, and organizational structures — a program of strategic transformation.

And at the heart of such a transformation is, according to the article:

  • Attaining closer alignment between procurement and overall business strategy.
  • Where necessary, redefining operating and business models.
  • Improving policies and procedures, methods, and controls.
  • Improving technology, data collection and interpretation.
  • Developing and leveraging talent.

But are these truly the drivers of procurement excellence? That’s the topic of tomorrow’s post.

e-Procurement is All about Content

e-Procurement, the counterpart to e-Sourcing that starts where e-Sourcing ends and ends where e-Sourcing begins (as outlined in It’s Sourcing AND Procurement), is the “e” implementation of the procurement cycle that is concerned with the requisitioning, receiving, and reconciliation of received goods, as opposed to the analysis, auction, and strategic award that takes place in a sourcing cycle.

The basic cycle, which consists of up to 9-steps depending on the complexity of the buy and organizational policies, always consists of an order, an invoice, and payment. The order is made based upon organizational needs, the invoice is reviewed based upon the order that was made and the goods that were received, and payment is made based upon terms and conditions … and all three phases rely heavily on content. Before you can place an order, you need to know what the organization needs, what potential suppliers have to offer, what demand-supply matches are acceptable, and what the total cost of ownership of each option is. This is all content. Before you pay an invoice, you need to match it to the original order (were the goods ordered), to the goods received (which goods were actually received), and to the agreed upon prices and rates (in the contract or purchase order). This is all content. And before you can make a payment, you need to know who you’re paying, the payment methods they accept, their unique identifying information for the payment method chosen, the amount of time you have to pay, any discounts or penalties for paying early or late, and, if relevant, when the currency exchange might be in your favor. This is all content.

Good e-Procurement technology captures all of this data, makes it easily accessible and searchable, and organizes the data into information that knowledgeable individuals can use. But great e-Procurement technology, like that built using B2B 3.0 technology, goes even further! While good e-Procurement technology will capture the information it needs to do its job, great e-Procurement technology will make it easy to share that information between related applications through unified content exchange technologies. While good e-Procurment technologies will allow you to connect to different external catalogs through punch-out, great e-Procurement technologies will pull all of the relevant information into a single unified view that allows you to compare your different options side-by-side in an apples-to-apples comparison. And while good e-Procurement technologies are GUI-based, great e-Procurement technologies are feature rich and integrate all of the different user friendly technologies — including graphics, sound, and video — into a single application.

To read more about how modern e-Procurement is enabled by next-generation content-management technologies, check out the latest Sourcing Innovation Illumination on How Content-Enablement Enables e-Procurement 3.0.

Content Enablement Technologies Enable e-Procurement 3.0

Like it’s predecessors in the series, this latest white paper on how Content Enablement Technologies Enable e-Procurement 3.0 is about B2B 3.0 (Business-to-Business 3.0), the next generation of technology for the enterprise that generates value throughout the supply chain, and how it enables e-Procurement 3.0, which is the only implementation of e-Procurement technology that is guaranteed to deliver maximum value — and savings — to your organization.

As highlighted in the first two white papers in this series, B2B 3.0, which is the first generation of software technology that actually puts business users on the same footing as consumers (who have had “3.0” technologies at their fingertips for years), is the first technology to enable true commerce in the global marketplace. Returning to the fundamentals of e-Commerce, that have been lost for the last decade or so, B2B 3.0 gives us connectivity that is open and free to all, content that is managed once in a non-redundant fashion by the content owner, and an open community where buyers and sellers can come together for short periods of time through virtual networks that allow them to conduct the business they need to conduct — when, and how, they need to conduct it. No “technical” strings attached.

In addition, as highlighted in the second white paper in this series, B2B 3.0 is the first technology to level the playing field between buyers and suppliers and put them both on the same footing. Previous generations of B2B technology focused primarily on the buyer, the target customer, under the fallacy that ‘streamlining’ the process for the buyer would lead to the greatest cost savings. The reality is that this ‘streamlining’ resulted in increased work, and thus increased cost, for the supplier who had to ultimately increase their prices to cover their costs. B2B 3.0 streamlines the process for the supplier and the buyer, resulting in cost and process savings for both parties.

Furthermore, B2B 3.0 goes beyond simply streamlining processes and decreasing work, it also enables content in new and innovative ways which not only enable commerce, but enable one of the cornerstones of business e-commerce — e-Procurement. Unlike traditional e-Procurement solutions, which usually attack procurement in a piece-meal fashion, new e-Procurement 3.0 solutions are integrated commerce solutions that support each step of the various procurement cycles in your organization in a tightly-integrated fashion that seamlessly flow from one step to the next. An e-Procurement 3.0 solution, which integrates the m-way matching that eludes so many traditional piece-meal procurement applications at its core, ensures that the organization only pays for goods and services actually received — and only pays at contracted rates. E-Procurement 3.0 solutions succeed where previous generations of e-Procurement solutions failed because they are enabled by content and content management that was lacking before B2B 3.0 — and this makes commerce truly simple.

To download this paper, and the first two papers in the series, access the following links:

  • Introducing B2B 3.0 And Simplicity For All
  • Simplifying B2B for Suppliers Enables Buyers
  • Content Enablement Technologies Enable e-Procurement 3.0

The Sourcing Maniacs 2008 Vendor Tour Part VI: Coupa

When we left the Sourcing Maniacs, they had just finished learning about Co-exprise and Sourcing Lifecycle Management. We join them wandering the streets somewhere in Pittsburgh, PA.

Yakko Enterprise Cost Management and Predictive Analytics.
Wakko True Spend Analysis.
Dot Sourcing Lifecycle Managment.
Yakko The Sourcing World is sure a whole lot bigger than we ever thought it was!
Wakko Maybe it was good we got canned.
Dot We’d never have learned all of this if we were still locked in the corporate boardroom.
Wakko So where next?
Yakko Good question! Do we stay with the C’s or move onto the D’s?
Dot I’m curious what that little upstart by the name of Coupa is up to.
Yakko So am I. When they first appeared, I remember we laughed about the idea of an on-demand SaaS e-Procurement application … but after everything we’ve learned so far on this journey, I’m thinking that maybe we wrong and they were right … that maybe new technology is the future of e-Procurement, not legacy behind-the-firewall ERP add-on technology.
Dot After all, new best-of-breed sourcing technology appears to be revolutionizing sourcing, so maybe procurement can be revolutionized as well!
Wakko So where are they?
Yakko I think they’re back in California!
Dot I don’t want to go back to California just yet.
Wakko So what do we do?
Yakko They’re SaaS … and I hear they’re covered regularly by new media – so that should mean that everything we need to know is online. Let’s use the web! I think that’s a cyber-cafe up the street.
  The maniacs enter the cyber-cafe.
Dot So where do we start?
Yakko Coupa.com, of course!
  The maniacs go to Coupa.com and start surfing.
Yakko Wow … what a diverse customer base. Government organizations, science institutes, universities, mid-size companies, even a hockey team.
Dot Multiple major releases a year … I remember that sometimes we couldn’t even get one major release out in an 18-month period!
Wakko And look at that Pricing! It’s even more insane than I am! How can they possibly start at only $295/month and make money? We’d be losing money hand over fist at $2995/month if we were still at our old job!
Yakko Must be something to do with SaaS. Let’s read more about that.
Yakko surfs.
Here’s a great article by the doctor on the e-Sourcing Wiki. According to the article, SaaS allows for great economies of scale, a single multi-tenant instance, and a total cost of ownership that is much, much lower than the traditional on-premise model that we used to promote. Plus, as per this article I found on Sourcing Innovation, they deploy on the Amazon cloud that allows them to keep their infrastructure overhead ridiculously low and only pay for the computing resources they use.
Dot Is on-Premise really that much more expensive? I thought we had a great TCO in the old days.
Yakko I just found this great on-premise vs SaaS TCO calculator on the Coupa site that allows you to factor in license, support, upgrade costs, database costs, application server costs, implementation costs, and annual internal support costs for an equivalent procurement system and it’s surprising. If you managed to score a great deal and get an installed e-Procurement license for only 50K, with an annual industry average support fee of about 20K, and get it installed for 25K, and your tream trained for 25K, your first year cost would be $158,000 and your five year cost would be over $350,000! On the other hand, an enterprise level coupa license for a mid-size business with 1000 users, that costs about 17K with equivalent training costs, if my math is right, would only cost $42,000 the first year, and have a five year cost of only $110,000 … which is less than 1/3 of the five year cost for an on-premise application.
Wakko Wow! That’s less than my annual baloney bill!
Dot And what I spent on Gucci when we had a full time job!
Yakko I guess SaaS really stands for Sumptuary Allowances Actuate Savings!
Dot You’ve been reading the dictionary again, haven’t you?
Yakko It’s almost as interesting as the Universe.
Wakko But I thought you already knew all of the words in the English language!
Yakko I did … but they keep adding more! Did you know that almost 20,000 words are added per year?
Dot Plus all the ones you invent!
Yakko Yassuredly.
  At this point the sourcing maniacs really get off topic and start arguing how many parts of the brain it takes to source, so we’ll skip ahead until they get back to their Coupa discussion.
Dot So what we we doing before Wakko demonstrated how to eat sphaghetti with chopsticks?
Yakko Investigating Coupa I believe.
Wakko And their wacko pricing that’s less than my annual baloney bill!
Yakko And SaaS … which appears to totally rock …
Wakko … almost as much as I rock America!
Dot So, I guess the big question is … at that price, does it do what it needs to do?
Yakko Well, according to the doctor, who wrote an introductory e-Procurement Wiki Article, e-Procurement has up to 9 steps, with the first seven being key: requisition, authorization, purchase order, receipt of goods, invoice, reconciliation, and payment.

Now, according to the Coupa site, it supports requisitioning, multi-level rules-based and workflow-based authorizations, purchase order management, goods receipts and inventory management, invoicing, and integration with existing platforms which allow you to do reconciliation and e-payment.
Dot Shouldn’t it do reconciliation and e-payment?
Yakko Considering that the data you need for reconcilation is probably in your ERP or CM system anyway, built in reconcilation probably isn’t that important, and considering that not only do many companies use AP systems to pay, but that most e-Procurement platforms don’t include a built-in e-Payment mechanism, and simply interface with external e-payment systems, it looks like it’s pretty competitive.
Wakko Okay … there’s got to be something missing at that price! We would have charged $500K a year for this back in the day!
Dot Heck, we would have tried for a million! Gucci and Prada ain’t cheap, you know.
Yakko I guess we’ll just have to try it out!
(Coupa has a 30 day free trial!)
  Silence ensues for about 15 minutes while they try it … all of it … out.
Yakko That was …
Wakko, Yakko, & Dot Awesome!

Editor’s Note: For more information about Coupa, see this list of indexed posts.

Also, since I’m a little tired of typing, we’re going to break for a week or so … and pick up where we left off early next month.