Category Archives: Procurement Innovation

Spend Management Changes Business

Before the Sourcing Innovation Series, where the mighty prophet of the spend management space Jason Busch offered up his thoughts on “Sourcing Innovation: Securitizing Direct Materials”* and “Sourcing Innovation: Next Generation On-Demand”*, he published a whitepaper for Ariba entitled “Spend Management: Changing Business”, A Case for Reexamining Procurement’s Role In Organizations of All Sizes, that you should read, or read again, as you’re unlikely to find all of the nuggets of wisdom Jason packs in on a first read.

Spend Management can lead an overall business strategy. And it can create significant competitive differentiation that is much harder to replicate than a product or service that is sold on the revenue side of the business … Spend Management is not a business strategy and philosophy. It is the business strategy and philosophy that leaders practice and followers fail to fully understand.

Spend Management is not just cost management. It is not just procurement. It is not just new software. It is not just an incremental change in function or process. It is not a new fad or methodology being pushed by the consultants simply to define their value and take your money. It represents a new type of thinking, a way of taking integrated approaches to not just procurement, but all aspects of non-revenue generating operations. It is a way of thinking about your global supply chain strategy that will reduce costs, improve processes, and increase profits even when inflation is rampant, economies tight, and transport lanes continually overtaxed.

At the very core, it is the process of driving sourcing innovation to new levels across your organization. Continual Spend Management Innovation, to squeeze more and more from every dollar you spend, is your ultimate goal as it is the only way to guarantee long-term sustainability of results. You focus on value, which could be defined as the simultaneous maximization of total cost, production efficiency, and innovation.

Spend Management success requires creating specific goals and having a destination point in mind. To do this, it is necessary to identify where a company stands today and how to overcome the gap between the current state and market leadership. After all, there is no panacean spend management solution, even though there are a number of platforms that cover different aspects of spend management, which include spend visibility, eRFX, eProcurement, catalog search, contract management, supplier performance management, category management, and supplier risk management, quite well. After all, if you know where you need to go, you’ll get there a lot faster.

Accelerating Spend Management results requires that executives move beyond looking at procurement solely as an agent for cost reduction. To sustain results, organizations must now examine cost, spend, vulnerabilities, and risk as assets to be managed and reduced. … Organizations need to think creatively about the best – and most cost-efficient – ways to mitigate and manage vulnerabilities and risk to drive Spend Management results. Every company is different. Every supply chain is different. And every solution that outperforms a competitor will be slightly different. The key is to learn from the best – and then improve upon it.

When upgrading capabilities and investments, it is not necessary to switch out existing providers. It is now possible to use and improve what they already have by turning to other providers to augment and enhance existing capabilities. I’ll say it again, there is no panacean spend management solution. Although some providers offer extensive integrated solution suites, some of which are quite spectacular, each provider tends to have a strength in a different area, such as eProcurement, eSourcing, contract management, spend analysis, supply visibility, or supplier risk and / or performance management, and the best solution for your company will probably be a combination of vendors – and sometimes you’ll even have multiple vendors that offer the same capability as you will find some vendor solutions more suited to certain parts of your supply chain than others. However, since most of the best vendors on the market today offer on-demand solutions, building an optimized heterogeneous solution should not be problematic.

To ensure that an organization is headed down the Spend Management path to sustainable savings and potentially industry-shaping results, it is essential for executives to keep three key objectives in mind. First, they should take a flexible approach and expect the same dexterity from their partners, realizing that Spend management is not a one-size-fits-all proposition. Staying nimble allows a company to take advantage of opportunities as they arise, and to react to – or ideally predict – changes in market conditions. Second, they should establish longer term goals and programs without sacrificing near-term objectives that can motivate the organization and prove the value of Spend Management as a continuous process. And third, they should invest in creating company-wide systems and capabilities that use the best of internal and external knowledge and processes to maximize – and guarantee – ongoing results.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

The Unique Solution for Travel Procurement

Earlier today we discussed the unique challenges of travel procurement – a nightmare shared by your employees as well as your finance team. After all, when booking a single trip can take an hour by the time you book your flight, rental car, hotel, airport transportation, off-airport parking, and dinner reservations and when finance has to sort through (tens of) thousands of expense reports literally by hand to determine whether their preferred carrier owes them a discount, how could you call it anything but?

Last week I was fortunate enough to see the answer. It’s called the Rearden Commerce Network (rebranded Deem in 2012) For those of you who read Spend Matters regularly, you’ll probably remember Jason more-or-less gushing about them as well in posts such as “Rearden unShrugged”* where he called Rearden the future of “personal” services Spend Management for employees.

Services are tough. They’re calendar-based, time critical, and dynamically priced. There’s a reason there is no Amazon, Google, or Yahoo for services. Even the brightest software engineers cringe at the thought of trying to build a single platform to handle such a diverse array of services. But as far as I can tell, Rearden has done it. Sure the interface still looks Web 1.0, but the capabilities are Web 2.0 all the way. And when they say you can book a complete trip in 10 minutes – they mean it. I saw it – and it works! I’ll tell you one thing – from an applications perspective, few software packages on the market today impress me. Even today, I equate most software applications with undifferentiated organic fertilizer (which is probably why you hear me mention so few companies in this blog – that, or I really am another one of those arrogant PhDs). But Rearden’s solution impressed me.

If you are a mid-size or larger company with a lot of travel related spend, I can not think of a single reason why you should not be using Rearden now! When your employees who travel regularly are probably wasting up to 20% of their time on travel arrangements (instead of a more palatable 5%, or less), when you have no way of easily tracking who you are spending your travel budget on (and if you qualify for discounts) and, more importantly, no way of enforcing that employees are buying against your preferred contracts when possible and sensible when there is this easy to use system that lets your employees do almost everything they need in a one stop shopping experience, allows your finance team to figure out whom you are spending on and in what amount, and allows your procurement team to enforce flexible spending rules. It’s a great addition to your supply chain suite!

Now, I’m not entirely sure whether it will scale up in the future to support all services in a consistent, coherent manner, even though they claim the platform was built to support any service you can imagine, but it is certainly capable of supporting any T&E service you can throw at it, and this is a very significant feat from both a business and a technological perspective. I can’t wait to get some time with their senior technology guys to do a deep dive into the architecture and technology. (After all, I need to use the PhD sometime!) If it’s as impressive as the business capability, I might just be inquiring as to whether or not that Director of Applications Engineering position that they are advertising can be done remotely.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Coupa Charges Ahead!

Yesterday I was fortunate enough to have a long chat with Dave Stephens, fellow blogger (Procurement Central, [WayBackMachine]) and founder of Coupa. We talked about a number of topics (and I’ll post more when I get the chance), including what Coupa is focusing on for their next enterprise release as they slowly grow (and set up shop in their new offices in Foster City, California).

Besides a lot of minor updates (which appear in both the open source and enterprise version), to appease the open source community at large (like better sorting and slicker interfaces), they are making improvements in three key areas – administration (much easier to use), buying templates and (visual) form construction (enterprise-only), and budget-based procurement (enterprise only) – probably the first “killer-app” for Coupa.

One of the problems with most approval-based eProcurement systems is that they don’t take budgets into account – which is very important not just in a budget-based shop where the approver would first have to log into another system to see how approving a large requisition would affect his budget, but in any business as a manager needs to see how an approval affects not only the total budget, but her unit’s spending to date. After all, you don’t want to overspend your (share of the) budget without a good reason, and you want to make sure that non-priority purchases are only made if it makes fiscal sense.

I was fortunate enough to see the work in progress on the enterprise edition, and it’s looking really good. The admin functionality, and functionality in general, has advanced nicely since 0.1 (and to some degree, since 0.2) and the form-based templates, definable and customizable at will by the system administrators, will give Coupa a great boost as it will now be perfectly suited for not only your office supplies, spot buys, and other odds-and-ends MRO spend, but also for your services spend as well. One-time legal services or consulting project spend, special advertising, promotional, or print spend, and other odd purchases (such as visa or passport application fees) will now all be able to be processed through the same system. This is VERY SIGNIFICANT. After all, Aberdeen has found that MRO is 26% of the total spend of a company (on average), and can be as high as 63%! Even if you’re not able to negotiate significant savings into your contracts, the presence alone of an eProcurement system, like Coupa, will save you bundles of cash since you’ll be able to virtually eliminate maverick spending with the built in compliance – one of the most significant costs to your organization!

I’ll post more later when I have the time, including some of the benefits of their forward thinking architectural choices, but for now, I suggest you download it and check it out. It might still be a pre-release, but there’s enough there to start giving it serious consideration – after all, it’s the early supporters and adopters that will get to guide its development over the next year or two, since open source projects build their roadmap based on customer feedback, not what an arbitrary executive or investor thinks is the right solution for the marketplace. Plus, they have documentation now!

The Sourcing Innovation Series XIII: Part One Wrap Up

First of all, I’d like to thank all the contributors for their efforts and incredibly well thought contributions. It was a great series.

  • Kevin Brooks
    The Future of Sourcing Commentary
  • Jason Busch  [WayBackMachine]
    Sourcing Innovation: Securitizing Direct Materials **
    Sourcing Innovation: Next Generation On-Demand **
    Evaluating Spend Visibility and Analytics Providers **
  • David Bush [WayBackMachine]
    The Future of Sourcing?
  • Charles Dominick [Purchasing Certification Blog, now the NLPA blog]
    Sourcing Innovation for Single-Customer Contracts
    Sourcing Innovation for Enterprise-Wide Contracts
  • Doug Hudgeon [WayBackMachine]
    “Rogers and Hammerstein: The Future of Sourcing”
  • John Martin
    The Future of Sourcing … for Services
  • Tim Minahan [WayBackMachine]
    Sourcing Innovation: Predictions for the Future of Strategic Sourcing
    Predictions for the Future of Strategic Sourcing: Part II
    What’s Next According to Busch: Supply Skills Networks
  • Rob Parrish
    Sourcing Innovation Blog Swarm (SCRISK.com)
  • Dave Stephens [WayBackMachine]
    The Future of Sourcing
  • Eric Strovink
    The Future of Sourcing

With commentaries ranging from technology through processes to services, from technological, business and even economic backgrounds, I think this first series brought a breadth and depth to the topic that even think-tanks would be hard pressed to match. Ranging from the down-to-earth predictions that the future will be forged from process improvements and enhanced corporate understanding of how to use existing technology (David) through evolutionary process improvements such as new hybrid sourcing models (Tim) to sky-high predictions that in the future capacities will be securitized and traded on the open market (Jason), this series opened our minds not only to the art of the possible, but the art of the probable. Given whom many of these predictions are coming from, I’d say it’s a safe bet that many of today’s predictions will turn into tomorrow’s technologies, processes, and best practices. So if you missed any posts, use the links above to catch up. And if you didn’t, use the links above to read them again. Considering what these guys can charge for their advice, and the very high caliber of the postings, I’d wring every idea I can get out of them. It might just give you the leg-up you need to surpass your competition.

I’m not going to attempt to summarize the series in this post, since I spent nine posts trying to do just that as I offered my views, but instead note that I hope to make this a regular yearly series. Sourcing is always changing, and not just because of the rapid advancements in technology which have skyrocketed it, e-Procurement, e-Commerce, and supply chain forward in recent years. I think it will be very interesting to see not only where it is in a year, but how that changes our perceptions of where it is going and how fast it will get there. I hope my fellow bloggers and contributors agree, since they’ll all be receiving invitations, root* willing, next summer to contribute to Partie Deux!.

Back to the present. Given the recent focus on talent#, I would like to propose that as the second cross-blog topic. I know Charles, Tim, and David are quite interested in this topic, as well as myself, (as they blog about it regularly). I’m particularly interested in predictions on how companies are going to close the talent gap over the next twelve months – and, in particular, innovative techniques they are going to use to do it. What do you say guys — up for it? (Guest commentators — if you want your top-notch commentary on SourcingInnovation on this topic, feel free to contact us using the contact information in the FAQ.)

Thanks again guys! Fantastic job!

* Inside Techie Joke
! It just sounds better en francais.
# See the Talent category in the category archives, sixth component down on the right hand side of the page.

** All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Procure-to-Pay cycle Best Practices

I’ve been thinking about the P2P cycle in general and how it could be improved across the board. Remembering that CAPS published a piece on the issue relatively recently, I decided to look it up. The piece, titled “Best Practices in the Procure-to-Pay Cycle: Perspectives from Suppliers and Industry Experts”, was published back in March in the Practix series and described key findings that can lead to improvement in the P2P cycle.

Even though there were no surprises in this piece, as all of the suggested improvements were essentially just good business processes adapted to the procurement cycle, the report is worth a read as it was based on a study that collected the major problems as identified by your suppliers, not third party consultants or analysts.

The Procure-to-Pay cycle, which generally consists of the following steps:

  1. Forecast, Plan & Coordinate
  2. Need Clarification / Specification
  3. Sourcing Decision
  4. Contract / PO Generation
  5. Receive Materials & Documents
  6. Settle & Pay

contains many opportunities for errors without good, documented, processes streamlined and managed by appropriate technology. Furthermore, an organization in non-compliance may be incurring significant costs without even realizing it (through maverick spending, late payments, etc.).

If a broken P2P process is not fixed, the following problems can arise:

  • deteriorating response time from suppliers
  • lower service levels from suppliers
  • deterioration as the customer of choice
  • delivery delays
  • higher pricing (due to cost attributed to late payment)
  • increased manpower on non-value-added activities
  • loss of the supplier as a critical supply chain link
  • higher internal costs

Therefore, a company should review its processes regularly, fix any problems it identifies, and make effort to streamline processes. A good place to start is by insuring that your P2P cycle does not suffer from the top four problems identified by suppliers.

  • manual workarounds / high manpower requirements
  • long cycle time / late payments / aged invoices
  • no central point of contact
  • PO / invoice match problem

These problems are often the result of the following root causes:

  • poorly designed process
  • no relationship manager / point of contact
  • lack of system / portal interface
  • too much complexity in the catalog / too many line items

Furthermore, as per the report, these root causes can often be addressed by the following solutions:

  • redesigned P2P process deployment
  • dedicated relationship management position
  • a supplier portal
  • spend analysis and a catalog line item reduction initiative

In addition, the report also presents six key findings that can lead to improvements in the P2P cycle. These are:

  • robust processes and training
  • onsite relationship managers to allow field maintenance to focus on doing its job
  • robust technology using a single point of contract; i.e. a supplier portal
  • improved forecasting for maintenance and planning for emergencies that can “flex” with different situations that arise
  • reduced complexity in catalogs and buying channels to streamline procurement
  • top management support