Category Archives: Procurement Innovation

Finance and Procurement Need to Collaborate, but Sometimes the Relationship Needs to go Beyond the Financial Viewpoint

A recent article over on Financial Executives on Why Finance and Procurement Need to Collaborate For Success made some very good points …

The article in question, which noted that how companies approach expense management will become a top priority with the economy heading into uncertain times summarized an interview with Matthew Smith, CFO & CoFounder of finetune, a full service expense management firm focussed on select complex categories (such as uniform rental, waste & recycling, pest control, energy & utilities, and security) for large clients. In addition to the baseline assessment, sourcing, implementation, and ongoing management (which many BuyDesk operations will do), they also do regular auditing, which is key to ensuring you get what you pay for because, as Matthew said, where the rubber meets the road in expense management is what happens after the contract is signed.

Matthew believes that expense management does need to be its own thing and that there has to be a coordinating element between the affected functions, which always includes Procurement (which is responsible for placing the order and managing the contract) and Finance (for paying the bill) and then the department(s) that are using the goods or services being procured. Especially since the vendors will give up a lot in the negotiations, and then do their best to get it all back through change orders and off contract-purchases of items not covered under the contract. In addition, analytics is becoming critical, but most organizations have bad data. However, without the necessary expertise, the data won’t be clean and the right calculations can’t be done. Procurement can identify the good data and Finance can identify the key analysis that needs to be done. (Not ChatGPT, which is hallucinating and getting all those bad answers and producing false information. Matthew’s words, but the doctor couldn’t agree more.) Furthermore, without a good understanding of the entire situation from multiple sides, you don’t know when incentive are good or bad.

Expense management is a key area where Finance and Procurement needs to collaborate because it takes both departments to prevent overspend, and the article was a really great deep dive in this respect, but it’s not the only area. Working capital management is also key. Managing expenses is a great start, but the goal should be improved working capital management. If both departments work together, and with other organizational departments, to appropriately predict demand and utilization, and optimize payment terms, then the organization can do accurate cash-flow forecasting and working capital can be optimized. And that can truly only happen when both departments collaborate.

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.

SourceDogg dogs the Sourcing Process so You Don’t Have To!

SourceDogg was founded over a decade ago (in 2009 in Ireland, with the UK subsidiary opening a decade ago in 2013) by founders from the construction industry who decided they just didn’t have any good tools for sourcing products and managing suppliers. Since then, it has evolved into a full indirect Source-to-Contract application for requesting (intake support) and sourcing products (and services) (through traditional RFX and e-Auction), managing suppliers (with information, relationship, compliance, performance, and development support), and managing contracts for customers across a wide range of industries, including a strong customer base in manufacturing, pharma / health-care, and CPG/F&B.

Like the majority of modern Source-to-Contract applications, it is a fully SaaS-based product that can also be integrated with your organization’s ERP to pull supplier and product data, especially on initial product deployment. And, like the majority of modern Source-to-Contract applications, it has a fully functional Supplier Portal that allows suppliers to fully interact with all of the sourcing, management, and contracting processes employed by the organization.

The process starts with intake, where an organizational user can request a product or request a supplier. When a user needs a new product, they can go to the web portal and select the appropriate option (by clicking on the appropriate tile) that lets them do a general product request or a request in particular categories defined by the organization. When they make a general request, the application walks them through the process (using wizard-like functionality) to collect the appropriate information on category, volume, expected cost, requirements, etc. so that a buyer can kick off the appropriate sourcing process. Category specific requests function similarly, but are designed to minimize the process steps and information required for commonly requested categories. Now, if you’re using our core requirements for intake, as defined in Part 37 of our Source-to-Pay+ series Investigating Intake – Diving in to the Details, it’s not quite a full intake platform as there’s no budget tracking and process visibility (and in-process messaging depends on whether or not the requester is made a member of the sourcing event team), but it’s better than what many traditional sourcing platforms offer with respect to intake (if they even offer intake at all). Plus, SourceDogg is continually improving their product and we do expect their intake capabilities will continue to improve over time.

From intake, we move onto sourcing which supports full, multi-round, e-RFX and e-Auction with all of the typical functionality that you expect. One thing that stands out is their ability to include matrices (and built-in formulas) in not only the quotation fields, but all forms and elements of the process, allowing the organization to collect matrix options for product/packaging configurations, team configurations (on services), compliance/certification options, and so on.

As expected, setting up an event in SourceDogg is super easy. You define the typical sourcing event meta data (name, description, products, team, internal budget estimates, scoring system, etc.), create the content (forms and bid matrices), invite the suppliers (who need to already be defined/onboard in the core supplier management module), create the FAQ (which can be extended as needed during the process), and release it into the wild. (Suppliers can then login to their portal upon receiving the notification and fill it out within the designated window. If the bid sheets or data collection forms are complex, they can be output or collected using every Purchaser’s favourite tool and format, Microsoft Excel.) When the event concludes, the responses can be viewed, various side-by-side reports generated (and output to multiple standard formats including DOCX, PDF, and, of course, Microsoft Excel), responses scored, and final decision(s) recorded in the tool (and an email auto-generated and sent to the winning supplier[s] if desired). There is also the ability to capture notes at a question level (by individual who reviewed/scored the response), the supplier level, and the project level.

e-Auctions are setup similarly, and, as expected, run for a much shorter time. The degree of feedback presented to the suppliers depends on the configuration. Upon event completion, the platform automatically generates reports ranking the bidders on cost or, if the event was preceded by an RFI/RFP with a qualitative component, on a weighted score. (And, of course, the buyer can always go in and view the complete bid history.) Note that the Q&A feature can be used to post updates during the auction to all suppliers, a supplier group associated with a lot, or just a specific supplier who asked a question or obviously needs guidance.

Supplier Management consists of four primary modules: Supplier (Information) Management (SIM), Supplier Relationship Management (SRM), Supplier Performance Management (SPM), and Action Plans.

Let’s start with Supplier (Information) Management. The system tracks all the core supplier meta-data you would expect as well as all associated contacts, product data sheets, RFX and other data from specific collection effort (from SRM, SPM, or Development Actions) responses, certifications, contracts (including full version history support), other relevant documents (the organization wishes to track), and any critical notes. It also maintains a full-history of interaction with the supplier that can be viewed and queried as well as allowing the supplier to be tagged using category and location tags (that can be defined by both the buyer and supplier.

The Supplier Relationship Management module allows the organization to define supplier reviews, track the results of those reviews, and define actions to be completed by the supplier and followed up on by buyer personnel when the supplier indicates the action has been taken. It’s nothing fancy, but it gets the job done efficiently, and that’s what’s important.

The Supplier Performance Management module allows the organization to design and track KPIs and supplier scorecards in support of processes to measure, analyze and manage supplier performance. The scorecards can be simple or complex across a wide range of metrics and categories. It really depends on what data the organization has and is willing to collect (through surveys) or enter into the application. (At present, it does not integrate with risk/etc. data feeds out of the box, but if these feeds are pushed into your ERP and associated with suppliers and products, that data can be pulled in.) Creating a Performance Review is easy. Once simply creates an instance, and a record for every area, sub-area, and rating that one wants to record. The review can then be sent to as many team members as you want and they can be limited to rating specific areas, sub-areas, or records, as appropriate.

The Action Plans module allows for the creation of specific improvement plans and non-conformance reports for a supplier that needs to improve generally or specifically on one product. The Action Plan modules supports multiple default plans (called forms) that can be used to quickly an initiate a new action plan. The forms can be used as is or modified to the appropriate situation, and the monitoring team can include as many organizational personnel as required. Once a supplier responds, the team can then accept or reject the response, and once all responses have been accepted, the response can be approved and archived. If performance slips or the issue comes up again, an action plan can also be “reactivated” and parts, or all, of the plan kicked-off again.

Layered on top of all of the supplier related modules is a supplier visualization dashboard for non-procurement organizational users and executives that make it really easy to get statistics on organizational suppliers (total, approved, by-size [SME, MM, Large], by type [Product, Services, Subcontractor]) and filter down by category & sub-category, status, and other key identifiers as well as see the (subset of) suppliers on a map. From this primary visualization screen, the user can jump into individual supplier records (with key performance dashboards also displayed)

The contracts module, which revolves around contract governance, is very straight-forward and easy to use as well. Contracts can be grouped by area for easy human location, searched on key metadata and tags, and viewed within the tool. The default meta data is fairly extensive (and can be extended by the organization on implementation) and should capture all of the key information necessary to locate a contract, track expiry, track key terms, and track key clauses. While there’s nothing fancy about the contracts module, we want to re-iterate just how straight-forward it is for an average user to add a contract (addendum or updated version), define or edit the metadata, and locate any contract in the system quickly and easily. Some of the more advanced CLM tools focussed around negotiation support or analytics lose sight of the fact that the average person who needs to retrieve a contract is not a Procurement or Legal or Technology super user and just need a system that follows the KISS principle.

The entire suite also contains a fully modifiable tile-based entry dashboard that allows an average user to define the parts of the application they use, as well as any customized intake forms or application modules, organize them by frequency of access, and see which modules have updated information or new actions assigned to them.

This fully modifiable tile-based entry dashboard with alerts is also the first thing a supplier sees when they login to the platform (and, to complete the tri-fecta, a non-Procurement organizational stakeholder who needs to make a Procurement request, review an RFX, or participate in a supplier development initiative). While simplistic, this is a key feature as you can ensure that supplier or organizational users are not overwhelmed with over-crowded dashboards or 40 menu items they will never use (and likely never understand).

The application is also highly configurable by the client admin who can define the organizational profile and branding, the settings, the certifications it requires from all its suppliers, data-sheet categories, security settings, users and user categories, guides (which can also have an access tile on a main dashboard), default fields for core system objects (requisitions, auctions, supplier profiles, contracts, action plan forms, etc.), supplier onboarding workflow, tags and tag groups, SourceDogg Connect (for ERP and/or organizational data feed pulls), etc. Plus, the SourceDogg team can make additional customizations across the product during implementation and support initial data loads as required.

Finally, they have extensive support guides and courses on their customer web site to help you extract maximum value from the platform. (And those constant iOS/Android action required alerts will dog you through the process of getting things done.) If you’re a SME or MM company looking for a modern best-of-breed S2C (Source-to-Contract) suite (especially in construction/facilities, manufacturing, pharma / health, O&G, CPG, and F&B) to get the job done, SourceDogg is a platform we suggest that you check out.

Procurement Performance is Relative …

… and, specifically, good Procurement performance is relative to how bad you’d be doing without a good Procurement department.

A recent article on the Supply Chain Management Review on how Procurement Costs Increase, But Top Performers See Increased Advantage which quoted a recent study from The Hackett Group, really drives the point home.

The recent Hackett study, which found that Procurement costs did increase in 2023 and now comprise 74% of total spend, as compared to 69% in 2022, for Digital World Class organizations, also found that these organizations did much better compared to peer organizations where costs increased from 89% of total spend in 2022 to 93% of total spend in 2023. In other words, Hackett found that world class organizations spend less overall while also operating at 21% lower cost than their peers and 32% less staff.

In other words, a good Procurement department staffed with educated and experienced buyers will save the organization more than it spends on the Procurement department, while keeping its overall costs below its peers. This means that any organization with a world class Procurement department can not only keep its prices below its peers in a cost conscious consumer environment, but also increase its organizational sales while its peers struggle to hold onto an existing customer base.

It may be hard to see the value of a leading Procurement department when you don’t have one, but these Hackett numbers should make it abundantly clear. 21% lower cost, and spend, on average than peers is substantial. This means that even though your spend will go up year over year in an inflationary environment, the rate of increase will be much less than your peers, giving you a significant advantage. Furthermore, if your organization acquires and installs the right affordable tools, as chronicled in our series on how much should you pay for Source-to-Pay, including our article where we explicitly said Yes Mid-Markets, 120K is More Than Enough for Source-to-Pay!, you can see multi-million ROIs in the 8X to 26X range, depending on your annual spend and Procurement maturity level (that determines how much spend you can push through the platforms).

In other words, while you can never put an absolute value on cost and Procurement value as that depends on constantly changing market conditions, you can put a relative value on best-in-class Procurement operations, and that value is 21% better than peers. Twenty One Percent. Think about that the next time Procurement asks for more senior buyers to put more spend under management or better platforms.