Category Archives: Procurement Innovation
Oversight for more than just your Travel & Expense budget management
Oversight is an Atlanta-based software (as a service) company founded back in 2003 to help organizations monitor spending in an effort to identify errors, waste, misuse, and fraud in the grey area of enterprise spend. As every recovery firm will tell you, the average organization will overspend by 1% to 3% as a result of over billings, duplicate billings, unnecessary spend on superfluous demand, maverick spend, and even fraud. (And they make their living recovering a portion of that, typically a third, and then charging you 33% of the recovery as their fee. Sounds small, but 1/3 of 1/3 of 3% of spend is 0.33% of spend, and if the organization spends 100 Million, they get 330,000 for an effort that can be largely automated and, even worse, be avoided with proper up-front spend monitoring.)
For example, if all invoices are compared to invoices and goods receipts before payments are authorized, this can prevent overpayments. Duplicate billings can be identified in the same way (and duplicate payments prevented). Potential fraud can be identified by forcing all invoices from unknown suppliers, for unknown products, or for unexpected amounts to be manually reviewed. (This can’t prevent in-house fraud, where a buyer pays a fake invoice to a fake company controlled by a relative, or a co-conspirator, but it can prevent external fraud.) Unnecessary spend on superfluous demand will require up front requisition control, as will maverick spend, but at least there will be no overspend or duplicate spend that can be unrecoverable once the contract with the supplier expires.
Oversight is unique in that it is not so much a software platform but an insights platform. Employing a team of data scientists focussed on identifying new algorithms and techniques for fraud detection, Oversight uses their in-depth knowledge of fraud to build solutions that will help the clients identify potential cases of fraud that they could never hope to identify on their own. The best most companies can do is sample based audits and spot checks which are unlikely to identify much fraud as these will generally only be on a few percentage of invoices or transactions, and most employees who have been getting away with fraud for a while will not be doing anything obvious, and the fraud will not be detected without correlations across documents and systems. That’s where Oversight comes in.
The Oversight solution is a web-based software solution for automatic spend analysis and identification of high-risk or potentially fraudulent transactions that comprehensively analyzes T&E, purchase card, and accounts payable spend using a suite of statistical, clustering, data mining, break point, rule-based, evidentiary reasoning, and machine learning algorithms that look for discrepancies, suspicious patterns, known fraud, and risk indicators to identify those transactions that need to be manually reviewed. The dashboard-driven, or work-bench driven, interface allows an analyst to drill into suspicious transactions by country, organizational unit, risk level, or exception type and can be configured to show the analyst only those exceptions assigned to her, or her team, or every unresolved exception in the system.
When a user drills in by exception type, she sees an overview of the overall risks by country and can drill into suppliers to see the specific exceptions. When a user drills in by country, she can see the overall risk by supplier and then by exception. In other words, she can drill into at-risk transactions using country, organizational unit, supplier, and at-risk type in any manner they please.
Or, they can look for exceptions by process. Right now, Oversight supports the identification of at-risk transactions in the travel & expense, procure to pay, and purchase card processes and has recently added support for FCPA, Anti-Bribery, and Corruption Risk — including the identification of known politically exposed parties.
Plus, the platform not only integrates with all of the big supplier and financial data providers — such as Dunn & Bradstreet, Bureau van Dijk, and CreditSafe — but also integrates with providers of risk indicator data such as Ecovadis and Sedex Global. Plus, they maintain their own databases of known politically connected parties, gentlemen’s clubs, denied parties, and other parties that an organization typically should not be allocating funds to. This last capability is quite important … just ask American Express which once received a 241K strip club bill authorized by the CEO. (Source: ShortNews)
Since fraud attempts differ by country, and collusion is hard to detect with a standard m-way match invoice processing platform, Oversight brings a powerful offering to the expense management space. It’s a platform worth checking out. For a deeper dive into the platform, check out the recent coverage by the doctor and the prophet over on Spend Matters Pro [membership required]. (Part I is up with Parts II and III coming within a week.)
MBAs, for those of you who are hard of hearing … you have to put Procurement first!
We told you last Friday that whether or not you were 100% convinced, you have to put Procurement first. Hopefully some of you listened, but I’m sure some of you didn’t. Even though the seventh rule of acquisition is that you should always keep your ears open.
We will again start by reminding you that your organization depends on goods and services provided to it by suppliers. Those goods you sell come from somewhere, and even if the goods are made in house, the components and raw materials will come from suppliers. The days where a company was vertically integrated down to the raw material extraction and production are lone gone (and it’s all your fault — you started the outsourcing and “right”-sizing craze, and now you get to live with the consequences).
And the individuals selling those goods and services are your brethren (from another school) who have the same training, follow the same rules, and never forget the the one hundred and eighty first rule of acquisition that says that not even dishonesty can tarnish the shine of profit. They use the same tactics you do and sell the sizzle, not the steak, as per the one hundred and fifty third rule, and if that’s not enough, they’ll use the one hundred and sixty eighth rule and whisper their way to success.
And only Procurement understands this. They are trained to look past the sizzle, tune out the whispers, and look for the shadiness behind every corner. Procurement knows that, by default, satisfaction is not guaranteed (as per the nineteenth rule of acquisition) and that sales people live by the thirty ninth rule and don’t tell customers more than they need to know.
Like you, your MBA brethren trying to sell into your organization are trying to figure out how to learn the customer’s weaknesses, so that you can better take advantage of him (as per the eighty seventh rule). If you don’t want your profits to become their profits, you better make sure they only deal with someone that is tight lipped and won’t give away the farm … like a hard-hitting Procurement Professional. Plus, if they came from Engineering, you give your organization a bit of an advantage. Your brethren know to beware of the scientist’s greed for knowledge, as per the seventy ninth rule, and sometimes an Engineer can catch them off guard.
Who else besides Procurement knows that as far as MBAs are concerned, MBAs are not responsible for the gullibility of others (the sixty ninth rule) and that they will never give up because faith moves mountains … of inventory (as per the one hundred and fourth rule). And only Procurement lives by the rules that only fools pay retail (which is the one hundred and forty first rule) and that you should know your enemies … but do business with them always (as per the the one hundred and seventy seventh rule).
MBAs, If You’re Still Not 100% Convinced You Have to Put Procurement First …
… we’re going to make it even clearer in today’s post.
Let’s start by reminding you that your organization depends on goods and services provided it to by suppliers — suppliers who have also invested heavily in sales and marketing, and sales especially, in an effort to make sure they gouge as much cash out of you as they can. They’re always on the hunt to find those organizations with the least educated, experienced, and supported buyers that they can take the most advantage of while you are focused on marketing, sales, and revenue increase. And the more successful you are at fattening the revenue stream, the more successful they feel they can be. After all, they know the Rules of Acquisition as well as you do, and they are going to apply them to your fullest.
Those MBAs selling to your organization live by the first rule of acquisition which says once you have their money, you never give it back, so you better do all that you can to make sure you hand over no more than you need to, because even if you have what looks like an iron-clad contract that says you handed over too much, good luck recovering any funds without spending additional funds to get the lawyers involved. That will quickly wipe out any recovery you might realize. This means that you need to support Procurement in strategic sourcing to identify deals with value, support Procurement in their efforts to negotiate solid contracts, and support Procurement in their efforts to implement best-in-class e-Procurement software with m-way invoice match that insures that an invoice is not allowed to be placed in the payment queue unless the goods have been received and the invoices amount matches the contract or purchase order amount without an executive override that leaves a full, unalterable, irrevocable audit trail.
A properly supported Procurement department is in the best position to ensure that the third rule of acquisition is enforced. Their job is to make sure you never spend more for an acquisition than you have to . Similarly, as they are often charged with risk management, they are naturally in tune with the eight rule of acquisition, small print leads to large risk and are not likely to accept seller paper unless it has been thoroughly vetted by legal, even if it means that Engineering or Manufacturing or Marketing have to wait a little longer for their goods or services.
Plus, a great Procurement organization knows the eleventh rule of acquisition by heart, even if it’s free, you can always buy it cheaper. They know that every initial quote has a considerable margin built in, any value add that is “free” is included in that margin, and that if it really is “free”, it’s probably not worth anything, and the reason it’s free might just be because it would cost the seller more to pay someone to take it away or haul it to the recycling depot than give it to a customer as a “thank you” for the deal, on the condition the customer pays to have it shipped.
You know deep down the tenth rule of acquisition is the truest of all the rules. Greed is eternal and your suppliers are as greedy as you are, so while you’re out there doing what you do and living by the second rule of acquisition, the best deal is the one that makes the most profit, you need someone minding the fort making sure that deal is not undermined by a an even more cunning supplier. Remember the sixty-sixth rule of acquisition, someone’s always got a better sense for business, and only Procurement stands in the way of them getting the better of you.
Virtual Procurement Centers of Excellence: The Next Level of Complex Direct Procurement
We have already discussed Value-Based Sourcing in Complex Direct Supply Chains and how it can generate an ROI well beyond what cost-savings focussed Procurement can generate on its own. We also indicated that a key requirement of success for value-based sourcing was a platform designed for complex direct procurement, and outlined the basic requirements for such in previous posts.
However, the right platform not only allows Supply Management to extract more value from every event than it would otherwise, but, when properly implemented, also provides the foundation for a Virtual Procurement Center of Excellence — a VP-COE if you will. A VP-COE is the next phase of Procurement Evolution for leading Procurement organizations that have evolved from decrentralized models through centralized and center-led models but which now need another evolutionary transformation to excel in today’s increasingly sophisticated global supply chains.
Today’s leading Procurement organizations are center-led. These Centers-of-Excellence are focussed on the identification of appropriate supply chain strategies, strategic categories, best practices, and knowledge sharing and often leave individual buys and tactical execution to the individual units in an effort to get the best of both worlds.
These centers of excellence typically build cross-functional teams to tackle strategic categories that represent all of the key divisions and business units, allow for the creation of flexible supply chain processes and commodity strategies through collaboration, and find ways to fully leverage strategic category spend across the enterprise. They, theoretically, give the organization the best of both worlds and many organizations that employ this model have evolved to be leading Procurement organizations, often recognized in the Hackett Group Top 8%. But is this as good as it gets?
Not even close. The view painted by consulting organizations offering to transform your Procurement organization into a COE is one shared through rose coloured glasses. First of all only high dollar “visible” strategic categories will make the cut due to the limited manpower and additional time required to manage global communications and project teams. A lot of spend will go unmanaged, and a lot of opportunities left untapped. This does not sound like the definition of a true center of excellence to us. Does it sound like a true center of excellence to you?
The long and short of it is, in order to get all spend under appropriate management in a large, distributed, global organization, a virtual procurement center of excellence is required.
So what, precisely, is it and what, precisely, do you need to enable it? Good Questions! And you will find the answers in Sourcing Innovation’s latest white paper The Benefits of a Virtual Procurement Center of Excellence for Complex Direct Procurement, sponsored by Pool4Tool. Download Now! [registration required]