Category Archives: Procurement Innovation

“Best” Procurement Organization? What “Best” Procurement Organization?

A recent post by the maverick over on Spend Matters asks “Does the “Best” Procurement Organization in the World Exist”? There’s the long answer, which the maverick gives, and the short answer, which the doctor will give.

Question: Does the “Best” Procurement Organization Exist?
Answer: No!

There is no best, at least, as the maverick explains, as a whole.

The reasons for this, as detailed by the maverick, include, but are not limited to:

  • direct vs. indirect
    there are organizations “best” in direct, “best” in indirect, but typically not “best” in both
  • categories
    there are organizations that excel in certain categories, direct or indirect, but not other direct or indirect categories
  • trade secret
    organizations that are, or at least believe they are, truly ahead of their peers tend to keep quiet, thinking this provides them a competitive advantage
  • inbound vs outbound vs omni-channel retail
    most organizations tend to excel in one of these supply chains
  • operational efficiency
    which allows an organization to attack more categories than their peers

But also include the following:

  • market intelligence
    detailed supply market and pricing knowledge that can be used to the organization’s advantage
  • modelling capability
    to build accurate should-cost models using raw material, labour, energy, and overhead data to understand the gap between market pricing and actual costs and whether or not it is a fair profit margin
  • optimization-based negotiation
    to get the truly best price during the organization’s sourcing exercise

There are a host of factors that make a “best” Procurement organization, and all of them need to be met for an organization to be “best”. And since no organization is best in all of them, there is no “best”. But the good news is that not only is there room for improvement, but it’s easy to identify where the improvement needs to happen, to make the improvement, and surpass your peers. Fortunately, to win the game, you don’t have to be “best”, just “better” than your peers. Improve on each of these eight dimensions, and your organization will be on the fast track to getting there.

Why Finance is Failing Procurement

Today’s guest post is from Pierre Mitchell, the maverick of Spend Matters, who needs no introduction.

I’m doing a 5-7 minute poll (here) on Procurement-Finance misalignment (in conjunction with ISM).

This poll is basically geared around the question below regarding what Finance needs to do differently.

The long version takes about 15-20 minutes, but gets you entered to win an Apple Watch or one of 10 Spend Matters PRO monthly subscriptions.

I’m presenting provisional results at next week’s ISM Conference, and I’m going to take a snapshot of the data this Friday and need some good provisional data to present!

So, if you are a practitioner (and I apologize for not reaching out 1-to-1) I would like to personally appeal to you to take the 5-7 minutes required to help the profession build this case for change.

If you are a provider, I would greatly appreciate if you could pass this on to any of your practitioner contacts this week.

The study link that you can forward is here: http://bit.ly/ProcurementFinanceAlignment2015.

Thanks!

And here’s the question in question …

How can Finance reduce misalignment with Procurement and unlock impactful value for your firm?

Please choose all that apply that would have a favorable and meaningful impact on your performance.

These items would have a favorable and meaningful impact:

  1. Don’t reduce working capital at the expense of supplier health and TCO
  2. Look beyond headcount reductions for project justifications
  3. Provide more resources to get spending, contract, and savings visibility in place (for mutual benefit)
  4. Include Procurement in upstream strategy & planning activities (M&A, JVs, Innovation, Tax Efficiency, Variabilization, etc.)
  5. Fix the “use-it-or-lose-it” budgeting process that encourages end-of-period spending
  6. Establish a more effective procurement involvement/approval policy and process
  7. Be an advocate, enabler, and leader for strategic cost management processes/ practices
  8. Help manage external expenditures with the same rigor that is applied to internal expenditures
  9. Provide Internal Auditors and Controllers as change agents to help Procurement
  10. Treat procurement as a true partner and a profit center rather than just another cost center
  11. Don’t try to use the General Ledger as a spend data warehouse
  12. Move A/P from a payment efficiency focus to a spend management effectiveness focus
  13. Measure Procurement on value beyond purchase cost reductions (especially PPV)
  14. Help get Legal involved appropriately in the contracting process as an enabler and partner
  15. Help coordinate and prioritize corporate risk/compliance activities that should be taken out to the supply base coherently
  16. Get a supplier master data management process and policy that works for everyone
  17. Invest in needed supply risk management capabilities to help protect the business

Hi-ho. Hi-ho. It’s Off PO We Go!

Or do we?

A few years ago Jason the prophet Busch wrote a post over on Spend Matters that asked “can (and should) we eliminate purchase orders (POs) entirely”? In the post he quoted Tom Linton, CPO & Supply Chain Officer at Flextronics, who suggested that we eliminate POs entirely as a result of his mandate to eliminate work before you automate, automate work before you move it and always make sure you improve outcomes in any given scenario.

Mr. Linton is entirely right — there’s no point in automating unnecessary work. And in many circumstances Purchase Orders are entirely unnecessary. If the contract specifies a delivery schedule with approved rates, then there is no need for a Purchase Order since it would just be replicating what’s in the contract. Similarly if it’s for services and approved projects, resources, and rate-tables are defined against a project schedule (unless overtime exceeds the maximum overage allowed).

In this situation, you can just conduct the 3-way match against the goods receipt and the contract when the invoice comes in and you are still certain that you have payed the right price for the right good from the right supplier at the right time.

But what about the situation where there is no (master) contract? What then? You just match the invoice to the goods receipt? I hope not! In this situation you can verify you are paying for the right goods from the right supplier at the right time — but not the right amount. You need to verify that the price is right (because, as the line goes, it can all be yours if the price is right). So in in this case you need something. A requisition? Nope – that’s not sent to the supplier, that’s sent to your supervisor/manager for approval. A one time contract for a single purchase? Isn’t that just a purchase order?

The purchase order can’t be eliminated, because proper purchasing procedure dictates that all purchases should be for approved products from approved suppliers at approved prices and such approvals should be documented in some form — be it a contract schedule or rate card, purchase order, catalog, or approved rate range for a T&E expense — and there are some instances where the only viable option will be a purchase order.

But an effort to eliminate as many purchase orders as possible will be a good and productive one because, like invoices, each and every purchase order comes with a processing overhead cost that adds up and costs the organization significantly over time.

The Evolution of Purchasing


Today’s guest post is from Lisa Nyce, Senior Project Analyst for Source One Management Services, LLC. Source One is a leading provider of sourcing consultancy and category management services.

Over the years, purchasing has become more strategy-oriented, rather than transactional. Purchasing professionals have evolved from the processing of traditional purchase orders and similar responsibilities to involvement in higher value and higher impact ROI projects. Technological advances enable purchasing professionals to offer so much more to an organization today. So sit back, buckle up, and get ready to navigate through a number of drastic transformations – we’ll show you how to become a more involved player by taking advantage of a shifting technological landscape.

Procurement pros have a growing number of tools in their arsenal to help make their lives easier and their projects more successful:

  • Spend Analysis Software – Get a better understanding of the Total Cost of Ownership (TCO) of goods and services. To get the most out of any software, the backing of the supporting department and program is essential. For example, with supplier relationship management software, a thorough strategy containing performance management and risk mitigation plans allows a software solution to serve with a full-circle advantage.
  • Cost Savings Tracking – identify cost savings opportunities and aid in the verification of implementation. Aside from the straight-forward benefit of tracking immediate cost savings, these tools can be used to remain competitive by ensuring that these savings are sustained over time and supplier rates remain locked at negotiated levels.
  • Supplier Report Cards – Ensure that expectations are being understood and met by both suppliers and internal stakeholders. These serve as an asset as new technology is presented and suppliers are scorecarded for future endeavors. As the technological landscape shifts, suppliers who don’t “keep up with the times” can be eliminated.
  • Stronger Legal Controls – minimize the need to involve a legal department or outside counsel when engaging in contractual negotiations. As heavily-regulated industries see a new or adapted regulatory climate, these legal controls assist in preventing penalties or a stigma attached to a brand as a result of internal or third-party noncompliance.

Purchasing has been incorporated into the more inclusive Supply Chain operation – it is no longer just a function of buying what is needed at the right time, at the right price with the right quality. Supply Chain activities encompass Strategic Sourcing, Supplier Relationship Management (SRM), Logistics, Planning and Quality. All of these new factors make purchasing a strategic function and the key to being able to meet or exceed the customer’s expectations.

New options abound for management and procurement professionals alike

Organizations have reduced the number of individuals required to get work done. Thirty years ago a typical Purchasing Department could include a Purchasing Manager, Buyers, expediters and clerks. That amount of manpower is simply not needed today. Electronic efficiencies have virtually eliminated clerical positions, and due to more efficient MRP systems, transactions are completed in less time allowing more time to source strategically, build stronger relationships with suppliers, and engage more with customers and stakeholders. Furthermore, employers today have many more options for staffing.

There are permanent, temporary, contract-to-hire, and various staffing options specific to the procurement industry. Procurement consulting is a viable option for companies wanting to obtain subject matter expertise on a particular spend category.

Likewise, supply chain professionals have access to a wider range of educational options to up their game: Logistics, Planning, Procurement, Supplier relations to name just a few. Not only are degrees available in Supply Chain but certifications from accredited institutions and groups are also available to a much greater extent.

The evolution of the Purchasing function has developed and will continue to do so. The change is necessary for organizations to continue to prosper. To stay ahead of the curve, remember to always monitor developments and consider what areas of improvement are possible – this will pave the way to not only personal gains but also further changes in the industry.

Thanks, Lisa.

Source-to-Settle – The Sourcing and Procurement Kettle

Source-to-Settle is the end-to-end integration of sourcing and procurement, starting with spend analysis and ending at spend analysis. It is the integrated workflow that starts with sourcing event identification, proceeds through e-Negotiation and Award, and ends with the creation of a purchase order, the receipt of goods and an invoice, and the e-payment for goods received and includes everything in between.

There’s a lot involved in the source-to-settle process, and often a lot more than can be found in most sourcing and procurement modules and stand-alone best-of-breed suites. As indicated in our last post, there is the need for accuracy — to insure that savings are not lost and the right categories are identified. There is also the need for compliance — with insurance and regulatory requirements, with contracts and pricing, and, most importantly with SOX. And results only come from efficiency and performance — which requires integrated, streamlined processes, supplier performance management, and collaboration.

It’s a tall order, but an organization that doesn’t keep PACE never realizes the value that results when there’s one integrated workflow, one complete spend repository for spend analysis, and one, 100% accurate, view of the truth.

For deeper insight into how an end-to-end integrated Source-to-Settle solution can allow your organization to keep PACE and deliver value beyond what you may have thought possible, download Sourcing Innovation’s latest white-paper on how An Integrated Source-to-Settle Platform Brings Unparalleled Benefits to Supply Management and register for Ivalua’s upcoming webinar on how to Help Build Your Business Case Today on January 28 @ 11 PST / 14 EST / 19 GMT!