Contract Lifecycle Management VII: Do You Know What The Nice-to-Haves Are?

In Part I of this series, we argued that CLM, short for Contract Lifecycle Management, while arguably one of the most humdrum acronyms in the Supply Management space, is also one of the most important. This is because, as summarized in Part III of this series, it overlaps S2C, P2P, and, as a result, S2S/S2P as well as intersecting with risk management, performance management, change management, and supplier (relationship) management. In other words, CLM touches almost every aspect of Supply Management and is taking a central place in your Supply Management organization.

However, as noted in previous posts, up until now, CLM has not been well defined and the best definition, which could arguably be that given by Gartner (see Part I), has been, more or less useless, because you already know proper CLM is a good process supported by a great platform. What you need to know is what that platform is as vendors, analysts, peers, and even professional organizations don’t, or won’t, tell you. That’s why, in a landmark effort, Sourcing Innovation and Spend Matters, as the two leading independent authorities on Supply Management, led by the doctor, the maverick, and the prophet, have joined forces to define, publicly and openly, the core Supply Management platforms, starting with CLM.

In prior posts we elucidated the need for a core CM (Contract Management) platform because traditional Supply Management platforms aren’t enough, in Part V we outlined the must-have core capabilities of a CM platform, and in Part VI we discussed the should-have capabilities that should be mostly present in any market-leading contract management platform.

Today we are going to outline all of the nice-to-have capabilities of a contract management platform, discuss a couple of them, and then refer you to “The Extended Contract Management Platform”, part seven of the landmark ten-part series co-authored by the doctor, the maverick, and the prophet over on Spend Matters Pro [membership required], for an in-depth discussion of each nice-to-have capability.

To make sure there is no confusion, a nice-to-have capability is a capability that, while not present in most solutions, can greatly increase the power, usefulness, and even the value of a Contract Management solution to your organization.

The following capabilities are defined as nice-to-have:

  • Contract Negotiation with Complex Pricing Support
  • Budget Management
  • Asset & Resource Management Tracking
  • License Management
  • Discrepancy & Sanity Checks
  • Violation Detection
  • Full Analytics
  • Contract-Based Project Management
  • Multi-Tier Contract Management
  • Process Integration with Sourcing, SRM, & GRC Platforms

As with the set of core and should-have capabilities listed in our previous posts, most of these you probably expect, and for some of these you probably have a fairly good idea why (even if you are not sure exactly what functionality is required for a proper implementation), but one or two of these are probably unexpected, including budget management and integration to 3PM/SRM (Third-Party Management / Supplier Relationship Management) & GRC (Governance, Risk, and Compliance) platforms. We’ll discuss budget management in this post, but refer you to The Extended Contract Management Platform, part seven of the landmark ten-part series over on Spend Matters Pro [membership required] for complete details on the other capabilities.

Budget Management is important because while spending should be against, and is supposed to be measured against, budgets, budgets are typically entirely disconnected from the Sourcing and Procurement process as they are created in the Finance system and typically not captured in most Sourcing and Procurement systems. However, once a contract is created, all spending on that contract needs to be tracked against the budgets that are impacted. Performance from Finance’s view is that not only is all spending covered by the contract made on contract at contracted rates, but that the impacted budget categories are also respected. If the contract is for office supplies, computing equipment, consulting services, etc., then just because all of the orders and invoices are compliant against the contract, it does not mean that the budget is being adhered to. If a department’s budget for office supplies is $10,000 and the department orders $20,000, it doesn’t matter if the savings was 20% if the department spent 100% more than they were supposed to. And since Contract Management naturally overlaps Finance, it’s a perfect place for budget management capability.

However, every other nice-to-have capability listed above could be just as valuable to an organization, and to understand why, and what the platform has to support with respect to those nice-to-have capabilities, check out The Extended Contract Management Platform over on Spend Matters Pro [membership required], part seven of the doctor, the maverick, and the prophet‘s landmark ten-part series fully defining CLM.

How Should Your Procurement Department be Organized?

Earlier this week we talked about the importance of a Procurement Centre of Excellence (CoE) with functional excellence in key processes that can elevate the efficiency and effectiveness of the organization against its goals and objectives (as well as stating that this does not mean you form CoEs within CoEs as that’s just redundant), but this whole topic begs the question, how should the Procurement department be organized?

When it comes to a departmental organization, there are three common theories as to how a Procurement department should be organized, which included decentralized, centralized, and centre-led. These days most consultants either preach centralized or centre-led. There are advantages and disadvantages to each model, and the best model will depend on the needs of the organization and, often overlooked, the suitability of the organization to the CPO’s leadership style.

In a centralized Procurement model, all Procurement is directed through a single, central organization. This has many advantages as it allows corporate spend to be fully leveraged, sourcing processes to be standardized, team knowledge to be captured and documented, and best practices to be improved through continual execution by a central team. However, the localized expertise that was specific to a business unit is often lost, maverick buying increases when local site managers do not agree with the centrally mandated decisions (and there is no technology platform that can be used to enforce the decisions), and reaction time to localized disruptions increases.

In order to try and minimize, or negate these disadvantages, some of the more advanced Supply Management organizations moved to centre-led models to try and achieve the best of both worlds. In the centre-led model, the organization forms a a centralized procurement centre of excellence (COE) focused on corporate supply chain strategies and strategic commodities, best practices, and knowledge sharing that leaves individual buys and tactical execution of categories that are not worth sourcing centrally to the individual business units. With appropriate category balancing, the centre-led model is believed to provide the best of both worlds — all of the advantages of the centralized and classic decentralized model of Procurement with minimal disadvantages.

However, until the specific needs of the organization are analyzed and the management style of the CPO is taken into account, it is hard to say which model is better. For example, if the organization is very centralized in its operations, and the individual departments, or heads of, are all in the same geographic area, then the perceived disadvantages of centralization are not there. There are no geographically dispersed units that can easily ignore the directives from a centralized organization, no delayed reaction times as the centralized team can quickly interact with the individual departments, and the localized expertise can be involved whenever it is needed. Moreover, there’s nothing to prevent a centralized organization from having a centre of excellence. The centre of excellence (CoE) is simply part of the Procurement team that focusses on best practices, market intelligence, education, and support for the rest of the team.

So the answer is, it depends on what’s right for the organization, as long as what’s right is identified, and built, with the goal of enabling and supporting a CoE in mind.

In Sourcing, B2C cannot replace B2B, but B2B can learn from B2C.

As long as it doesn’t go app crazy. For years the doctor has been hearing about how mobile is the next big thing in Procurement, and even though mobile hasn’t really caught on, now a handful of vendors are staring to talk about how apps are the next big thing in Procurement. This is a bit ridiculous. When it comes to Procurement, there’s not an app for that. Can you really get market intelligence from an app? Can you really do spend analysis in an app? Can you really do should cost modelling in an app? Think about what “apps” on your “smart”phone really do. Take a few notes. Convert a few units. Play a simple game. Check your bank balance. Store your boarding pass. Simple, discrete tasks. Nothing about strategic sourcing or enterprise Procurement is app friendly.

But enough ranting. Today’s post is about how B2B can learn from good B2C technology. In particular, how B2B can learn from B2C for:

  • total purchase cost calculation
  • order and requisition management
  • collaboration management

These days, thanks to a number of web sites, consumers are becoming smarter when it comes to analyzing the total costs associated with big purchases like cars and houses as a number of sites, including AAA/CAA and BoA/CMHC, have calculators that allow the buyer to understand the total cost of buying, and maintaining, the vehicle or house they are considering including taxes, insurance, and other incidental costs. These consumers, who are not experts in car or house buying are using templates built by people who are experts to do total cost calculations.

B2B Procurement can learn from this and create sourcing and procurement platforms that come with built-in cost model templates for common categories of direct goods and RFX templates that can be used in sourcing common indirect categories to ensure that the organization asks the right questions, collects the right costs, and makes the right decision. The reality is that across an industry, indirect spend categories are common and there’s no reason that an organization can’t source a solution with pre-built templates for the common indirect categories it sources, which will likely constitute 90%+ of indirect spend. Unless the category is high-dollar, there’s not much point paying a large amount of money to a third party organization, even if the third party is an expert, because it is not likely that the savings will be enough to justify the cost. For most indirect categories, this is likely to be the case.

In 2009, AMR did a study that found that, in an average organization, 30 cents to 40 cents of every negotiated dollar of savings never hit the bottom line. There are a number of reasons for this which include, but are not limited to expedited shipping, volume increases, and maverick spend. In many cases, the biggest culprit is the latter — maverick spend. Maverick spend typically happens because a purchaser is unaware of a contract, unaware of how much it costs to buy off contract, or frustrated with the difficulty of buying on contract with current systems. (It can also be the case that the purchaser doesn’t care because they’re not in Procurement, but this usually isn’t the case.)

This situation can easily be rectified by incorporating some features of best-of-breed consumer shopping technology, such as that employed by Amazon.com, that not only allow a buyer to find the product or service they need, but see which of those are on contract. In other words, just like a search on Amazon.com can find all instances of that book you want, and, if you desire, only show you those eligible for Prime, a Procurement platform that enables a buyer to find all instances of a product they are searching for in an integrated catalog that contains all products and services available from approved vendors — whether in a punch-out site, an online database, or an offline catalogue (maintained by Procurement) — and see which of those are on contract can enable on-contract requisitions and purchase orders. Plus, since it will be easier to buy on-contract than to buy off-contract, there will be a lot less circumventing of the system.

And when it comes to collaboration, B2B can actually learn from best-of-breed professional, and even social, networks and communication platforms. For example, Linked-In not only allows a user to post their resume and connect to fellow professionals, but it also allows them to join discussion groups that allow them to post relevant information on a topic and comment on it. And sites such as join.me and Webex allow for real-time virtual meetings and collaboration.

Incorporating these types of technologies into a Procurement Project Management program allows for collaboration to not only take place on line, but all collaborative communications to be maintained and archived in the platform. This not only helps with conflict resolution, but it goes a long way to preventing disputes in the first place as the platform captures all communications and allows each party to see what it agreed to.

B2B technology can be improved by taking the best B2C innovations and appropriately incorporating them into B2B platforms, but it has to be done intelligently. Not all consumer technology is B2B appropriate, especially if it was designed for C2C purposes, and apps are prime example. However, as it has historically been the case that many innovations start in the consumer space, it’s no surprise that B2B can be improved by appropriating appropriate consumer technologies. It just has to be the right technologies appropriated in the right way and put to the right use.

Procurement Myths Debunked! Part II

Over on spendmatters.com/cpo, the maverick has been doing a great job knocking out Procurement myths one by one, with twenty (20) down and five (5) to go. While the doctor did not co-author this series, as per a post this spring, he did consult on them and believes that all of these are myths that you need to be aware of.

The next 10 myths are:

  • Sourcing is Better than Supplier Management for Value Creation
  • Efficiency and Effectiveness: You Can’t Have Both
  • Apply the Kraljic Model to Spend Category Procurement
  • Technology is Only a Tool
  • Procurement Owns Spend Management
  • Procurement ROI is the Single Best Procurement Metric
  • “No PO, No Pay” is a Best Practice
  • Spend Category Taxonomies are Hierarchical
  • Procurement Needs a Mandate
  • Supply Management is a Department

Of these, the doctor‘s favourites are:

  • Technology is Only a Tool
  • Efficiency and Effectiveness: You Can’t Have Both
  • Spend Category Taxonomies are Hierarchical

Technology is not just a tool, it is a transformation engine that allows its users to be more efficient, effective, and transformational. It’s a process enabler, and the process at the same time. The level of your technology is directly proportional to the level of your Procurement maturity.

With the right platforms that enable the right processes, Procurement can be efficient and effective. It can also save money and provide increased value generation opportunities. For example, using technology enabled marketplaces to identify more sustainable suppliers can not only cut costs but also increase value as it gives marketing more to work with and allows the organization to increase brand value, which correlates to sales, with less effort and less money.

Finally, there is no one taxonomy, and if there was, it definitely wouldn’t be hierarchical. Products can be grouped by function similarity, component similarity, and department or geographic utilization, for example. Services by function, geography, and strategic nature, for example. Products and services can be mixed or kept separate. The best category definition at any given time will depend on market conditions, supplier capability, and projected utilization over the expected duration of the contract.

Supply is fluid, and Procurement must be as well to keep up. And it definitely must avoid the traps laid by the common Procurement myths.