Category Archives: Procurement Innovation

A Hitchhiker’s Guide to e-Procurement: Analysis, Part II

Mostly Harmless, Part XVIII

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In the last post, the analysis process was discussed and some of the basic questions were defined. This post will address the some of the associated challenges of the analysis process, some associated best practices, and the benefits that could be expected from an appropriate e-Procurement solution.

Common Challenges

The literature will claim that there are many challenges with regards to spend analysis, and that these challenges will revolve around data cleansing, data classification, and data enrichment, but the reality is that there are generally only two real challenges: access and analysis.

  • Data Access

    In order to do data analysis, an analyst needs access to the majority of the relevant organizational data that represents at least 90% of the spend in the categories that the buyer wishes to analyze. Without a centralized e-Procurement system, this can be difficult as some spend will be in the ERP/MRP, some in the accounting systems, some in the P-Card system, and some in various departmental systems.

  • Insightful Analysis

    Top N reports are not analysis. Spending trends are not analysis. Automated reports are not analysis. Analysis is the ability to slice and dice the data eight ways from Sunday to allow for the identification of unusual spending patterns that represent true savings opportunity.

Best Practices

  • Force Every Purchase Through the e-Procurement System

    Forcing every purchase through the system not only significantly reduces maverick spend, but it provides a centralized repository of all transactions which provides a solid foundation for spend analysis.

  • Force Every Payment Through the e-Procurement System

    If the e-Procurement system does not support e-Payments, insure that it supports a record of payment against each invoice and that all payments are loaded into the system and cross-referenced with associated invoices, goods receipts, and purchase orders. This is necessary to take spend analysis to the next level. While many vendors will claim that only AP data is needed for spend analysis, the reality is that AP, invoice, and purchase order data is needed for spend analysis. Without the m-way analysis, it is impossible to tell if overpayments, which could be recovered, were made. Without the m-way analysis, it is impossible to identify all maverick spend, which is the first step in reducing future maverick spend. Etc.

  • Do Ad-Hoc Analysis Whenever There is a Possibility for Savings

    Traditionally, data analysis was avoided because the cost of analysis was high relative to the savings potential. However, with the right tool, the cost of an ad-hoc analysis is no longer the five or six figures it used to cost, it’s now three or four figures — which makes even a maximum five figure savings opportunity worth analyzing, especially if a preliminary analysis can be done in an hour or two! Even if only one in ten hunches pays off, if it only costs $1,000 of an analysts time to do an analysis, and the one pay off is $100,000, that’s a 10X ROI.

Potential Benefits

  • Savings

    Real analysis will identify overpayments that will lead to immediate savings. Real analysis will identify maverick spending, which will lead to more savings when it is prevented. Real analysis will uncover new savings opportunities, which will lead to more savings. Real analysis is savings.

  • Better Procurement

    Finding and eliminating maverick spend through better processes leads to better procurement. Understanding spending patterns leads to better procurement. Saving money leads to better procurement.

Once the analysis is complete, it is time to review and update the catalogs and contracts, which is the subject of the next post.

Next Post: Catalogs & Contracts, Part I

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Has Coupa Settled on a Coupe? Part II

In our last post we discussed how, when Davie ran The Coupa Factory, their strategy was innovation focussed and they were constantly charging ahead in their efforts to bring Procurement Independence to the masses. However, lately, it seems that Coupa‘s strategy has shifted from “build a better platform and they will come” to “get the customer and then build them a better platform”. While not much of a change, it’s a change nonetheless and it appears to have affected their rate of innovation. Furthermore, it has been accompanied by a shift from groundbreaking new features to even flashier UIs, iPhone apps, and streamlined ERP integration. [Either that, or they’ve been celebrating all those new customer wins with The Coupa Drinking Song. ] While these features are important to the tactical buyer, they don’t add value to the strategic parts of the procurement process.

This isn’t to say that Coupa has stopped developing, or that some of their new features aren’t impressive, especially where the average buyer is concerned, but that their rate of innovation for the last year and a half just doesn’t compare to the Coupa of old. And while it is to be expected that the rate of innovation will drop as a company matures, if the rate drops too fast, the company risks going stagnant, and that would be troubling. However, what is really troublesome is that Coupa hit upon two areas in real need of innovation in their latest release, but appear to have completely missed the point on how to bring that desperately needed innovation to the masses (unless it’s still a work in progress, but why not go for the big win before anyone else beats you to the finish line?). However, that’s the subject of our next post.

For now, let’s review what they have accomplished in their latest release, as a few of the features are quite useful and still unique to the space.

Drag-and-Drop Expense Management

One of the developments Coupa seems quite proud of is the ability to snap a photo of a receipt with your iPhone, e-mail it to your Coupa account, log in to the system, bring up expense reporting, and then drag it to an expense category in an expense report. The receipt is immediately associated with the report and removed from your unprocessed receipt bucket.

Transaction Metadata for OLAP reporting

Coupa has added transaction metadata to each transaction that provides supervisors and CPOs the ability to roll up reports by chart of accounts, reporting hierarchy, and category. They’ve also added more fine grained security to insure that a user can only see spend within her visibility. (Note that they were calling this “data striping“, which, of course has nothing to do with OLAP reporting but data storage on physical mediums as it is the technique, used in RAID, of segmenting logically sequential data across different devices. So if you were confused, this is what they meant.)

Real-time Budget-Based Alerts

Not only does the application allow a user to keep on top of her budget, by way of it’s budget dashboard on the home screen (which is actually useful as most buyers don’t have a clue how much they are spending), but if a requisition puts a user over a certain percentage of her budget too early in the year, the application will alert the user, and the approver before it is approved. It will also let the approver know if the requisition would put the category or department budget over a dangerous (administrator configurable) threshold too early in the year.

iRequest

iRequest is a bookmarklet (bookmark app) that allows the user to add a bookmark to their browser that will bring up a pop-up window that will let them request whatever item is on the page of the external site she is browsing. Not only does it make requesting an item on Amazon.com a breeze, but it eliminates the excuse for out-of-system requisitioning as every item can now be easily requested through the system.

Opt-in Benchmarking

With opt-in benchmarking, a customer can opt-in to sharing benchmarking data anonymously and see how it is performing on a standardized set of benchmarks relative to all of the other customers on the Coupa system. It’s interesting, and could be a powerful tool, but right now, it’s not very useful. More on this in our next post.

Supplier Ratings

With this feature, they’ve essentially added the ratings feature of Amazon.com which allows a buyer to rate the supplier with respect to each purchase, but since the ratings are optional, and since they’re not made against meaningful performance categories, the usefulness of this feature is rather limited.

All-in-all, some useful functionality that I’m sure will go far in convincing the average office manager to accept Coupa with open arms and joy in her heart, but not what Coupa could have delivered to totally knock your Procurement socks off. More on this in our next post.

To be concluded.

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A Hitchhiker’s Guide to e-Procurement: Analysis, Part I

Mostly Harmless, Part XVII

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Analysis is often defined as the process of inspecting, cleaning, transforming, and modelling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making. However, this misses the point — analysis is all about looking into data to get insight. Nothing more, nothing less. Everything else is a pre-cursor, post-decision, or just not relevant. It’s the Analysis, Stupid.

In e-Procurement, it’s all about what did the organization do, what did the organization not do, and what should the organization have done. Of course, this is a much harder question than it may seem to be on the surface. At a basic level, did the organizational buyers follow the processes? Were the purchases on contract? Did AP pay the correct amounts? Were taxes computed properly? Were owed moneys reclaimed?

However, these questions are just the starting point, not the end report. For on-contract purchases, were prices consistent? This is very important in office electronics purchases where rates are a percentage off of “best-price”. Considering electronics tend to depreciate about 2% to 3% month-over-month, over a year, prices should decrease. However, when many organizations plot pricing for a standardized computer purchase over the course of a year, they will find that prices stay relatively flat. For off-contract purchases, were prices reasonable compared to market index? How much did maverick spend cost the organization? Was any of the maverick spend justified? Did AP pay the approved (adjusted) amounts?

But the questions shouldn’t stop there. Were the spending patterns consistent? If spend on a particular category abruptly rises in a department where it was consistent year-over-year for the last three years, something is amiss. If claims for a particular employee are the same month over month when they usually follow a sinusoidal curve, something is wrong. If off-contract spend increases rapidly, something is very wrong.

Thus, directly or indirectly, a good e-Procurement system will support in-depth analysis of the process, spend, and results. This means that if the platform does not contain a true data analysis tool, it should support full export of all relevant data in a standard format that can be imported by such a tool for analysis. This is because, when all is said and done, the biggest savings will come from improving the procurement process itself. This requires insight, or lessons will never be learned.

Next Post: Analysis, Part I

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A Hitchhiker’s Guide to e-Procurement: Tax Reclamation, Part II

Mostly Harmless, Part XVI

Previous Post

In the last post, the process of tax reclamation was defined and some of the complexity around tax reclamation was discussed. This post will address some of the challenges associated with tax reclamation, some best practices, and the benefits that could be expected from an appropriate e-Procurement solution with good tax reclamation support.

Common Challenges

  • Tax Rate Verification

    Is the rate being charged by the supplier the right one? This is tricker than it seems. In HTS, almost identical classifications can have greatly differing rates (which has led to lawsuits by retailers on the basis of gender discrimination, since they believe that gloves for a man should be taxed at the same rate as gloves for a woman). Some countries update tax rates on an irregular basis. (HST [Harmonized Sales Tax, a blending of the GST and PST in some provinces] increased in three provinces in Canada on July 1.) And sometimes a supplier is using an old database or makes a human error.

  • Reclaimable Tax Identification

    Can the organization recover the tax? Is it out-of-state? GST or equivalent? A VAT to which it is exempt?

  • Tax Credit Identification

    Is the expenses an eligible Research & Development expense that can be credited against taxes payable (such as the SRED in Canada)?

Best Practices

  • Automatic Tax Rate Verification

    It’s amazing how many AP clerks will accept the tax calculation as valid, without even a cursory glance, once they have verified the items have been delivered and the rate appears to be in an acceptable range.

  • Automatic Exemption Flagging

    To simplify recovery efforts, any taxes that the organization knows it is eligible to recover should be automatically flagged by the (rules-based) system. In addition, the system should also flag any tax payments that the organization might be able to recover and that should be manually reviewed.

  • Automatic Flagging of Suspect Taxes for Manual Review

    Any taxes that are not in the system should be flagged. Any calculations that are not consistent with internal calculations should be flagged. And the invoice / taxes SHOULD NOT be paid until manually reviewed.

Potential Benefits

  • Prevention of Overpayments

    Automatic verification of taxes (to insure they are valid) and rates (to insure they are current) can prevent significant overpayments.

  • (Over)Payment Recovery

    A good tax tracking system can simplify overpayment recovery when such payments are made (which will sometimes be unavoidable, especially if a 3PL or broker handles imports and screws up a filing), and can simplify recovery of taxes the organization is eligible to recover on a quarterly or annual basis.

  • Future Credits and Savings

    The ability to flag payments that might be (partially) eligible for tax credits can greatly simplify the process of claiming tax credits in an acceptable manner. This can reduce corporate taxes and lead to considerable organizational savings over the long term.

Once the taxes are reclaimed, the actionable part of the procurement cycle is complete and it’s time to analyze performance, which is the subject of the next post.

Next Post: Analysis, Part I

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Has Coupa Settled on a Coupe? Part I

Has Coupa, which opened the Cabana Cafe a little over four years ago with the goal of enabling Procurement Independence for all with it’s Rails-driven cloud-based EC2 platform, given up its quest for a coupasonic flying car and instead settled for a mini-cooper?

Now, while the original goal of Coupa, that wanted to fill your e-Procurement gas tank, was to bring e-Procurement to the masses, it would seem that they are now content with the fact that you can buy anything you want in The Coupa Store as it would appear that they are no longer charging ahead on the innovation front. While it’s true that they’ve been quite busy ever since they enabled QuickDraw Procurement with QuickStart, what they’ve accomplished since then isn’t all that spectacular compared to their historical rate of innovation … and they’ve missed most of the opportunities for innovation that could take their platform to the next level with their latest release. And while it’s true that you don’t need a very powerful solution if you’re selling fertilizer to farmers (and can get by with a simple cart and a good old-fashioned hoe-down), you’re never going to get the design engineers. (i.e. You’ll get the tactical buyers requisitioning office supplies, but never the strategic buyers trying to order a bill of materials for engineering.)

Basically, besides revamping the UI for the upteenth time (which seems to be a waste of resources to me as it was already [among] the easiest enterprise procurement solution out there and as easy to use as Amazon.com), all Coupa appears to have accomplished in the last eighteen months is:

  • improved ERP integration through upgraded APIs and Boomi,
  • drag-and-drop expense management,
  • transaction metadata for OLAP reporting,
  • a new inline spend dashboard,
  • real-time budget-based alerts during requisitioning,
  • the iPhone app,
  • iRequest,
  • opt-in community benchmarking, and
  • supplier ratings.

Considering that:

  • they’ve had APIs since day one, Boomi handles most of the integration, and ERP integration is always just a matter of time and resources,
  • it’s about data capture (not slick UIs),
  • they’ve had the ability to capture this data since day one,
  • dashboards are dangerous and dysfunctional,
  • they’ve always had alerts and the usefulness of this should have been obvious years ago,
  • if you have an iPhone, you have e-mail, and that’s good enough for approvals,
  • the goal is not to buy outside the system,
  • benchmarks are pointless unless you’re benchmarking against peer data, and
  • optional surveys are about as useful as snowshoes in summer

while it is still forward progress (which is more than a few of their peers can claim these days), it really isn’t much considering their historical rate of innovation. (Of course, that’s when Davie ran The Coupa Factory.) While their new strategy may have enabled their rate of growth to skyrocket, going from a few dozen customers to over one hundred and fifty in under two years, it appears to have put a crimp in their rate of innovation — especially considering the unprecedented power Coupa could have brought to their platform if they had taken the last two features to the next level.

To be continued.

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