Category Archives: Procurement Innovation

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

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

Mostly Harmless, Part XV

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Tax reclamation is the process of applying for and securing tax refunds and rebates due to the organization. In many circumstances, a buying organization may be eligible to reclaim some or all of the taxes that it pays to a supplier. For example, in the US a buying organization can often reclaim out-of-state sales taxes (if the organization has no presence in that state), in Canada an organization can reclaim GST (Goods and Services Tax) paid, and in the UK, sometimes an organization can reclaim VAT (Value-Added Tax). In addition, a company can almost always reclaim tax overpayments if a filing is made in a timely manner, especially if the organization has an APA (Advance Pricing Agreement) in place.

Taxation is a tricky subject in just about any country. For example, in the US, while intangible assets are not subject to property taxes in most states, they are in some. The same holds true of electronic downloads (software, books, etc.). There’s the LKE, which allows capital gains tax to be deferred when the sale of an asset is being used to generate cash to buy new, or similar, assets to replace the asset which is being deprecated. Then there’s the tangled web called the Harmonized Tariff Scheduled (HTS) which determines import taxes, where classification mistakes are easily made and where a simple misclassification (ladies sleepwear vs. ladies lingerie) can result in a large difference in assessed taxes. (My favorite is imported printers. Leave the cartridge out, the tax rate can be 0. Put the cartridge in, that’s a “value” tax of about 5.5%.) And of course, there’s the issue of foreign taxes, which the organization can get credit for, and in essence reclaim, if properly recorded and reported.

Canada has similar complexity. Out-of-province purchases may not be subject to a provincial sales tax if the company does no business in that province. There’s the GST (Goods and Services Tax) which must be charged by the seller on all non-exempt purchases, but which a buying organization is able to reclaim in full on an annual, or quarterly basis (as the tax is designed so that the ultimate bearer of the tax is to be an individual). And then there are special tax credits, such as the SRED (Scientific Research & Experimental Development) tax credit that can be accrued on up to 75% of all eligible R&D expenses and used to offset (federal) taxes owed by the corporation.

And then there’s the EU, where every country, despite a common currency, still has it’s own complicated tax structure. There’s so much to keep track of that a number of businesses are built around the provision of taxation databases and regular updates to their customers, as some of these businesses are able to charge thousands a year just for database access. The EC (European Commission) Taxation and Customs Union site alone has 14 different databases indexed (and these are just the EU tax systems), including:

  • AEOAuthorized Economic Operators
  • EBTIBinding Tariff Information
  • QUOTATariff quotas and ceilings.
  • SEEDSystem for the Exchange of Excise Data
  • SUSPENSIONSAutonomous Tariff Suspensions
  • TARICIntegrated Community Tariff
  • Taxes in EuropeThe EC’s on-line information tool covering the main taxes in force in the EU member states.
  • VIESVAT Information Exchange System

As a result, tax reclamation is an involved and difficult process that requires really good e-Procurement support to get right. However, considering that it can save a large organization millions of dollars a year (or more), it’s worth it.

Next Post: Tax Reclamation, Part II

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A Hitchhiker’s Guide to e-Procurement: Payments

Mostly Harmless, Part XIV

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Reconciliation challenges and best practices.

A payment is the transfer of wealth from one party to another. The payment is usually cash or cash equivalent, such as cheque, money order, or electronic funds transfer. The payment must be recorded, tracked, reported and assigned to an invoice. Despite all of the focus on e-Payment (P2P, EIPP, etc.), it’s actually the simplest part of the e-Procurement process. The AP clerk simply sends a cheque or instructs a payment to be made, and then records the debit. All of the complexity comes before (which should now be apparent after reading this far in this series) and after (which will become clear). Nevertheless, there are still some challenges to be addressed, some best practices to streamline processes, and some benefits to getting it right.

Common Challenges

  • Paying on Time

    For even a moderately sized company with hundreds of payments to process every week, it can be hard to keep track of which payments are due and which payments are approved. While the organization might choose to make some payments late, others may need to be made on time to avoid penalties.

  • Automating Payments

    If a contract specifies a regular, recurring payment, if a payment can be automatically approved, or if the organization has chosen to pay off a debt in an instalment plan, the payments should be automated.

Best Practices

  • Rules-Based Automation

    The system should allow one time, limited-time recurring, and regular (repeating) payments to be automatically queued according to whatever rules the organization has in place.

  • e-Payment / Accounting System Integration

    e-Payments generally need to be made through bank systems, or through accounting systems that are integrated with, and authorized to use, bank systems. As a result, the system should be capable of being integrated with these systems. This integration can be as easy as exporting a (differential/update) XML file at an hourly interval (with information to be propagated to the accounting system) and importing a (differential/update) XML file at an hourly interval (with information to be propagated [back] to the e-Procurement system).

Potential Benefits

  • Cost Reduction

    Without good system support, payment processing is a very time consuming, and somewhat error prone, task. A good system that automates payment processing saves time (and processing costs), prevents late payments (that generate penalties), and reduces the chance of human error (that can lead to more penalties or costly recovery initiatives).

  • Increased Savings

    Automating payments not only reduces costs, which contributes to savings, but allows payments to be scheduled in a manner that allows for early payment discounts, which increases the savings available to the organization.

Once the payments are made, it is time to try and recover the tax payments that can be refunded to the organization, which is the subject of the next post.

Next Post: Tax Reclamation, Part I

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