Category Archives: Procurement Innovation

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

Mostly Harmless, Part II

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A requisition is a request for a product or service in a written form. With respect to e-Procurement, it is generally an electronic request for a product or service in a standard form, which may or may not use standard product or service codes from either the organization’s ERP/MRP systems or the supplier’s (e-)catalog.

While the concept is simple, the reality can be quite complex, especially if the requisition is for a large BOM (Bill of Materials) that requires multiple products and services from multiple suppliers, as different types of identifying information and specifications can be required for each line item.

The requisition needs to be able to capture a significant amount of information. In addition to the following core information:

  • requisitioner
  • department, division, and/or organization
  • request date
  • requested delivery date
  • delivery location
  • line items, each of which requires:
    • organizational product/service code
    • supplier product/service code
    • quantity
    • price (from the contract, schedule, or catalog)
  • etc.

The requisition may also need to capture:

  • supervisor
  • budget manager(s)
  • AP contact
  • delivery contact
  • product description(s)
  • itemized Statements of Work (for services)
  • etc.

As a result, the requisition needs to be very flexible and capable of being augmented by the buying organization as needed. Furthermore, it needs to be able to extract information from the organization’s ERP/MRP system, vendor master, contract system, and catalog(s), punch-out(s), and/or marketplace(s). As a result, it must either support easy integration with these systems, or (one or more) standard XML input and output streams (and cache commonly used codes if the updates aren’t near real-time).

In addition, it has to be integrated into the workflow management system that handles approvals, m-way matching (against goods receipts, invoices, etc.) during reconciliation, and the data store(s) used by the analysis and BI tools.

When evaluating the requisition capability of an e-Procurement system, one should keep in mind the associated challenges of the requisitioning process, keep an eye out for best practice support, and insure that the solution will deliver the intended benefits, which is the subject of the next post.

Next Post: Requisitions, Part II

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A Hitchhiker’s Guide to e-Procurement: An Introduction

Mostly Harmless, Part I

e-Procurement, while commonly used, is often misunderstood and confused with e-Purchasing, EIPP (Electronic Invoice Presentation and Payment), P2P (Procure-to-Pay), and even e-Sourcing. Thus, this brief guide will define what e-Procurement is, isn’t, and how it relates, or fails to relate, to e-Purchasing, EIPP, P2P, and e-Sourcing.

This guide will start with a definition of e-Procurement and then go on to cover the basic cycle. Along the way, it will discuss some benefits, challenges, and best practices while differentiating between the procurement of goods and services in the public and private sector when required. Finally, it will end with some advice on how to accurately cost a solution and determine the potential value such a solution offers.

Simply put, as per the e-Procurement Primer, eProcurement is the counterpart to eSourcing, starting where eSourcing ends and ending where eSourcing begins. It is the “e” implementation of the procurement cycle which is concerned with the requisitioning, receiving, and reconciliation of the received goods and services as opposed to the analysis, auction, and award that takes place in the (e-)sourcing cycle. It is essentially the automation of the non-strategic and transactional activities that consume the majority of a buyer’s time (that should be spent on more strategic value-generating activities), but one that comes with increased enterprise level visibility of all purchases.

The e-Procurement cycle, which can consist of up to nine steps (as defined in the doctor wants to remind you it’s sourcing and procurement), starts where there sourcing cycle ends and ends where the sourcing cycle begins. At a bare minimum, it will generally consist of an order, an invoice, and a payment. However, the process can also include authorization, goods receipt generation, reconciliation, tax reclamation, and analysis. Depending on the purchase in question, the (e-)Procurement cycle will generally contain three or more of the following nine steps:

  1. Requisition (& SOW)
  2. Approval
  3. Purchase Order
  4. Goods Receipt
  5. Invoice
  6. Reconciliation
  7. Payment
  8. Tax Reclamation
  9. Analysis

In addition, the e-Procurement process may also involve some regular catalog or contract management to keep catalogs and pricing schedules up to date between sourcing cycles.

The next set of posts in this series will explore each stage of the procurement cycle and the requirements that are placed upon any solution that claims to be e-Procurement.

Next Post: Requisitions, Part I

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Finance Needs Spend Analysis and e-Procurement, Part II

In our last post, we noted that Basware recently released its annual “Cost of Control” study for 2010 and pointed out that Finance’s top 10 challenges could be easily solved with good, modern, spend analysis and e-Procurement solutions. The study also outlined the top 10 strategic finance priorities for 2010 … which can also be addressed by the adoption of good spend analysis and e-Procurement systems. For example:

Spend Analysis would address:

  • Increasing Profits and Top Line PerformanceProfit = Cash In - Cash Out

    Spend analysis reduced cash out.

    Therefore, spend analysis improves profit margins.

  • Maintaining or Improving Profit MarginsSpend analysis allows you to consolidate spend among fewer suppliers and fewer SKUs. This reduces overhead and increases profit margin.
  • Planning, Budgeting, and Revenue ForecastingOnce you know your actual year-over-year spend, volume trends, and market trends, your forecasts and budgets improve greatly.
  • Risk AnalysisAugment the data with (financial) risk information and quality/performance metrics, and you can quickly see which suppliers likely pose the greatest risk to your operations.
  • Regulatory ComplianceYou know what suppliers you’re spending on and how much is going to socially responsible suppliers and how much isn’t. Augment the product data with carbon emissions spending and you know if you’re within limits or not. Etc.

E-Procurement would address:

  • Reduce Overall PurchasingA modern e-Procurement system with approvals, checks, and balances would insure nothing is bought that isn’t approved, on-contract, and within-budget without managerial exception.
  • Cash Flow and Working Capital ManagementYou can see how many purchase orders are outstanding, how many invoices are upaid, what discounts are available to you if you pay early, how much cash is actually free, and even take advantage of receivables financing.
  • Improving Short and Long Term Operational EfficiencyYou can cut DPO and DSO in half, eliminate paper processing, and make your team 80% more efficient. Over the long term, you can reduce the headcount devoted to tactical “paper pushing” and increase the headcount dedicated to strategic spend analysis and sourcing, which increases organizational savings per employee.
  • Environmental PracticesNo paper. Spending to environmentally irresponsible suppliers can be denied. Etc.
  • Accessing CreditIf you know what you have, and you can demonstrate the reliable payment history, even if the banks turn you down, you can get receivables financing.

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Is There a Hole in CPO Agenda’s Synergy Strategy Bucket?

A recent article on CPO Agenda that asked if there is “a hole in your synergy strategy bucket” made some very good points about how Procurement can often help to identify the right IT strategy and synergies to make a merger or acquisition a success.

However, what it failed to mention is that in addition to contract analysis and risk assessment, market research, negotiation management, and should-cost analysis, procurement can also serve as the mediator who helps the organization identify the IT needs and the most appropriate strategies. Furthermore, until the desired go-forward strategies are identified, contract analysis and negotiation management are irrelevant — who cares about license rights, location of use, competitive intelligence, or contract consolidation if you’re no longer going to use the system.

Furthermore, trying to determine the right IT solutions to keep based on license agreement analysis is worse than putting the cart before the horse. If you can get the horse angry enough, maybe he’ll kick at the cart until it moves forward. But if you keep the wrong IT solution, your employees won’t even kick at it … they’ll find every means possible to go around and bypass it completely.

Procurement can play a crucial role here as well. As the one unit that has to continually negotiate with all organizational units with respect to purchases, it can lead the analysis team that reaches out to every organizational unit to understand not only what software they are currently using, but what their needs actually are and work with IT to come up with a strategy that addresses the anticipated needs of the merged organization. Furthermore, as the central mediator and (hopefully) technology-savvy market analysts (who should be using modern e-Sourcing and e-Procurement systems) who talk to both IT departments and external entities, they have a better chance of figuring out when an objection is due to platform limitations (hardware, software, etc.) or simply a resource limitation (the support techs don’t know the software or don’t think it’s the right solution). In the end, the biggest negotiation will likely be with the organizational units that want to merge, and not the vendors, who will probably be more responsive to demands in exchange for a bigger customer and more dollars in their pocket in the long run.

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Finance Needs Spend Analysis and e-Procurement

Basware recently released its annual “Cost of Control” study for 2010, which contained, among dozens of other statistics and tables, the top 10 challenges for Finance over the past year. Reviewing them, it immediately struck me how most of them would be addressed with the adoption of good, modern, spend analysis and e-Procurement solutions. For example:

Spend Analysis would solve:

  • Spend VisibilityYou’d instantly see what you are spending, with who, for what, and by whom
  • Difficulties in Realizing Cost Saving OpportunitiesA good spend analysis system instantly presents you with the low-hanging fruit and gives you the power to easily explore over twenty different types of savings opportunities, as discussed in the recent Illumination on Strategic Spend Visibility.
  • More Visibility into Contract ManagementIt’s easy to integrate contract management into a modern spend analysis solution, even if you don’t have a contract management solution! Just create a contract dimension, as per this post on integrating contract management and spend analysis, and you’ll see not only what you are spending on contract, but what’s not being spent on contract. This visibility into contract and non-contract spend gives you an instant read on contract management, and what you need to do to fix it.
  • Difficulties in Realizing Cost Savings Across the BusinessBy integrating AP, Invoice, and Contract data, you can see not only what spending is on contract, but what spending is at contract rates, or, in the case of best-price contracts, where pricing isn’t trending down where it should be. This allows you to go after overpayments to realize the negotiated savings. Also, you can see when you are hitting discount or rebate thresholds, and aggressively go after those as well.
  • Need to Squeeze Suppliers on Payment TermsWhen you are realizing your negotiated savings, there will be less of a need to squeeze suppliers on payment terms. Plus, improved visibility into spend puts you in a better position to take advantage of early payment discounts, which will help you save even more!
  • Increased Supplier RiskMany modern spend analysis systems integrate, or allow for the integration of, third party data feeds from the credit agencies that track financial risk. This will give you a quick insight into the majority of suppliers who are most likely to go bankrupt. While it won’t be perfect, it’s much better than nothing.
  • Environmental Regulations / Compliance Integrate ERP data, and you can calculate carbon output, energy usage, water usage, etc. and automate production of your social responsibility and carbon footprint reports!

E-Procurement would solve:

  • Need to Improve Invoicing and Payment ProcessingE-Invoicing allows for automatic receipt, matching, and, if it meets the defined payment rules, automatic queueing for payment and e-payment systems allow payments to be queued and made automatically.
  • Need to Automate Financial Processes More QuicklyNot only does e-Procurement allow every step of the procurement process to be automated, but it allows your procurement professionals to process POs, invoices, payments, etc. on an exception basis only — which means they only have to get involved when there’s a problem.
  • System Integration / Technology ChallengesMost modern e-Procurement platform providers already integrate into most of the major ERP and relational database systems on the market, and there are scores of specialist shops that can assist with custom integrations.

In other words, if Finance wants to solve it’s greatest challenges, spend analysis and e-Procurement solutions are the answer.

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