Category Archives: Procurement Innovation

What’s Your Procurement Value Level? … Strategic? (II)

In Part I, I reminded you that Pierre Mitchell of The Hackett Group invited you to participate in a study that would help you identify where you were on your procurement journey by way of 18 value streams that range from “naive apprentice”, where you’re measuring performance at an elementary (tactical) level, to “expert sourcerer”, where you’re extracting procurement value at a very advanced (transformational) level. Considering that this survey will not only help you identify a path to increased value but that Pierre has promised to share some of the results with all survey participants for free, it’s a survey that’s definitely worth your time as Hackett has the premiere benchmarking data in the space.

I also told you that the first seven value streams were tactical and provided relatively little ROI compared to the ROI that is available through more advanced value streams. The next six value streams are strategic and will generally provide you with good payback over a longer term. They range from:

Costs avoided by receiving ‘no charge’ items and services
through
Early payment discounts, P-card rebates, or other supply chain finance benefits
to
Internal enterprise process costs are reduced via a new supplier solution

Costs avoided by receiving ‘no charge’ items and services

Now we’re into strategic procurement where the “savings” are real and sustainable. By negotiating in more items and services for the same money, you’ve considerably reduced your costs and increased the value that you can provide your end customers for the same price. And while it’s true that the ‘no charge’ items and services could disappear at contract termination, you’ve established with your supplier(s) that you expect a higher level of performance and service, which will make future negotiations, and cost-avoidances, easier.

Early payment discounts, P-card rebates, or other supply chain finance benefits

Now you’re starting to look at the total cost of the buy from an organizational perspective, and not just a unit cost or landed cost perspective. If your supplier’s annual cost of capital is 36%, and yours is less than 12%, you could be saving yourself up to 24% annually, or 2% for each month you shave off the total payment time. This can be substantive and is easily sustainable. Plus, once you get good at managing your working capital and finances, you’ll start to see even more savings opportunities appear.

Internal enterprise process costs are reduced via a new supplier solution

Once you get to the point where you start recognizing that sometimes you don’t know all the answers and that a smart supplier can point out additional opportunities for you to save money, you have not only mastered the art of strategic sourcing, but have reached the point where your sourcing is on the verge of becoming transformational … which is the topic of Part III.

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What’s Your Procurement Value Level? Tactical? (I)

Recently, Pierre Mitchell of The Hackett Group asked you if you knew the difference between procurement value and procurement performance (part I and part II) and invited you to participate in a study that would help you identify where you were on your procurement journey by way of 18 value streams that range from “naive apprentice”, where you’re measuring performance at an elementary (tactical) level, to “expert sourcerer”, where you’re extracting procurement value at a very advanced (transformational) level. (Pierre also posted a link to a corresponding finance study that you can share with your finance associates, which will help Hackett compile a full view on the problem.) Hopefully, by now, you took the survey and are eagerly awaiting the result and insights that Pierre has promised to share with you on Spend Matters and Sourcing Innovation. (Note that the posts will be distinct and that you need to follow Spend Matters as well as anything posted on Sourcing Innovation will not duplicate whatever he posts on Spend Matters!)

In my post last week where I directed you to the survey, I told you that I would be sharing some of the value streams with you and explaining their importance as a lead in to Pierre’s forthcoming posts. The goal is to help you understand the value that can result from a procurement journey that takes you from a tactical outlook, that results in minimal ROI, through a strategic perspective, that results in moderate ROI, to a transformational realization that results in significant, long term, ROI.

The first seven value streams, which are still representative of the procurement that takes place at the majority of organizations today, are tactical. You’ll generally see some “savings”, but not very much. And the savings are not very sustainable. They range from:

The purchase price of an item is negotiated down from a list price
through
A fixed price is created and cost increases are avoided when the market price subsequently rises
to
The price stays the same but demand/consumption is reduced/delayed to reduce total spend

The purchase price of an item is negotiated down from a list price

This is old-school style procurement, and doesn’t represent “real” savings because suppliers expect you to negotiate them down no matter what price they list, so they build some negotiating room into the price, pretend to cave, get the deal, and get back to enjoying their relatively fat margins and traditional, fat, way of doing things. And then you start the cycle all over again when the renewal comes up and have to renegotiate the savings that were never there in the first place.

A fixed price is created and cost increases are avoided when the market price subsequently rises

This is another classic example of tactical procurement. If you’re in an industry where the raw prices traditionally inrease steadily over time, you know that if you lock in prices, the price will go up, and you can claim “savings” that you never really negotiated in the first place. And then, as before, you have to start all over again from the new list price at renewal time, lock in a new rate, and then watch the “savings” evaporate at contract expiration.

The price stays the same but demand/consumption is reduced/delayed to reduce total spend

While still tactical, this represents the transition point to truly breaking into the realm of strategic because it gets away from simply beating up the supplier in a negotiation and locking the price in a contract and moves toward thinking about ways to reduce costs and identify sustainable savings. However, since you’re simply delaying an order until you need it, or being careful not to waste supplies, instead of finding a way to reduce demand in the long term, it’s still tactically focussed. But it hints at sustainable savings, because if you become more efficient at JIT ordering and delivery, and better at reducing waste, over time, the small amount of savings you do find will be sustainable.

In Part II, we’ll dig into a few of the strategic value streams and explain how they represent real cost savings and lay the foundation for truly sustainable cost reductions that are fully realized when you eventually become transformational in your procurement strategy.

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What Level of Procurement Performance Are You At?

Last week, Pierre Mitchell of The Hackett Group asked you if you knew the difference between procurement value and procurement performance (part I and part II) over on Spend Matters and invited you to participate in a study that would help you identify where you were on your procurement journey by way of 18 value streams that range from “naive apprentice”, where you’re measuring performance at an elementary level, to “expert sorcerer”, where you’re extracting procurement value at a very advanced level. (Pierre also posted a link to a corresponding finance study that will help Hackett compile a full view on the problem, which Pierre has promised to provide free insights into on Spend Matters in the weeks to come.)

If you haven’t taken the survey, as a serious supply management professional, I highly recommend that you do. I know that 30 to 45 minutes is a lot of time given how busy most of you are, but the 14 page survey is overflowing with more good information on what you might do to become “best in class” and much more informative than the last dozen tragic quadrants, graves, and research griefs that I’ve read from the “major” analyst firms. Organized around the 18 value streams that are designed to take a Procurement organization from “naive apprentice” to “strategic sourcerer”, it forces you to think about the core issues and will help you understand where you are in your Procurement journey and just how far there is to go. This, in turn, will prepare you for the forthcoming posts where I give you the value streams and explain why they are important. These posts will then be followed by more posts from Pierre that will summarize the major results, on Spend Matters, and, at a later date, provide his views on the results and a few of the best practices that might help get you started on your journey, here on Sourcing Innovation.

(For those of you thinking you can skip the survey and wait, I have two things to tell you. First, Hackett, which is the premiere benchmarking and strategic advisory firm in the space, doesn’t give away everything for free — at the very least you have to complete the survey if you want deep insights. Second, if you don’t take the survey and think about the questions with respect to the given alternatives, you’re not likely to fully understand the value propositions Pierre and I will be giving you. Just like you have to prepare your body for a marathon, you have to prepare your mind for knowledge.)

Stay tuned! Much more to come in the weeks ahead.

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iValua: Tackling End-to-End Sourcing And Procurement, Part II

In my last post, I described how iValua, a ten year old French software and solutions company, has one of the broadest supply management suites on the market today. From RFX to payment, the majority of the key steps in the sourcing and procurement cycle are covered in one of iValua’s many solution modules. And while it is true that most of the modules aren’t very deep, it’s also true that many small and mid-sized companies, and even some of the larger Global 3000’s that don’t have that many complicated buys, don’t need deep functionality where sourcing and procurement is concerned. Over thirty of France’s largest companies use the solution, including Air France Industries, La Poste, and Arcelor Mittal, the largest steel company in the world.

In this post, I’m going to describe some of the capabilities of the product in more detail. But first, some global capabilities. The platform, which is built on .Net, is delivered via SaaS through your browser. As a result, it is accessible anywhere. Many of the screens are built using a widget-based architecture and, like dashboards, the layouts are customizable by each user. The user can sort by, show, and hide any column of any table. Quick search and advanced search is available for every screen (and table), a navigation history is maintained for quick back-tracking, and the user can customize a favorites link for quick access to specific screens and reports. Finally, all data can be exported to Excel and all supported objects (bids, contracts, purchase orders, invoices, payments, reports, etc.) can be imported from Excel as well.

But the best platform-wide capability is the ability for the platform to be integrated to any ERP, Database, or external data source (due to the existence of appropriate abstraction layers in the platform). Before iValua decided to become a provider of a SaaS supply management platform, they were a custom software development shop. As a result, they had deep development skills and broad experience with a number of platforms. Thus, when they decided to focus on supply management, they were able to do custom integrations for each client. Now that they have over 100 customers, they have integrated with almost every major ERP and Relational Database in France, most of the major ERPs and Relational Databases in Europe, and some of the major ERPs and Relational Databases in North America. If they haven’t integrated with your environment yet, it probably won’t take them long to do so. Plus, using their partnerships with Bureau Van Dijk, D&B/Altares, Vigeo, and EcoVadis, they can enrich your supplier related data when they pull your data in.

Sourcing

Sourcing starts with the definition of a project. Once basic information is defined (type, process, owner, dates, and scope), the owner can define a team, create a message center, define currencies, outline a schedule, and keep track of relevant documents. Then the user can invite suppliers, create RFXs with selection and evaluation criteria, track responses, save analysis, create awards, and create an implementation plan. RFXs and Auctions support multiple lots and multiple rounds and the buyer can determine whether or not suppliers can see bids, whether or not the bids are displayed anonymously, and when they can see the bids.

Procurement

In addition to requisitions, budgets, purchase orders, expense reports, invoices, goods receipts and recurring receivables, the procurement application supports catalog-based buying. The system can be integrated with any EDI, XML, or punch-out catalog, which can be augmented with user-defined items (which could include custom items or services defined in contracts). The expense reporting module supports p-cards, advance requests, standard expense, and travel expense reports. In addition, a supplier evaluation form can be attached to every purchase order (in addition to every award and contract) and reports can be run at the purchase order level, award and contract level, and global supplier level.

Reporting

They have a very extensive reporting tool that allows you to look at data over the time periods of your choice (daily, weekly, monthly, quarterly, or yearly), in the organizations of your choice, in the spend category families of your choice, for the suppliers of your choice, along the dimensions, or axes, of your choice in a wide variety of tabular and graphical formats. Basically, the application builds a master spend cube and allows you to view any sub-cube, or sub-cube summary of your choice. While it might not allow you to do arbitrary spend/data analysis, it will more than satisfy your average procurement professional and manager. (And you could always augment the suite with off-line analysis for your senior analysts if you needed.)

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iValua: Tackling End-to-End Sourcing And Procurement, Part I

By now, you’ve probably heard the foreshocks of the latest vendor to enter the supply management space in North America, iValua. iValua is a ten-year old French software solutions company that has slowly built up a broad e-Sourcing and e-Procurement solution that covers most of the bases that I outlined in my post where I reminded you that it’s sourcing and procurement, in which I also reminded you that you don’t have your supply management bases covered unless you have a solution, or set of integrated solutions, that cover the basics.

In that classic post, I indicated that the basic cycle was the following:

  • Spend Analysis
    Analyze spend related data and find the best sourcing opportunities,
  • RFX
    solicit an RFI, RFP, and/or RFQ and/or
  • e-Auction
    initiate an e-Auction then
  • Decision Optimization
    make the best award using available data and
  • Contract Management
    start the contract management lifecycle.
  • Requisition
    A requisition is created when a good or service is required and
  • Approval
    if it is against the existing contract, it is approved
  • Purchase Order
    and a purchase order is created off of the contract.
  • Goods Receipt
    When the supplier delivers, a goods receipt is created and
  • Invoice
    the invoice is recorded and
  • Reconciliation
    the invoice is reconciled against the goods receipt and purchase order.
  • Payment
    Payment is made after reconcilation
  • Tax Reclamation
    and if VAT is reclaimable, filings are made
  • Spend Analysis
    and after time has passed, the payments are analyzed to insure spend is on target.

With respect to this cycle, iValua has modules that cover the basics for just about every phase except for decision optimization and tax reclamation. In addition, the suite also has modules that address:

  • Sourcing Process Management
    which allows sourcing processes to be customized and managed as sourcing projects
  • Procurement Process Management
    which allow you to define your own requisition, approval, and purchase order creation and delivery processes
  • Supplier Performance Management
    which allows you to create surveys and track performance metrics
  • Budget and Expense Management
    which allows you to create budgets by organizational unit and sub-unit and capture expense reports
  • Customization
    which is an extensive administration module that allows branding, coloring, wording, dashboards, roles, permissions, security, and default processes to be configured

All-in-all, it is one of the broadest supply management suites in the market. In my next post, I’ll provide more details on some of the various modules.

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