Category Archives: Procurement Innovation

P2P On a Budget … Is There Any Other Way?

About the same time I was authoring my rebuttal on why there’s nothing more important than a good “test drive” — even in e-Procurement, yet another e-mail from the SSON hit my inbox. This one started off promoting P2P on a Budget … and all I could think was “is there any other way?“. After all, as per my previous post, the only requirements for a P2P system is that it permit e-Procurement, possibly through a (n integrated) third-party (e-Procurement) platform that permits electronic ordering, and that it permit payment approval, possibly through a(n integrated) third-party (e-Payment) platform. That’s not a lot of functionality, and definitely not a lot of value, so you shouldn’t be paying that much for a P2P solution in the first place.

That being said, since most people still don’t know the difference between P2P, EIPP, and e-Procurement (see my last post for an explanation), I thought I’d check it out in case some of the “experts” they gathered didn’t know the difference either and offered up valuable e-Procurement advice in place of relatively valueless P2P advice.

When the editors said that sometimes you have to spend a little to save a lot and that investment during all but the most terminal of cash crises can result in savings that can make the difference between success and a very final failure, they’re right. Right now, small investments in spend analysis, sourcing expertise and supporting systems, expert consultants (like yours truly), and e-Procurement systems to minimize your transaction costs, prevent maverick buying, and enforce negotiated prices can save you a small fortune (or, if you’re particularly inefficient, which at least 85% of companies are given that only 15% have a CPO in the C-suite, a large fortune).

However, the article on how to get the best from your procure-to-pay process was pretty useless as the contributors were all over the map. The contributor from Eli Lilly talked about the importance of speedy invoice management, which doesn’t really save you anything. The contributor from Lockheed Martin discusses the importance of JIT delivery, which is off-topic. And the contributor from Schneider Electric took a broad brush to demand management, spend management, and cash management without any apparent understanding of where P2P fits in a discussion that tackled (human) resource allocation, contract management, differentiated spend management, demand management, centralized invoice management, and process standardization. Finally, the contributor from Emerson Argentina talked about stock reduction, volume leverage, and extended payment terms. And it got worse from there.

In my view, it was a wasted effort on SSON’s part and a total waste of any reader’s time because getting value from P2P is easy. Here’s the magic formula.

  1. Standardize your processes and make them e-Procurement friendly.
  2. Adpot a low-cost SaaS end-to-end e-Procurement platform that supports purchase orders, invoices, and electronic requisitions through “cart-based” interfaces that can be “integrated” with your current AP and e-Payment systems through standard XML interfaces and securely transmitted data files or feeds.
  3. Load your catalogs, integrate your punch-outs, define your buying rules, and, most importantly load your contracts and price tables and make sure they override catalog and punch-out prices (or obtain a compliance monitoring solution).
  4. No requisitions not through the system.

That’s it. Instant value. Buying rules ensure that no purchases can be made off-contract without authorization. Price rules ensure that suppliers don’t “accidentally” change punch-out pricing and buying rules can be defined to insure that “approved” products don’t get replaced with “unapproved” ones. Authorizations insure that no one spends above their allowance without approval. And the net result is you never pay more than the contract price, discounts and rebates are captured up front, and unnecessary spend is stopped dead in its tracks. This means you don’t have to pay a consultancy $10K to help you find and recover $100K in over charges from your office supplies vendor or $50K to help you find and recover $500K in overcharges from your hardware provider who’s best price on a system configuration that hasn’t changed in a year only declined 0.3% a month when most hardware depreciates 3% a month.

Of course, if you want to take the hard road, you can do it the hard way and read the 20 or so pages provided by the SSON which does a great job of leading you in circles and never getting to the point.

A Procurement “Metric of the Month” is a Bad Idea

As a prominent blogger, I get a lot of e-mail (or should I say spam?). One of them had “Procurement Metric of the Month” in the title. I was about to trash it, as this is one of the worst ideas I’ve ever heard (as I’ll explain shortly), but then I noticed it was from Hackett. Needless to say, this got my attention. Why would one of the leading research firms in the space, which produces the very useful and relevant Book of Numbers, be touting a “metric of the month”?

It turns out they weren’t promoting a “metric of the month”, which would be an incredibly bad idea because a metric is only useful if you benchmark against it month after month after month for an extended period of time to measure your progress (and changing metrics too often gets you absolutely nowhere), but a new free research offering as part of their Hackett Performance Network (where, if you qualify, you can get access to selected research reports, performance studies, and webcasts). Designed for Finance, HR, IT, and Procurement, this new offering is apparently going to showcase an important metric in each area each month, starting with “Tax Book Entries Requiring Correction Percentage”, “Outsourcing Utilization by HR Process Category”, “IT Business Value Contribution through Portfolio Optimization”, and “Level of Supply Risk Management Adoption”.

With respect to the latter metric, which focusses on procurement, Hackett points out how 67% of world-class organizations implement supply risk management consistently across the business as compared to only 13% of their peers, indicating that top performers are 5 times as likely to have a comprehensive supply risk management strategy. Considering that effective supply risk management is a way for procurement to elevate its value proposition and help the business protect its brand, cost leadership, and stability, this makes sense. It’s free, so check it out. Just don’t take “metric of the month” literally.

Do More With Less in Procurement

“Do More With Less” is the new mantra of businesses who are slashing budgets and, unwisely, slashing head counts. It’s a darned good thing it’s not a new mantra for procurement who has always been trying to “Get More From Less”, and do so with too few resources. That’s why I enjoyed a recent article in the Spring Edition of the CPO Agenda by Nick Martindale who outlined eight strategies being used by companies that really are “doing more with less”. These strategies, and others like them, will not only help you survive the downturn, but position your procurement department to be the organizational leader of tomorrow.

  1. Prioritize Workloads
    Understand where your finite resources will deliver the most bang for the buck and focus on those endeavors. Don’t oil the squeaky wheel … if it gets too loud, simply replace it. Focus on strategic sourcing projects and lean supply chain transformations that will reduce cost, improve efficiency, and take the waste out of your processes. That’s where the savings lie.
  2. Increase Productivity
    Eliminate redundant activities. Streamline sign-offs and processes. And, most importantly, don’t put off the acquisition of new systems. With pay-as-you go SaaS systems, you’ll save more than the small monthly fee you have to spend on them. Stop thinking about it. It’s a no-brainer decision.
  3. Refocus Strategic Initiatives
    Strategic initiatives are more important than ever, but the reality is that you can’t wait five years for payback, especially when there are strategic activities you can take now that start realizing payback next quarter. Start with those, and work your way up.
  4. Use Technology to its Fullest
    A real spend analysis system will allow you to slice and dice the data anyway you want, exposing opportunities you wouldn’t find otherwise. If you need to bring in an expert to do this, do so. Most consultants, who will work on a results-basis, can save you millions with these kinds of tools. Use them!
  5. Shoot the Mavericks
    Or at least prevent them from buying off of contract. Force all buys to go through an e-Procurement system that only allows orders against the contract without approval from a senior manager (for exceptional circumstances only).
  6. Reassess Spend Priorities
    Your best sourcing opportunities six months ago are not necessarily your best sourcing opportunities today. Every time you finish a project, reassess the next set of projects in the queue before you begin. There might be a new opportunity in the marketplace worth re-prioritizing your queue for.
  7. Use External Expertise
    You don’t know everything, and with a staff who can barely keep up with their increased workloads thanks to hiring freezes, you don’t have time to figure it out. Bringing in an expert will help you identify numerous opportunities that you’d otherwise miss.
  8. Outsource Non-Critical Activities
    Sometimes a third party really can do it better. And sometimes the quick-hit savings you’ll get from a GPO, while not necessarily the best possible, will be very significant to you, especially since you’ll get savings AND free up your staff to focus on core categories where they expertise will allow you to identify even more savings.

A Simple Guide to Improving (Procurement) Organizational Efficiency

Recently, the CPO Agenda published a simple guide on how to “improve organizational efficiency” that is worth a quick review, as an efficient organization is one that expends minimal time, resources, and cash on any specific activity. According to the article, it’s a simple 5-step process:

  • Review Processes
    Review all of your processes and their associated workflows for inefficiency, and eliminate it. You shouldn’t need multiple systems to accomplish one task (and if you currently do, chances are you can eliminate one or replace multiple systems with a new, lower-cost, SaaS offering).
  • Reassess Tasks
    Eliminate any task that doesn’t have value (unless it’s necessary from a regulatory, compliance, safety, or quality viewpoint). Reviewing all invoices manually? Implement a modern e-Procurement system that automatically compares invoices to POs and POs to contracts and only presents exceptions for manual review.
  • Remove Unnecessary Layers
    Three approvals for a $75 toner cartridge? Get real. Establish budgets and budgetary controls in the mandatory e-Procurement software and only require additional approvals if reasonable spending thresholds are met.
  • Collaborate Cross-Functionally
    Make sure process and system improvements make everyone’s job easier. If you can consolidate tasks across departments, you can get additional efficiency gains.
  • Drive Extra Savings
    Once your processes are streamlined, your unnecessary approval and management layers removed, and extraneous tasks abolished, you have more time to focus on strategic cost savings initiatives. Be sure to bring in experts to help you with this.

There’s Nothing More Important Than A Good “Test Drive” — Even in e-Procurement!

While my esteemed colleague at Spend Matters might believe that you can’t “date” where e-Procurement is involved (as per “Don’t Test Drive e-Procurement, Make the Right Decision First”, I have to disagree. You see, e-Procurement, like e-Sourcing, is a multi-step process that doesn’t conclude until you seal-the-deal.

You see, despite the continually propagated misconception that e-Procurement, EIPP (Electronic Invoice Presentation and Payment), and P2P (Procure-to-Pay) are essentially the same thing, nothing could be further from truth.

By definition, the only requirements for a P2P system is that it permit e-Procurement, possibly through a (n integrated) third-party (e-Procurement) platform that permits electronic ordering, and that it permit payment approval, possibly through a(n integrated) third-party (e-Payment) platform. A P2P “solution” could be as simple as a “punch-out” to a supplier catalogue and “punch-in” to your accounts payable system, allowing accounts payable to process the returned invoice and pay it (through e-banking) as soon as you indicate the goods have been received.

Similarly, by definition, the requirements for an EIPP system are just as weak. As long as the system enables suppliers to submit electronic invoices, procurement to review them, accounts payable to process them for payment, and integrates with one or more e-Payment mechanisms, it’s an EIPP “solution”.

On the other hand, e-Procurement must enable each and every phase of the (up to) 9-step procurement process:

  • Requisition:
    The e-Procurement system must make it easy to create requisitions. This means that it must support up-to-date catalogs and punch-outs and should support virtual supplier networks and B2B 3.0 enterprise search capabilities that allow users to requisition what they need, when they need it, on the appropriate contract.
  • Authorization:
    It must support and require authorizations when a volume limit or dollar amount is exceeded or when a requisition is off contract. The workflow should be customizable to the organization’s approval process.
  • Purchase Order:
    It must support the automatic creation of purchase orders off of approved requisitions.
  • Receipt of Goods:
    It must capture good receipts.
  • Invoice:
    It must allow for suppliers to submit electronic invoices using EDI, XML, or web-based forms.
  • Reconciliation:
    It must support multi-way matching between the contract, requisition, purchase order, goods receipt and invoice and insure that the organization only pays for delivered items at contract prices.
  • Payment:
    It must support payment authorizations and integration with one or more payment systems.
  • Tax Reclamation:
    It must capture the data necessary for finance to reclaim tax payments.
  • Analysis:
    It must enable export of the data in standard formats for spend analysis.

And, most importantly, it must be:

  • easy to use:
    User adoption is the single most important factor when it comes to e-Procurement Success.
  • easy to administer:
    If you can’t keep the platform up-to-date, it will be abandoned.
  • easy to change:
    If workflows, processes, supplier data formats, or related supply chain systems change, it must be able to support these changes.

And this is why you need a test drive.

Brochures, demos, and sales assurances can’t tell you if it’s easy for your buyers to use. And these deomos certainly won’t uncover the limitations and hiccups of the administration process. And unless you can see the APIs and run your own integration test, you’ll never know if you’ll be able to properly integrate it with your current system(s) or not.

Furthermore, an e-Procurement test drive needn’t be rolled out to the whole organization. It can be limited to a small control group of buyers, and organizational users, who would be most impacted by its implementation. Only if it looks promising would the “test drive” need to be extended to additional users. While an e-Procurement system might touch a significant number of users, only a small percentage will be using it regularly. Think about it. How often does Paul Programmer order new machines? Sam Secretary restock the office supplies cabinet? Sally Salesman replace her cell-phone? You only need a few of these users to gauge usability and impact.

Furthermore, if integration with your current payment system is critical, you can have IT, or your third party integrator, dive into the APIs and evaluate the complexity and expected time-frame of integration while you test-drive. And if the configuration and integration requirements are significant, as my colleague suggests they will be, I suggest you say “No Thanks” and move on. With so many EDI and XML standards to choose from, and so many new on-demand and SaaS solutions supporting standards out-of-the-box, if it’s not an easy configuration, then the vendor is behind the times.

Similarly, if the education requirements for basic use require more than an hour of training, keep looking. With the advancements in usability made over the past 10 years, and the fact that everyone is familiar with standard office software, Web 2.0 applications, visual workflows, and multi-media “on-demand” training, your e-Sourcing and e-Procurement applications should almost drive themselves where standard tasks are involved.

Finally, if the primary benefits of the new process enabled by the new solution aren’t obvious, I’d ask if they were there in the first place. We’re a tech-savvy generation who want to use well-designed software solutions because we’re tired of poorly designed clunkers that impede us. If the primary benefits aren’t clear, the system isn’t yet mature.

And you’ll never know the integration complexity, education requirements, or design usability without a walk-through. While it’s easy to fashion a good looking demo (and vendors excel at this), it’s much harder to control a user “test-drive” — and this is where the truth comes out.

So, while if this were 1999 (and maybe even 2004) where e-Procurement systems were on-site, clunky, and required more training and integration than grandpa could shake his stick at, I might agree with my fellow blogger, but this is 2009 and we’re on-demand, streamlined, and self-explanatory. This says that taking a software test-drive should be easier and less committal than test-driving the new vehicle on your automotive dealer’s lot.

The simple truth of the situation is this: you can’t figure out if a software solution is right for you until you use it. So take that test-drive. As long as it’s well designed, well planned, and suitably controlled, you can’t lose.