Category Archives: Procurement Innovation

e-Leaders Speak: Jason Hekl of Coupa on “The Future of Sourcing is Crowd-Sourcing”

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Today’s guest post is from Jason Hekl of Coupa.

Coupa has a unique point of view on expressive bidding, sourcing for best value, hiring and retaining deep category expertise, and multi-variate supplier bidding. It’s just not necessary for most of us.

The future of competitive sourcing won’t be centered on how to buy steel from China; it will be centered on how to buy the everyday goods and services we need to operate and thrive in a knowledge economy dominated by services business – items like IT equipment, office supplies, travel, temp labor and marketing consultants. And success there won’t be determined by supply chain experts with 20 years of category expertise. It will be up to you and me.

The future of sourcing is in CROWDS.

As information proliferates over the web, and more and more markets become increasingly transparent, pricing has become more scientific. Think airline seats. Don’t like the price of your aisle seat? Just wait ten minutes and check again, the price may very well be different this time around.

It’s naive to think a few individuals in the procurement department can single-handedly negotiate contracts that will always ensure the business gets the best price. With a few exceptions, business, and information, moves too fast for that to be realistic. The better strategy is to rely on the wisdom of the crowd to source the best deals and drive savings for the business.

Employees have always looked upon the purchasing department and preferred supplier agreements with suspicion. They know, especially now, that they can beat contract prices very easily doing a basic amount of research online. Let’s face it – the information is out there. And there’s no way to stop it. Spend management initiatives built around a ‘need to know’ mindset that controls the flow of information are doomed to fail. There’s just no way hold back that wave. So don’t.

Ride the wave instead! Don’t limit your people by restricting information flow or artificially controlling the options available to them. Empower your people to use what they know to save the company money. Think of the psychological impact and benefit of a grassroots effort inside the company – every employee has an opportunity to save the company money with every requisition they submit. Even if it’s just pennies at a time, it still adds up.

I’m talking about expanding the responsibility for finding the best deals and saving the company money beyond the procurement department. Afford every employee an opportunity to identify and capture greater savings for the business by making it easy for them to do exactly as they do with their own money – scour the web for deals. Don’t handcuff them to a handful of suppliers with negotiated discounts. Empower them to find deals anywhere on the web, and then pull them into the a purchasing platform that controls and automates the approval and ordering processes. We all buy stuff. Who doesn’t get excited by finding a great deal? Why not put that dynamic to use for the business’s benefit? Let your employees use their expertise, and the web, to find the best deals on the items they need to do their jobs.

A procurement organization, even with decades of collective experience, can’t possibly be expert in every category of spend, and quite frankly, even if it were, how much incentive is in place for the procurement manager to go out of his or her way to find the best price on every ad-hoc purchase? No, let the procurement organization focus on the big initiatives, and empower your employees to get what they need, quickly and easily (it’s got to be easier than the ‘expense it and forget it alternative’ that removes all control and visibility from the purchasing process). Trust the system you put in place to control the purchasing process and ensure the appropriate approvals, but otherwise let the crowd have at it. Don’t be afraid!

For manufacturers, who represent a smaller and smaller percentage of US GDP and the US economy, advanced sourcing techniques and tools are undeniably relevant and can produce competitive advantage.

But for everyone else, the crowds are coming. And they are empowered to save.

e-Leaders Speak: George Gordon of Enporion on “Are You Prepared to Grow”

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Today’s guest post is from George Gordon of Enporion.

As CEO of Enporion, a B2B e-commerce technology company, it has always been my role to push technology farther into business processes and apply it to doing business better. Most businesses have been using information technology to improve efficiency for decades. For the most part, “front end of the business” activities have been the first to benefit from information technology (IT) efficiency improvements.” Front end” applications are for those activities that are customer-facing and can be associated, for example, with receiving an order and delivering goods and services to the customer. The “back office” applications typically manage running the business, and have generally been late to attract the focus of management’s attention. The primary reason was that they were not perceived as having significant influence on driving increased revenue or lower cost. On a relative basis this may be true. However, in an ever increasing globally competitive high-technology world, the diligent manager must leave no stone unturned in looking for ways to improve business process.

Many of the IT systems used by businesses today came about through the automation of manual business processes, often on a departmental basis, creating silos of software for processes within the enterprise. Additionally, many businesses grew through acquisition resulting in a multi-enterprise collection of disparate software systems. My mission is to make information technology work for you, the business manager, without you having to throw out all of your legacy systems. Whether you are managing the buying, production, or finances, every business process you manage can benefit from improvements in IT. Trying to figure out what technology can provide the best improvement now and into the future can be a daunting challenge. How do you harness what is available today and plan to build on it in the future while keeping costs down?

Waves of information technology innovation shaped the foundation of business software today. Managers today must figure out how to work within their current IT boundaries such as investments in Enterprise Resource Planning (ERP) software applications, legacy systems, middleware and the Internet. The most recent software technology wave is in the provision of software applications offered as a service (SaaS); SaaS uses the Internet to connect businesses and systems to each other. To capitalize on past investments in technology, it is important to find solutions that will extend performance, scale for growth, and enable secure interaction over the Internet. It is important to keep your technology growing, and right now that is best achieved by using distributed computing, the Internet, and SaaS. SaaS is the most flexible and cost effective software available.

The current economic recession is destined to end. Now is the time to prepare for the inevitable boost in production and business consumption that will come with economic recovery. I have experienced six recessions in my career. The current recession is by far the worst of all and has had global impact. One important thing I have learned from these recessions is that the businesses who prepare for growth during the downturn are the ones who profit the most in the recovery. You can accomplish this by choosing technology solutions that provide the most capability, capacity, and, most of all, flexibility.

Far too often managers learn that a requested or essential software feature is not in a vendor’s product roadmap. By delivering software as a service, a company can successfully operate just one instance of production software for all of its customers. That’s why Enporion has adopted the SaaS model. When a customer requests a special feature, we not only have the capability to provide it indigenously, but we can effectively provide custom applications for every customer on one operating platform without any interruption of service or change for our other customers in our B2B e-commerce marketplace.

The analyst groups all agree that increasing efficiency in B2B transactions often significantly improves enterprise profitability. Procurement processes are critical business functions that are a great opportunity for operational improvement. Identifying inefficiencies in spend, driving costs out of sourcing and procurement processes, and establishing processes to better manage ongoing spend can all be accomplished with SaaS tools. Procurement processes can be enhanced by:

  • Providing better visibility into spending;
  • Aggregating spend;
  • Optimizing the number of vendors in B2B transacting;
  • Making manual processes more automated; and
  • Allowing automation through decision support technology.

These results can be delivered through a fully integrated suite of e-procurement software tools. The solution should include electronic sourcing, procurement, contract management and invoicing tools. A SaaS solution can easily integrate with any existing ERP or legacy application. It can also integrate with applications for smaller companies by providing a web-based user interfaces that requires only an Internet connection and PC. Also important to success in implementing e-sourcing and e-procurement are the substantially experienced people to provide professional services of change management, spend analytics, supplier onboarding, and project management. To make the best choice, find a company that can provide all of that to your business so you can prepare for growth and economic recovery.

Thanks, George.

The CPO Agenda’s Procurement Checklist for Staying Center Stage

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Now that Procurement has received board attention as the greatest potential for cost savings in the organization, CPOs need to start planning on how they are going to keep that attention once the recession ends and the spending monkeys try to steal the spotlight again. Thinking (way, way) ahead, the CPO Agenda recently put together a good checklist for “staying center stage” that summarizes some of the key strategies that CPOs will need to pursue to help the board see Procurement as a driver of growth, innovation, and long-term cost reduction and not just a one-trick cost-saving pony.

  1. A Vision for Growth
    • Value Chain
      As the central point of the organization, Procurement is in a prime position to define organizational needs, asses the capabilities of internal resources, and define organizational core competencies. What other business unit touches not only every other business unit, but all of your partners as well?
    • Solution Procurement
      Procurement can source solutions that leapfrog current best-in-class and create a paradigm shift in customer value.
    • Innovation
      As the glue that binds modern organizations together, Procurement can play a critical role in the innovation process by bringing partners and ideas together.
  2. Customer Relationship Management
    As the one business unit that has every other business unit as a customer, Procurement is in a prime position to help the company better meet its customer expectations.
  3. Supplier Relationship Management
    Procurement is already managing supplier relationships on a daily basis … it just has to help the organization understand that it needs to be the central point and the channel by which supplier capabilities are secured to support the company’s growth agenda.
  4. Supply Chain Optimization
    Without an efficient supply chain, companies cannot support the chosen customer needs. In order to achieve its plans, all aspects of a company’s supply chain MUST be optimized. Procurement is in the best position to do that.
  5. M&A Due Diligence
    The ultimate success of a merger or acquisition depends on whether or not the combined organization will be able to deliver more savings and more value … Procurement is in the best position to help make that call.

Myths and Realities of Services Procurement

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A recent article in the Supply Chain Management Review did a good job exposing some of the myths, and realities, of service procurement.

Myth: You can manage costs through RFPs.
Reality: Sourcing is only the beginning. Over half of all negotiated savings can be leaked during Procurement.
Negotiated savings aren’t realized until a transaction occurs … and they only happen if you pay the right price for the right quantity of the right product at the right time. That’s why you need a good e-Procurement system and someone monitoring all the alerts and running queries and random spend analysis-based audits monthly (for what can’t be caught automatically).

Myth: Managing services spend is complicated and expensive.
Reality: It’s never been easier … and it was never hard to begin with if you approached it properly.
If you know what you’re doing, have a checklist, and have a solution that supports that checklist, it’s a breeze. If a pre-surgery checklist can cut serious complications by over 35% and inpatient deaths by over 40% (Vitabeat.com), imagine what a good solution can do for something, like transaction management, that is a lot simpler!

Myth: It’s just temp labour … let HR handle it.
Reality: Most businesses start with temp labour, but there’s also marketing, legal, and other areas to address.
And don’t forget about print spend, which often presents one of the biggest savings opportunities, at least percentage wise.

Myth: If you build a system, your staff will use it.
Reality: Users find a way around any system they don’t like.
At a minimum, any system you intend to use to manage services spend must include:

  • A consumer-like user interface and requisition process.
  • Single sign-on for any purchase request, goods or services.
  • Visibility into the status of all orders that are in process by the user.

Myth: The best way to cut costs is to cut services.
Reality: It’s sometimes the worst way … the best way to achieve a significant cost reduction is to employ effective spend management practices.
Maverick buying is often the biggest loss of spend in your organization, and the reason that over 50% of negotiated savings are never realized. Manage the spend, and savings will materialize almost instantaneously.

Myth: Any e-Procurement solution can handle services.
Reality: Most e-Procurement solutions were not designed for services.
While you can fit a square peg into a round hole if you trim it down and force it … it’s not always the best idea. Especially when there are solutions defined specifically for services procurement.

Myth: Services are unique …we need point solutions for each one.
Reality: Any service solution should be part of an overall strategy … and some solutions are built to handle multiple types of services.
Multiple solutions can create more chaos, not less.

Myth: Vendor-funded software is Free!
Reality: The hidden costs of vendor-funded software could bankrupt your supplier.
Every time you use a vendor funded solution, you’re costing the vendor money. That means they have two choices, raise their prices to you to cover the cost, or take the hit in hopes that they’ll make it up on volume, which they never do, and this approach, ultimately, takes them closer to bankruptcy than to profit.

Could Incentives Improve Your Working Capital by 5%?

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A recent article in the Financial Times noted that “big companies in the US and Europe have up to 1 Trillion in cash tied up in working capital”, a number that represents roughly 6% of their revenue. Freeing up 83% of that would go a long way to reducing the financial pressure on many of these companies … and Ernst & Young, who recently surveyed 2,000 companies with respect to working capital improvements in 2008, believe that these companies can take a structured approach to improving working capital and improve their liquidity by 83% (by reducing the amount of cash tied up in working capital from 6% of their revenue to 1%).

The primary piece of advice given is that companies change their bonus schemes to reward improvements in cash performance. I think it makes sense. Sales pros perform best when their commission structure allows them to make progressively more with each sale. Procurement pros perform best when their compensation increases with real cost savings. So why shouldn’t supply chain and finance pros perform best when they are rewarded based on

optimal cash performance (which greatly decreases the cost of capital)?