Category Archives: Procurement Innovation

The Physical and Financial Supply Chain Integration Struggle

If the two supply chains could be truly interwoven, there is the potential to shorten the procure-to-pay cycle, reduce the costs of goods sold, and free working capital. And this is just the beginning, as noted in a recent Global Logistics & Supply Chain Strategies article in Supply Chain Brain on how “Companies Struggle to Integrate Physical and Financial Supply Chains”.

However, this is easier said than done because organizational barriers often prevent these two disciplines from working together harmoniously. And even if the walls come down, there’s still the issue of integrating the disparate and unconnected systems that run procurement and finance. As a result, billions of dollars are trapped in corporate supply chains, and opportunities to reduce costs through better financial management are unavailable.

As Jonathan Heuser, VP of Supply Chain at JP Morgan Chase astutely notes, while the purchasing discussion typically is around getting the lowest unit cost for goods and the supply chain discussion is around meeting delivery dates, these discussions don’t take into account the ramifications that associated payment terms and methods have on a company’s working capital. Similarly, financial managers don’t have the visibility they need into the physical supply chain, which only serves to magnify the inefficiencies.

Furthermore, as Kurt Cavano, CEO of TradeCard, notes, product cost savings can be offset by operational expenses associated with managing global transactions, financial risk and the requirement of additional, more expensive capital. In addition, late payments come with penalties when the company could have taken advantage of discount opportunities that many companies will offer for quick payment.

If the two systems are integrated, which makes sense since they both need to work off of the same fundamental information, procurement professionals could see the true costs of buying from a supplier in China, which would include all import and export tariffs, capitalization costs, and associated risks. In addition, finance professionals would see when capital was needed, where there are savings opportunities in the forms of discounts or favorable exchange rates, and when there is free capital to invest in short term opportunities for profit.

In addition, since there are a large number of redundancies between the information needed for purchase orders and invoices, the information needed for global trade documents, and the information needed for financing and payment, integrated systems can reduce the administrative overhead and associated costs. In addition, it would be much easier to apply real-time risk management since each group would understand where a project was in the process.

However, that’s not likely happen as the majority of buyers and suppliers still struggle with Supply Chain Finance (SCF) and the significant opportunities that it offers if done correctly. Most companies that are currently pursuing SCF are doing so not because they have a good grasp of what it can do for them, but because they are under substantial pressure to lower the costs of goods sold as raw material and energy prices continue to skyrocket and they are grasping at anything with the potential to save them money.

However, before companies can truly save money with SCF, they have to be ready for it. For a company to be ready for SCF, they first have to address automation, total cost modeling, and working capital management. If a company is not comfortable with e-payment, automated trade document creation and e-document exchange; is unable to use modern modeling and strategic sourcing decision optimization to make true total cost of ownership decisions; and doesn’t understand the different options it has available for capitalization, investment, and supplier payments, it will be unable to fully implement and take advantage of supply chain finance and all that it has to offer. So brush up on your e-Procurement, dust off your global trade, and master your strategic sourcing decision optimization and you will be ready to take the supply chain finance leap.

Fill Your Gas Tank with Coupa e-Procurement

These days, prices at the pumps are on everyone’s mind – consumer and business owner alike. And whether you’re a 3PL or a call center, your business depends on gas. Just like a 3PL will go under if it can’t afford to keep the fuel tanks in its fleet full, so will your business if your employees can’t afford the gas they need to get to work and you can’t afford to help them offset their transportation costs. But how are you to do that if everything else is going up in cost as well?

These days, the only way many businesses can consistently keep their costs down is to use e-Procurement – which has been found to lower an average organization’s costs by 4.8% (according to a recent Aberdeen study). But if you’re a small business, or even a smaller mid-size business on a limited budget, chances are you just don’t have the cash for the solutions offered by the self-proclaimed market leaders. (Ariba and Ketera, if you’re wondering.) But all is not lost – because there’s Coupa, the first e-Procurement platform for the mass market that any organization can afford. (Not just the Fortune 3000!) A true on-demand SaaS platform that takes advantage of Amazon’s cloud computing to keep prices as low as they can go, prices start as low as $295/month or $3540/year! Chances are that’s less than you’re paying Microsoft annually for it’s bloated, unstable, operating system that you run your business on – and within the reach of even the smallest of operations!

There’s no better time than now to investigate Coupa, who just today rolled out their latest update. On their seventh release (since their initial launch in July 2006), the platform is now well rounded for buyers, suppliers, and administrators alike – and still easier to use than Amazon.com. (Let’s put it this way, if Amazon truly was “one-click”, Coupa would be “no-click”.) Their search functionality now supports lists and gallery views and sorting by supplier, price, and relevance. Their form-based ordering now allows for “requisition copy” for instant re-ordering. You can now receive notification of approvals (which can be done by system administrators through e-mail) in real-time through your Instant Messenger client! And their checkout is still a marvel in simplicity – everything that can be pre-populated (such as shipping, billing, and receiving information) already is, and most of the time all you have to do is click “submit”! And, unlike many other systems out there (including the B2C leaders) if you have to order multiple items that require different billing information, whereas most systems would force you to create multiple orders, with Coupa, you can choose to specify billing at the line item level. And if only a few items require special billing information, you only have to specify the information for those items. Default billing information will be automatically populated for all of the other items.

It’s all based on Coupa‘s philosophy that no piece of data should need to be entered twice – ever – a philosophy that is even extended to suppliers. (A philosophy that the doctor wishes more software companies would wrap their head around and stop wasting time building flashy Cadillac UI’s to mask their problematic Model-T Ford engines.) With Coupa, your supplier can automatically generate an invoice off of your purchase order with a single click, and they only need to enter information (such as shipping, billing codes, etc.) not available on the purchase order. Considering that the vast majority of EIPP systems only allow for electronic submission of a supplier invoice, this is a huge benefit. Millions, if not Billions, of dollars are lost annually due to invoicing errors – which are easily prevented when the supplier does not have to re-key in data, as every keystroke increases the chance of an error. Furthermore, Coupa supports standard catalog formats and “punch out” (and has over 2300 suppliers already enabled in its system), so the chances of a pricing error are greatly reduced as the supplier does not have to create a separate price list for every client for off-contract goods and services (and only has to create one price-list for on-contract goods and services, and never has to re-key pricing on an invoice).

But most importantly, because it’s 100% hosted, Coupa does not require anything besides the browser already sitting on your employee’s desktop. Furthermore, since it supports the creation of buying policies during set up, it’s essentially 100% touch-less buying from an administrative point of view. You don’t need any IT resources. You don’t need your approvers double checking every order to see if every good or service is on contract and at the contracted price (because you can set the system up to only allow on-contract purchases at contract prices without authorizations), and you can eliminate manual review of all purchases that represent normal business conduct (by setting up regular purchases and rules for what purchases require approval and human intervention and what purchases don’t).

And you can take comfort in the fact that as good as Coupa is today, it’s only going to get better with time! Between July 2006 and May 2008, Coupa had 7 major releases and over 13 updates! That’s at least 3 releases and 6 updates a year! And when you consider that they were

  • the first open-source e-Procurement platform
  • the first e-Procurement platform built for the mass market
  • the first mass-market e-Procurement platform built as SaaS from the ground up
  • the first supply chain platform to use Amazon cloud computing
  • the first e-Procurement platform to offer a free 30-day trial
  • the first, and still only, e-Procurement platform to offer drag-n-drop shopping
  • the first, and still only, e-Procurement platform to include “how to buy” policy support
  • the first e-Procurement platform that allows employees to contribute feedback

and that

  • the rate at which spend through the platform doubles decreases every quarter (it’s now down to 25 days)
  • the supplier count is exploding month over month (over 2300 connected suppliers and climbing fast)
  • the average “go-live” time for a new client is decreasing by the quarter (average is now 17 days to get the system fully configured for “touchless” buying and the suppliers who represent 80% + of your business enabled)
  • the average update has 100’s of improvements … and over a dozen new features
  • it also comes with extensive reporting for finance, logistics support, and even basic inventory management capabilities … with new functions being added every major release

you just can’t go wrong giving it a try if you’re an average small or mid-size business. (Especially since it has a free 30-day trial!)

And chances are, with Coupa, you’ll save enough to keep that gas tank full, even when everyone else is running on empty.

End-To-End e-Procurement (A Sourcing Innovation / Enporion White Paper)

Are you confused by the virtually identical marketing messages that dozens (if not hundreds) of firms are spinning around EIPP, P2P, e-Procurement, and e-Payment? Do you want to know the difference between EIPP, P2P, e-Procurement, e-Payment and end-to-end e-Procurement? (They’re not the same, by the way. Not even close!) Do you want to know how you could be saving 4.8% across the board? Do you realize that an average savings of 4.8% across the board could, depending on your financials, translate into an improvement in EBITDA by as much as 100% (and likely 8% even in the worst case)? Do you just want the facts and not the spin?

Then you should download “End-to-End e-Procurement: The Foundation of Spend Management Success”, a new Sourcing Innovation white-paper, sponsored by Enporion (acquired by GEP). This white-paper defines what integrated end-to-end e-Procurement is, why it’s important, and how it enables the efficiencies and savings that e-Procurement was supposed to provide in the first place.

Integrated end-to-end e-Procurement is the implementation of e-Procurement technologies that support each step of the various procurement cycles of your organization in a tightly integrated fashion. It’s critical because anything less than end-to-end e-Procurement can result in these types of problems, just to name a few:

  • inability to capture the manpower savings that only materialize when data no longer needs to be re-keyed in multiple systems
  • unrealized cycle time reduction because errors are not caught before they cause problem, as happens when an order gets lost in system A when it should be in system B
  • failure to ensure payment at contracted rates because the rates weren’t captured during requisition creation
  • not knowing if the item you paid for as actually the item your buyer ordered, or if the item the warehouse received was the same item your buyer ordered because there is no multi-way match between purchase order, goods receipt, invoice, and contracted rates

The white paper defines the ten core capabilities of an end-to-end e-Procurement platform; the five most critical features (from a usability, efficiency, and effectiveness perspective); key integration points within the system and with associated systems that implement your sourcing, inventory management, and supply chain processes; a ten step process to make e-Procurement work for you; and an end-to-end e-Procurement checklist that you can use to evaluate a potential system to find out whether or not it is going to meet your needs. Finally, it defines over 20 benefits that can be realized with an integrated end-to-end e-Procurement system.

With over 20 pages of solid content, it’s worth the download. Enjoy!

And if you want more information on basic e-Procurement, I highly recommend checking out the e-Sourcing Wiki wiki-paper [WayBackMachine], if you haven’t already.

Hackett Hacks Away at Recession Declines

Hackett recently published a research piece on how “G&A Spending Cuts Can Offset 21% to 45% of the Anticipated Decline in Pre-Tax Profit During Recession” as part of their Enterprise Strategy Series which noted that their 2008 benchmark data reveals a savings of 184 – 400 Million for a typical global 1000 company that’s worth a re-read. Unlike most of their pieces, this was available to the public (registration required), and, if it’s still available, you should definitely download it – as it is jam-packed with more information than a single blog post can cover.

The piece starts off that by noting that while mandated G&A cuts are the norm in times of recession, arbitrarily cutting costs across the board can lead to serious deterioration in service-delivery capacity. It’s critical that cuts are made in ways that minimize impact on business value delivery, but this requires an understanding of the strategic alternatives, current cost structures (as compared to those of world-class organizations), and clear-eyed risk assessments. Furthermore, Hackett found that average companies can reduce G&A cost between 15% and 41% simply by optimizing process cost. Furthermore, reduced technology spend can take out another 6% to 7%.

The research brief also points out that you should not determine a savings target before understanding what a “normal” spend level is in a world class organization. For example, a typical Global 1000 company (with 23.4B in revenue and 56,100 employees) spends 3.6% of its revenues on four core principle G&A functions (Finance, HR, IT, & Procurement), but world-class companies execute significantly better by combining process excellence with technology leverage. They perform at lower cost levels (22%+) and enable the business to succeed by producing improved financial results and cash-flow; by recruiting, training, and retaining talent; by driving costs out of the supply chain; and by making superior use of technology.

The research brief also identified 10 targets for G&A reduction across the four core functions that, when combined, should allow for a cost reduction of at least $158M in a typical Fortune 1000 company in process costs alone (labor and outsourcing) that can be achieved by way of best practices, simplification, and standardization. Specifically, the 10 functions, and potential cost savings were:

  • Infrastructure Management : 25.1
  • Revenue Cycle : 22.7
  • Application Maintenance : 21.6
  • General Accounting : 17.9
  • Application Development & Implementation : 15.8
  • Compliance Management : 13.4
  • End-User Support : 12.7
  • Transactional HR : 11.7
  • General Disbursement : 10.6
  • Purchase Order Processing : 6.4

The research brief identified a cost difference of 55.6 Million in technology spend between average and world-class organizations.

Hackett also identified another 74.9 Million in cost savings that may be available through globalization (and outsourcing).

So how do you start identifying these cost savings? You start by reading the research brief and focussing on the specifics in the identified areas. You also apply the expertise the doctor and his fellow bloggers have imparted to you over the years while noting that most of the savings opportunities are in technology (75.2), finance (51.2), and procurement (19.8). If you have been paying attention, this should screen one acronym to you: SaaS. If you’re currently using bloated behind-the-firewall software, switching to SaaS will simultaneously reduce your infrastructure (the largest), application maintenance (the third largest), application implementation (the fifth largest), and end-user support (the seventh largest) costs. Plus, if it’s e-Sourcing or e-Procurement, you’ll also reduce your revenue cycle (the second largest), compliance management (sixth largest), general disbursement (ninth largest), and purchase order processing (tenth largest) costs. That’s eight cost reductions with one decision! How can you go wrong?

CVM: Not Just About Supplier Diversity Anymore!

CVM Solutions (acquired by supplier.io), one of Spend Matters’ Nine Vendors to Watch in 2008, appears to be on a quest these days to conquer the sourcing space, with their intent to offer supplier data enrichment, supplier relationship management (SRM), spend analysis, and a soon-to-be-launched procure-to-pay process management solution. According to Jason, CVM is a “best-kept secret” because of their extensive data enrichment services, supplier portal, and their new uber-workflow and process management engine that creates a level of control and visibility that he’s not seen elsewhere.

Now, I don’t know if they’re the “best-kept” secret, but when it comes to their data management capabilities and their new process management engine, they’re certainly a well-kept secret. Their extensive data management solution allows you to track extensible & customizable information on each supplier of a generic, location-based, contact-based, business registration, financial, capability, diversity, contract, sourcing, SRM, administration, and documentary nature – including scanned attachments which can be easily uploaded by specifying meta-data, printing off a cover-page with a system-generated bar-code, and faxing the document (with a cover-page) to a CVM provided fax number. (Reducing the number of steps in the traditional scan, convert, upload, tag, index.) In other words, their data management capabilities are in the same class as Aravo, a vendor I’ve written about before. However, due to their extensive supplier information databases (as the largest provider of diversity information in the US with enrichment data being culled from over 330 external databases and over half of the Fortune 500 as customers), they can also quickly and easily enrich your data, eliminating the need to integrate a third party’s data stream into your supplier data management / supplier information management solution (SIM), which might reduce the Total Cost of Ownership for a company that needs extensive amounts of third party data (as long as their pricing for enrichment services remains competitive with Austin Tetra and D&B.

For an initial release, I was also quite impressed by their new procure-to-pay process management engine. Although it’s not competitive with either your best-of-breed e-Procurement suites or your best-of-breed e-Sourcing suites when it comes to procurement and sourcing capabilities, with proper use, its flexible design allows you to accurately track all of your ongoing projects, and their current status, with respect to each supplier and each category and manage the process which, for most companies, probably involves at least three or four different systems (spend analysis, e-Negotiation, contract management, e-Procurement, e-Payment, order management, etc.). For example, their default assessment / supplier selection / contract draft / contract approval / transition workflow allows a category manager to document where each sourcing project is, and, when a supplier is selected, track where the project is with respect to contract drafting, approvals, and issuance. This information is then integrated with the data repository, where you can define alerts to notify you when certain quotas are reached / not reached in a time period and when a contract is about to expire. Steps can be added to, or removed from, the workflow, as required by your organization, and it allows you to continue using a collection of best-of-breed products from multiple vendors but still track your project status in one-location (which I believe is critical because there isn’t a single suite vendor with more than 3 solutions that is Best of Breed in everything – and when a best-of-breed solution can squeak out even 2% to 3% more on 100M+ spends, in today’s economy, I don’t think you can justify not going with a BoB solution).

I was also impressed by the usability of the application from a buyer’s perspective and a supplier’s perspective – which is important when you want to capture tier 2 diversity information from your suppliers in addition to asking them to use the tool to enter and maintain their basic information. The only thing I didn’t like was the response time – many screens took an average of 3 to 4 seconds to load in the demo (and I’m not willing to blame the internet as I have high speed cable on a 15MB rated network and can sustain 1MB/sec download times on my machine with ease). If you’re going to be maintaining large databases, you’ll need to ask about their SLAs and insure that you have enough processing power and bandwidth dedicated to the application. (Fortunately, with today’s hardware prices, you can do that at very affordable prices!)

I was, as regular readers might guess, not impressed with their “spend analysis”, or, more appropriately, with their classification of their spend reporting program as “spend analysis”. It’s a good reporting package with over 30 pre-configured reports that has all of the day to day reports that managers and accounting and tactical purchasers are going to need … but when it comes to the true analysis capability required by your power buyers, it’s just not there. In other words, like many of the spend analysis applications on the market, it will satisfy all of the requirements of management and your tactical purchasing team, but none of the requirements of your power buyers. However, it is seamlessly integrated with their platform, so if you were willing to augment it with a stand-alone power tool for your power buyers (like BIQ [acquired by Opera Solutions, rebranded ElectrifAI]), it would allow them to focus on true analysis and not have to worry about meeting the reporting requirements of management or the tactical buyers AND allow those individuals to quickly and easily access spending reports augmented with supplier information, diversity data, and standard classification systems such as NAICS and SIC. Plus, if you maintain complete contract pricing information (which is quite easy to do in their solution for commodities), it can automatically generate “offender” reports for accounts payable when you’re over-billed or accounts receivable when you reach the discount volume. So, if you can get a good deal on it, the “spend reporting” solution could be worth the price when you calculate the opportunity cost of a power user of a companion BoB application generating standard reports for management and accounting vs. digging for new opportunities. Plus, and this could be a key selling point for them, they have an add-on Federal Reporting Module that can be configured to automate Federal and State Agency reporting down to the contract level – and anyone who has had to prepare these reports knows how time-consuming they can be.

Finally, they’re also getting into Risk Assessment Reporting, which, after some of the recent supply chain disasters we’ve seen in recent years, is likely soon to be a must for larger corporations. When it comes to talking-the-talk, they’re certainly ahead of much of their competition in understanding “risk” and the importance of measuring it, planning for it, and proactively dealing with it. When it comes to walking-the-walk, their reports appear to be more-or-less comparable to their competition, especially since they can pull in D&B risk scores and supporting data. However, these days, I don’t think a financially based risk-assessment tells the whole story. I think they need to integrate more sources of information, especially for small businesses (like Austin Tetra is doing), to arrive at a more complete risk picture. It’s good for a first offering, but I’d like to see how it improves over the next year before locking in any long-term agreements. This is an emerging market in the sourcing services sector, and I’m not sure if anyone really has a good lock on what the right solution is.

In summary, I think they are a well-kept secret when it comes to supplier data management and, now, sourcing and procurement workflow management, I definitely think they have a lot of potential on the SRM/SPM side and the risk side as well, and even though they don’t have true “spend analysis” (just like the vast majority of vendors who make the claim), I think that their “spend reporting”, and their federal reporting module in particular, is quite good from a usability perspective, especially for non-technical management, accounting, and tactical buyers. They’re definitely a company to look at and keep an eye on, but like other extensive suite providers, they’re not best-of-breed in everything (no matter how good the “eye-candy” UI looks).