Category Archives: Procurement Innovation

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.

Spend Matters in Procurement

Yesterday, over on Spend Matters, JB brought up two very good points.

  1. Every dollar spent on procurement will generate a 300% to 600% ROI
    As noted in “beyond shedding the deadweight in procurement and operations” on Spend Matters, the last place you want to cut budget is procurement. When Hackett data continually finds that average performing companies get a 300% annual return from procurement-focusssed dollars and best-in-class performers get a 600% annual return from procurement-focussed dollars, in these tough economic times, you should be increasing your procurement budget. Many products, especially SaaS offerings where you pay by the month, will generate a return before the second payment is due. Plus, most of the better service providers are willing to wait until the project is completed and you document a return before invoicing you. That means you can actually make the money to fund your operations before you even spend it!
  2. It’s never been a better time for a make/buy analysis
    Not only will this help you turn on a dime if you have to turn on a dime because your current supplier goes under, a natural disaster takes out a key raw material (and you need a replacement product that uses an alternate raw material), or cost increases force a new business model, but it could also help you save a bundle. In addition to the e-Sourcing and Decision Optimization vendors that JB lists, whatever you do, don’t forget the should-cost experts at Akoya and Apriori. You don’t want to make a sourcing decision based solely on price quotes alone. Otherwise, you might accept a low-bid that is unsustainable by the supplier who is so desperate for your business that they effectively bid themselves out of business.

QuickDraw Procurement with Coupa QuickStart

Earlier this week, Coupa announced the availability of Coupa Quickstart, the second in a string of big announcements they have planned for the first half of this year. (The first was, of course, the acquisition of a new CEO, Rob Bernshteyn, earlier this month.)

As noted in the Press Release, Coupa Quickstart is a setup wizard that visually guides purchasing mangers through the setup process for users, approval rules, payment and shipping terms, billing information, chart of accounts, suppliers, and other basic information that is required to get a purchasing system up and running in less than an hour. Noticing that one of the biggest barriers to adoption of e-Procurement software in small and smaller mid-size organizations was the lack of (technical) personnel to support the acquisition, setup, and implementation of en e-Procurement system, Coupa wanted to build an on-demand e-Procurement system that any buyer, with limited technical capability, and only a browser at his or her disposal, could set-up by themselves quickly and easily. The Quickstart wizard, built on top of a basic, default configuration and e-Procurement process, enables a buyer to get going as soon as they define basic company information and configure the system on an as-needed basis. As a result, most users will be able to be up, running, and cutting their first purchase order in under an hour. (Small organizations with only a few users and simple approval hierarchies will be up and running in under half and hour, and one customer managed to get a basic system configuration defined in only ten minutes!)

The Coupa QuickStart process is a streamlined process that walks a user through:

  • Company Info Definition
    In this stage the user defines the company name and address, uploads the logo, and defines the currencies (default USD), units of measure (default Each), departments (if required), and standard commodities (pre-populated with a basic default list Coupa has found to be common to many small and mid-size business) they buy on a regular basis.
  • User Definition
    In this stage, the system users and approval hierarchies are defined.
  • Financial Rules Definition
    In this stage, the user can define the company’s standard payment terms, shipping terms, billing info, and accounts (& account structure). (The system can auto-generate account numbers if the user simply defines the legal values in each segment.)
  • Supplier Definition
    The user defines the suppliers they do business with. Invitations are sent to the supplier to connect electronically, and if the supplier is already defined as a user in the Coupa system, they will see the user’s company as a customer in their instance when they accept.

Finally, the new QuickStart offering comes with a streamlined help system that contains numerous “visual” entries on how to use the invoicing, receiving, RFQ, budgeting, inventory, contracts, and punch-out capabilities as well as numerous other standard Coupa features.

The Art of Procurement Mastery

Now more than ever, procurement leaders have enormous responsibilities on their shoulders. Not only are they expected to drive even larger cuts in costs of goods sold but they are under fierce pressure to make every business process as efficient as it can possibly be. So notes Gregory Spray in a recent Supply Chain Management Review article on “The Art of Procurement Mastery”.

The article also notes that not many companies are using the downturn as an opportunity to radically rethink their activities and strategies. A downturn is a great opportunity to snap up top talent, apply business analytics to develop sharper insight, collaborate closely with suppliers to drive product innovation, and outsource effectively.

The article examines the performance gap between “procurement masters” and their lesser performing industry peers that was highlighted in a recent Accenture survey across more than 600 procurement executives from Asia, Europe, and North America which found that procurement masters achieve 30% higher savings with costs that are 50% lower, procurement masters outsource at a frequency that is two to four times higher than low performers (depending on the function), and procurement masters are leaders in supplier relationship management. I have to say that these results are not unexpected, given that Hackett has been logging similar results for almost three years now.

The study defined a “procurement master” as one with superior performance in the following five metrics:

  • Total-Cost-of-Ownership (TCO) savings
  • Spend Under Management (by Procurement)
  • Ratio between TCO Reduction and Procurement Operating Costs
  • Percentage of NPD/NPIs where Procurement has a Material Role
  • Percentage of Suppliers Managed Under a Formal Process

So what do procurement masters do that their industry peers don’t?

  1. More Thoughtful and Pragmatic Procurement Strategy
    Masters look and think three to five years out when planning purchases for critical business categories and they do a more innovative job of measuring procurement performance.
  2. Better Guidance for Sourcing and Category Management
    Masters employ a center-led organizational design that cuts across organizational entities and employ best-practice sourcing processes that emphasize

    • common processes
    • wide-spread usage of cross-functional procurement teams
    • formally tracked activities
    • tight focus on TCO
    • end-to-end supply chain orientation
  3. Greater Innovation in Procurement Processes
    For example, 83% of masters (compared with 8% of low performers) excel at providing clear and documented buying channels to end users and 87% of masters use LCCS for value creation.
  4. More Assertive Supplier Relationship Management
    Supplier Relationship Management is a leading practice of procurement masters with 84% employing a supply-base segmentation approach (compared to 1% of low performers), 83% employing automated tracking and reporting of supplier performance (compared with 1% of low performers), and 80% employing central logging and proactive management of contracts (compared with 8% of low performers).
  5. Supplier Workforce Management and Organization
    Masters excel in workforce management with 78% (compared to only 3% of low performers):

      • Objectively measuring existing competencies
      • Frequently adjusting organizational skills to align with procurement strategy
      • Emphasizing ongoing training
      • Blanketing competency development strategies across the procurement network

    In addition, 86% of masters use variable pay schemes (that compensate high performers).

  6. More Effective Use of Technology
    As the article astutely points out, technologies and technology-based solutions have advanced considerably in being able to support innovations in procurement and leading procurement executives are looking to new technology solutions to help digitize the entire supply chain.

As this echoes many of the messages my fellow bloggers and I have been conveying for the past few years, I’d say that this is good advice across the board.