Category Archives: Procurement Innovation

A State Gets Smart

Today’s guest post is from Mark Usher of Treya Partners and originally appeared on the 1 Procurement Place blog on July 31, 2008. It is reprinted with kind permission.

Those of you who follow the public sector space may know that the State of Georgia recently selected SciQuest’s e-procurement tool. State agency employees in Georgia who need to buy anything from pens to asphalt will shop in SciQuest’s web-hosted electronic catalogs which will be populated with pre-priced goods and services from the State’s existing supplier agreements. This decision by the State of Georgia is notable for two reasons – (i) it is another example of an organization electing to carry out its purchasing transactions in a best-of-breed e-procurement tool as opposed to the purchasing module its existing ERP system (numerous Fortune 500 companies have gone the EP route following sunk ERP investments and the State of Georgia already has PeopleSoft) and (ii) it is also an example of another state government that is moving ahead strongly with a strategic procurement initiative (other states moving to transform their procurement function include Virginia and Indiana to name just two).

The shunning of ERP’s historically much-maligned inbuilt purchasing functionality in favor of e-procurement is a trend that I would expect to continue both in the private and public sectors. Not so much due to application functionality (a gap that that I would say doesn’t really exist anymore since the ERP vendors have refined the workflow in their own e-procurement modules) but due to the fundamentally different way that the best-in-breed providers and ERP vendors handle catalog content. All of the e-procurement providers utilize web-hosted catalogs pre-populated with many of the vendors and products that most buying organization will need (and with the capability to have the organization’s specific contract pricing built in). And if a customer has vendors that are not already in the pre-populated catalog it is a simple task for the e-procurement provider to request product and pricing from those vendors and load them into their web catalog. With an ERP provider’s e-procurement solution, however, you are most likely going to have to build your catalogs behind your firewall, involving considerably much more time and expense. And now that the best-in-breed e-procurement providers all integrate so perfectly with ERP (e.g. with accounts payable to enable payment reconciliation), why would you ever go the ERP purchasing route? I wouldn’t.

As regards Georgia’s general procurement transformation initiative, expect to see a lot more of this from state governments in the next 2-5 years. State governments have long presented a massive challenge for creating value from procurement due to their extreme decentralization. Often hundreds of state agencies within a state making their own procurement decisions and developing their own price agreements with suppliers. To complicate matters even more, agencies usually have their own financial and purchasing systems meaning there is no centralized store of data from which to build a consolidated picture of total state spend by category, supplier and agency – key information for identifying and developing aggressively discounted price agreements with suppliers. Rounding out the challenges for states in the this area are a lack of a strong mission/vision/strategy for a center-led approach to procurement and a shortage of strategic sourcing skills among current state procurement staff.

As regards my state procurement crystal ball I would expect to see (or would HOPE to see) state governments address the following five areas:

  • Develop and broadly communicate a center-led strategy for procurement in the state with the centerpiece being a strategically focused, “center of excellence”-based central procurement group
  • Conducting a best practice spend analysis to develop a consolidated cross-state picture of spend by agency, supplier and agency
  • Based on the spend analysis, develop and implement a sourcing roadmap with the objective of maximizing the amount of state spend under cross-agency (“state-wide”) leveraged price agreements
  • Upskill the central procurement group with the required training in best practice strategic sourcing methods (or hire where needed)
  • Implement a state e-procurement system with web-hosted electronic catalogs to drive maximum spend through the new price agreements

Thanks Mark!

Twenty Reasons Why All Retailers Should Use e-Procurement Tools Now

Today’s guest post is from Ron Southard of Safe Sourcing and originally appeared on the Safe Sourcing Blog on July 29, 2008. It is reprinted with kind permission.

Sometimes the detail gets lost in translation, so for those of you that are following on a daily basis here is a simple list. These are certainly not all of the benefits that retail can drive from the use of e-procurement tools, but it is a good starting point.

Since this is not Late Night with David Letterman, our list is not ranked in order of importance although many might argue that not much is more important than improved earnings.

1. Guaranteed to improve net earnings
2. Guaranteed to improve safety
3. Guaranteed to improve Corporate Social Responsibility
4. Guaranteed new sources of supply
5. Retail has less spend assigned than any other industry
6. Streamlines the procurement process
7. Holds suppliers accountable to your standards
8. Improves quality
9. Coast avoidance in a volatile market
10. Creates a competitive environment
11. Drives reliable market pricing
12. Maintains a reliable history for future comparison
13. Educates suppliers as to how retailers wish to procure products
14. Supplier training eliminates questions
15. Improved and consistent product specifications
16. Improved negotiation
17. Improve carbon footprint
18. Simple award of business process
19. Frees up time for other tasks
20. Works for procurement of all product categories

This author is not sure why a derivative of this list could not become the mission statement for any procurement department.

Thanks Ron!

Innovate – It’s Death or Glory

A few months ago, Industry Week ran a great article by Blake Glenn of ?What If! that noted that US manufacturers must make a fundamental shift in the way that innovation is perceived and delivered if they are to regain the competitive edge that they need to keep from falling behind. Furthermore, it also noted that while innovation is seen as important in most organizations, the components to drive innovation are often lacking, in need of refinement, or misunderstood altogether. I’d have to agree. There’s not enough innovation out there today. We need more!

The article also listed some of the fundamental and damaging misconceptions that are all too common, and that need to be corrected. Beliefs that “innovation is about process”, “innovation requires significant investments of time and money”, and “innovation lies solely in the hands of R&D” are incorrect and will halt innovation before it has a chance to begin. The fact of the matter is that “innovation is about inspiration and perspiration”, “innovation requires significant investment in the willingness to innovate”, and “innovation lies in everyone’s hands” and that if you don’t accept this, you don’t have much of a chance of becoming an innovative leader. (And considering we’re in a recession, you definitely don’t want to make any innovation mistakes.)

And, most of all, as the article points out, it’s a deeply complex multivariate phenomenon and at its heart lies a single subject: people. People who must think differently, who must be encouraged, who must be empowered, and who must be rewarded for their ideas. They must be encouraged to change and take risks. And to constantly look for better ways to do business as a whole – be it accounting procedure improvement, logistics streamlining, or new product introduction.

Furthermore, new product innovation does not stop with the product – it goes beyond to include everything that has to do with the product and includes packaging, production processes, and distribution. It also covers the entire product life-cycle. It involves designing for efficient manufacturing, designing for minimal packaging requirements, and designing for disassembly and recycling.

It’s a behavioral shift … and possibly the only one that could save your company if times get tough. Winners persevere and evolve. Losers … well … when was the last time you saw a dodo?

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.