Category Archives: Procurement Innovation

Critical Purchasing Officer

In a recent CAPS Research publication “Supply Leadership Changes” they point out that few decisions that affect the success of supply in an organization will have more impact than the decisions regarding who will be the CPO and to whom he or she will report.

The report had some interesting findings:

  • There were a total of 73 CPO changes and 75 reporting line changes in the 30 companies studied over a 10 year period.
  • There was a total of 29-first CPO appointments in the 30 companies studied over the 10 year period.
  • The centralization of supply at a firm was typically triggered by a simultaneous corporate strategic change and move towards centralization of many functions, and trigged the establishment of the fist CPO in 22 of 29 instances.
  • In 5 of 29 cases, the first CPO was established when the executive team recognized that centralization of supply would gain the corporation a variety of benefits.
  • Initial CPOs and replacement CPOS are typically found within the company more than they are not (62% and 73% of the time).
  • When a CPO was recruited outside the company, the CPO came from a supply position.
  • An internally recruited CPO with a supply background had an average tenure of 4.3 years while an internally recruited CPO without a supply background had an average tenure of 3.5 years, but first-time CPOs with a combination of supply and non-supply experience had an average tenure of 5.5 years.
  • CPOs leave their position for a variety of reasons, the most common being promotion to another position. Other common reason are major corporate strategic and structural change and a major corporate strategy strange.

These findings, and other, have some interesting implications:

  • Leadership in the top supply function is in a state of constant flux and getting a running start at the position is important.
  • The trend toward the appointment of non-supply managers to the CPO position is continuing and a significant burden of education and support falls upon the shoulders of the senior supply managers with supply experience.
  • Individuals aspiring for the CPO position need to move to a corporate supply position.
  • The CPO and the person to whom he or she reports forms a powerful team within the organization.
  • A new CPO must create a plan of action.

This might imply that:

  • A supply manager should constantly be improving herself. Continuing education and awareness is critical. ( Blogs contribute to awareness. )
  • A supply manager should be ready for increasing responsibility.
  • Corporate supply is where it’s at.
  • If you want to be a powerful CEO, get a great CPO.
  • A good plan is important.

More Than Coupacetic!

Every now and again, the oompa loompas leave the big-screen TV unguarded and the Wii unlocked (“WII: Lessons for Enterprise Software Companies” on Procurement Central [WayBackMachine]). During such a time, it’s often possible to sneak past the grunka lunkas and get a demo of the latest development cut of the forthcoming Coupa Enterprise 1.0 release.

And I must say, it’s coupendous. Coupa is moving up the ranks and setting their sights on the minor league championship – the sweet spot for any small and mid size company that wants to stop living in the stone-age with the Flintstones and join the Jetsons in the future. (Now, I love the Bedrock Anthem as much as the next blogger, but I’d much rather you follow the first rule of cost avoidance.)

They’ve been working really hard at Coupa since their enterprise beta release and the number of features it supports has been Coupa-sized. The world’s simplest purchasing tool is not just for requisitions anymore! Look for a major announcement before ISM hits.

In the meantime, I can tell you that they’ve improved the application end-to-end with UI updates, improved search and filter functionality, and improved support for document management across the board. In addition, they’ve also implemented some internationalization support, including multi-currency.

Stay tuned. I should have more details within the week on this coupacetic application.

A Conversation with Ketera

When I was down in the valley, I made a point to visit Santa Clara to catch up with Ketera (acquired by Deem) who recently announced their next generation spend analysis solution, which I’m not going to spend too much time talking about (even though they are getting a good reception and a lot of customers because of it).

I did get a chance to see it recently, and it’s quite good. It’s not the absolute best in any regard (automatic classification, reporting, flexibility, etc.), but the overall solution puts it in the short stack of solutions you should definately be including in your review process. They have a two-tier classifier, which starts off with what they call a high-confidence classifier (which, you guessed it, is based on the old GL Codes, Vendors, GL Codes and Vendors mapping) and a trio of lower-level lower confidence classifiers (that use various rules and external sources) to try and collectively get a high confidence match. Failing that, they have manual classification and a rules engine to automate the match in the future. They also have a tierd knowledge base: global, industry, and organization to allow for multi-level rules and classification. Their reporting solution is now based on MicroStrategy, which, besides giving you standard best of breed reports, allows a user to fairly easily build basic BI reports and drill down within current reports. And it’s on-demand. (So, in recap, they potentially have one of the best classifiers, one of the better reporting front-ends from a usability perspective, and it’s on-demand.)

My interest, and the focus of my California conversation was what they were doing with their e-Procurement, Invoice Management, and what they are doing to enable the Procure-to-Pay (P2P) cycle; their recent partnership agreement with Hyperion (which was just acquired by Oracle) and their progress towards delivering operational Business Intelligence capabilities; and their supplier enablement (and catalog hosting) services and solutions.

At the moment, their procurement solution is one of the better enterprise solutions out there – it’s usable and it interfaces with their Invoice Management Solution and Supplier Management Portal. They have a two-level checkout process, basic and advanced, since most organizational users will use the system ony once a month and need a simple solution, and they have integrated document management. Furthermore, a future release will include Hyperion reporting.

My rationale for this interest is that it appears that there are significantly fewer general-purpose e-Procurement solutions than general-purpose strategic sourcing solutions (even though there are a lot of niche offerings, especially in the Software-as-a-Service arena); even though there are a lot of Business Intelligence solutions and a lot of dashboard solutions, not many attempt to tie together operational metrics with their financial impacts; and even though there are a growing number of supplier management and supplier information management solution, not many support the quick enablement of a large number of suppliers and I wanted to know how close Ketera had come to achieving each of these goals. That’s why I was glad to hear that they were working on tieing in their invoice management and procurement solutions with their contract management solutions, that they were working on Hyperion integration, and that they have a few other surprises for the year ahead. After all, once you have this, you just add better integration with spend analysis, and you have a great start at an integrated procurement and sourcing application that would be a great solution for many underserviced mid-market firms.

Davie and the Coupa Factory

When I was in in the valley, I checked in on Coupa. I’m happy to report that the Coupa Oompa-Loompa‘s are hard at work developing the new version of their open-source e-Procurement product, which should be ready in the near future. (Rumors are the next enterprise version will be ready in a month or so.) I wish I had details to share, but everything is hush-hush and I was warned by the Grunka Lunkas not to ask about the secret new features (and since I didn’t have an evil alcohol chugging robot or one-eyed mutant to back me up, I decided to heed their warnings). However, if you listen hard, you just might be able to hear the Oompa-Loompa’s song floating on the breeze.  (At least when they’re not watching TV.)

Oompa Loompa Doom-pa-dee-do
I’m building a great product for you!
Oompa Loompa Doom-pa-dah-dee
If you are wise download it for free.

What do you get when you go open source?
Straying away from the Oracle course
Where you are going terribly flat
What do you think will come of that?

I don’t like the look of it

Oompa Loompa Doom-pa-dee-dar
If you are willing, you will go far
You will live in happiness too
Like the Oompa Loompa Doom-pa-dee-do

Oompa Loompa Doom-pa-dee-do
I have a great product for you
Oompa Loompa Doom-pa-dee-dee
If you are wise you’ll take a look-see

Oracle’s fine when you have lots of cash
It stores all your data and caches it fast
But when you’re cash-strapped, you’re hung out to dry
To watch the vultures circ’ling high

Up in the dark’ning skies

Oompa Loompa doom-pa-dee-dar
But now there’s Coupa, you can go far
You will buy in happiness too
Like the Oompa-Loompa doom-pa-dee-do

Oompa Loompa Doom-pa-dee-do
I have a great product for you
Oompa Loompa Doom-pa-dee-derd
If you are wise, you will spread the word

Ask who they’ll blame when your spend is off track?
Deep in the red and there’s no turning back
Contracts alone will never be enough
If your software’s not up to snuff

And doesn’t track your stuff

Oompa Loompa doom-pa-dee-dar
But now there’s Coupa, you can go far
You will buy in happiness too
Like the Oompa-Loompa doom-pa-dee-do

Oompa Loompa Doom-pa-dee-do
I have a great product for you
Oompa Loompa Doom-pa-dee-dise
If you are wise, you’ll buy enterprise

Recquisitions with a click of the mouse
No more mistakes for accounting to delouse
One click receipts when the order arrives
Invoice matching that always jives

You’ll have no … you’ll have no … you’ll have no regrets

Oompa Loompa doom-pa-dee-dar
But now there’s Coupa, you can go far
You will buy in happiness too
Like the Oompa-Loompa doom-pa-dee-do

And yes, this is to the tune of the Oompa Loompa chant, as first heard in Willy Wonka & the Chocolate Factory.

Don’t be a Victim of the Performance Gap (Procurement Best Practices)

According to the Hackett 2006 Enterprise Book of Numbers, there is a growing performance gap in sales, general and administrative operations between world class and average companies with top performers generating significant savings while delivering improved effectiveness and reduced risk. Don’t have a copy? No worries – the IACCM ran a great summary article last month.

Hackett’s research found that by achieving world-class performance in four core operational areas – information technology (IT), finance, human resources (HR), and procurement – companies can reduce annual SG&A costs by $60M per B in revenue. At the same time, these world class performers show superior effectiveness, deliver higher quality services, and benefit from increased economic returns and reduced risk.

In addition, Hackett found that world-class performers demonstrate strength in five best practice categories: strategic alignment of business goals and operating procedures, complexity reduction, technology enablement, business processing sourcing; and cross-functional partnering. Furthermore, the strategic use of technology plays a key role in achieving world-class performance.

The article also quotes Pierre Mitchell (who needs no introduction) who states that “The best companies may differ in their size, industry or regulatory environment, but what they share is their ability to use back-office functions, traditionally viewed as cost centers, to generate competitive advantage. They do this, regardless of function, by relying on specific management approaches in the five areas we’ve identified.” World class organizations support continuous improvement within individual functions, cross-functionally and in end-to-end processes. “It’s critical to recognize that each year these world-class performers do a little better, pulling further away from the pack. The growing gap has a multiplier effect that will make it more difficult for the lagging typical companies to compete over time, a process that may soon be irreversible for many of today’s leading corporations.”

The Hackett group key findings across various SG&A functions were as follows:

Strategic Alignment
World class organizations use “flatter” management structures that are more effective. Furthermore, the senior IT executive is almost 50% more likely to be on the company’s primary management team.
Complexity Reduction
World class organizations achieve tangible benefits by abolishing unnecessary complexity in business processes. World class procurement organizations reduce complexity through strategic sourcing, consolidating their purchases among 78% fewer suppliers than typical companies, and centralization. (Hackett found a typical company with 1B in annual spend can save 8M in process cost alone by increasing the percentage of contracts negotiated centrally from 20% to 80%.)
Technology Enablement
Companies with world-class IT organizations spend 7% more per end user than their peers and their use of technology results in improved performance across other SG&A areas. Appropriately applied technology streamlines and automates operations and world-class organizations spend 45% less than typical companies on finance operations.
Business Process Sourcing
World class companies leverage business process sourcing options at the process level and do not hesitate to change sourcing solutions if they fail to meet the desired results.
Cross-Functional Partnering
World class organizations seek synergies across business functions through cross-functional cooperation to achieve common goals. Procurement staff work alongside their functional peers to understand business need, plan spending and supplier selection, and take into account current and future needs.

So don’t get stuck in the procurement gap – take Hackett’s advice to heart and join the world-class organizations who are saving an additional 6% per year on their procurement efforts. Don’t know where to start? Since technology is key, start by adopting state-of-the-art on-demand strategic-sourcing solutions, such as those offered by Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) and Procuri (acquired by Ariba, acquired by SAP).