Category Archives: Procurement Innovation

What’s the Most Often Overlooked in e-Procurement Solution Selection?

This is a tough question, but SI knows one feature that’s almost always overlooked:

Order Automation Integration

A good e-Procurement Solution will contain, or integrate with, a good invoice automation solution because the average organization takes at least 16.3 days to process an invoice and spends somewhere between $30 and $40 on that invoice, if everything is A-OK with the invoice. If it’s not, the invoice could take months to get processed and the processing could well exceed $200. Furthermore, manual data entry of (e-) paper invoices can account for as much as 75% of overhead in an Accounts Payable department, and if the organization gets hundreds of thousands, or millions, of invoices a year, less than 10% will get any reasonable level of review or validation. (For a deeper insight into the value of invoice automation, download SI’s recent white paper, sponsored by Nipendo, on An End-to-End Invoice Automation Framework: Benefits & Best Practices, registration required.)

You’ve got your invoices under control, and this is good. But where are these invoices coming from? Your suppliers. And why are they coming from these suppliers? Because you’re issuing your suppliers hundreds of thousands, or millions, of purchase orders a year. Hundreds of thousands, or millions, of purchase orders that these suppliers have to get, process, and push into their fulfillment systems in order to fulfill the orders for you.

If you need these invoices received, acknowledged, processed, and fulfilled quickly, then the supplier has to be able to get these orders into their system quickly. And if you happen to be sending a supplier 20,000 purchase orders a day, because you’re a retail or restaurant chain with that many locations that needs product refilled on a daily basis due to space constraints and freshness requirements, you need to know that if an order is sent 30 minutes before the cut off, it’s going to be processed when it gets to the supplier.

The only way the supplier that is getting tens of thousands of purchase orders a day is going to be able to process and acknowledge the order as soon as it is received is if the order is in a file format compatible with their order automation system and is picked up by the order automation system as soon as the order is received.

This indicates that a key requirement of a good e-Procurement solution is support for the file formats used by the popular order automation systems and support for the protocols used by the popular order automation systems to transport the invoices and accept the acknowledgement, or error messages, that then need to be appropriately handled by the e-Procurement system.

Supplier Portal, Supplier Network, and e-mail delivery of orders only works if you are delivering a small number of orders to a set of suppliers without order automation who have a few days, or more, to process the orders — not a few hours.

Are Your Invoices Still out of Control? Ready to Do Something About it?


Paper, paper everywhere
all the desks do warp.
Paper, paper everywhere
enough to fill a thorp.

And it shouldn’t be that way. But, as per our previous post, despite the recent appearance on the market of some modern solutions that can revolutionize invoice management and automation at even the largest Fortune 500 and Global 3000 companies, the state of e-invoice and AP Automation today is dismal. The 2012 AP Automation Survey Report found that 9 in 10 organizations still deal with paper invoices and that 90% of invoices are paper-based in half of the organizations that responded!

Moreover, Aberdeen’s 2012 study of of 180 organizations, reported in AP Invoice Management in a Networked Economy, found that laggard organizations, which represent the bottom 30% of organizations, require an average of 16.3 days to process an invoice from receipt to approval. The good news: this is a significant improvement over their 2009 study on E-Payables: Invoice Receipt and Workflow that found laggard organizations required an average of 32.9 days to process an invoice. The bad news: it’s still a very large amount of time, especially if an organization wants the opportunity to take advantage of early payment or dynamic discounting.

As a result, the average organization spends somewhere between $30 and $40 just to process a single invoice! In other words, with the exception of best-in-class organizations that heavily employ modern invoice automation solutions and only spend an average of $3 to $4 to process a single invoice, invoices are out of control in 4 out of 5 organizations. But they don’t need to be!

There is an answer, and the answer is the end-to-end invoice automation, as detailed in SI’s new paper on An End-to-End Invoice Automation Framework Benefits & Best Practices, sponsored by Nipendo. (Registration required.) Download it today and find some of the answers you seek.

Vinimaya: Taking Their Procurement Marketplace Global, Part IV

In Part I we noted that since we last covered Vinimaya, the B2B Search Engine that was the next wave in product catalogue management, they have continued building out their base platform, adding (more extensive) auditing capability, workflow-based catalog management, quick-quote (RFX), e-Forms, deep analytics, mobile, and social integration on top of a base platform that supported content management, federated search, powerful connectivity options, personalization and customization, globalization, and an easy to use shopping cart. Then, in Part II and Part III we focussed in on their vTransport technology and their new vQuote, vRank, vCatalog, vAudit, and vAnalytics solution modules. Today, in the final part of this four-part series, we are going to talk about vSocial, vMobile, and their up-coming market indices.

vSocial
vSocial is the social interaction component of the Vinimaya platform. Taking a cue from Amazon, which teaches us that not only do people tend to gravitate to products with reviews but they also want the ability to comment on the products and services they receive and be part of the community, Vinimaya added social interaction capability to their platform. Buyers can post feedback on the goods they procure, suppliers can respond and provide additional details, and procurement can include explanations as to why certain products or services are preferred. In addition, the platform is artificially intelligent, so if there is no feedback for a 14.4 V cordless drill from a given manufacturer, but there is for an 18 V cordless drill from that same manufacturer, the platform will pull the feedback in for the 18 V drill in when a user is viewing the 14.4 V drill to give the user as much information as there is available about the potential purchase. It’s a simple platform, but it works quite well.

vMobile
vMobile is the mobile instantiation of their platform, and one of the most unique offerings on the marketplace. Not only was the Vinimaya platform the first to do real-time federated search across punch-outs, catalogs, and databases and present the results to a user through a single buying platform, but it’s now the first platform to do the same on a mobile device. Designed for a smart-phone, a corporate buyer now has access to all of the goods and services available through the Vinimaya platform on their corporate smartphone, and despite the small amount of real-estate, it is very useable. Vinimaya put a lot of thought into their solution and made search and product retrieval very easy. In addition to the standard keyword search, the mobile solution also supports artificially intelligent barcode based retrieval. If the buyer happens to have the packaging for an item of interest in close proximity (such as the box for the last printer cartridge that requires an immediate reorder when used), she just has to scan the barcode and the solution will find all instances of the product. And if an exact match is unavailable, because the solution is intelligent and retrieves the manufacturer and product description, the search application will find all related products. Maybe the Brother cartridge is currently unavailable from your current suppliers, but a third party Staples replacement cartridge is. The platform will find that option and present it to you. The results are returned in a list and choosing an option brings up a summary of the product details which has an option to add the product to the cart. The cart can be accessed at any time from the app menu bar, which also allows quick access to search, favorites, and history functionality, and checkout can be as easy as one-click as your data is pre-populated. It’s a very slick catalog-based Procurement solution.

Market Indices

Sometimes, not a week goes by where a Procurement doesn’t hear “your contracts suck — I can get the same printer cartridge 5-pack on Amazon today for 5% less” from an office manager or “prove to me that our prices are as good as you say they are and that we are beating the market average because I don’t believe you” from the CFO who only seems to notice Procurement when, a year after a contract has been cut, market prices for a given commodity drop or when the CIO complains that the organization is spending too much on hardware as it’s forced to buy from an overpriced supplier at last year’s prices that are no longer the best price.

In order to get the monkeys off its back, Procurement really needs to be able to demonstrate how good it’s doing — how the majority of it’s contracts are at, or better than, market price, how paying slightly more for that printer cartridge gives it a discount on a range of electronic products from the same provider at 5% below market average pricing, and how IT isn’t factoring in the huge end-of-year rebate the organization is expecting once it meets the million-dollar spend threshold. But to do this, Procurement needs three things:

  1. index data, to know what market prices are,
  2. pricing data, to know what it’s really paying, and
  3. deep analytics, to put two and two together and map reality to potential.

Vinimaya has the pricing data. Not only does Vinimaya manage all of an organization’s punch-outs, catalogs, and pricing databases — but they save every search result to maintain historical pricing data for all products in the database. And, with the recent release of vAudit and vAnalytics, they have the audit trails and the analytics to analyze purchases in detail. That just leave one element to go — the pricing indexes.

The Vinimaya platform crawls a large number of consumer sites (including Amazon, Alibaba, and other online storefronts) and has a huge database of commercial pricing in its archives. This provides the foundation for a consumer price index that will allow an organization to compare its pricing for a product in many consumer categories with the average price charged to a consumer. Vinimaya serves a large number of public sector clients and since public sector pricing is public, this provides the foundation for a market index that will allow an organization to compare its pricing for a product with the average price charged in the public sector for products for which Vinimaya has a lot of data. If you’re beating the public index, you’re doing good but not great. If you’re beating the consumer index, you’re doing okay but not that good. Better shape up. And if you’re not even beating the consumer index, better get your house in order before trying to enforce your contracts on the rest of the organization!

In conclusion, since we last covered Vinimaya, they have made many advancements to their base platform in the last 5 years, but the best may be yet to come. The market indexes are just the tip of the iceberg! More to come in 2014!

The Right MindSet is the Foundation for a Successful Procurement Career but

the mind has to be prepared for the job at hand to succeed.

A recent post on “the right mindset: what does it take to have a successful acquisition career today” over on the Public Spend Forum (powered by Spend Matters and the Censeo Consulting Group) by David Wyld did a great job of outlining twelve traits that procurement professionals need to succeed in supply management today. However, while these traits may do a great job of laying the foundation for a procurement career, they are not sufficient on their own to prepare one for a successful procurement or supply management career.

SI would add at least six additional traits to the list, three major traits and three minor traits. The major traits that SI would insist are necessary for success in today’s Supply Management space are:

Technological Competence

Modern Supply Management runs on modern supply management technology – without it, best-in-class status is unobtainable as sophisticated spend analysis, decision optimization, and decision support systems are need to analyze, manage, and squeak cost savings and efficiency out of modern supply chain networks.

Risk Awareness and Risk Averseness

The rate of supply chain disruptions is increasing year-over-year and the chances of a major multi-national not experiencing a disruption over a twenty-four month period is 2% or less and dropping fast. In order to succeed, a supply manager needs to be aware of risk and have a mindset to mitigate it before it happens. Contingency and mitigation are the new modus operandi.

Project Management

Sourcing is no longer three-bids-and-a-buy. It is a sophisticated process that typically involves sophisticated supply market research, should cost models, deep category expertise, fact-based negotiations, and in-depth analysis. In addition, most sourcing exercises are category-focussed and need to be managed as category-based projects.

The minor traits that SI would insist are necessary are necessary for success in today’s Supply Management space are:

Habitual Change (Management)

Supply Management is in a state of constant flux these days as technologies, best practices, and global trade regulations are constantly changing and shifting. In order to stay on top of the supply chain game, a practitioner needs to be ready to adapt as needed.

A Sustainable Mindset

Oil reserves are limited. Demand for rare earth metals is increasing. Food reserves are hovering near all-time lows. Water is becoming scarce. Energy production is limited in many locales. A Supply Management professional needs to not only be thinking about the environment, but needs to be focussed on sustainable alternatives in order to keep production going.

Cost Conscious

Inflation is back, and hyper-inflation might be just around the corner. Manual processes are costly, and a lack of data is costlier. A Procurement Professional has to always have cost at the back of her mind and identify unique and creative ways to contain costs going forward.

So How Do You Align Your Supply Management Organization and Advance its Maturity?

In our last post we indicated that the expected value of Supply Management maturity was a 50% improvement in ROIC and a 75% improvement in Operating Margin, but that effort was needed for an organization to reach that maturity level. However, any effort involved would pay off handsomely as this is only an average – for example, in “Enterprise Procurement – Back on Track”, a presentation on Aurizon’s Procurement Transformation presented last month, Roger McNeill documented a ROIC increased from 2.0% in 2010 to 8.0% in 2013, a 300% improvement!

We also indicated that if the effort was put into the right process, specifically the EPAM (Evaluate. Plan. Act. Measure.) process, the organization could move up the maturity curve and see this success, as well as make the necessary alignments with the business in the process. So how does it do this?

1. Evaluate

Start by measuring the organizational maturity on the axes of proactivity and organizational alignment. Specifically, is the organization:

  • Reactive and/or Internally Focused
    a Supply Management organization that is reactive and/or internally focussed is typically near the bottom of the maturity curve, still approaching sourcing from an auction or best-bid perspective, running on an ERP, and quoting savings numbers without validation
  • Proactive and Metric Focussed
    a Supply Management organization that is proactive and metric focussed is typically in the middle of the maturity curve, approach sourcing as a total cost optimization project, implementing P2P, adopting best practices, and measuring realized savings; they’re doing good, but could be doing better
  • Strategic and Organizational Strategy Focussed
    a Supply Management organization that is strategic and focussed on organizational strategy is at the leading edge of the maturity curve, approaching sourcing as a value generation exercise, running on a suite of best of breed source-to-pay solutions, approaching sourcing exercises as strategic joint ventures with other organizations, creating best practices, and measuring outcomes against shareholder value and time to that value

Plan.

Where the organization is on the curve dictates what the organization has to do next.
An organization that is:

  • Reactive and/or Internally Focused
    needs to plan sourcing events with ample time to do the detailed spend and market analysis required to approach the category strategically, move to bid evaluation on total cost (of ownership) and not just landed cost models, implement a P2P or e-Procurement system to capture organizational spend and increase Spend Under Management (SUM), implement an appropriate e-Sourcing solution, institue best e-Sourcing practices, and start measuring realized savings using the P2P system
  • Proactive and Metric Focussed
    needs to plan sourcing events in conjunction with stakeholders and identify the outcomes that are most important to the stakeholders and give those outcomes the greatest weight in a total value model, run on an integrated end-to-end Source-to-Pay suite (which could include sub-suites from different leading BoB [Best-of-Breed] vendors), institutionalize and embed best practices in the sourcing technologies and processes, and measure outcomes using the metrics of interest to finance and the C-Suite (like ROIC, Operating Margin, increased market share, etc.)
  • Strategic and Organizational Strategy Focussed
    needs to embed itself in NPD and NPI (new product design and new product introduction) to take cost out before cost is baked in by Engineering (or Marketing when it insists on features that most of the target market doesn’t want, which Supply Management can identify by sourcing an appropriate market research study), work with Marketing to help it understand the risks and difficulties in new market entry based on its global market knowledge gained from sourcing from different regions, work with Operations to redesign the corporate footprint to reduce cost and increase sustainability, work with Finance to help it better manage Working Capital based on better demand management and improved cash-flow forecasting, and help the C-Suite define the corporate strategy

Act.

Once the plan is in place, the organization needs to execute the plan. The execution will vary based on the plan.

Measure.

The plan, if properly defined, will include metrics and outcomes that can be measured quantitatively and evaluated qualitatively. When the plan has been executed, the results should be measured, compared against any baselines or expected outcomes, and reported.

The devil is in the details, but the process is sound. And there are a number of leading Supply Management software and solution companies that can help your organization through this process, including BravoSolution, if the organization is looking for software and services, and Deloitte, if the organization already has a sourcing software suite (from a provider that doesn’t provide transformation services). And even it it takes 4-5 years, which is the average for Global 3000 organizations, the end result will be worth it as most save hundreds of millions of dollars and see an increase in key financial metrics of 50% or more.