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Part 1: How governance gets
procurement fit for the future
A Procurement Leaders publication. In association with SAP Ariba. All rights reserved.
Published by: Sigaria Ltd, Prospero House, 241 Borough High Street, London, SE1 1GA, UK
www.procurementleaders.com
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n Part 1: How governance gets
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margin, Boggis says. It is closer to 4% or 5%. For that we have to work very hard,
but the power of procurement is understood.
Having a global team
Simple and flexible structures
can help make the
Approaches to procurement structures can vary: from a devolved approach with most of scale, but a
management responsibility held in business units; to highly centralised functions
with a mandate to manage spending right across the business. CEVA employs a local presence makes
hybrid, centre-led model, in which a small central team answers to the executive and
supports procurement managers who work within business units.
it easier to manage
The challenge is to have a structure that avoids the complexity of a multi-tiered local suppliers
procurement hierarchy, but instead balances the goal of simplicity with the need to
remain flexible to local conditions and requirements.
Having a central global team can help make the most of scale where it helps the
business, but having a local presence makes it easier to manage local supplier
relationships and understand variations in legislation and working practices, Boggis says.
We look at how we can leverage spend from the highest point that makes sense
for the business. For IT, we can manage software licences on a global level. For
packaging, it is managed nationally.
Local procurement teams answer to the local managing directors, while spend,
supplier and invoice data is held centrally and can be accessed from anywhere in
the business (see The importance of data in supporting governance), so the central
procurement team can help inform local decisions.
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for improved procurement. We say: Wed like to work with you and look at supplier
costs, but no decision will be made without your input. Of course [procurement has]
The trends for and
a mandate to do that anyway. But both organisations have been asked by the CFO against centralised
to lower costs. The trick for us is making sure that we train people to collaborate.
procurement tend
Procurement as a business partner
After the onset of the financial crisis in 2008, there was a trend towards businesses to ebb and flow with
advocating a streamlined, centralised approach to procurement to contain costs, says
Natalie Henfrey, a procurement expert at PA Consulting.
economic cycles, so
It has tended to come from higher in the business: procurement is seen as an the function should
engine for driving out cost, she says. Some companies have put high levels of
compliance with a central procurement policy in place. build flexibility into
As the global economy returned to growth, however, best-in-class businesses were
looking for procurement to drive value within the organisation. To do so it needs to
itsgovernance
work closely with business units and suppliers, she says.
Procurement is moving out of its central office again. What we are starting to
see in leading pharmaceutical firms, for example, is procurement going out there
as a business partner, working with high-spend areas. While they still report into
central procurement, there will be a dotted line to internal customers and they may
be located with them, Henfrey says. There is a realisation that procurement needs
to be more deeply involved with the internal functions to understand what the cost
drivers are with them and their suppliers. It is being led by a few visionary CEOs.
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That is all the more important in the current economic environment. While the
global economy may have recovered from the worst damage of the financial crisis,
Chinas recent economic data and the fluctuations in the stock market both show
there are still substantial risks to be confronted. Creating governance that prepares
the business for the future is the challenge confronting procurement leaders in these
still-uncertain times.
For example, it may be most appropriate during times of rapid growth for businesses
to give a lot of leeway and empowerment to the procurement functions in subsidiaries.
But if growth slows or goes into reverse, other corporate priorities such as costs and
cash flow may take precedence over innovation and supplier collaboration.
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Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity
CONTENTS
Part 1: How governance gets
procurement fit for the future
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fully comprehend the value it can bring. Part of the job is to listen to their concerns
and sell the advantages we can offer, says Walker. This might be improved Procurement is
quality, compressed delivery times or better production cycles; it is not always
costsavings. often trying to apply
Engagement strategy
functional expertise
Recent research by Oxford Economics for SAP Ariba shows that more than to areas where it has
two-thirds of senior procurement executives and employees say the function is
becoming more collaborative with other parts of the business. no experience and
But while many businesses recognise the importance of engaging stakeholders
with the procurement process, they dont all have a strategy dedicated to this
immediately there
ambition. But a clear strategy is needed so procurement knows how to start (or istension
improve) the management of multiple, complex and different relationships.
The reasons procurement organisations struggle to get buy-in from business
units are two-fold, says Nigel Scorey, CEO of consultancy Procure4. The function
will often be associated with a small number of categories at the heart of the
business. In food manufacturing, for example, this might be raw ingredients.
While procurement might believe the same skills and methods can be applied
to new areas of spending, such as IT, in truth there are important, sometimes
subtle,differences.
When buyers are invited to look at new areas, unfortunately they think that
because they are experts in one area of spend, that can be applied to media buying,
office suppliers or construction, says Scorey. But the stakeholder has been
buying those categories and taking responsibility for contracts for maybe ten years.
It is human nature for them to say: Who are you? You buy raw ingredients, you
dont understand media and advertising. Weve done that for years. Procurement
is often trying to apply functional expertise to areas where it has no experience and
immediately there is tension.
On the flip side of the problem of procurement not knowing enough about other
areas of spend may lie another issue stakeholders that dont currently engage with
procurement may only know the function for its core area of expertise. They will not
recognise procurement as having expertise in their area and so will be dubious a RETURN TO CONTENTS
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about the value procurement can bring, even though it may lack specialist sector
knowledge at the outset.
STATS AND FACTS
66.7%
Long-term suppliers should also, of course, be considered stakeholders. Here,
too, the Oxford Economics research shows procurement is collaborating more with
suppliers. But suppliers can also find it difficult to accept procurement playing a greater
role in the buying process. Initially, they may be reluctant to work more closely with
procurement because they think it will inevitably lead to lower prices. But procurement The percentage of senior procurement
can show how suppliers might help them tighten the supply chain or win extra business. executives who say the function is
The supplier can learn that dealing with procurement is better, because they are more becoming more collaborative with other
professional and dont change requirements at the last minute, Scorey says. parts of the business
Source: Oxford Economics/SAP Ariba
The right skills mix
To improve stakeholder engagement, procurement needs to look at its mix of skills.
Whether aiming to expand procurements scope or showing how procurement can
add more value, the function needs to employ or develop procurement people with
real domain knowledge in the areas they want to engage with.
The style of communication is equally important. Procurement people can tend
to be quite closed, inward-looking people. They want to win against sales people
and enjoy the battle, Scorey says.
But in engaging stakeholders, procurement people need interpersonal skills
that are much more subtle. They may need to sell what procurement can offer
or convince, say, three groups of internal stakeholders that it is in their common
interest to buy together, says Scorey.
Then there is governance. It is critical that there is some sort of mandate or
incentive from the top of the organisation for different groups to work together.
Otherwise there can be tacit agreement with procurement, but little real value
gained. Joint-working sessions might sign off the deal and get the nod from IT, but
the product never gets used in the way that delivers value, Scorey says.
On top of the right domain knowledge, communication skills and governance,
procurement professionals hoping to engage stakeholders will need to bring data
not just on spending and supplier relationships, but also on metrics relevant to the
business department. a RETURN TO CONTENTS
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CONTENTS
Part 1: How governance gets
procurement fit for the future
HOW MANY different types of prawns are there? KEY TAKEAWAYS Part 5: Making supplier
For one catering and hospitality company, the
nA s businesses grow, change and discovery as essential
answer was 76. Nobody really knew why they
merge, sourcing tends towards greater and easy as your daily
bought so many varieties; the specification had
complexity, which procurement must seek cup of coffee
just grown with the business, unchallenged.
to limit, creating savings by standardising
For that companys procurement manager,
processes and driving more volume through Part 6: Shining a light on
Simon Atkinson, now a partner with consultancy
fewer suppliers and specifications. one-off purchases
Occumen, this example illustrates the forces
n Software tools can help streamline and
creating complexity in sourcing. By reducing
standardise commodity and operational Part 7: Take a wider view of
the number of prawn varieties, he helped
sourcing processes to make time for more supply chain risk
simplify processes, source greater volume and
strategic sourcing, working closely with the
get a better price. But to execute this kind of
business. Part 8: Better payment
strategy, procurement professionals need their
n Simplification must be balanced against processes pay dividends
stakeholders to co-operate in the process.
the need for category-specific sourcing
Forget the number of specifications we
techniques and the need to manage Part 9: Relaying the benefits
buy, how many conceivable applications do we
complexity which helps the business seize of end-to-end procurement
need? he says. We started with 76 prawns
market opportunities.
and found we only needed seven. The process
n Online sourcing networks make it easier for Part 10: How CPOs can
that creates complexity is relevant to lots of
procurement to discover new suppliers that tacklethe enemies of
industries. Purchasing can drive that out and
can fit their business requirements, and technology adoption
create efficiency, but when you get into it, it can
help them compete and innovate.
involve a technical understanding of engineering,
for example, or in our case catering. You can
easily get tied up in technical arguments. a
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You have got to engage the business in understanding the problem and get them
on board in creating the solution, otherwise they will resist.
There is an emerging
Identifying sources of complexity
approach that is
In a career including senior procurement roles at Mars, Diageo and Pepsi, Atkinson about making market-
has seen a number of factors that drive growing complexity in sourcing: globalisation,
the legacy of mergers and acquisitions and changing internal product development informed choices, not
programmes all play a role, he says.
This results in having to manage more categories of spend, often without
constraining at outset,
additional time or headcount in procurement. Sourcing standards, if they do but starting from
exist, are not evenly applied. Therefore, spend and supplier analysis and data
aggregation, which are already complex, become even more time-consuming theoutcome
and even more necessary. Atkinson says procurement can save the business
money, increase supplier quality, and add value by standardising and simplifying
processes, reducing the number of specifications and driving greater volume
through fewer suppliers.
It can be the quickest path to lower costs and higher revenues. But, in some
circumstances, this must be balanced against the businesss desire to capture
market opportunities, he says.
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The main thing is clarity of purpose. If it is complex, what are we seeking to You have to have the
achieve? The perennial challenge is getting people to understand that. But you need
to keep complexity away from the stakeholders, and keep the discussion in laymans agility and flexibility
terms, not procurement-speak.
in process and
Appropriate sourcing for each category
However, Paul Jones, procurement and supply chain practice leader at consultancy
technology to make
KPMG, says that sourcing processes are difficult to simplify beyond a certain point. sure the sourcing is
Although procurement has evolved as a discipline which creates generic sourcing
strategies, whatever the category, in reality the process can be very different appropriate for the
depending on what the business is buying, Jones says.
It is always an eclectic mix. People now recognise that sourcing a multi-billion
required category
pound construction project is not the same as finding suppliers for a piece of
software. You then have to have the agility and flexibility in process and technology
to make sure the sourcing is appropriate for the required category.
There is a danger in one-size-fits-all. It becomes procurement turning the handle
on the process rather than being a robust supplier selection with the right sourcing
and contracting strategy in place, he says.
But there are ways of simplifying some sourcing activities to help procurement
organisations manage the more challenging categories.
Technology tools
Using self-service automation tools, businesses can make sourcing of low value,
non-strategic, but important, categories more efficient. We are seeing clients
making it easier for the internal customer with greater process automation enabled
by technology and shared-service operations, Jones says.
Atkinson adds that online catalogues can also provide a route to managing
complexity in some non-strategic items. Stakeholders get to buy the full breadth
of what they want, but procurement acquires more visibility. Using spend analysis
tools on the data acquired, procurement can persuade the business to reduce the
sourcing options. a RETURN TO CONTENTS
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Jones then sees a middle ground of operational sourcing. This is where you need
to segment the requirements. If you have got commodity or category buying where Simplifying sourcing
cost and price and the supply market is competitive then it lends itself to having
strong commercial and procurement processes to strike the right deal. of commodity
In both camps, procurement can standardise sourcing processes supported
by software, where the software acts like a sourcing handbook that explains
and operational
and teaches the process. Software can also streamline the process from spend categories can free up
analysis to sourcing through contracts by integrating the end-to-end workflow. This
standardisation and integration creates faster sourcing, so more categories can procurement, enabling
be managed, more deals implemented, and more savings can be delivered to the
business.
it to help manage
To further simplify sourcing, Jones sees technology and cloud service providers areas where sourcing
developing business-to-business marketplaces more akin to the platforms familiar
to consumers, such as Amazon or eBay. There are lots of marketplace providers is morecomplex
using technology that allows organisations to tap into a large pool of suppliers. These
can offer great economies of scale. Moreover, online bidding drives competition
and hence better deals and more savings.
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Michael Koch, SAP Ariba director of solutions marketing, says while there are
many tools to help the procurement process, a new breed of solutions is helping
Procurement needs
procurement teams expand and better understand their potential suppliers. to limit complexity
Online auctions can certainly help you get a good price and there are tools for
everything you need from the initial RFP to accepting the bid, but the real question but also learn how
is what suppliers are you looking for and how do you find them? Koch says.
SAP Ariba connects procurement teams with a network of qualified suppliers.
to manage it when
It allows analysis of the marketplace to help uncover new suppliers that meet it benefits the
the businesss requirements, similar to the way LinkedIn helps businesses find
candidates for jobs. businesss ambition
If you are part of a network, like LinkedIn, and you are looking for a salesperson
in the pharma industry you can find 500 people in companies that youve never
seen before. In a similar way, we use category codes and industry codes to help
buyers find new suppliers, Koch says.
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CONTENTS
Part 1: How governance gets
procurement fit for the future
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of these contracts could save local authorities between 3% and 15% of the
contractvalue. While procurement has
Rob Woodstock, Accenture managing director, operations strategy for UK
and Ireland, says the same lesson is true for all organisations. And while created savings during
procurement has been successful in creating savings during sourcing and sourcing and tendering,
tendering, better management of contracts represents an untapped opportunity to
improveperformance. better management of
Contract management is critical in the procurement landscape, he says.
As procurement matures, it is harder to achieve high-impact savings based on contracts represents an
tendering. Businesses are now looking at alternative ways to find savings. untapped opportunity to
A holistic approach to contract management can improve collaboration between
the procurement, finance, legal and even sales teams, which helps shorten time-to- improve performance
value, accelerate contract cycles and identify new revenue opportunities.
As the LGA report makes clear, good contract management is about more than
ensuring suppliers meet their contractual obligations. It can help to identify and manage
their own and their suppliers risks, and achieve savings and continuous improvement
throughout the life of the contract. It can also identify efficiencies, avoid unnecessary
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costs, enforce penalty clauses and share additional income from growth.
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processes. Procurement spends more time on administration than it ought to, and
less on creating value, Woodstock says.
Innovation and supply
This fragmented, complex picture of contract management can mean chain support for
organisations miss opportunities to save money and face increased legal risks,
Woodstock says. It also leads to difficulties understanding the pricing schedules growth means dealing
across multiple contracts. Even for those that are available, a large number are
out of date, he says, adding that there is often no visibility as to when contracts
with different types
come up for renewal. of suppliers, leading
This means there is a large opportunity for savings through more simplified,
efficient contract management. It can improve compliance of spending through to different types
the contract, ensure the business is on the right pricing schedule and monitor
supplier performance to make sure it is in line with key performance indicators.
ofcontracts
Organisations targeting, say, 8% savings across procurement activity could see a
two-point uplift through better contract management, Woodstock says. Conversely,
poor contract management could drag performance two points short of target.
As well as savings, businesses are looking to procurement for growth, he says.
Innovation and supply chain support for growth means dealing with different types RETURN TO CONTENTS
of suppliers, leading to different types of contracts, so procurement needs to be
fast and agile in the way it finds [its] contracts [and manages them].
At the same time, there are increasing pressures to better manage risk, both in
terms of financial exposure and regulatory requirements, he adds.
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The second approach concerns contracts already in play. Software tools can now
flow contract terms directly into the procure-to-pay process, so pricing and terms There is growing
are pushed automatically from sourcing to requisitioning. These can be deployed in
the cloud as easily as in-house, Woodstock says. As well as storing contracts, they recognition of
aid analytics and create alerts, to help pick up missing links between price breaks the benefits of
and transactions, he adds.
indirect contract
Standardised models
Some industries have very mixed capability in these approaches. In the media management. It
industry, for example, there are mature systems for the management and collection
of content royalties.
comes straight to the
In construction and infrastructure, the industry tends to be good in direct bottom line not out
procurement where there is a long-standing approach to contract authoring and
management, says Andy Haworth, a procurement consultant specialising in this field. of cost of sales
In our industry, there are tight margins on large volumes, so people pay a lot of
attention to contract management. They focus on money issues: if something is not
delivered on time, you can make a claim in the contract.
Construction contracts are quite complex. We flow down certain requirements RETURN TO CONTENTS
from main contractor to subcontractors, so everyone has a standardised model,
says Haworth, whose career includes senior procurement roles at construction
firm Balfour Beatty and project managers Amec. These activities are supported by
widely used contract management tools, he says.
However, it has been quite a different story for the construction sectors indirect
spend categories such as security, cleaning or IT, where there has traditionally been
a more fragmented approach to contracts, driving up complexity.
It is only more recently that these categories have become well managed,
Haworth says. There is growing recognition of the benefit we can get out of indirect
contract management. It comes straight to the bottom line not out of cost of
sales so through the downturn many organisations focused more on managing
contracts for indirect categories to reduce their own costs. a
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CONTENTS
Part 1: How governance gets
procurement fit for the future
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suddenly had a sign on the door that read Going out of business effective
tomorrow. Do you have another place to get your coffee? Will it be as good? How
Companies must
long is the wait? All of these questions and more begin to affect your day-to-day have a larger pool of
life. And thats just a cup of coffee. Managing supplier-related risks in a business
environment is a much more complicated affair. These risks can include contract high-quality suppliers
non-compliance, reduced quality of products or services, global economic changes,
and overall poor supplier performance.
to choose from to
Second, theres finances. Say your favourite coffee shop has increased the cost help manage risk,
of a cup of coffee by 50%. Would you pay the price? Maybe, maybe notbut you
likely have the choice of going to another supplier. Why wouldnt you want that price and market
choice with your business suppliers? Being able to find suppliers that can meet
your financial objectives of sustainable cost savings can have a substantial impact
competition
on the bottom line.
Finally, theres competitiveness. Its important to continually evaluate the market
to work with best-in-class suppliers. There are times when your best suppliers
can lose market share due to a lack of product innovation and development. This
may lower their status in the marketplace. We already have many suppliers in our
database, explains Celia Parsons, category manager, indirect and professional
services, at Caesars. But if you have been using the same suppliers for years and
dont want to go elsewhere, you may not be using the right or the best suppliers.
You dont want to miss the opportunity to work with innovative suppliers that are
bringing new ideas and strategic direction to the industry, and driving your own
business forward.
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their objectives around risk, price and market competition. Procurement teams
demand suppliers to be strategic partners to reach their goals. All of this adds
Its not enough
complexity to the process: its not enough to just find a new supplier, but you need to just find a new
to be able to collaborate in a timely and efficient manner. Companies are looking for
ways to automate the collaboration with their suppliers more than ever before. The supplier, you need to
collaboration requires technology and the right tools to be successful.
Lets go back to the coffee shop example. When you read the sign on the door that
be able to collaborate
the shop was closing, what did you do? Most people today would take out their mobile in a timely and
device and look for the closest coffee shop on their route to get that cup of coffee.
They can search by store name or just key words such as coffee. The results show efficient manner
immediately and you can plan a route to the destination. Technology drives more
business processes and connects more people than ever before. And its only going
to get bigger. So get the tools to make it easier in your search for suppliers.
There are two main tools that can drive supplier discovery. First, you need an
eSourcing tool. Electronic sourcing tools provide a document management process
to handle RFIs, RFPs, RFQs, etc, making it easy for you to find and engage potential
suppliers. As suppliers respond with their information, you can compare current
suppliers with the new supplier information to compare your options based on
terms, price, product, or other attributes. You can move from the award decision
process to the contracting and buying process quickly and easily because you have
all the information in one place.
The second tool you must have is a network a marketplace of suppliers that you
can reach out to. Sourcing teams can utilise business networks (sometimes called
supplier networks) to connect online to their suppliers. You can also discover new
suppliers more efficiently and conduct business directly with the business partner.
A manager looking to hire a new sourcing team member isnt going to look in the
phonebook. They are going to use a tool such as LinkedIn to find candidates that
have worked in sourcing and possibly even in certain industries. The hiring a RETURN TO CONTENTS
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criteria can be used to narrow a list of potential candidates to recruit. Looking for
a supplier requires the same type of discovery ability. You can search the network Doing the same
based on criteria such as category, location, cost or ratings. Then you can reach out
to suppliers that fit the criteria. Companies are seeing the advantages of business thing in your supplier
networks. They see the results of being connected in a global economy.
management process
The results of change
Albert Einstein is quoted as follows: Insanity: doing the same thing over and
because you have
over again and expecting different results. Doing the same thing in your supplier always done it that
management process because you have always done it that way can leave your
business behind. Finding new ways to do business and finding new suppliers to fit way can leave your
your business requirements are essential in todays hyper-competitive economy.
Andrew Bartolini from Ardent Partners wrote, Consider that while globalisation,
business behind
innovation, and competition have helped streamline and improve business
performance, theyve also helped increase business volatility and the complexity
of supply management. One very real implication of these trends for sourcing and
category teams is that supply markets shift: the most qualified suppliers one year
may be laggards in the market just a few years later. I would argue that maintaining
the status quo may, in fact, be the riskiest thing you can do. Your smart rivals arent
standing still.
You must manage risk, costs and eliminate complacency to deliver results.
And you need to simplify the supplier discovery process so that complexity is not
a barrier to change. Maybe its time to ask, What if my coffee shop closed or
changed its price? What would I do? n RETURN TO CONTENTS
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CONTENTS
Part 1: How governance gets
procurement fit for the future
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employees take matters into their own hands, buying what they need wherever they
can get it, even if it means having to disrupt their own working day to do so.
Tail spend can
Theres nothing wrong with employees having the freedom to make their own lead to compliance
purchases rather than do everything through procurement. But it has to be within
a procurement-driven, customer-friendly framework that devolves power but issues as well as
increases transparency.
According to the Hackett Group, a consultancy, as much as 15% of companies
leaving procurement
indirect spend consists of maverick, one-off purchases by people who dont vulnerable to
work in procurement. Thats a huge percentage and one which brings the scale
of non-sourced, non-contracted supplies sharply into focus even though such mounting costs
purchases dont, individually, often add up to very much.
Not only can this tail spend prove problematic for strategic sourcing, it can
also lead to compliance issues as well as leaving procurement vulnerable to
mounting costs which can, if left unchecked, spiral out of control.
Tail spend items can be a significant chunk of money, says Jason Seibert, shared
service centre manager at Westinghouse Electric Company. When combined with
the transactional costs [associated with these purchases] there is a real impact on
the efficiency of the procurement process. Without managing tail spend properly,
you can find yourself doing a lot of non-purchase order procurement such as using
T&E [travel and expense] cards and submitting an expense report.
That long tail can be expensive because purchase and payment processing costs
dont decline in proportion to the amount of spend with each supplier. Time spent
on invoices or dealing with coding errors typically correlates to invoice volumes, not
their individual value.
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significant. Eighty per cent of the money with any buyer is usually [spent with]
20% of their vendors so that extra 20% [of spend] thats lying out there can be
STATS AND FACTS
15%
significant dollar amounts, says Barry Eisenberg, business development, contracts
and e-procurement at B&H Photo Video. Clearly getting that spend under control
should be a priority.
So what can companies do when the item employees require hasnt been
restocked in time or isnt included in the companys authorised catalogue? With The percentage of companies indirect spend
a solution such as Ariba Spot Buy, they can give employees a simple, consumer- that consists of maverick, one-off purchases
like way to find and buy non-sourced and non-contracted goods from online by people who dont work in procurement
marketplaces such as eBay all while simultaneously enabling the procurement Source: The Hackett Group
organisation to maintain control and visibility.
A macro trend in B2B procurement is reducing the time and effort for
finding and buying items that are not sourced but still essential for employees to
effectively perform their jobs, says James Tucker, senior director at SAP Ariba.
There are often gaps in the content of what end-users require searches within
the company catalogue that dont find what youre looking for.
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catalogue they were unable to find these items. This is just one example of a spot
buy something needed that wasnt available in the company catalogue.
Ariba Spot Buy can
It turned out, however, that many other employees had the same need, and double-up as an
used Ariba Spot Buy to get these items. Employee activity provided a trigger for
the procurement team to source the accessories, Tucker says. Ariba Spot Buy important market
not only reduces the time and cost to buy these items, but it also improves the
insight and control that procurement has over what people are buying.
intelligence tool and
In the past, procurement cards have traditionally been seen as the best provide an invaluable
solution when it comes to buying one-off items. The additional data provided
by solutions such as Ariba Spot Buy, however, provides organisations with a far bargaining chip
better opportunity to carry out a more in-depth spend analysis.
Typically on a P-card youll get the total amount of the spend, the date and
who the vendor was but it doesnt tell you what youve bought, says Tucker.
You can now get that level-3 detail youll know the vendor, youll know the
cost, the taxes, the shipping, youll have all the analysis at your fingertips.
Market intelligence
With so much potential non-contracted spend, its little wonder that this is an
area which has concerned procurement organisations still battling to be the
masters of their own destiny. As Seibert explains, though, Ariba Spot Buy a
solution that Westinghouse first piloted in May 2015 can also double-up as an
important market intelligence tool and one that provides procurement with an
invaluable bargaining chip.
You can search your existing catalogues and the eBay marketplace from within
SAP Ariba for the particular item youre looking for, Siebert says. We have found
examples on the open public market on eBay for less than what were paying
under a contract. We dont complete the purchase on Ariba Spot Buy based on
the search but we use that market intelligence to go back to our supplier and say,
Whats happening here? Why are we seeing this item on the open market at a
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Beyond that, Westinghouse is also now in a position to use the data gleaned
from Ariba Spot Buy to be able to see the emergence of commodity patterns and
supplier patterns enabling the company to go back to their suppliers and add
items to their Ariba Procure-to-Pay solution.
For us it has been a win-win all round, says Seibert. Weve taken a very
controlled approach to who has access to Ariba Spot Buy. With Ariba Procure-to-
Pay we utilised a big-bang approach as there were many other modules and facets
of the P2P program to coordinate and deliver concurrently. With Ariba Spot Buy
we had the opportunity to take a pilot approach and thoroughly measure the user
experience. We have a small set of users across multiple sites and the feedback
has really been phenomenal. We are eagerly awaiting the EMEA versions of Ariba
Spot Buy so we can finalise our deployment approach globally.
This would give much greater visibility into one of procurements final frontiers
and bring maverick long tail spend firmly under control. n RETURN TO CONTENTS
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lucrative contracts and suffering reputational damage in the increasingly public Companies are
sphere of business ethics.
For example, bribery legislation on both sides of the Atlantic present businesses implementing stronger
with particularly challenging legal risks. The [bribery] transaction doesnt even
need to have been carried out by your company, Duthie says. It could have been
business models that
carried out by one of your third-party suppliers. set the foundations
As a result, businesses are increasingly focused on managing their supply
base against standards far wider than price, quality and location. They are for transparency and
implementing safer and stronger business models which set the foundations for
success in the world of transparency and best practice in order to safeguard their
best practice
reputations, he says.
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This, together with the nature of global sourcing and the tiering of the supply When teams take
chains, creates complexity in developing insight into risk.
differing approaches
Mitigating all the right risks
Elkington argues that the majority of effort in mitigating supply chain risk has to risk management,
been focused on due diligence for finance, quality, delivery and key performance
indicators. Broader risks can be a bit of an afterthought, he says.
it creates a siloeffect
However, more organisations are paying attention to a greater range of and firms oftenlack a
potential risk factors such as those that might adversely affect corporate social
responsibility strategies or cause reputational damage when creating more single view ofrisk
efficient and scalable supplier on-boarding processes. We are starting to see
those get baked into the initial analysis in some companies but its by no means
across the board, Elkington says.
Neither is it a do it once and forget it exercise it clearly has to be an ongoing
process of monitoring and evaluation. Whats perhaps less obvious, however, is the
effect that such processes can have on improving suppliers behaviour. Thats
the value-added part of this the success of seeing other companies bring on
and enhance their own practices, says Michelle Albanese, manager, procurement
corporate responsibility at TD Bank Group.
Mitigation obstacles
Nick Wildgoose, global supply chain product leader with insurance firm Zurich, says
that while different teams within a buying organisation may look at risk, there can
be a tendency not to share information.
A lot of organisations will carry out a financial appraisal of suppliers, through, say
Dun & Bradstreet, and think that is supply chain risk management. But what about
legal risk or labour practice? There is a lack of joined up thinking, saysWildgoose.
When different professional teams take alternative approaches to managing
risk, it creates a silo effect that means businesses often lack a single view
of risk across the business, he says. This can create the danger that risk data a RETURN TO CONTENTS
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Tiers of risks
Research carried out by Zurich and the Business Continuity Institute found that
74% of organisations reported at least one instance of supply chain disruption in
the last 12 months. Half said the disruption occurred beyond the first tier in the
supply chain, while 31% said they did not analyse where the cause of the supply
chain disruption took place, according to the survey of 500 managers from across
the globe.
Not all of those disruptions occur at tier 1, which is where procurement teams
have traditionally focused, Wildgoose says.
He adds that procurement should make a board-level case for a more
comprehensive approach to risk by taking the companys most profitable product
and showing just how much profit or brand reputation can be jeopardised by
supplier failure or malpractice.
Alan Day, chairman and founder of procurement consultancy State of Flux,
says procurement itself should be more aware of the risk it itself can create. For
example, the length of a contract can have positive and negative effects on risk. All
the things that purchasing does can create risk and that tends to get overlooked.
But some supply chain systems are helping to create holistic view of risk, he says. We
[use them] to see what you need to manage the relationship, performance and risk.
Businesses are increasingly aware of the broader range of risks they face, and the
need to manage that in large-scale, global supply chains. Supported by software
tools, there are efforts to integrate supply chain risk management across the business.
The variety of stakeholders, and complexity of supply chains, mean challenges still
remain, but once they are harnessed together and their goals aligned, then the result
will be significant value-enhancement for the organisation. n RETURN TO CONTENTS
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The Oxford Economics study involved 1,000 respondents, comprising senior
procurement executives and daily practitioners. When asked which areas they expected
The obvious
to be completely automated within two years, 70% said invoice management. But advantage of having
its not just about what gets automated its also about how. According to Oxfords
research, business networks, the Internet of Things, and other new technologies are one network for
changing day-to-day work for practitioners.
Writing for SAPs magazine The Digitalist, Chris Rauen, senior manager, financial
PO and invoice
solutions marketing, SAP Ariba, explains how a networked approach connects automation is the
procure-to-pay processes. The obvious advantage of having one network for PO
and invoice automation is the ability to run simple, Rauen reports. With this ability to run simple
approach, you can send a PO to a supplier over the network, and that supplier can
simply flip that PO into an invoice. Add to that the ability to integrate e-catalogues
on the same platform, and you extend the benefit on the front end, ensuring that
orders come from preferred suppliers at negotiated prices. All this contributes to a
comfort level that promotes touchless, straight-through processing.
Broken processes
One business that is intent on harnessing better systems to automate its P2P
processes is UK-based technology firm e2v. The transformation is being led by
head of procurement Jared Griffiths who says that a number of fundamental areas
need to be addressed before any project of this nature is undertaken.
Theres nothing worse than automating a bad process it just increases the
complexity, Griffiths says. A lot of the problems we had here were down to the fact
that people werent utilising the available tools properly. You got an awful lot of input
errors because the [cost] categorisation within the system wasnt clear, for example. If
youre not putting the right data in, then the data you got at the back end is useless.
Therein lies the great irony of any attempt to automate the payment and transactional
process: its the people who have to use it who ultimately hold the key to its success.
With that in mind, its clear training plays a key role, as Griffiths explains.
With any of this, if you train people well so that they understand the upstream
and the downstream elements and the benefits it can bring them and also the wider
business, then youre going to reap the rewards, he says.
The key is to not only get that understanding but also train them and then
document that properly so that its in a central repository. Then people can keep
going to it and keep referring to it over time. The training also needs to be a RETURN TO CONTENTS
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refreshed, so that every six months its updated. If you dont do that then people
get into bad habits like taking shortcuts and you end up back at square one. STATS AND FACTS
70%
The ultimate goal, however, is to significantly reduce the amount of human
intervention at the front end of the process. If its done correctly a lot of the
transactions can be handled hands-free, says Sidney Van de Steene, senior
process manager at Belgian manufacturing group Bekaert.
The person doesnt have to be involved anymore and thats the real saving. We have The percentage of procurement executives
processes in Latin America that are still fully-manual: invoices still come in on paper, that expect invoice management to be fully
theyre then reviewed by someone and then entered into the system one-by-one. This automated within two years
Source: Oxford Economics
can take a long time and can obviously lead to delays, says Van de Steene. It also
means that there isnt the level of visibility we require. Paper-shuffling provides very
little insight into whats been bought, delivered and is now due to be paid for.
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I dont think the technology is the barrier, says Saghiri. I think the barriers
tend to come internally from stakeholders who are reluctant to change because they
Technology is offering
perceive its going to be more long-winded and require more effort on their part. the business an
There is often concern about implementation costs, Saghiri adds: They dont
understand the offset can be more efficiency internally. Its very easy to change invaluable opportunity
minds when you can see the benefits that are going to happen for you. You can point
to a dramatic drop in email volume, for example, and the gains that this can bring.
to, in a sense, turn a
So platform-based automation straddling the entire P2P process would appear to balance sheet liability
be a far easier sell than some would imagine. Its not just the company automating
the process that can gain tangible results, though suppliers can also realise the into an asset
benefits. As well as enjoying a more efficient invoice process, suppliers can also track
the progress of their invoice and be confident that it will be paid accurately and on time.
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exercises and you identify gaps between what might be good processes in themselves.
However, its often the case that each department works in a silo.
A fracturedprocurement
Typically, an end-user has a legitimate conversation with the supplier, writes process can mean
down their requirement and maybe produces a purchase order. By the time an
invoice arrives it may match the purchase order, but unless it has a specific businesses lack clear
product number you find, in many cases, the wording is different, Brown says.
The matching process in accounts payable (AP) then has to try to make sense of
visibility of financial
information that doesnt quite fit together. You are relying on [AP] to interpret the liabilities and cash flow
invoice, without knowing any of the earlier conversations, and decide whether its
right to pay the supplier.
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The vast majority of businesses have done some process automation but most
likely its in bits and pieces. In a lot of circumstances those projects are done by
Systems able to
different teams with different objectives, and theyre not looking at the entirety of the extract, share and
end-to-end process, says Emily Rakowski, global vice president audience marketing
and demand management with SAP Ariba. integrate data
Where there is an effort to integrate procurement processes, it is often limited in
scope, she says. For strategic sourcing, you might see some locations band together
give the function
to do some automation, but only leverage a small portion of spend. Typically, they do oversight of the whole
an evaluation based on a very specific set of requirements, but they dont look at the
big goals and the big picture. procurement process
The problem is that if sourcing and contracting, for example, are not linked to the
day-to-day procurement systems, the procurement department will never accrue the
savings they expect from the outset, Rakowski says. Even with a well-sourced category,
savings can easily leak out from not having its management fully implemented.
If youre not sure how to implement the contract, then you are leaving savings on the
table. You need to understand how it can be executed and make sure the organisation
knows about it and is using it, she says.
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For example, a supplier may have had its payment terms extended with no regard for
the size of the vendor, its financial wellbeing or how vital its products are to the buyers
An end-to-end
business. You may not see the triggers which tell you if the supplier has a problem and approach to and
you need to talk to them, says Henfry.
interaction with
Getting stakeholders on board suppliers can remove
To gain the benefits of an end-to-end procurement system, it is essential to ensure
that stakeholders are on board from the beginning, says Adil Al Mulla, vice president,
much of the manual
procurement and supply management, Etihad Airways. process and labour-
With stakeholders, the communication is very important. There should be a plan
and working groups. Their involvement should help define the KPIs and the wider intensive copying
implementation. Every department working with suppliers needs to understand how it
will operate and the reason behind it.
of data
Once in place, an end-to-end approach to procurement and interaction with
suppliers can remove much of the manual process and labour-intensive copying of
data, helping procurement free up time for more strategic activity and adding more
value to thebusiness.
But in doing so, procurement organisations need to make sure their people are
ready for the transition, Al Mulla says. It is very important that people are developed
and coached to equip them to understand how to do more strategic work. It means
procurement can get involved at budget time, rather than at the stage of tendering.
They have the information to help them understand whether the business should be
tender, single source, or form a joint venture with a third party.
The move towards a more strategic role for procurement does not need to start
with ripping out and replacing the procurement systems, however, says SAP Aribas
Rakowski. Components, such as sourcing, or end-user catalogues, can be swapped in
at the right time, so long as there is an eye on the over-arching vision and finish line. It
can be a gradual journey, not a sprint. n RETURN TO CONTENTS
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of having to re-train people. Fear of making a purchasing decision, only to find that
nobody uses or likes the new solution.
We operate in a
To combat these fears, understand that the payoffs of greater technology adoption Software-as-a-Service
are tangible. Edward Cone of Oxford Economics, referring to Oxfords research on
the future of procurement, writes: Our surveys indicate that technology adoption world in which
is linked to superior financial performance. Companies with higher rates of growth
and fatter profit margins tend to be more aggressive in their use of technology.
enterprise technology
[Procurement] execs at high-profit firms are more likely to emphasise the importance gets easier to use with
of business networks, the Internet of Things andmobile.
Plus, enterprise software no longer has to be complex. We live and operate in a every new release
Software-as-a-Service (SaaS) world, in which enterprise technology gets easier to
use with every new release and the release cycle is frequent. At SAP Ariba, where
Im the chief design officer, we talk about a total user experience thats consumer-
simple, business-strong.
Even if youre just beginning to consider adopting new technology, dont limit
the decision-making process to a select few stakeholders. Modern source-to-
pay solutions will benefit colleagues far beyond your department, so invite those
stakeholders to the table from the beginning: finance, IT, end users from the lines
of business, key suppliers. Solutions such as SAP Ariba are meant to eliminate
fragmented processes, so dont fragment the evaluation process. Let users test
it and tell you whether they like it, so you can get validation and buy-in from your
organisation up front and make a purchase decision with confidence.
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To combat inflexibility, procurement organisations can realise that technology adoption
gives procurement the opportunity to not just retain control, but to gain greater control
Making solutions
while giving users a sense of knowledge and freedom. Consider this: technology can intuitive, with no
make your policies easier to learn, follow, rethink and re-invent. With the demographic
changes of the workforce, Millennials are your users. And younger generations that grew training required,
up with technology have much less tolerance for complicated products and learning
curves. Youll be more successful if they want to use your software than if you force it
encourages users to
on them. When people enjoy doing something, they learn how to do it naturally. do things the right
And all that goes along with getting users to follow policy. CPOs are recognising
that they mustnt be seen as gatekeepers and controllers in order to get people way your way
to go along with their policies. They have to make their policies very doable and
attainable. Making solutions intuitive, with no training required, encourages users
to do things the right way your way.
Asad Zaidi, director of procurement and performance improvement at the Al-
Futtaim Automotive Group comments, SAP Ariba solutions offer flexibility and
ease of use while still supporting robust policies. We were able to emphasise
transparency and fairness, which is very much appreciated by our vendors.
At the same time, perhaps your approach to rules and regulations needs to be
reinvented. Youre not going to send users to read a 20-page document. The key is
to set up your procurement system with the policies built-in, your catalogues with
category-based approval thresholds, and your sourcing event workflow so that no
steps are skipped. With your internal rules built into your system, your end users
can get their jobs done, and the procurement and finance people can have the
oversight and control they need.
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here by modernising your technology users experience. Even so, complexity can
still be a problem if you, as the technology decision-maker, dont think about your
software from the users perspective.
When users are faced with complex technology, they bypass the system to accomplish
their goal, then figure out a workaround to get their data back into the system. They
spend more time on tasks without ever knowing if they were successful in completing
them. And they may even feel inept. When offered a simple, friendly and delightful user
experience, employees enjoy the benefits of saving time and achieving their goals. They
feel smart, encouraged, and eager to engage with the software.
Heres a deeper dive into how to recognise simplicity in procurement software.
Mobile-first, global-first mindset: Let users work everywhere, on any device.
Dont expect a user thats primarily in the field to use a laptop. Think about
the various roles of your users, the tasks they need to accomplish, and the
places they may be when they need to get their job done.
Intuitive workflow processes: Dont make your users wonder if their work
is being saved, if your system will time them out, or if theyve failed or
succeeded. Make sure your workflow steps are designed and labeled with
the user not the backend system in mind.
Personalised for the individual user: A category manager has different needs
than an occasional user from marketing. User experience is role-specific,
so your software provider must understand each user, know their goals, and
provide an experience thats customised and intuitive for them.
Validation and feedback: Users of corporate technology want to know whats
in it for them how the technology makes their life easier. They want to
see evidence of their successes early on in their process, and they want to
feel that the technology has helped them achieve their goals not hindered
them. Zaidi comments, Change management was essential. Its key that
both internal employees and external suppliers understand the benefits of a
closed-loop value chain. They need to know whats in it for them. a RETURN TO CONTENTS
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Flexible, guided buying: With an ecommerce site such as Amazon, you know
exactly what to do at the very beginning of the buying process, and you
feel confident in your ability to complete your purchase. Business buying
must be consumer-simple. Look for software features such as guided
buying and off-catalogue purchasing, which give the end users freedom and
independence while allowing procurement excellent control over processes
and vendor management.
Community learning: Sourcing and procurement technology can provide
frictionless access to community-based insights, where users learn from
each other within the same platform they already use. Instead of going
off-line, your users can stay focused and on task while tapping into the
expertise of others in their industry or role around the world. Plus, the sense
of camaraderie they get by learning from their community sure beats looking
things up in manuals and training materials.
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