A range of early adopter companies are turning to invoice automation and broader P2P tools/environments to provide visibility and levers to impact working capital and discounts based on supplier payment terms. Sievo, a technology provider focused on tracking and managing implemented sourcing savings, is enabling the same type of visibility at CHR Hansen. By gaining visibility to actual -- not just contracted -- payment terms on the supplier level, the procurement and finance organizations have been able to identify and pull the trigger on opportunities to drive both discounts (for early payment) and longer payment terms, depending on the opportunity with a particular supplier and other variables.
At CHR Hansen, this approach has gone a long way toward making the entire organization more "finance aware" of the impact of working capital and savings in the spending equation. The shared language that the platform enables between finance and procurement includes common definitions and understandings of identified vs. book savings, target vs. actual payment terms and transparency/visibility into purchase price variance at a supplier for a SKU (e.g., rising commodity prices). The result of a lingua franca for savings and working capital is not only provides for greater finance trust of procurement, but also a greater vested interest within the buying function on truly impacting the balance sheet and income statement through strategic intent and, most important, implementing identified program results.
More important than even shared definitions and working capital management in driving high-level procurement strategy has been the impact that Sievo has enabled CHR Hansen to achieve when it comes to supplier rationalization. With Sievo, CHR Hansen has reduced its supply base from 33,000 to 11,000. It has also helped the company focus on programs with a true elite subset of its top suppliers (approximately 80% of their spend now resides with 250 global suppliers). The combination of the item-level spend analysis capabilities combined with savings implementation and overall tracking and program management tools has played an essential role in driving this rationalization initiative.
One of the very curious sidebars of the Sievo/CHR Hansen story is how the vendor's capabilities has led to an entirely new approach to bringing in and managing the right set of procurement talent. Gone are those who managed sourcing activity by the seat of their pants and in are those with a data-driven and analytical orientation. In fact, the turnover in the group in the past 5 years has been higher than normal 55% within sourcing specifically. Steen Peitersen, CHR Hansen's CPO, notes "the old fashion purchasing person is not the profile we need today at all today."
What's critical is identifying and nurturing team members that are "extremely data driven" in their sourcing and savings implementation approach. In fact, if team members cannot talk to the quantifiable financial impact (balance sheet and income statement) of their efforts via the transparency Sievo provides, then there is no place for them in the organization. After the implementation of Sievo and other initiatives, CHR Hansen reports yearly savings between 4-5% of its spend base.
Just as Sievo has been a critical transformative force on the direct materials implemented savings side of the equation for CHR Hansen, Basware has played an important role on the indirect side through their transactional purchasing and invoice automation environment, which provides the level of visibility that Steen and his team need to report on compliance and savings strategies for this smaller but still important area of spend for the company.
In Spend Matters' view, the CHR Hansen experience suggests that for manufacturing organizations, savings implementation and tracking approaches that work on the line item level and tie directly into financial planning, reporting and forecasting systems to quantify actual savings impact are just -- if not more -- critical to overall sourcing efforts than even e-sourcing tools themselves. And it shows if you're not already using a tool like Sievo today, you should be, provided the capabilities of the procurement team are ready to take on such a data and finance-driven approach to driving and implementing savings and working capital programs.
Spend Matters would like to thank Steen Peitersen, CHR Hansen's Chief Procurement Officer, for sharing his experience with our US and UK/Europe teams.
Jason Busch and Peter Smith