In the first entry on the topic of procurement systems and tools, we explored background, current trends, and root causes of technology challenges that Procurement groups face. In this entry, we will consider the state of specific components of the technology footprint -- the building blocks of a procurement system's architecture.
The below list identifies many of the key building blocks of the Procurement technology architecture and provides a perspective as to maturity of the market offering, adoption success, and key considerations for adoption.
Spend Analysis -- As a key enabler of successful strategic sourcing, category management, and supplier relationship management, this capability is often overlooked. Key considerations:
- Don't be "scared off" by the typical spend analysis issues: integrating multiple data sources, poor user discipline in requisitions/POs, limited integration between procurement and finance data, and difficulty classifying foreign-language spend
- Third-party best of breed tools have tended to be more advanced and less expensive than ERP or custom solutions
- Simple, low-cost solutions include desktop-based BIQ and SaaS-based spend radar (amongst others)
- Artificial Intelligence (AI) based auto-classification of spend and real-time spend analysis is emerging but has not yet lived up to its promise and rules-based approaches are important for larger organizations with more unique spend classification requirements
- Off-shoring/"content factories" can provide the arms and legs to push beyond the 80-85% upper limit of classification accuracy, but of course this not a long-term solution
E-Sourcing -- This is a highly mature capability set offered by many market vendors (both ERP and best-of-breed) at various price points and capability levels. The SaaS model has become prevalent in this space, but most companies continue to have challenges with getting "full value" from e-sourcing solutions:
- Process discipline and training in the use/benefits of e-sourcing tools often mean that many rollouts taper off after just a few events and months of use.
- E-sourcing offerings have broadened to include not just more robust reverse auction and bid optimization functionality, but also performance management, contract management, "supplier information management", and supplier portals • Even with a world class e-sourcing suite, many companies lack a strong ongoing strategic sourcing process/methodology or appropriate levels of category expertise to realize full benefits
E-Procurement/Catalogs/Buying Wizards -- As the origin of the e-procurement technology growth in the late 1990's, requisitioning-PO processing and workflow tools (e.g., Ariba, Oracle iProcurement, SAP SRM) are highly mature and adoption is prevalent in most large companies. Key challenges for e-procurement adoption include full-spend coverage, support for robust P2P channel strategies, and support for complex services. Some key considerations for successful use include:
- Leveraging insights from their spend analysis efforts, leading companies are developing strategies for each category of spend and even specific, high volume suppliers
- "Virtual catalogs" from vendors such as Vinimaya have proven effective, but cost limits adoption, and this technology must be broadened to support a "guided buying" vision. Check out a quick poll we're running on how companies are implementing more complex service catalogs
Supplier Performance Management (SRM) -- Companies now realize the importance of managing their supplier relationships across performance, collaboration, and risk areas, and an SRM system can automate and support the process. Software in this space, however, is still somewhat lagging. Key considerations include:
- Limited availability and integrity of performance and quality data has hampered performance management efforts
- Advanced performance management capabilities often require extensive configuration of scorecards, workflows, data models and data integration
- Some available systems have limited flexibility due to the need to adjust the data model to accommodate new metrics and metrics relationships
- Challenges for indirect supplier performance management includes the need to survey internal stakeholders and suppliers and maintain ratings information; for direct supplier performance management it's acquisition of data from multiple systems, from suppliers themselves, and from external third parties
Supplier Master Data Management -- This component, along with contract master, item/service master, and category taxonomy and supply network model make up the "master data management" building block in the core Procurement architecture.
- Most organizations have not defined data models to support Procurement processes and have not put in place integrated data repositories
- Capture and integration of supplier-related data across the value chain remains limited, hampering spend analysis, capacity planning, track and trace, and other key functions
- Homegrown tools abound, based on leading business intelligence (BI) and ERP vendor offerings
Supplier Portal -- An early concept in Procurement systems has yet to reach maturity in definition and broad deployment.
- To-date, leading solutions have been homegrown
- E-Sourcing and ERP vendors provide portal offerings
- The biggest issue is how to actually define a supplier portal (e.g., broad environment where you collaborate with suppliers for all interactions vs. just a place to communicate to suppliers information on policy/process and when they'll get paid)
- The biggest issue here is how to define a supplier portal (e.g., broad environment where you collaborate with suppliers for all interactions vs. just a place to communicate to suppliers information on policy/process and when they'll get paid)
Contract Management -- As with many systems implementations, the challenges to successful contract management are often people-based and include:
- Many implementations suffer from partial usage, poor processes and controls, and missing content
- Few organizations have implemented "closed loop" contract management that connects to supplier management and strategic sourcing processes
- After the contract portfolio is built and contract authoring is put in place, the biggest remaining opportunities are exposing the contract information better into the fail-safed P2P process and also into contract analytics which can identify some latent opportunities (beyond upcoming renewals!) to pursue
Savings Project Tracking -- "Closed-loop" savings planning and tracking is typically a weak point for procurement groups
- Recent analysis by The Hackett Group indicates that only portion of identified procurement savings are typically realized, with the rest evaporating before they can be harvested. Savings planning and tracking is an essential capability and should be system-enabled. However, this space is not well served by off-the-shelf tools
- Most organizations have developed custom processes and tools -- results vary but few organizations have achieved "closed loop" capability
- A major challenge is poor integration of procurement and finance systems, data, reports, policies, and processes
A variety of other systems/tools should be part of a Procurement technology architecture, including procurement performance dashboards, advanced analytics (e.g., risk analytics, extended supply network analysis), compliance and other reporting tools, knowledge management environments (document management, workflow, collaboration, etc.), and domain-specific systems for various category-specific and industry-specific requirements. The third and final entry in this series will discuss how companies can move forward.
- Len Prokopets and Robert Derocher, Principals at Archstone Consulting