Using Procurement Automation to Increase Contract Compliance
Categories: Guest Post, Procurement Commentary, Spend Management, Total Cost Management | Tags: L2, Process and Best Practice
Spend Matters welcomes another guest post from Kevin Turner, Director of Dell’s PremierConnect program.
The overwhelming task of integrating strategic suppliers into your ERP system is on the to-do list, but you struggle to understand why you should take on such a daunting project. Automating the procurement process with your supplier provides important benefits in four key areas: streamlined order processing, increased contract compliance, increased order accuracy, and reduced cycle time. Industry research data provides insight into how significant these benefits are, and this four-part series will provide real world examples of how it applies to today’s corporate environment. In my previous article, I wrote about how procurement automation can help streamline order processing. Today, I will discuss how procurement automation helps companies increase contract compliance.
Integrating your ERP system with your suppliers’ catalogs can make contract compliance easier for your company’s end users. They can instead spend their time ordering what they need rather than waste time trying to price shop and search for products that are readily available. According to industry research, a B2B ecommerce solution can increase compliance up to 95%. And with off-contract purchasing accounting for up to 30% of IT spend, the potential savings can be significant.
A customer once told a story of an end user who would buy office supplies at a local retail shop instead of through the integrated catalog they had set up with an office supply company. The end user thought she was saving the company money, since the supplies were made available immediately. After some time, the company did a study, evaluating the time it took her to make the trip to the retail shop, which is time taken away from her doing the valuable activities she was hired to do. They compared the actual cost of the supplies between the retail shop and the contracted price with the supplier. They also took into consideration the lack of visibility into spending in that specific category, which hurts them in influential volume negotiating power. According to the customer, they estimated that the cost of the actual product more than doubled when it was purchased at a retail shop, as opposed from the integrated supplier. While this is a one-off study for a particular incident, it highlights the negative impact that maverick, or off-contract, spending can have on a company’s bottom line.
Strategic suppliers with e-commerce integration capabilities, and even ERP vendors, can offer management tools that allow increased visibility into category spending. With easy access to pricing details and order history, companies can optimize budgets more effectively and efficiently. An increase in contract compliance allows better tracking of actual buying and spending patterns. This information can help companies increase their volume negotiating power.
Our research suggests on average, items bought off-contract cost up to 20% more. And companies without an e-commerce integration solution have up to 30% of unauthorized technology category spending, whereas companies with e-commerce integration only have up to 8% of unauthorized spend. Overall, integrating your ERP system with your suppliers’ catalogs helps reduce unauthorized spending by up to 80%. This increase in contract compliance can help your company reduce expensive off-contract spend, increase valuable category spend visibility, and increase volume negotiating power.
So don’t let the task of integrating your strategic suppliers into your ERP system overwhelm you. Rely on the knowledge and experience of your suppliers to help you along the way. In the end, the positive impact achieved will overshadow the effort, and your organization will thank you for it.
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