Spend Matters welcomes another guest post from Simon Hurst of Xoomworks.
Over the past six months, I've attended several procurement conferences and had many interesting conversations about successful procurement. There were a few themes that constantly popped up in these conversations and also in the presentations delivered during the conference (some good, some bad). These include procurement getting a seat at the top table and the hard savings vs supplier partnership debate. And some used the event as a platform to unleash some eye-watering figures on how much spend they manage.
However, the theme that interests me most is the number of procurement functions that focus so heavily on sourcing and category management that they overlook the basics of how the staff actually buys stuff on a daily basis. In order to see whether there is an opportunity for my company to help, I ask a lot of questions about people’s challenges and responsibilities. Most of the companies I'm talking to already have category management in place. They spend a lot of time upskilling their teams on negotiating and relationship building, and they're very proud of the savings they've achieved. There is talk of transformation "journeys" and the move to building strategic partnerships with their key suppliers through supplier relationship management.
I'm left thinking that they have it all sewn up and there’s not much I could possibly offer to add value. So, I take one last shot, with one eye on the coffee and cakes being laid out, and ask about compliance - are people in your business actually buying against the contracts you spent so much time negotiating? Err. Mmm. Hmm. Oh we don't deal with that. There's another team that look after that.
This really surprises me, as if that were my contract I'd be very keen to know that people were utilizing it and we were delivering the savings we promised we would. Partly, this is down to having a solid and well-implemented Purchase to Pay (P2P) system, or even better a fully integrated Source to Pay (S2P) system with contract management. Having the ability to turn your sourcing event into an awarded contract and catalogue that can then be purchased against is immensely powerful and also allows you to track spend against your contracts—in other words, compliance.
If you've chosen a good P2P system and haven’t overcomplicated it during implementation, it should be easy for your staff to buy what they need. Even better is when they're buying it from the suppliers you want them to buy it from by using e-catalogues. Not only is this the right supplier then, but also it’s at the right price. How can procurement afford not to be interested in this? Maybe it's because more often than not, P2P and sourcing are owned by different functions. And this brings me to my next point to demonstrate why P2P or S2P solutions are only part of the solution.
The concept of a process owner is nothing new (in fact first introduced as part of IBM's Business Process Improvement methodology in the 1980s). But where procurement is concerned, it sometimes seems to be overlooked. Whether you employ a centralised or decentralised model, an end-to-end process owner provides accountability for overall performance, thus increasing the likelihood of improving performance. End-to-end ownership also helps to provide a balance. There are three core processes in procurement. They are sourcing, management (contracts, suppliers, stakeholders), and P2P – and success is dependent on the integration of all of these.
Research from a number of independent sources suggests that world class companies and top performers with a carefully aligned or integrated end-to-end process achieve a far greater return on investment. There are several reasons why this is the case. First, compliance is significantly higher – meaning the benefits that are promised are actually delivered to the bottom line. Second, efficiencies are improved, cutting processing costs. Third, on-time payments are higher and more controlled, creating better supplier relationships. And fourth, early payment discounts can be taken (up to ten times as much as when not aligned). Combined, this is a compelling case for end-to-end process integration if organisations really want to deliver these types of savings.
So back at the conference, I’m still explaining how P2P – both the systems and the organisational structure – is important. The next session is about to start and we may exchange business cards. If I'm really lucky they may promise to refer me to the other team who deal with all of that. The cakes have all gone as well.
Simon Hurst is Principal Solutions Consultant at Xoomworks, a professional services company that specializes in procurement technology, business intelligence solution, and the design and development of complex bespoke software solutions.