Lesson 8 is "Whoever has the best hand wins." While this adage pertains most literally to poker, the procurement lesson is really about finding the best resources (e.g., internal vs. external) to execute procurement processes, whether they are "steady-state" or transformational. Processes might be executed by salaried staff, contingent labor, BPO firms and/or suppliers themselves. There is even a rise of a category we have begun to cover on Spend Matters called “procurement managed services,” which falls somewhere in between consultancy, skilled contingency and BPO work.
Procurement Research Content
FMC Technologies’ spend analysis and SPM process is mature and fast enough that procurement leadership has promised business users that they will have access to updated reports within five days of their monthly closes (the frequency of refreshes is monthly). Yet FMC Technologies is exceeding its internal service level agreements in this area. At the moment, the process has become so streamlined that users get their data three days ahead of schedule – on “Day 2” after close!
By the “hand of God,” I don’t mean soccer player Diego Maradona’s famous soccer goal but rather the ability to take invoices that might have otherwise been DOA (dead on arrival) in terms of capturing an early payment discount— and bringing them to life via a dynamic discount offer (i.e., “pay me now” – even past the early pay discount date) to the supplier. I saw P&G do a presentation a few years ago. This was something they wanted to implement more thoroughly, and I suspect that they might use one of their banking partners to help offer this (e.g., JP Morgan Chase is a good example of this with their Order-to-Pay service, acquired from Xign), but of course there are many other options from a landscape of providers.
Lesson Four here is that project participants must understand improvement objectives and how to handle trade-offs. So let’s assume you’ve seized a nice prize, and per the WSJ article, let’s say the prize for P&G is $2B in cash. The prize could be taken as freed cash (or to a supplier, an increase in cash held captive!) But it could also be taken as a cost reduction in the form of an early discount. So, we have the classic cash vs. cost trade-off (we’ll ignore the service aspect of on-time payments that AP is measured on). So, which is more important? In this case, it’s cash.
Unlike many organizations that use spend analysis as a tool to drive supplier rationalization, FMC Technologies is not looking to reduce its supply base. Rather, their focus on building visibility into spending and supplier performance centers on standardizing and deepening relationships with their strategic suppliers worldwide. Some of the data points they leverage in this hybrid spend and performance analysis include quality, on-time delivery, open purchase orders (POs), forecasts and supplier risk information.
KPMG frames the topic in their analysis by noting that “most multinational manufacturers are currently struggling to ‘triangulate’ their supply chain to achieve end-to-end visibility among customers, suppliers, partners and intragroup entities. This is not just about improving ERP systems or other ICT elements; it also requires organizations to carefully plan and monitor the division of roles, risks and tangible and intangible assets amongst the group.”
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