Procurement transformation starts with getting your house in order – not buying tech

Spend Matters has been speaking with procurement practitioners and solution providers to get a wide view of how procurement and digital transformation is happening in the real world. That view wouldn’t be complete without the perspective of the service providers who work shoulder-to-shoulder with the firms undergoing transformation.

To that end we spoke with transformation specialist Tanya Wade from multinational professional services firm KPMG.

Tanya is a firm advocate of the People, Process, Technology sequence that makes up the pillars of transformation, with the caveat that “while Tech is the last piece of the equation, that doesn’t mean it holds less value. It just means you have to get the others right first.”

During her 20 years in procurement, both as practitioner and consultant, she has worked with global teams to leverage technology for organizational advancement and has a singular specialism in SAP-driven transformations. We wanted to ask her what she has witnessed as the main motivator for procurement transformation.

Common catalysts for change

While on the grander scale organizational change can be spurred by major events, like M&As, a new CEO, industry disruptions or an intention to go public, oftentimes it’s something far less obvious.

“Usually,” she tells us, “it’s not until something breaks that the trigger for change is set – something going wrong is a great motivator for change. Regardless of how many efficiencies you have in place, it’s not until that happens that the CEO or the CFO will decide that change is needed. And in the real workplace, that’s where those decisions come from rather than procurement itself. Although we’d like to think so, Procurement doesn’t always get a seat at the table, so these directives are more likely to come from the IT leader who needs to upgrade a system or from a Finance leader who needs to reduce costs. Risk has also become a more common driver since Covid. Interest in risk mitigation technology, which was once less high on the tech agenda, is gaining significant momentum.

“However, in my experience, it’s rare that Procurement itself will identify a problem, like an inefficient PO process or too little spend under management, build a business case and call for transformation – that usually happens as part of a far bigger program.”

But once the need to transform has been identified, what’s the first thing a procurement leader should consider?

Starting from scratch – The first investments aren’t in tech

How a company begins the transformation journey very much depends on from where it starts. At the furthest end of the scale, where there is no tech in place whatsoever, there are a few rudimentary things a procurement leader can do.

“If all you have is an ERP system and no budget, you have to make the most of what you have, and I’ve seen this in some companies. ERPs will usually have some hidden functionality you can exploit, and you can make the most of the likes of ChatGPT and Excel for doing the basics of spend management, and then there’s use of macros and plugins for what tech you do have. There’s also the option to cheaply build in-house, like a supplier platform, or leverage your suppliers’ systems to get clarity of spend. But it’s worth remembering that software-as-a-service, which is designed to solve those particular problems, is becoming less expensive. Then you have the big suites and of course the point solutions which for smaller businesses might be the answer with their lower price points.”

So, let’s say a procurement leader has maximized everything they can and now decides it’s time to invest in some software to get more spend under management or manage the supply base better. Her first piece of advice would be: “Don’t. Not yet anyway!”

“The first things to consider are: do you have the right operating model in place? Are your processes up to date and standardized? Do you have the people in place who can cover the roles? Do you have your data cleansed? Because without that, the best AI-enabled tech isn’t going to help you.

“The first real step is to identify the biggest problems in your operation, and track them. For example, at KPMG we have a maturity assessment. You measure yourselves internally through a number of stakeholders, asking questions about technical maturity, process maturity, data, governance etc. Then you know your starting point. Once you have that, it’s easier to work out the best and most realistic next move. For example, if you scored 1 out of 5 on one parameter, your goal might be to reach a 3 in a year’s time. Then map the identified issues in terms of your priorities and give them a timeframe. After that, you can decide which would benefit from a tech implementation – and whichever you choose, make sure it can solve at least two of your issues.”

Once you’ve done that, you might want to consider making the business case for your transformation needs.

A good business case should connect the dots

“The topmost thing to consider in your business case is whether it aligns with corporate objectives, rather than your procurement ones. And rather than just savings, it should focus on the bigger picture, because a really good business case should connect the dots between the problem, the solution and the tech. For example, the problem might be a very slow process or low adoption of procurement, and the solution sought might be a new tool or portal. The results expected might be to improve time-to-purchase or the hours your team spends on manual tasks.

“Having said that, it’s worth remembering that while the CFO will always be looking at the P&L, it doesn’t mean you can’t include soft results, like reducing risk or creating efficiency, neither of which you can put dollar numbers to until it actually happens.

“So creating the right business case is all about balance. Efficiency would probably please the CFO because of the cost savings like reduction in invoice or PO processing costs or reduction in unauthorized purchases. The CIO or CTO will be interested in how the technology will integrate into existing systems or how it’s going to be upgraded. But at the end of the day, it does tend to be driven by cost balanced out by the ROI – that’s something I haven’t seen change in 10 years.”

A couple of tips for avoiding failure

For a successful start to your transformation journey, two ‘don’ts’ stand out from Tanya’s real-life experiences. As mentioned, clean data is one of the most important things to have right from the outset.

“One of my worst experiences came when trying to do a transformation at the same time as cleansing and classifying the data. Even though the AI and automation tools of today can make it an easier exercise – providing you have the budget – it’s crucial that you get your data in order first. Dirty data will only sabotage your mission.

“Secondly, don’t underestimate the importance of change management. And by that I don’t mean a one-off training exercise. It’s ongoing. A change management program needs to reach absolutely everyone that the transformation touches, directly and indirectly. Successful change management will explain to the user how this change will dramatically affect their work for the better and save them time. Many programs fail because of lack of adoption: firms implement a tool rather than transform a business. For a digitally-driven transformation, change management should start at the very beginning.”

Driving adoption

Her involvement with setting up large transformations from scratch for various enterprises has shown Tanya what success and failure looks like.

“One important thing a CPO or head of procurement can’t forget is that they never work in isolation. Getting the CIO, the CFO and other heads on board is a primary consideration, because without them, there will be no approval for a transformation business case.

“You also need those people on board for when it comes to integrations with Finance or other departments. So if you create something that could potentially work in isolation, like a sourcing suite or sourcing tool, without their involvement the moment it touches other stakeholders it will fail, because it won’t be used. Unlike with HR (doing appraisals for example where you have no choice) for Procurement there is less incentive to use it.

“On the other side of the coin, mandating use doesn’t work either. If it’s too complicated people won’t use it. If you have a system that they aren’t required to use very often, simplicity is often the best driver of adoption. But where discipline is an issue within a company, sometimes the carrot is better than the stick. Particularly for transactional tasks, like raising a PR or a PO, and even for finding a new supplier rather than sticking with an existing one, raising the understanding that there are benefits from using the system, rather than penalties, can work best. You have to change hearts and minds, which takes some time.” And that’s just internally … lack of supplier adoption is also key.

“Your suppliers probably have a different portal for each customer, and while it’s a good idea for visibility and a swifter process, especially for payments, it can cause supplier fatigue. And while many of the more strategic suppliers may already be in the system, persuading your long tail to use it is harder. It might involve a cost, but even if it’s free, there is also a resource cost to managing the platform. Integration and uploading issues can become quite an ordeal for them – so you never get 100% compliance.”

The digital approach

Once you have your people, processes and data in order and have the Finance green light, it’s time to consider tech as an enabler of the transformation. Where do you start?

“For most mid-size to large organizations, you’ll probably have an ERP. That means you have something in place for P2P even if it’s basic and clunky. So the first consideration is probably for sourcing and contracts. And in the ideal scenario, some point solutions on top to address your identified issues, preferably with something to piece them together.

“Focusing on S2C is an important next step for many organizations, above analytics and insights, and can be fast to implement because there’s less data transfer involved. It’s also more straightforward on the change management side; once you have one successful case study you can prove its worth to everyone else. Then you can consider P2P, because that touches many more stakeholders – everyone who enters a purchase requisition.

“But whether it’s point solutions or a suite, because there are so many options on the market you need to choose them based on your pain points. Consider the different parts of your organization. For example, if they are buying stationery they probably aren’t too occupied with risk, but if they are trading with suppliers in different parts of the world, they probably are. And with risk, it’s super important to have clean data – you need a lot of data to be able to forecast.

“Now you are probably going to start with direct spend, because it’s much bigger than for indirects and the transformation is going to make the biggest impact. Another thing to keep in mind is that upstream procurement is a very different story from downstream, but in the majority of cases you can solve two problems with one solution, which is also worth considering at the tech selection stage.

“But it’s always worth remembering that automation doesn’t have to be about AI. Automation has been around for many, many years and solves lots of problems. Invoices, orders, etc. can all get processed automatically without the need for manual intervention or AI. So consider your real needs before embarking on your tech selection and keep in mind that the best amount of technology is the minimum amount you need to resolve your business problem(s)”

Many thanks to Tanya and KPMG for this insight, part of Spend Matters ongoing advisory series on Procurement Transformation. Find our free ‘Guide to Procurement Transformation Survival’ here.