Reaching the Top of the Maturity Curve

Proactis was the headline sponsor at eWorld this year, which meant, among other things, they got to have two speaking slots, and we attended them both. We’ve consolidated the content into one post here as there was some overlap – but we do wonder why, if you’ve got the chance to present twice, you wouldn’t take the opportunity to spread your net a bit wider content-wise. Nevertheless, it was well attended and we are glad to say it wasn’t a sales pitch, which so often happens with exhibitors speaking at events.

Alex Ashley-Roberts of Proactis ran the sessions very well, having stepped in for Ilija Ugrinic. He talked about challenges and procurement maturity and what the next-generation operating model might look like; here's our takeaway.

Challenges are similar across sectors

Proactis recently asked senior Finance and Procurement professionals about the main challenges they are facing in 2019 – and found synergies between those challenges regardless of company size and sector. These are: removing manual intervention on invoices received by the organisation; compliance and removing maverick spend; standardising systems, processes and policies across the business; integrating company information into one system; having to do more with less, and being able to demonstrate the value delivered from a completed tender activity.

Altogether these add up to a daunting challenge, to tackle them the answer is to take it one step at a time, but whatever action you take it will certainly involve using technology-based business models.

Get the fundamentals right first:

Procurement is a core part of driving the business forward, but before we start to tackle the bigger picture, there are some fundamental things we have to get right, he says. From the hundreds of conversations Proactis has had with both customers and suppliers they have distilled three points which they believe drive team effectiveness:

Collaboration between procurement, finance, other buyers in the organisation, and other functions, they believe, will become more important as the focus on people and relationships becomes more prevalent. To take the first step, he suggests, start with one function and do a ‘needs analysis’ with them. If we can help one function towards achieving their objectives, then we can build out from there and advertise our success – that might be newsletters, emails, word of mouth, but it is important to share these success stories; something procurement is historically very bad at. With Finance, supporting best practice PO compliance is a good start. And remember to share procurement’s own strategy with the rest of the business, because most employees don’t really understand what procurement does or the value it adds. Have you explained to them the value of that very tight contract you put in place, for example?

Digital Core – data and advanced analytics, process and workflow automation, joined-up systems, employee and supplier self-service, cloud and AI – all make up procurement’s digital core, but in reality, many of us are still dealing with spreadsheets when we come to work. Automation of processes is important – and tech is the enabler of that. Consumers are used to self-service, at airports for instance, it’s not a huge leap to attach some of that way or working to supplier onboarding for example, or PO requisition.

The impact of automation shows a 40% increase in savings, 30-50% less time spent on transactional sourcing and a 50% reduction in value leakage – yet still only 32% of execs have implemented a digital procurement strategy.

So it’s important to look at your processes and understand what is ‘automatable’ – where can you free up people’s time for more strategic tasks? A McKinsey survey showed the tasks that can be automated with minimal process changes, using demonstrated tech. They found that almost fully automatable are: invoice and payments processing, and placing and receiving orders. Automatable to quite a reasonable extent are: demand for purchases and master data management. Harder to automate are: vendor management, selection and negotiation, and category strategy.

Beyond Price - procurement can add a lot more to the business if it focuses beyond price. It’s a constant balancing act between price and risk. We’ve all heard of the Good Cheap Fast service dilemma – if it’s Good and Cheap it won’t be Fast. If it’s Fast and Good it won’t be Cheap and if it’s Cheap and Fast it won’t be Good. No one can do all three – so it’s the Total Cost that we have to look at.

And then we have CSR – you may have values, ethical manufacturing, sustainable supply, fair contract terms, social causes, but have you shared them with your supply chain? More and more firms are concerned with these issues. In a show of hands from the audience about half indicated that they do this – which was encouraging.

So what does Procurement success look like?

The Proactis approach defines procurement success at different levels, ultimately the top level would mean procurement collaborates with other departments and is seen as a strategic partner, it has a voice at board level, it has well managed suppliers and contracts, streamlined processes, minimum tail spend, smooth self-services for employees and suppliers across S2P and all objectives are lined up to feed into the business strategy.

But there are other levels of success too – so it’s important to understand where you sit on the maturity curve.

If the following applies, you’ve probably reached procurement Nirvana. Costs are attributed correctly and suppliers have full visibility of the payment process. Supplier self-service is in place; the majority of purchases go through approved channels, all with POs; there is no off-contract spend; you hold suppliers accountable; good SRM is in place; processes span functions and regions; electronic auctions are in use; end-to-end solutions are in place across procurement and finance. Everyone knows what they are spending.

At a level below, you might have some of that in place, and some departments might understand and value procurement, but not all. Invoices are linked to the PO, but still manually done, some self-service is in place.

And at a lower level, your contracts might be auto-renewing, off-contract spend is high; you have higher risk in the supply chain, a high volume of supplier enquiries; processes differ across functions and regions, and poor user experience.

But it’s important to realise that you might be good at some things that take you up the maturity curve, but not others. You may have things in place but adoption is low, maybe procurement is well understood but quite weak on contract visibility or tightness. It’s hard to get it all right. So just understand where you are and work on it step by step.

Quite often procurement just doesn’t have the right systems in place to help it succeed, whether down to budget or time. But sometimes it’s simply that we are thinking too far ahead before we’ve got the basics right. It’s tempting to think about AI and RPA, but it’s important to get our manual processes sorted out first - and there are still a lot out there. Proactis has spoken to thousands of firms that have still not taken the first step towards making procurement easier to do business with.

Most firms believe admin and transactional tasks are holding them back from adding value, so understanding which tools are best for your strategy and getting internal buy-in are key.

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