Archive for the ‘eprocurement’ Category

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Trust matters

October 13, 2008

In these times of turmoil; many cite the lack of trust as one of the key factors in the appearant crash of the financial markets. It goes without saying; the foundation of any business agreement needs to be based on trust; or at least a common understanding; between the different parties.

And this needs to be remembered in the world of purchasing as well. Ponder the following scenario:

Company A is sourcing for suppliers for a certain product. The contract is awarded to Supplier C, and the price is based on a number of different parameters such as volume etc. Yet Company A is experiencing a 50 percent rate of maverick buying for the contracted category (and this is not a very unusual number for many IM&S categories). A well informed supplier knows this; and they will exploit this fact; as a buyer you are not going to get the best possible price because the supplier does not trust you to deliver on your promise (i.e. the predicted volume).

This is where the trust-based e-procurment pitch comes in handy; many purchasing functions experience supplier resistance to e-procurement implementation – and suppliers do this more on instinct than anything else – due to the fact that suppliers rarely see an upside to the initiative; suppliers are still used to being promised one thing and then experiencing something completely different.

When selling e-procurement to suppliers, the purchasing organization needs to stress that they are doing this in order to ensure that suppliers get what they were promised in the negotiations. Once this value is delivered and real trust is restored in the relationship purchasing functions should start to see improved results in their sourcing efforts by becoming a valued buyer/partner; one that delivers on their part of the bargain.

Posted in eprocurement, Negotiation, Procurement, Supplier Management | Leave a Comment »

Communication as an E-procurement Implementation Enabler

September 3, 2008

A while back Gustav Hasselskog posted an eight point list of advice relating to how to make e-procurement a success. In the discussion that followed; there was a consensus that the need for “selling the product” (point number seven on the list) cannot be underemphasized.

To sell e-procurement one needs to ensure that end users both understand the why and the how. This is the basic prerequisite for change. The organization needs to fully agree with the reason and objective of the change as well as getting training in the new procedures (be it processes or tools). Change requires effort and as humans we must believe that the rewards are greater than the urge to resist.

Communication (I’ll get back to training in a later post) does not only rely on the message being sent, it is a complex issue depending on context, communication channel, codes and feedback. Messages are often distorted (and misread) due to the sender not being aware of the surrounding factors. Thus communication often fails.

The best way to ensure that every one gets the message is to invest time and effort into a stakeholder analysis that generates a comprehensive communications plan. By identifying the stakeholders, targeted information can be sent to these groups using appropriate channels. This means that everyone will receive the necessary information, yet no one will experience information overload. It’s also important to remember that this is not a one-off effort; communication needs to be constant throughout the entire change process. Treat it as an ongoing process instead of an activity.
For example; a successful roll-out project can include project specific newsletters, a dedicated intranet site, end-user competitions and posters that were distributed and hung in affected offices.

  • Newsletters can be distributed on a monthly basis to both management and important stakeholders as well as to trainers in order to get everyone on the same level, ensuring that all background information was available to all that need it and keeping everyone informed of the process. One can also look at opportunities to present the project in newsletters that belong to other organizational units – by using existing channels information hit rate will rise.
  • Most companies have employee magazines or other employee news media; use them to promote and explain the initiative and spread the word around.
  • By creating a dedicated intranet site which is frequently updated with project specifications, supplier status, training schedules and target descriptions information can be sought out by all, further enhancing the information hit rate.
  • End-user competitions can be used to lighten up the roll-out project. It can be as simple as giving away movie tickets to who ever places the 50th order.
  • In time for go-live; increase the information intensity by providing physical poster that can be hung in the offices of the affected units.

It’s also important to remember that once go-live is achieved; the need for communication does not diminish. Keep the users informed of the progress and allow them to feedback their experiences. By taking the communication needs of your audience seriously, chances are that your message will get through loud and clear.

Posted in eprocurement, Organization, Roll Out, Strategy, Uncategorized | 2 Comments »

A Pragmatic Approach to Spend Analysis

August 21, 2008

I think all purchasing professionals agree that spend analysis is the key to successful purchasing and there are numerous schools of thoughts in this area, not to mention the variety of tools that are used for performing the analysis.

The fact is that a pragmatic approach to spend analysis does not necessarily include the use of a dedicated spend analysis solution. Great results can come to those who focus on the big picture; the spend volume and the number of transactions.

In brief, a spend analysis can be described as a five step process:

  1. Agree on a spend tree
  2. Pull supplier data
  3. Pull chart of accounts
  4. Categorize supplier data
  5. Make the data actionable

While the first four phases are pretty straight forward and self-explanatory the really interesting bit is when you analyze the data and plan for future actions.

So, where does one start once you are done with the data gathering, cleansing and categorization? The pragmatic in me likes this five phase approach.

Classify your suppliers
A simple yet effective method is to classify your suppliers into “Good”, “Satisfactory” and “Poor/Lacking Contract”. This gives you a first indication where there is a sourcing potential.

Classify your supplier spend
This can be done using two categories; “Contract spend” and “Open for sourcing”. The suppliers with which you have long term contracts must be omitted when you’re doing the sourcing planning.

Calculate your supply base consolidation
For each sourcing group, count the number of suppliers that account for 80 percent of your spend. A low number means that you’re doing just fine; a higher number indicates sourcing potential.

Classify your sourcing groups according to market segments
Try to use simple and clear categorization; “Commodities”, “High competition” and “Low Competition” works just fine. This allows you to further see where you have sourcing potential, commodities such as raw material often have open markets which publish spot prices (for instance; the DILF driven Kairos Commodities publishes price analysis on many raw material groups); hence the sourcing potential is limited. What you should be looking for in this stage is sourcing groups that are not commodities but still have highly competitive markets, this is where you can find the highest savings potentials. It’s also important to have a look at the length of your supplier relationships (or when you last sourced the category), this can open up even more possibilities.

Decide on appropriate call-off methods to ensure spend capture
Finally, classify your sourcing groups into “goods” and “services”, by adding this parameter to the spend analysis containing transaction volume and total spend, this enables you to assign appropriate call-off methods to the sourcing groups, raising the potential spend capture.

Following these simple yet effective steps allows you to perform a spend analysis that supports your sourcing planning for the coming year, as well as providing valuable insight into roll-out and enhancement of your procure to pay initiative.

Posted in Business, eprocurement, Governance, Organization, Procurement, Sourcing, Strategy, Supply Chain Management | 2 Comments »

KPIs for e-procurement program development

August 18, 2008

Most people will say that Spend Under Management is THE most important metric when it comes to procurement KPIs, and I am not one to argue with that fact. But for most companies, and especially those who are still in the early stages of e-procurement adoption or roll-out, Spend under management is too rough to actually track the development of the program.

For the purchasing functions in the early stages of e-procurement adoption, I would propose that they track these three KPIs in order to monitor their progress:

  • Order development – Spend Volume tracking both value and number of orders
  • On/off contract spend – Again tracking both value and number of orders
  • Usage per BU/Geography – Monitoring adoption by tracking volume and number of orders compared to the total procurable spend.

The charm of this pragmatic approach is that these three KPIs can easily be monitored using a seven point scorecard (easily fitting on a single A4 spread sheet), giving management and steering committees a clear and transparent picture of the program development; ensuring managementorial buy-in and increasing risk awareness all whilst keeping purchasing in the driving seat.

Posted in eprocurement, Governance, KPI, Supply Chain Management | Leave a Comment »

Successful eProcurement implementation

August 13, 2008

After 6 years at IBX and numerous eProcurement implementations, here is my 8 point list of advice on how to make eProcurement a success. Pls add what is missing! Another one can be found here: http://www.spendmatters.com/index.cfm/2008/8/11/Your-eProcurement-Implementation-Sucks-and-What-You-Can-Do-About-It

1. Base the implementation on a detailed spend analysis
As in any larger sourcing intiative, a proper eProcurement implementation has to start with a detailed spend analysis. Through this you are able to define which suppliers to prioritize and call-off methods to use.

2. Vacuum the organization on agreements
To build up good content, you need to vacuum the organization for agreements. My experience is that purchasing seldom has them all. Especially all types of service agreements are scattered around the organization. Try to get a grip of them all and, based on the prioritization from the spend analysis, transform the agreements into a easy to understand content for the eProcurement solution.

3. Implement the entire end to end P2P process
Most eProcurement implementations leave out the eInvoice and Matching part. By that you loose a lot of the potential process saving and even more importantly, you loose an important adviocate for your initiative –the Finance department.

4. Establish or buy an Operational procurement function
The early adopters of eProcurement hoped that the self-service model would make it possible to take away the entire function of operational purchasing. But as things have matured, I think most organizations have realized that employees that do not buy too often, need someone to call to get assistance. Also, for more tactical purchases, i.e. where there is no frame agreement in place but the spend value is high anyway, purchasing should get involved. Hence an operational purchasing function or Service desk is needed.

5. Use a category based approach

All categories are different and are bought and paid for using dirrerent processes. Temporary labour has a different process and a different set of content than for example IT hardware. Therefore, to be sucessful you need to run each category as a small sub project and build up its new process and content. When mapping the current processes and suppliers, you get the advantage of talking to and involving the key buyers/stakeholders in the categoty. That improves the compliance. Most of the marketing job is done before the shop opens.

6. Go beyond catalogue buying
Early implementations had a heavy focus on catalogue products. Unfortunately only a small share of the spend is suitable for catalogue buying. Large categories such as Professional services, Facility Management and Telecom are less suited for catalogues. To get a good coverage, 4 types of channels are needed:

  • Catalogue and integrated web shops
  • Service mall to present service suppliers and their agreements
  • Assisted buying with spot sourcing tool
  • Payment plan to get matching on non-PO purchases

7. Sell and enforce
Sell the new way of working and implement a policy stating 100% usage. Follow up through standardized emails if invoices lack a PO.

8. Measure success and take corrective actions
Establish a set of KPIs to follow the progress on category and org unit level. Improve content and communication in problem areas.

Posted in eprocurement, Organization | 5 Comments »

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