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The changing face of Procurement in spend management

Procurement is changing rapidly. Today, senior procurement leaders are becoming more focused on establishing standardised processes that enable and enforce good procurement practices, and on deploying technology that guide people on their team and throughout the wider organisation through those processes.

Modern procurement systems reflect this, and have been designed to remove complexity and guide users through intuitive step-by-step processes. Most have also been designed to make the touch points with core financial and operational systems limited and non-invasive, making it quite practical to add them to existing environments. 

Forward-looking procurement leaders are clearly focused on enabling a more standardised, collaborative and efficient approach to the entire process of purchasing goods and services – within the Procurement team, throughout the organisation, and across a wider range of categories. Those taking this approach are seeing a steady increase in the percentage of spend under management and the benefits that come with it.

We have identified 8 key questions any organisation should ask itself – knowing the answers will greatly simplify Spend Management initiatives:

What is our fundamental objective?
The fundamental objective of any Procurement system for spend management is to gain control and visibility of the way your organisation buys goods and services, and to minimise the total cost of those goods and services.    

Though easily stated, meeting this objective is really quite a challenge when you consider the wide range of items purchased over the course of a year. But it’s a challenge well worth attacking because the return is so great.

Exactly how will we create savings?
Every organisation in the world has opportunities to create savings by prevention unnecessary purchases, better matching of what is purchased vs actual needs, lower prices for what is purchased and reduced administrative costs for buying and payment processes are just a few examples.

This combination of savings can only be obtained on a predictable basis for purchases that are made with proper purchase authorisation, made with suppliers that were properly sourced and managed, paid with correct pricing and terms and processed quickly and efficiently organisation-wide.

What business processes are involved?
There are two important business processes that must operate together to achieve truly effective Spend Management: Source-to-Contract and Purchase-to-Pay.

The Source-to-Contract process creates savings opportunities by finding good suppliers and establishing advantageous agreements against which the organisation can then buy. Functions within this business process include sourcing, supplier management, contract management and supplier catalogue management. This process is performed by procurement professionals and cross-functional category teams working collaboratively with stakeholders across the organisation to match goods and services sources of supply to the needs of the business.

The Purchase-to-Pay process captures actual savings by leading employees to place purchases for what they need using those advantageous supplier agreements. Purchases are therefore made at lower prices and with suppliers that present less risk.

Which people are involved? 
Spend Management needs to involve a high percentage of people across an organisation, including Procurement professionals and category teams, Accounts Payable (AP) personnel, every manager that has responsibility for a budget, every employee that needs to buy goods or contract for services in order to do their jobs, and suppliers; both large and small.

What systems capabilities are needed?
The main building blocks of a Procurement system are:
  • Information management and access.
  • Workflow and business rules.
  • Guided processes.
An effective eProcurement system is built around management of, and access to, accurate and real-time information. This may include details about supplier qualifications, supplier contracts, RFx documents and related supplier responses, and supplier catalogues. And unlike your core business systems that are focused on maintaining base information and recording the fact that something happened, Procurement processes are much more about facilitating the flow of activity among employees, managers, Procurement professionals, Accounts Payable personnel and suppliers. For that reason, most of eProcurement is based on automated workflow that uses various user-defined business rules like approval thresholds and routings; and on generation of alerts for time-based activities like contract reviews. Highly flexible, easy to configure workflows and business rules are very important in Procurement.

Because employee adoption of an organisation’s Procurement system is so important to the Spend Management process, and because many employees will be ‘non-expert’ users that interact with the system only occasionally, it is very important that the functions they use are extremely intuitive, fast and easy. Solutions need to deliver a consumer-style experience that meet their needs today and in the future. The system must efficiently and correctly ‘guide’ employees through processes such as self-service buying (e.g. selecting items in a shopping cart), requests for assistance (e.g. help with buying a new laptop computer), simple supplier quote requests (e.g. selecting temporary employee services), or detail RFx requirement definitions (e.g. for a capital equipment purchase or IT service contract). 

What are the keys to success?
Spend Management involves virtually everyone in your organisation as well as your suppliers. Therefore, the underlying Procurement system is very much a people-oriented system.

Employee adoption is critical to gaining a high level of ‘spend under management’. The key to success here is very simple – your Procurement system needs to make it as easy or easier for an employee to find and buy what they need within the system in accordance with organisational policies than it is to buy something outside the system. The ultimate goal is to make the experience people have as close as possible to the type of experience they have with online websites they use in their personal life.

Similarly, your Procurement system needs to make it easy for suppliers to interact with your company in a self-service manner. That’s how you reduce administrative load in Procurement and Accounts Payable, and free up more time for value-added activities that lead to lower prices and greater value. Done right, your suppliers will like it too. 

Because truly effective Spend Management is only gained from the close interaction of the Source-to-Contract process and the Purchase-to-Pay process, it is important that the eProcurement framework you put in place covers that full scope – even if you move into it one phase at a time. You will want a partner that is a specialist in Spend Management, and who brings tools and experience for non-technical activities – like supplier recruiting, on-boarding and enablement – as well as for technical software implementation. 

How do we avoid getting tangled up in a long, expensive project?
Rolling-out a Spend Management program need not be anything like the arduous and costly project you may be used to. Nowadays, Spend Management roll-outs are easily segmented into manageable mini-projects that have ROI associated with each step. By making each phase a manageable combination of spend categories, business processes and organisational entities, you can closely control the scope of each mini project, measuring results and making refinements as you go. Using this approach, you will find that you realise increased savings on a steady basis with little organisational trauma or business risk.

Where do we start?
Most successful Spend Management initiatives are a joint effort between an organisation’s senior financial executive and senior procurement executive. 

The basic steps for getting started are much like those for any other important effort: Build a common understanding of what needs to be done within your executive team; define the business case for taking action; establish a practical way to manage, measure and improve each of the activities required in order to drive towards the objectives (i.e. the business case) and identify a sequence of steps that self-fund the effort.

Proactis has many tools to help you get started, having worked with organisations around the world to implement Procurement solutions and gain the tremendous benefits of effective Spend Management.

We understand both the technical and people aspects of successful Spend Management. And we offer a number of supporting services to help you get started and/or manage non-core activities over time.