How should you deal with all the new Procurement opportunities?
A new year brings refreshing initiatives to assess market opportunities in many fields, and the world of Procurement and Spend management is no different. The development of an effective strategy is influenced by experience, best practice, marketing spin and trends. Explore the majority of initiatives and there are common themes; better data, reduced cost and process optimization.
The same themes, but no consistent approach prevails. The key driver to all should be the level of Procurement Insight you have, and the level of effort needed to produce this insight. But what is insight and at what cost?Insight in procurement terms could be at a high level; Supply Chain Risk, Performance Management, Spend Optimisation and Contract Compliance. The easy piece is to deliver high level data, but the loss in integrity and accuracy by aggregation could be costing the business more than it allegedly saves.
The more data you can hold in one basket the better
Technology nowadays makes it easy to adopt new solutions, and many new solutions come to market annually, so how do we determine the right answer? Considerations around ERP platform(s), integration, spend cubes and best of breed come into play almost immediately.
But simply put the more data we can hold in one basket the better. I like to use analogies, and from those who know me they are sometimes obscure, but here goes. If you were to go on vacation, would you travel by air and put your luggage by rail? Likely not, so why would you put your spend transactions through one vehicle, manage your supply chain in another and expect a further vehicle to deliver a key benefit at the right time and to the right place on Insight?
But what is the impact of cost, try considering a number of key contributors:
- Quality of Data – a number of tactical procurement tools (P2P and ERP) enable you to process a requisition, and associate it with approval workflow, but focus little on how the core data is managed, or manipulated.
- The price of subjectivity – Shipping data to a 3rd party to manipulate the spend data and provide classified data is open to subjectivity, and one solutions interpretation of another applications data.
- Number of Applications – every time data moves from one application to another the integrity of the data will be compromised, so you lose value in that data. Also, with each additional application used there is a cost of ownership, so benefit realization is challenged. Not only that but each application requires deployment, management and maintenance which impacts the ability to respond in time.
- Response Time to Report – the time taken to produce Spend Cubes can be long, i.e. greater than 1 month, and so you are always in a reactive mode. So month old data then gets processed, each time, and the reports are presented to the decision makers, who then identify action items. In all you could be looking at 6-12 months reaction time. This gives you a cost of delay on an ongoing basis.
So what price insight, if you want insight and maximize the benefit you can leverage from this then try applying the following formula:
So take a $145m spend and a target of 12% of benefits targeted, this gives us a $17m opportunity. However, if we have multiple applications in our Procurement Lifecycle, i.e. Sourcing, Contracts Lifecycle, Catalogues, Services Procurement, Procure to Pay (P2P), eInvoicing, Supplier Management and Spend Analytics we have a compromise on the benefit. Even 2 applications in that portfolio will potentially half the opportunity, and this is further aggravated by the time to report the spend in the format you need.
The advantage of a single consolidated platform
It doesn’t take a Mathematician, thankfully, to realize that the fewer applications used to get to the desired output; the less time it takes to get the desired output the higher the yield of benefits realization and the fewer transitions of data (taxonomy) the greater the integrity and accuracy of the source data.
This will be why many progressive organisations are recognizing the need for consolidated platforms that support their core ERP activity. The adoption of cloud enables them to reduce time to change, and the more configurable the platform the lower the cost of ownership. So as a result, you maximize data integrity as well as delivering the greater benefits realization in the shortest time available.
So everyone wins.