Is punch-out support really a procurement success?

In Innovation and leadership, Spend management by Michael Lamoureux6 Comments

These days, just about every procurement platform supports punch-outs. This shouldn’t be a surprise as punch-outs are based on cXML, which has been around since 1999. But unlike the platforms, not every site supports punch-outs. While most big sites such as Office Depot do support punch-outs, most of the smaller sites do not.

Purchases completed on a big site from an integrated catalog will go through the system, but any purchase that is not—or cannot—be made from an integrated catalog will not. This begs the question: Is punch-out support really a procurement success? If it turns out that most of the purchases are from big suppliers with punch outs and 70-80% of the spend goes through the system, one might be tempted to think that it is. The traditional modus operandi has been to follow the 80/20 rule in procurement and ignore tail spend—but this isn’t always the best idea.

As per my previous post on why integrated procurement is important, tail spend might be small, but the savings opportunity—and thus the overspend it contains—can be quite high. Some studies have found the average to be 15%, and in certain categories such as T&E and temporary services, the savings opportunity often falls in the 15-40% range.

But unless all spending goes through the system, not only will savings not be captured, the opportunities for savings cannot be identified. When all catalogs are integrated in the system, not only does all spending go through, which allows all savings opportunities to be identified through (future) analysis, but a user can also:

  • See all products that meet his needs
  • Compare and contrast prices and reviews
  • Filter to products on contract or from approved suppliers
  • Be visually guilted when he does not select the contracted or most cost-effective option

This simply is not possible if the product being sought is not in the system, or if the option being considered is not in the system. Nor is it possible for an approver to know if:

  • The user selected the option that was on contract or the most cost effective
  • The user assigned the proper budget
  • His approval is sufficient for the purchase

After analyzing the situation, punch-out support might a good start, but that is all it is. Real success comes from the implementation of an online shopping portal that integrates punch-outs, other online catalogs, custom and organizational catalogs, archaic databases and EDI, and, if necessary, screen scraping from web sites that haven’t caught up to the teens.

While 3 or 4 catalogs might have been an amazing achievement 10 years ago, now it’s easy to adopt, integrate, and roll-out an enterprise shopping portal that all of the  employees can use to requisition goods, services, and even travel through a simple, Amazon-like, one-click interface. It might take a bit of time to get some of your more technologically outdated suppliers integrated, but this only has to be done once. Most providers of these solutions have extensive middleware libraries that allow them to add most customized sites and databases in a day or less, and they will have already integrated all of the common database, EDI, and cXML standards.

The one-stop enterprise shop is becoming a reality faster than you might think.

About the Author
Michael Lamoureux

Michael Lamoureux

Michael Lamoureux is The Doctor of Sourcing Innovation and the founder and Editor-in-Chief of the Sourcing Innovation blog, one of the longest running independent blogs on sourcing and supply management. Focused on helping current and future supply management leaders identify the issues and trends that matter, Dr. Lamoureux writes and talks about topics that matter to sourcing professionals.