Procurement platform project support, part III

In Spend management by Michael Lamoureux0 Comments

As discussed in Part I, project definition and management for sourcing has evolved considerably over the last 20 years. Speaking frankly, sourcing teams have never had it so good—step-by-step guides, easy-to-use e-sourcing platforms, and capabilities that let them source at the speed of light. As discussed in Part II, however, procurement can’t remain as it is now in the majority of organizations. As per a classic AMR (now Gartner) series in 2009 on Reaching Sourcing Excellence, 30-40% of every dollar of negotiated savings never hits the bottom line.

There are various reasons for this, but the biggest culprits are usually off-contract/maverick spend, expedited shipments, failure to hit volume discount/rebate targets, and failure to ensure that the pricing agreements are honoured by both sides. Various reasons for this can include a buyer not knowing she should buy from a new vendor, not knowing how much it costs the organization if she doesn’t buy from the contracted vendor, and—sometimes—simply not caring. Another reason might be that the buyer assumes that the onus to ensure that the contract is properly implemented and purchased against is on the category manager. But, as we saw in Part II, this won’t pan out.

The only real solution is that a senior buyer must monitor the category—from the initiation of the sourcing project until the receipt and payment of the final order—against the contract, and acquire and configure a platform for each organizational buyer that will enforce proper project management.

What will this platform look like?

One-Stop Shopping for Products, Services, & Tail Spend

The best way to monitor spend is to capture all of it: Products and services both on and off contract; Large buys from contracted vendors and small buys from the business down the street; Contingent labour services and indirect services such as taxis and limos for employee transport; Standard services under agreements and one-day requests from the IT shop down the street to handle an emergency situation.

This platform must be extensive, flexible, and adaptable to the need at hand. It must have extensive catalog support for punch-outs, EDI look-ups, flat file catalogs, and custom one-time buys required by the organization, which can be coded by procurement or the buyer, or created on the spot when needed.

Standard (Re) Order Templates & Guided Buying

Just providing a one-stop shop solution isn’t enough. If it’s not easy to use, people will go out of their way to avoid it, whether it’s mandated or not. One key to ease-of-use is to make it easy for people who regularly order a market basket of goods or services to place those re-orders as quickly as possible. For example, most restaurants have regular re-orders of certain perishables, most retail chains have regular re-orders based on expected inventory levels, and most business organizations have a standard equipment buy every time a new employee starts. Create these templates, with repopulated default order quantities, and make it so that all a person has to do is change the quantities. Users will flock to this because it makes their lives easier.

Budget Integration with a Procurement Platform

Procurement performance is ultimately measured against how well it sticks to the final budget, which is the end result of a sourcing project. As per our piece on “Swivel Chair Budget Management,” unless the budget is integrated a buyer has no idea how well she is doing against the respective budgets, and neither do the approvers. Budget integration with a real-time status of dollars spent, approved, and requisitioned is needed to see whether or not a category is within budget and on track to remain  on-budget.

Dynamic Rule-Based Approval Chains & Visual Guilt

Budget integration is only the beginning. Sometimes, if it looks like the purchase of an off-contract or non-preferred item won’t impact the budget much, a buyer might be tempted to buy anyway. However, each off-contract purchase adds up, and each off-contract purchase can threaten the discounts, rebates, or goodwill services offered by the supplier when a certain threshold is reached. The best way to prevent this from occurring is to make it clear to a user how much each instance of overspend is costing, and could end up costing, the organization and how many additional approvers will be needed for an off-contract/over-budget requisition.

Alerts & Full Audit Trails

It’s not just requisitioners you have to worry about—it’s approvers as well, especially if they repeatedly approve off-contract or over-budget requisitions or are higher up in the approval chain. They might regularly override the decisions of a subordinate or skip the process and use their executive authority to approve buys that other approvers should have a chance to review beforehand.

Automated Order Generation

A (final) approval must automatically create the necessary purchase orders with contract/advertised pricing for each vendor, deliver them to the vendors using the appropriate electronic means, and track acknowledgements even if purchase orders are not required.

Automated 3-Way Matching Between the PO, Invoice, & Goods Receipt/Time Sheet

This is why purchase orders must be automatically generated with correct contract and/or advertised amounts. Buying the right product or service is not enough on its own to ensure that the savings will be realized and budgets met. Procurement must also ensure that the correct price is paid as well, and only for products and services actually delivered.

Integrated Returns Management

If a product is returned and a credit is owed, that credit must be tracked until it is realized. If an order contains a large number of defective units, and those units are high priced cell phones or electronics, losses can mount quickly as budgets can get blown if the credits are not recovered.

Integrated Issue Tracking

If there are issues such as overage charges, credits for defective products, or poor service that needs to be resolved, they need to be tracked to make sure they are addressed and procurement plans are adhered to.

All in all, good procurement project management is not very complex, as most of the time it only involves making sure the plans and prices captured in contracts are adhered to. If a disruption occurs or a change is made within the business requiring it to take a new direction, it can become more complex. But typically, the decisions are made in a (re) sourcing cycle and then the same tools described above are used to ensure the updated plans are implemented.

In short, if you want good procurement project management, you need a good procurement platform.

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.