To what extent should a procurement team should be involved in spend management and everyday purchasing? And when is a good situation to consider e-procurement and guided buying to alleviate workload?
I’m going to share with you two statements which at first may seem contradictory, but in reality they aren’t.
Procurement professionals should be responsible for sourcing suppliers, negotiating contracts and agreeing prices & commercial terms.
But experienced procurement managers should not be purchasing goods & services which fall under the daily, operational procure-to-pay activities.
In many cases, this can be avoided, especially if it is repeatable spend which can be managed through e-ordering.
This article will break down how procurement teams can free up resources that would otherwise be stuck in lots of day-to-day, non-strategic purchasing activities.
Furthermore, by shifting this onto the stakeholder or requisitioner, it can improve their user experience of dealing with procurement. Using online procurement software can also enable busy procurement teams to “outsource” their unfulfilling work. While at the same time, it ensures compliance with supplier selection: it ensures conformance to the internal purchase-to-pay process.
Enable self-service buying through supplier catalogues and e-procurement
Both of these standpoints can perfectly coexist together in a well-run organisation which manages its vendor spend efficiently.
One of the reasons why Procurement is often unpopular with stakeholders is because they are often seen as holding up the process.
How to stop stakeholders resenting Procurement
If somebody wants to buy something non-complex, they often need to wait for Procurement to place the purchase order. Or even worse, perhaps they don’t even know who the Buyer is. This leads to frustration.
A stakeholder may then decide to take the matter into their own hands and just execute the purchase without anyone from Procurement being involved. This creates a maverick spend problem that your organisation then has to deal with. This is all too frequent in decentralised organisations or companies with an immature procurement function.
Procurement is often seen as the bottleneck; the compliance police. The person who’s blocking a stakeholder from purchasing something that he/she needs to get their job done and keep things running.
We should be embracing self service procurement. Let’s actually encourage our stakeholders to buy their own goods and services through an effective e-procurement process.
It shouldn’t be your responsibility as a professional buyer to do transactional purchasing of routine supplies and everyday services. Buying day-to-day stuff shouldn’t create unnecessary paperwork and workload.
But then how do we keep control of what is being spent?
The preferred suppliers must be sourced, selected and their pricing & contracts negotiated by an experienced procurement professional.
It’s your job as a procurement professional (or a consultant) to understand the historical spend and the necessary specifications and service levels that are expected from an organisation’s internal stakeholders.
An approved supplier list or preferred vendor list should be implemented for the purchase-to-pay process of everyday items. This, together with an easy-to-use, intuitive procurement software, will empower stakeholders and free up your team’s resources. When your team is able to concentrate on more strategic work, and improve the working relationship with internal business partners, magic happens!
Let’s take a look at four different examples of how this can work, from least effective to most effective:
1) E-Procurement process through traditional ERP systems
Traditional ERP systems such as SAP and Oracle enable e-procurement and the integration of supplier catalogues.
This is old technology and has been available for 15+ years. There are two different ways of how this can be set up.
Internal or self-hosted catalogues
These are essentially price lists from suppliers which are housed as internal catalogues, enabling users to procure these items without having to create a manual purchase requisition.
Advantages of this approach are:
- It eliminates free text purchase orders for items which don’t have material masters (meaning requisitioners aren’t specifying their own PO text). This gives uniform descriptions at PO line item level, resulting in improved spend data;
- Pricing for individual items is hosted on your server. Suppliers can’t change prices without requesting the change via your procurement team.
Disadvantages of this approach are:
- Catalogue management requires a lot of maintenance to keep them relevant and up-to-date;
- It can be useless or impractical for suppliers who have thousands of SKUs in their product range. Especially if your purchase orders are not repeatable spend on the same items.
Supplier hosted or punch-out catalogues
This enables an interface to be established between your organisation’s ERP system and a supplier’s (externally) hosted webshop. Orders and confirmations are then usually transmitted via an EDI link.
Advantages of this approach are:
- Just like internal or self-hosted catalogues, it eliminates free-text purchase orders. However, the item description will be determined by the supplier.
- It enables easy purchases for items that are non-repeatable in nature e.g. IT peripherals, mobile phone accessories, lab supplies.
Disadvantages of this approach are:
- Suppliers can change prices at their behest;
- Data and access is managed on the supplier’s servers. You’ll then need a well negotiated contract to ensure you get regular reports and can block access to areas of their e-shop you don’t want your users to access.
While both of these approaches are better than nothing at all, the obvious downside is the fact that it is managed through an existing ERP system. These systems are clunky to use and are not intuitive. It’s not going to give the stakeholder the great experience they have when buying from e-commerce stores at home.
Which conveniently leads onto the better options…
2) Catalogue Management using Coupa Software or SAP Ariba
Popular Source-to-Pay (S2P) suites such as the market leaders Coupa and SAP Ariba, plus other e-procurement software examples such as Jaggaer, GEP, Ivalua and Zycus, all offer the ability to connect and procure tail spend items through e-procurement modules.
Advantages of legacy S2P suites e.g. Coupa Software and SAP Ariba:
- Suppliers will usually be familiar with these suites because they are the market leaders. They may already have a registered profile on them for other customers;
- It integrates seamlessly into the procure-to-pay functionality. If this is already running through these applications, you don’t need additional ERP integration
Disadvantages of using legacy source-to-pay suites
- The elephant in the room is that these suites are prohibitively expensive for most businesses. If you’re not doing €/$ 1 billion plus in annual revenue, you’re not their target customer. Implementation also takes several months and requires specialist IT consultancy. For a mid-market business looking to see some quick wins and leverage the benefits of e-procurement, this is a non-starter.
- Yes, it’s significantly better than managing spend through a native ERP. However, these applications are still not particularly user-friendly. Users will require extensive training due to the system’s complexity.
If your organisation is already using them, it’s a great quick win to deploy an e-procurement process through the modules within these suites to manage procurement catalogues. Suppliers are familiar with them and e-ordering is relatively easy to set up vs. native ERP deployment.
If you’re not using one already, then don’t be tempted by them. There are cheaper, better and smarter options out there. Tail spend management can be performed through more innovative source to pay technology!
3) Using best-of-breed Procure-to-Pay software
Moving away from the more well-known suites, there are a multitude of more cost-effective solutions out there. These can offer a better user experience for e-procurement and managing supplier catalogues.
But what if you’re looking for an e-procurement solution to punch out to suppliers’ own catalogues hosted on their servers? Then a best-of-breed procurement software specialising in purchase-to-pay functionality is likely your best bet.
This is an increasingly crowded marketplace and all providers offer a slightly different set of features.
These solutions, unlike ERP systems and legacy suites, are modern applications which have been designed with the user and a mobile-first experience in mind.
Yes, they work seamlessly on a laptop computer too, but their apps are an integral part of the software’s design, rather than a clunky afterthought that’s been added on to software whose tech stack is at least 15 years old.
Disadvantages of this approach are few and far between. Possibly the biggest one is convincing your IT stakeholders to consider implementing a solution from a startup rather than one of the well-known behemoths. That being said, you will almost certainly reap the rewards when it comes to price and the overall customer experience.
User adoption will likely also be higher, due to a more interactive e-commerce like interface. If you can give your stakeholders e-procurement software that they actually enjoy using, this is a very powerful and much-overlooked factor when considering user adoption.
Implementation takes days rather than months. You’ll be up and running and realising both cost savings and efficiencies through reduced operational workload almost immediately.
4) Tail Spend Management through specialist software
But what if you want something that leverages the latest, cutting edge technology to provide cognitive e-procurement capabilities?
Using a best of breed purchase-to-pay software solution can drive many operational efficiencies. It also ensures maximum user adoption, thanks to its ease of use. What it won’t do though is leverage AI or machine learning to maximise cost and ensure that purchases are made from the preferred supplier.
This is where your organisation can really get ahead of its competitors and ensure that you’re using the most modern solutions to drive costs down and efficiency up.
At a more enterprise level, Fairmarkit is a rapidly scaling solution which manages one-time requirements on tail spend goods and services. It does this through automating a large part of the sourcing and negotiation process. It isn’t exactly a self-service procurement option in its truest sense. Bu it certainly enables procurement teams to run a relatively hands-off sourcing process for purchases that would otherwise require resources.
Lhotse, on the other hand, is designed for smaller spend items and for medium-sized as well as enterprise businesses. Their platform leverages AI to look into historical purchases of similar items and to suggest existing, approved vendors. This enables stakeholders to manage the upstream process and procurement just to sign off and approve the supplier selection and price without any manual sourcing activity. Lhotse also searches its database of similar vendors who supply their other customers to ensure that the full marketplace has been considered.
For services, Mercanis is unique in offering a solution which enables a similar concept to Lhotse for transactional services, as well as wider indirect procurement. There are many platforms out there which look into complex sourcing of highly strategic services. Mercanis, however, offers a guided buying solution for lower value, non-strategic purchasing of services at a local country or site level.
First know your needs, then seek out a self-service procurement solution
Like most things in life, the right solution really depends on your organisation’s specific goals and objectives.
First ask yourself: what is your organisation most open-minded towards?
- Realising benefits of e-procurement using existing tech stack
- User adoption / ease of use
- Best-in-class tail spend solutions leveraging AI
And then what is your “bleeding neck” driving you towards a solution?
- Bottom line cost savings
- Reduction in day-to-day administration and “busy work”
If your goal is easy integration into an existing internal software, then option 1 is clearly the way.
Whereas if your goal is being best-in-class, number 3 is where it’s at.
Option 2 is the optimal intersection between price, user experience, features and functionality. This would be the ideal path if you’re a medium-sized businesses and seeking an affordable solution that will modernise and increase purchase-to-pay efficiency.
Doing nothing is the worst option!
Whichever option you feel is relevant, all should have the end goal in mind to make your stakeholders happier. At the same time, it should reduce your administrative and operational workload in Procurement, while also reducing cost and increasing the percentage of spend under management.
You’ll also probably need fewer employees dedicated to transactional purchasing. The capacity of Category Managers will be freed up to work on more strategic tasks.
Is your team is spending too much time on low value, non-strategic purchases?
Contact us and let’s have a chat. The right solution is a lot more affordable than you may think.
Most businesses who are doing above $/€ 20 million in annual revenue should easily see payback in less than a year with one of these solutions.