Vous êtes sur la page 1sur 46

In association with

MAKING PROCUREMENT SIMPLE


Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
BEAUTY IN SIMPLICITY
Part 4: The benefits of better
ASK ANY scientist and they will tell you that when confronted with two
contract management
or more possible models to explain a phenomenon, the simplest is more
likely to be the one thats actually right. Complexity is abhorrent.
Part 5: Making supplier
Simplicity has an intrinsic beauty and attraction.
discovery as essential
Yet, time and again in the business world and not least in
and easy as your daily
procurement we see examples where complexity has run rampant.
cup of coffee
Systems dont work properly. Processes are difficult to learn, hard to
follow. Non-compliance is out of control, but everyone knows why: its
Part 6: Shining a light on
just too cumbersome to do things the way they should be done. Brains
one-off purchases
hurt and tempers fray.
It doesnt have to be like that. Simpler systems and processes built
Part 7: Take a wider view of
around human needs and preferences are easy to use and adopt. They
supply chain risk
grow and evolve as the organisation grows and evolves.
Change is rarely easy if it means giving up something that is
Part 8: Better payment
familiar, no matter how uncomfortable or awkward that thing may
processes pay dividends
be.Successfully managing change, abandoning complexity and
embracing simplicity is best done by creating a vision of the
Part 9: Relaying the benefits
destination a clear, simple model that rings true.
of end-to-end procurement
Andrew Sawers
Part 10: How CPOs can
Special projects editor
tacklethe enemies of
Procurement Leaders
technology adoption

Cover image: Annette Shaff / Shutterstock.com

A Procurement Leaders publication. In association with SAP Ariba. All rights reserved.
Published by: Sigaria Ltd, Prospero House, 241 Borough High Street, London, SE1 1GA, UK
www.procurementleaders.com

2
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
n Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
PART I: HOW GOVERNANCE GETS
Part 4: The benefits of better
PROCUREMENT FIT FOR THE FUTURE contract management
By Lindsay Clark
Part 5: Making supplier
discovery as essential
YOUR BOSSS job title says a lot about the KEY TAKEAWAYS and easy as your daily
importance of your role. I work for the CFO, and I
nC  entralised procurement can leverage cup of coffee
think thats a good thing, says Simon Boggis, CPO
scale and drive compliance, while devolved
of global freight management and contract logistics
structures can be close to business needs Part 6: Shining a light on
firm CEVA Logistics. He is tough and demanding,
and help nurture innovation. one-off purchases
but he understands the value of procurement.
n A hybrid, centre-led approach is possible,
This reporting line reflects the decisions CEVA has
but organisations must ensure the right Part 7: Take a wider view of
made about where procurement sits in the business.
type of reliable spend and performance supply chain risk
It is part of the firms approach to procurement
data is available to support the central
governance, which also defines the functions
procurement team. Part 8: Better payment
structure and the policies that empower it.
n Procurement governance tends to be processes pay dividends
Procurement can report into a number
centralised during hard times and more
of different functions including finance or
devolved in growth periods. Procurement Part 9: Relaying the benefits
operations or may have its own place on the
leadership would be wise to build of end-to-end procurement
board. Governance is extremely important as it
structures flexible enough to adapt quickly
determines the value that procurement is able
to changing needs. Part 10: How CPOs can
to provide to the business, whether in terms of
n Use appropriate key performance indicators tacklethe enemies of
saving money, avoiding risks or achieving broader
to monitor procurements operations and technology adoption
business objectives such as innovation or time-to-
to ensure it is delivering according to
market improvements.
corporate objectives, which may change as
For CEVA, the decision to make procurement
the business environmentfluctuates.
report to the CFO reflects the financial demands
on the business. We dont make a 25% a

3
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


margin, Boggis says. It is closer to 4% or 5%. For that we have to work very hard,
but the power of procurement is understood.
Having a global team
Simple and flexible structures
can help make the
Approaches to procurement structures can vary: from a devolved approach with most of scale, but a
management responsibility held in business units; to highly centralised functions
with a mandate to manage spending right across the business. CEVA employs a local presence makes
hybrid, centre-led model, in which a small central team answers to the executive and
supports procurement managers who work within business units.
it easier to manage
The challenge is to have a structure that avoids the complexity of a multi-tiered local suppliers
procurement hierarchy, but instead balances the goal of simplicity with the need to
remain flexible to local conditions and requirements.
Having a central global team can help make the most of scale where it helps the
business, but having a local presence makes it easier to manage local supplier
relationships and understand variations in legislation and working practices, Boggis says.
We look at how we can leverage spend from the highest point that makes sense
for the business. For IT, we can manage software licences on a global level. For
packaging, it is managed nationally.
Local procurement teams answer to the local managing directors, while spend,
supplier and invoice data is held centrally and can be accessed from anywhere in
the business (see The importance of data in supporting governance), so the central
procurement team can help inform local decisions.

Use data to remove barriers


However, procurement needs to be careful about how it uses this data to influence
local decisions. Data can remove barriers to success, Boggis says. But I cant walk
into a local road transport operation and say: Hi, Im from procurement. Heres what
youve been doing wrong for 25 years. That is not going to work.
Instead, he says, the function needs to acknowledge local teams strengths in
customer service while presenting data that will support a collaborative programme a RETURN TO CONTENTS

4
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


for improved procurement. We say: Wed like to work with you and look at supplier
costs, but no decision will be made without your input. Of course [procurement has]
The trends for and
a mandate to do that anyway. But both organisations have been asked by the CFO against centralised
to lower costs. The trick for us is making sure that we train people to collaborate.
procurement tend
Procurement as a business partner
After the onset of the financial crisis in 2008, there was a trend towards businesses to ebb and flow with
advocating a streamlined, centralised approach to procurement to contain costs, says
Natalie Henfrey, a procurement expert at PA Consulting.
economic cycles, so
It has tended to come from higher in the business: procurement is seen as an the function should
engine for driving out cost, she says. Some companies have put high levels of
compliance with a central procurement policy in place. build flexibility into
As the global economy returned to growth, however, best-in-class businesses were
looking for procurement to drive value within the organisation. To do so it needs to
itsgovernance
work closely with business units and suppliers, she says.
Procurement is moving out of its central office again. What we are starting to
see in leading pharmaceutical firms, for example, is procurement going out there
as a business partner, working with high-spend areas. While they still report into
central procurement, there will be a dotted line to internal customers and they may
be located with them, Henfrey says. There is a realisation that procurement needs
to be more deeply involved with the internal functions to understand what the cost
drivers are with them and their suppliers. It is being led by a few visionary CEOs.

Align to the growth cycle


Since the trends for and against centralised procurement tend to ebb and flow with
economic cycles, the function should build some flexibility into its governance, says
Alan Day, chairman of procurement consultancy State of Flux. Simplicity and rigidity
are not the same thing. We need to create procurement structures that flex. We need
to align to the organisation growth cycle and flip our model when necessary to do the
best things for the business, he says. a RETURN TO CONTENTS

5
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

That is all the more important in the current economic environment. While the
global economy may have recovered from the worst damage of the financial crisis,
Chinas recent economic data and the fluctuations in the stock market both show
there are still substantial risks to be confronted. Creating governance that prepares
the business for the future is the challenge confronting procurement leaders in these
still-uncertain times.
For example, it may be most appropriate during times of rapid growth for businesses
to give a lot of leeway and empowerment to the procurement functions in subsidiaries.
But if growth slows or goes into reverse, other corporate priorities such as costs and
cash flow may take precedence over innovation and supplier collaboration.

The right measures


Having the right key performance indicators (KPIs) in place and communicating
them throughout the procurement organisation and the business as a whole is
absolutely vital to ensure the function is delivering according to the businesss
strategic objectives.
Traditionally, KPIs have been used in a very operational way to measure cost-
savings or percentage of spend under management, for example. As procurement
takes on an increasingly strategic role, however, the KPIs the function uses have to
link upstream to the corporate objectives which may relate to revenue generation
or working capital, to name but two as well as downstream to the operational level.
In practice, this means proper governance requires making a distinction
between KPIs used by the top management team to determine how procurement is
contributing to the corporate goals, and the KPIs used within the function to measure
the operational steps necessary to achieve those aims. Your speedometer will tell you
how fast youre going, but your satellite navigation will tell you whether youre going to
arrive at your destination on time. n RETURN TO CONTENTS

THE IMPORTANCE OF DATA IN SUPPORTING GOVERNANCE


Accurate, accessible data is essential for procurement By getting a clear, simple-to-aggregate global view of spend
governance models to succeed, says Simon Boggis, CPO of data, businesses are better able to make strategic decisions
CEVA Logistics. about procurement and also improve the efficiency of day-to-
The company has adopted a hybrid, centre-led governance day working, he says.
model, as part of which a small central team supports You can look at 100 suppliers and see 70 are on 60-day
procurement management embedded in business units. To do payment terms and 30 are on 30-days. Could we not align them
so, it has to work from an informed position in terms of business- all to 60 days? Could we consolidate that spend? Maybe you see
wide spending and supplier relationships. But the employees who so many small-value invoices that you could benefit from having
collect this data may not realise its importance, Boggis says. a single invoice and improve efficiency, Boggis suggests.
The funny thing is, the most powerful people in a company Whichever way procurement tries to benefit the business,
may look at a set of data and make decisions on that basis, however, it will struggle to do so without accurate, meaningful data.
but most data comes from the [most junior]. A purchase order Historically, there was often a proliferation of poor
may be entered into system, but sometimes it goes wrong. Data data as companies struggled to integrate systems
with integrity is vitally important. Once you have got visibility, followingmergers and acquisitions, for example, Boggis says.
management can have an informed discussion about what we This is often used as an excuse not to do things in terms of
spend and where we spend it. company-wideprocurement.

6
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

n Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
PART II: SPEAK THE LANGUAGE OF
Part 4: The benefits of better
BUSINESS TO ENGAGE STAKEHOLDERS contract management
By Lindsay Clark
Part 5: Making supplier
discovery as essential
HAVING INVESTED a lot of time, effort and KEY TAKEAWAYS and easy as your daily
resources on understanding sourcing, tendering
nD  eep category knowledge is necessary to cup of coffee
and negotiation, it turns out these are the easier
engage new stakeholders. Procurement
parts of procurement. A more difficult aspect
may only be associated with a few Part 6: Shining a light on
for the function engagement with stakeholders
core categories and needs to show one-off purchases
inside and outside the business often fails to
understanding of a broader set of
get the attention it deserves. The problem then
supplymarkets. Part 7: Take a wider view of
is that procurement risks missing an opportunity
n Speak the language of business. By talking supply chain risk
to bring more spend within scope, improve
to stakeholders priorities in their terms,
compliance, get greater visibility over spend
procurement can achieve more influence Part 8: Better payment
and, above all, ensure the business gets exactly
in hard-to-reach business units. Too often processes pay dividends
what it needs.
procurement can become wrapped up in its
John Walker, global director for investment,
own terminology. Part 9: Relaying the benefits
supply chain and manufacturing at global snacks
n Data and analytics will help the function of end-to-end procurement
group Mondelez International, says procurement
understand business behaviour. Not
can find it difficult to engage stakeholders
just spend data, but supply markets Part 10: How CPOs can
because they have different careers outside the
and the businesss market all need to tacklethe enemies of
main business functions. Procurement people
be understoodto help procurement and technology adoption
can tend to speak a different language, he says.
stakeholders focus on a range of relevant
One consequence is that stakeholders might
outcomes, not just cost.
not know what procurement can offer, aside
from cost savings. Very few managing directors
have done procurement and so they dont a

7
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


fully comprehend the value it can bring. Part of the job is to listen to their concerns
and sell the advantages we can offer, says Walker. This might be improved Procurement is
quality, compressed delivery times or better production cycles; it is not always
costsavings. often trying to apply
Engagement strategy
functional expertise
Recent research by Oxford Economics for SAP Ariba shows that more than to areas where it has
two-thirds of senior procurement executives and employees say the function is
becoming more collaborative with other parts of the business. no experience and
But while many businesses recognise the importance of engaging stakeholders
with the procurement process, they dont all have a strategy dedicated to this
immediately there
ambition. But a clear strategy is needed so procurement knows how to start (or istension
improve) the management of multiple, complex and different relationships.
The reasons procurement organisations struggle to get buy-in from business
units are two-fold, says Nigel Scorey, CEO of consultancy Procure4. The function
will often be associated with a small number of categories at the heart of the
business. In food manufacturing, for example, this might be raw ingredients.
While procurement might believe the same skills and methods can be applied
to new areas of spending, such as IT, in truth there are important, sometimes
subtle,differences.
When buyers are invited to look at new areas, unfortunately they think that
because they are experts in one area of spend, that can be applied to media buying,
office suppliers or construction, says Scorey. But the stakeholder has been
buying those categories and taking responsibility for contracts for maybe ten years.
It is human nature for them to say: Who are you? You buy raw ingredients, you
dont understand media and advertising. Weve done that for years. Procurement
is often trying to apply functional expertise to areas where it has no experience and
immediately there is tension.
On the flip side of the problem of procurement not knowing enough about other
areas of spend may lie another issue stakeholders that dont currently engage with
procurement may only know the function for its core area of expertise. They will not
recognise procurement as having expertise in their area and so will be dubious a RETURN TO CONTENTS

8
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

about the value procurement can bring, even though it may lack specialist sector
knowledge at the outset.
STATS AND FACTS

66.7%
Long-term suppliers should also, of course, be considered stakeholders. Here,
too, the Oxford Economics research shows procurement is collaborating more with
suppliers. But suppliers can also find it difficult to accept procurement playing a greater
role in the buying process. Initially, they may be reluctant to work more closely with
procurement because they think it will inevitably lead to lower prices. But procurement The percentage of senior procurement
can show how suppliers might help them tighten the supply chain or win extra business. executives who say the function is
The supplier can learn that dealing with procurement is better, because they are more becoming more collaborative with other
professional and dont change requirements at the last minute, Scorey says. parts of the business
Source: Oxford Economics/SAP Ariba
The right skills mix
To improve stakeholder engagement, procurement needs to look at its mix of skills.
Whether aiming to expand procurements scope or showing how procurement can
add more value, the function needs to employ or develop procurement people with
real domain knowledge in the areas they want to engage with.
The style of communication is equally important. Procurement people can tend
to be quite closed, inward-looking people. They want to win against sales people
and enjoy the battle, Scorey says.
But in engaging stakeholders, procurement people need interpersonal skills
that are much more subtle. They may need to sell what procurement can offer
or convince, say, three groups of internal stakeholders that it is in their common
interest to buy together, says Scorey.
Then there is governance. It is critical that there is some sort of mandate or
incentive from the top of the organisation for different groups to work together.
Otherwise there can be tacit agreement with procurement, but little real value
gained. Joint-working sessions might sign off the deal and get the nod from IT, but
the product never gets used in the way that delivers value, Scorey says.
On top of the right domain knowledge, communication skills and governance,
procurement professionals hoping to engage stakeholders will need to bring data
not just on spending and supplier relationships, but also on metrics relevant to the
business department. a RETURN TO CONTENTS

9
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

Using data to leverage engagement


Andrzej Hutniczak, Capgeminis vice president and head of product development,
says: Procurement needs to be able to leverage data and to use analytics. It helps
in being able to analyse the business behaviour. It enables procurement to be closer
to the business and play the role of true business partner. It helps procurement and
stakeholders focus on outcome, not on the one dimension of cost being able to
see the trends and understand what is happening in the market and how that is
relevant to the business.
Hutniczak adds that it is important data is used to bring different interests into
alignment, rather than being used in an adversarial way. You have to show you
understand how they are working and how you understand the business. You cannot
bring in a report, and say, This is what you are doing wrong. Thats not partnering.
You need to understand what the department is looking for and then think how to
help them.
Walker at Mondelez International says the problem surfaces when procurement
tries to use its own metrics and make them fit the business unit.
For example, for some stakeholders and in some industries, cost savings may not
be as important as they are to procurement. In some places, there is zero interest
in cost savings, Walker says.
To understand why, procurement should learn how much of the end product
results from external spending. It is shocking that those responsible for a category
might not know. In manufacturing it might be 50%, while in pharmaceuticals it
might be 5%. You have to understand how much skin you have in the game when
you engage stakeholders, Walker says.
Whether it is their style of communication, use of data or market knowledge,
procurement professionals need to improve how they work with a breadth of
stakeholders in order to maximise the functions effectiveness. With properly
engaged stakeholders, procurement will have a route to achieving its full potential
for the benefit of the business. n RETURN TO CONTENTS

10
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

n Part 3: Specifying simplified


sourcing
PART III: SPECIFYING SIMPLIFIED SOURCING
By Lindsay Clark P art 4: The benefits of better
contract management

HOW MANY different types of prawns are there? KEY TAKEAWAYS Part 5: Making supplier
For one catering and hospitality company, the
nA  s businesses grow, change and discovery as essential
answer was 76. Nobody really knew why they
merge, sourcing tends towards greater and easy as your daily
bought so many varieties; the specification had
complexity, which procurement must seek cup of coffee
just grown with the business, unchallenged.
to limit, creating savings by standardising
For that companys procurement manager,
processes and driving more volume through Part 6: Shining a light on
Simon Atkinson, now a partner with consultancy
fewer suppliers and specifications. one-off purchases
Occumen, this example illustrates the forces
n Software tools can help streamline and
creating complexity in sourcing. By reducing
standardise commodity and operational Part 7: Take a wider view of
the number of prawn varieties, he helped
sourcing processes to make time for more supply chain risk
simplify processes, source greater volume and
strategic sourcing, working closely with the
get a better price. But to execute this kind of
business. Part 8: Better payment
strategy, procurement professionals need their
n Simplification must be balanced against processes pay dividends
stakeholders to co-operate in the process.
the need for category-specific sourcing
Forget the number of specifications we
techniques and the need to manage Part 9: Relaying the benefits
buy, how many conceivable applications do we
complexity which helps the business seize of end-to-end procurement
need? he says. We started with 76 prawns
market opportunities.
and found we only needed seven. The process
n Online sourcing networks make it easier for Part 10: How CPOs can
that creates complexity is relevant to lots of
procurement to discover new suppliers that tacklethe enemies of
industries. Purchasing can drive that out and
can fit their business requirements, and technology adoption
create efficiency, but when you get into it, it can
help them compete and innovate.
involve a technical understanding of engineering,
for example, or in our case catering. You can
easily get tied up in technical arguments. a

11
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


You have got to engage the business in understanding the problem and get them
on board in creating the solution, otherwise they will resist.
There is an emerging
Identifying sources of complexity
approach that is
In a career including senior procurement roles at Mars, Diageo and Pepsi, Atkinson about making market-
has seen a number of factors that drive growing complexity in sourcing: globalisation,
the legacy of mergers and acquisitions and changing internal product development informed choices, not
programmes all play a role, he says.
This results in having to manage more categories of spend, often without
constraining at outset,
additional time or headcount in procurement. Sourcing standards, if they do but starting from
exist, are not evenly applied. Therefore, spend and supplier analysis and data
aggregation, which are already complex, become even more time-consuming theoutcome
and even more necessary. Atkinson says procurement can save the business
money, increase supplier quality, and add value by standardising and simplifying
processes, reducing the number of specifications and driving greater volume
through fewer suppliers.
It can be the quickest path to lower costs and higher revenues. But, in some
circumstances, this must be balanced against the businesss desire to capture
market opportunities, he says.

Start with the outcome


The conventional view of procurement is to try and simplify everything, and [take
a] category management approach and then apply uniform judgement as to what
the desired outcome should be and then constrain options, Atkinson says.
But there is an emerging approach that is about making market-informed
choices, not constraining at outset, but starting from the outcome. You ask, how do
those options further our competitive advantage? Sometimes you do not constrain
choices, but take it all in, he says.
In these circumstances, procurement should look to technology to help manage
complexity, applying computer algorithms and iterative calculations to complex
supply chain processes. a RETURN TO CONTENTS

12
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


The main thing is clarity of purpose. If it is complex, what are we seeking to You have to have the
achieve? The perennial challenge is getting people to understand that. But you need
to keep complexity away from the stakeholders, and keep the discussion in laymans agility and flexibility
terms, not procurement-speak.
in process and
Appropriate sourcing for each category
However, Paul Jones, procurement and supply chain practice leader at consultancy
technology to make
KPMG, says that sourcing processes are difficult to simplify beyond a certain point. sure the sourcing is
Although procurement has evolved as a discipline which creates generic sourcing
strategies, whatever the category, in reality the process can be very different appropriate for the
depending on what the business is buying, Jones says.
It is always an eclectic mix. People now recognise that sourcing a multi-billion
required category
pound construction project is not the same as finding suppliers for a piece of
software. You then have to have the agility and flexibility in process and technology
to make sure the sourcing is appropriate for the required category.
There is a danger in one-size-fits-all. It becomes procurement turning the handle
on the process rather than being a robust supplier selection with the right sourcing
and contracting strategy in place, he says.
But there are ways of simplifying some sourcing activities to help procurement
organisations manage the more challenging categories.

Technology tools
Using self-service automation tools, businesses can make sourcing of low value,
non-strategic, but important, categories more efficient. We are seeing clients
making it easier for the internal customer with greater process automation enabled
by technology and shared-service operations, Jones says.
Atkinson adds that online catalogues can also provide a route to managing
complexity in some non-strategic items. Stakeholders get to buy the full breadth
of what they want, but procurement acquires more visibility. Using spend analysis
tools on the data acquired, procurement can persuade the business to reduce the
sourcing options. a RETURN TO CONTENTS

13
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


Jones then sees a middle ground of operational sourcing. This is where you need
to segment the requirements. If you have got commodity or category buying where Simplifying sourcing
cost and price and the supply market is competitive then it lends itself to having
strong commercial and procurement processes to strike the right deal. of commodity
In both camps, procurement can standardise sourcing processes supported
by software, where the software acts like a sourcing handbook that explains
and operational
and teaches the process. Software can also streamline the process from spend categories can free up
analysis to sourcing through contracts by integrating the end-to-end workflow. This
standardisation and integration creates faster sourcing, so more categories can procurement, enabling
be managed, more deals implemented, and more savings can be delivered to the
business.
it to help manage
To further simplify sourcing, Jones sees technology and cloud service providers areas where sourcing
developing business-to-business marketplaces more akin to the platforms familiar
to consumers, such as Amazon or eBay. There are lots of marketplace providers is morecomplex
using technology that allows organisations to tap into a large pool of suppliers. These
can offer great economies of scale. Moreover, online bidding drives competition
and hence better deals and more savings.

Managing unavoidable complexity


Simplifying sourcing of commodity and operational categories can free up
procurement, enabling it to help manage areas where sourcing is more complex
and yet core to creating strategic advantage, Jones says. When you are looking
at the real business-critical categories, procurement must work very closely with
the stakeholders.
In life sciences, for example, it could be large and complex clinical R&D
outsourcing. That is not just about getting the contract at the right price. That
requires a business participation that understands the supply market and how to
innovate. It needs to be managed by a cross-functional team including R&D and
finance, technology and procurement. a RETURN TO CONTENTS

14
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


Michael Koch, SAP Ariba director of solutions marketing, says while there are
many tools to help the procurement process, a new breed of solutions is helping
Procurement needs
procurement teams expand and better understand their potential suppliers. to limit complexity
Online auctions can certainly help you get a good price and there are tools for
everything you need from the initial RFP to accepting the bid, but the real question but also learn how
is what suppliers are you looking for and how do you find them? Koch says.
SAP Ariba connects procurement teams with a network of qualified suppliers.
to manage it when
It allows analysis of the marketplace to help uncover new suppliers that meet it benefits the
the businesss requirements, similar to the way LinkedIn helps businesses find
candidates for jobs. businesss ambition
If you are part of a network, like LinkedIn, and you are looking for a salesperson
in the pharma industry you can find 500 people in companies that youve never
seen before. In a similar way, we use category codes and industry codes to help
buyers find new suppliers, Koch says.

Enhancing supplier relationships


With a new source of suppliers, companies can analyse their spending and
consolidate it into a smaller number of vendors able to meet the needs previously
provided by a greater number of vendors, Koch says. In addition to driving down
costs this can enhance long-term supplier relationships by pushing more volume
their way.
Sourcing tends to become more complex with the passage of time, through
business change, mergers and acquisitions, and globalisation.
Procurement needs to limit complexity but also learn how to manage it when
it benefits the businesss ambition. Automation and new technology can help
streamline and simplify low-value and operational sourcing, freeing up procurement
to invest time in more complex, strategic sourcing. Meanwhile, a new breed of
supplier network tools is also helping companies find new vendors and simplify
sourcing processes. n RETURN TO CONTENTS

15
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
PART IV: FROM CHAOS TO CONTROL THE
n Part 4: The benefits of better
BENEFITS OF BETTER CONTRACT MANAGEMENT contract management
By Lindsay Clark
Part 5: Making supplier
discovery as essential
ORGANISATIONS EVERYWHERE look to KEY TAKEAWAYS and easy as your daily
procurement in order to save money. But there is
nC  ontracts offer an untapped opportunity cup of coffee
more that procurement can do than simply try to
to improve procurement performance.
put an even tighter squeeze on suppliers prices.
Savings are often left on the table because Part 6: Shining a light on
For one thing, dont underestimate the value of
procurement lacks oversight of all the one-off purchases
great paperwork. Once the contract has been
contracts held across the business.
agreed, good contract management provides
n Contract-authoring tools can create a P art 7: Take a wider view of
the necessary transparency to ensure not only
more standardised approach to terms and supply chain risk
that savings are achieved but that promised
conditions, leading to better governance,
performance levels are delivered.
compliance and legal risk management. Part 8: Better payment
Virtually every procurement function is under
n Developing a central cloud-based processes pay dividends
pressure these days. In UK local government,
repository of contracts allows analysis of
the situation became particularly urgent in 2010
savings available, and better timetabling Part 9: Relaying the benefits
when the central government announced funding
of activity to exploit opportunities that are of end-to-end procurement
cuts of 33% to be brought in over the following
presented as contracts mature.
five years. With the councils duty-bound to
n Software tools can also boost efficiency, Part 10: How CPOs can
provide certain services to local residents, they
flowing contract terms directly into the tacklethe enemies of
became desperate for savings.
procure-to-pay process, so pricing and technology adoption
One membership group, the Local
terms are pushed automatically from
Government Association (LGA), noted that
sourcing to requisitioning.
almost 30bn was being spent on third-
party contracts. Its research, published in
2013, showed that better management a

16
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


of these contracts could save local authorities between 3% and 15% of the
contractvalue. While procurement has
Rob Woodstock, Accenture managing director, operations strategy for UK
and Ireland, says the same lesson is true for all organisations. And while created savings during
procurement has been successful in creating savings during sourcing and sourcing and tendering,
tendering, better management of contracts represents an untapped opportunity to
improveperformance. better management of
Contract management is critical in the procurement landscape, he says.
As procurement matures, it is harder to achieve high-impact savings based on contracts represents an
tendering. Businesses are now looking at alternative ways to find savings. untapped opportunity to
A holistic approach to contract management can improve collaboration between
the procurement, finance, legal and even sales teams, which helps shorten time-to- improve performance
value, accelerate contract cycles and identify new revenue opportunities.
As the LGA report makes clear, good contract management is about more than
ensuring suppliers meet their contractual obligations. It can help to identify and manage
their own and their suppliers risks, and achieve savings and continuous improvement
throughout the life of the contract. It can also identify efficiencies, avoid unnecessary
RETURN TO CONTENTS
costs, enforce penalty clauses and share additional income from growth.

Fragmented, dispersed, complex


Woodstock says, however, that procurements approach to contract management
is often fragmented. Contracts are dispersed throughout the organisation, stored
in various departmental databases, thereby creating unnecessary complexity.
Procurement cannot manage what it cannot even find.
There is, generally, visibility of contracts [that have been] negotiated centrally
by procurement, but many are negotiated and concluded in the business locally.
There may have been legal oversight, but no procurement involvement. This creates
a mixed picture in terms of visibility, he says.
Trying to get to the bottom of this is difficult, complicated and expensive. In
contract management, there is a lack of automation and overreliance on manual a

17
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


processes. Procurement spends more time on administration than it ought to, and
less on creating value, Woodstock says.
Innovation and supply
This fragmented, complex picture of contract management can mean chain support for
organisations miss opportunities to save money and face increased legal risks,
Woodstock says. It also leads to difficulties understanding the pricing schedules growth means dealing
across multiple contracts. Even for those that are available, a large number are
out of date, he says, adding that there is often no visibility as to when contracts
with different types
come up for renewal. of suppliers, leading
This means there is a large opportunity for savings through more simplified,
efficient contract management. It can improve compliance of spending through to different types
the contract, ensure the business is on the right pricing schedule and monitor
supplier performance to make sure it is in line with key performance indicators.
ofcontracts
Organisations targeting, say, 8% savings across procurement activity could see a
two-point uplift through better contract management, Woodstock says. Conversely,
poor contract management could drag performance two points short of target.
As well as savings, businesses are looking to procurement for growth, he says.
Innovation and supply chain support for growth means dealing with different types RETURN TO CONTENTS
of suppliers, leading to different types of contracts, so procurement needs to be
fast and agile in the way it finds [its] contracts [and manages them].
At the same time, there are increasing pressures to better manage risk, both in
terms of financial exposure and regulatory requirements, he adds.

Tools for new and current contracts


Woodstock identifies two approaches to simplifying contract management.
The first is to exploit contract-authoring tools, which standardise the way contracts
are built. Such tools ensure agreements employ the right terms, use standardised
terms and that they adhere to the correct governance rules. They can also build
clear, coherent relationships between parent and child contracts, where terms and
conditions flow logically from main contractor to subcontractor, or from framework
agreements to specific deals. a

18
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


The second approach concerns contracts already in play. Software tools can now
flow contract terms directly into the procure-to-pay process, so pricing and terms There is growing
are pushed automatically from sourcing to requisitioning. These can be deployed in
the cloud as easily as in-house, Woodstock says. As well as storing contracts, they recognition of
aid analytics and create alerts, to help pick up missing links between price breaks the benefits of
and transactions, he adds.
indirect contract
Standardised models
Some industries have very mixed capability in these approaches. In the media management. It
industry, for example, there are mature systems for the management and collection
of content royalties.
comes straight to the
In construction and infrastructure, the industry tends to be good in direct bottom line not out
procurement where there is a long-standing approach to contract authoring and
management, says Andy Haworth, a procurement consultant specialising in this field. of cost of sales
In our industry, there are tight margins on large volumes, so people pay a lot of
attention to contract management. They focus on money issues: if something is not
delivered on time, you can make a claim in the contract.
Construction contracts are quite complex. We flow down certain requirements RETURN TO CONTENTS
from main contractor to subcontractors, so everyone has a standardised model,
says Haworth, whose career includes senior procurement roles at construction
firm Balfour Beatty and project managers Amec. These activities are supported by
widely used contract management tools, he says.
However, it has been quite a different story for the construction sectors indirect
spend categories such as security, cleaning or IT, where there has traditionally been
a more fragmented approach to contracts, driving up complexity.
It is only more recently that these categories have become well managed,
Haworth says. There is growing recognition of the benefit we can get out of indirect
contract management. It comes straight to the bottom line not out of cost of
sales so through the downturn many organisations focused more on managing
contracts for indirect categories to reduce their own costs. a

19
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

Money on the table


Since the recession, however, companies have been working at reducing the number
of contracts in these spend areas through category management and to manage
each one better, Haworth says.
Michael Koch, director of solutions marketing at procurement technology supplier
SAP Ariba, says that, without systems that simplify contract management, there is a
real risk of leaving money on the table. The technology provides a central repository
that allows visibility and reporting. You can see how many contracts are coming up
for renewal, what their financial terms are and the volumes of the contract. It also
provides the foundation for better supplier relationship management, he adds.
But when the business tries to implement a contract management initiative, it
can struggle to find volunteers, Koch says. It is not the most glamorous job. It is
cumbersome and labour-intensive and people shy away from it. But in reality you
could save millions.
The legal department can become a key ally in driving a contract management
project through the business, he says. Contracts are a leading cause of corporate
litigation which creates significant risks and costs to the business, so the legal
RETURN TO CONTENTS
department will be keen to get on board with such a project.
More generally, however, as Koch points out, the problem with implementing a
contract management project is resources. It could take one or two people three
months to a couple of years, depending on the size of the organisation. It could be
part-time, but it needs to be focused, Koch says.
And with potential benefits that include cash savings, improved transparency,
reduced risk, better supplier performance and even additional revenue, contract
management cant be sidelined. The tools for the job are available; it is up to
businesses to learn how to use them. n

20
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
PART V: MAKING SUPPLIER DISCOVERY AS ESSENTIAL
Part 4: The benefits of better
AND EASY AS YOUR DAILY CUP OF COFFEE contract management
By Michael Koch, director, procurement and business network solutions marketing at SAP Ariba
n Part 5: Making supplier
discovery as essential
PEOPLE ARE creatures of habit. We drive the KEY TAKEAWAYS and easy as your daily
same route to work on most days. We get our
nD  ont wait until theres a problem with cup of coffee
morning coffee at the same shop. And we take
current suppliers to seek out new ones.
these habits to the workplace, doing things the
Be proactive about finding out if new Part 6: Shining a light on
same way as always because we know it works.
suppliers can help you with innovation, risk one-off purchases
But its time to challenge the ways of the past.
management, cost savings, and quality.
In the world of sourcing and procurement,
n Finding new suppliers is not always simple, Part 7: Take a wider view of
there are new ways of creating sustainable
as todays procurement teams demand supply chain risk
savings. But first we must challenge the existing
suppliers to be strategic partners to reach
ways in which we conduct businesseven if
their goals. Part 8: Better payment
that means re-thinking our supplier discovery
n Take the complexity out of the supplier processes pay dividends
and collaboration practices. Here are a few ways
discovery and collaboration processes with
establishing a process for continually evaluating
two essential tools: an eSourcing solution Part 9: Relaying the benefits
suppliers helps reduce complexity in the
and a business network. of end-to-end procurement
procurement environment.
n Globalisation increases innovation and
Change: Could be risky if you dont competition. New suppliers can help you Part 10: How CPOs can
You may be asking why finding new suppliers keep up with the intense pace of business. tacklethe enemies of
is so important. Your business is fine. Your technology adoption
suppliers are meeting your needs. So why make
the effort to find new ones?
First, theres risk. Imagine that the shop
you get your morning coffee from everyday a

21
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


suddenly had a sign on the door that read Going out of business effective
tomorrow. Do you have another place to get your coffee? Will it be as good? How
Companies must
long is the wait? All of these questions and more begin to affect your day-to-day have a larger pool of
life. And thats just a cup of coffee. Managing supplier-related risks in a business
environment is a much more complicated affair. These risks can include contract high-quality suppliers
non-compliance, reduced quality of products or services, global economic changes,
and overall poor supplier performance.
to choose from to
Second, theres finances. Say your favourite coffee shop has increased the cost help manage risk,
of a cup of coffee by 50%. Would you pay the price? Maybe, maybe notbut you
likely have the choice of going to another supplier. Why wouldnt you want that price and market
choice with your business suppliers? Being able to find suppliers that can meet
your financial objectives of sustainable cost savings can have a substantial impact
competition
on the bottom line.
Finally, theres competitiveness. Its important to continually evaluate the market
to work with best-in-class suppliers. There are times when your best suppliers
can lose market share due to a lack of product innovation and development. This
may lower their status in the marketplace. We already have many suppliers in our
database, explains Celia Parsons, category manager, indirect and professional
services, at Caesars. But if you have been using the same suppliers for years and
dont want to go elsewhere, you may not be using the right or the best suppliers.
You dont want to miss the opportunity to work with innovative suppliers that are
bringing new ideas and strategic direction to the industry, and driving your own
business forward.

Tools for simplifying change


Change is never easy so we try to simplify it. The same applies to finding new
suppliers. In todays economy and fluctuating market environments, companies
must have a larger pool of high-quality suppliers to choose from to help manage a RETURN TO CONTENTS

22
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


their objectives around risk, price and market competition. Procurement teams
demand suppliers to be strategic partners to reach their goals. All of this adds
Its not enough
complexity to the process: its not enough to just find a new supplier, but you need to just find a new
to be able to collaborate in a timely and efficient manner. Companies are looking for
ways to automate the collaboration with their suppliers more than ever before. The supplier, you need to
collaboration requires technology and the right tools to be successful.
Lets go back to the coffee shop example. When you read the sign on the door that
be able to collaborate
the shop was closing, what did you do? Most people today would take out their mobile in a timely and
device and look for the closest coffee shop on their route to get that cup of coffee.
They can search by store name or just key words such as coffee. The results show efficient manner
immediately and you can plan a route to the destination. Technology drives more
business processes and connects more people than ever before. And its only going
to get bigger. So get the tools to make it easier in your search for suppliers.
There are two main tools that can drive supplier discovery. First, you need an
eSourcing tool. Electronic sourcing tools provide a document management process
to handle RFIs, RFPs, RFQs, etc, making it easy for you to find and engage potential
suppliers. As suppliers respond with their information, you can compare current
suppliers with the new supplier information to compare your options based on
terms, price, product, or other attributes. You can move from the award decision
process to the contracting and buying process quickly and easily because you have
all the information in one place.
The second tool you must have is a network a marketplace of suppliers that you
can reach out to. Sourcing teams can utilise business networks (sometimes called
supplier networks) to connect online to their suppliers. You can also discover new
suppliers more efficiently and conduct business directly with the business partner.
A manager looking to hire a new sourcing team member isnt going to look in the
phonebook. They are going to use a tool such as LinkedIn to find candidates that
have worked in sourcing and possibly even in certain industries. The hiring a RETURN TO CONTENTS

23
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


criteria can be used to narrow a list of potential candidates to recruit. Looking for
a supplier requires the same type of discovery ability. You can search the network Doing the same
based on criteria such as category, location, cost or ratings. Then you can reach out
to suppliers that fit the criteria. Companies are seeing the advantages of business thing in your supplier
networks. They see the results of being connected in a global economy.
management process
The results of change
Albert Einstein is quoted as follows: Insanity: doing the same thing over and
because you have
over again and expecting different results. Doing the same thing in your supplier always done it that
management process because you have always done it that way can leave your
business behind. Finding new ways to do business and finding new suppliers to fit way can leave your
your business requirements are essential in todays hyper-competitive economy.
Andrew Bartolini from Ardent Partners wrote, Consider that while globalisation,
business behind
innovation, and competition have helped streamline and improve business
performance, theyve also helped increase business volatility and the complexity
of supply management. One very real implication of these trends for sourcing and
category teams is that supply markets shift: the most qualified suppliers one year
may be laggards in the market just a few years later. I would argue that maintaining
the status quo may, in fact, be the riskiest thing you can do. Your smart rivals arent
standing still.
You must manage risk, costs and eliminate complacency to deliver results.
And you need to simplify the supplier discovery process so that complexity is not
a barrier to change. Maybe its time to ask, What if my coffee shop closed or
changed its price? What would I do? n RETURN TO CONTENTS

24
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
PART VI: SHINING A LIGHT ON
Part 4: The benefits of better
ONE-OFF PURCHASES contract management
By Richard Edwards
Part 5: Making supplier
discovery as essential
BUSINESSES MAY occasionally run out KEY TAKEAWAYS and easy as your daily
of essential items, but it seems as though
nA  large proportion of companies indirect cup of coffee
employees never run out of explanations or
spend consists of one-off purchases made
excuses as to why they have to make one-off
by people who arent in procurement. n Part 6: Shining a light on
purchases. We needed it straight away. Our
This maverick spend results in reduced one-off purchases
usual supplier doesnt stock this exact part.
transparency, less efficient purchasing and
I tried, but I couldnt find it in the catalogue
higher transaction costs. Part 7: Take a wider view of
so I gave up and got it elsewhere. The brand
n The need for one-off purchases cant be supply chain risk
I bought is better quality so its better value.
eliminated, but there are tools that can
These will all be familiar refrains to the ears of
leverage the information generated by Part 8: Better payment
many procurement professionals.
one-off purchases and highlight employees processes pay dividends
What that means is, theres nothing one-
buying patterns and behaviour.
off about the need for one-off purchases.
n Procurement needs to understand the Part 9: Relaying the benefits
So if procurement doesnt get a firm grip on
reasons why one-off purchases are made. of end-to-end procurement
them and treat them as an integral part of the
n Greater insight into one off spend not
sourcing process, the results can be costly.
only means greater control, it generates Part 10: How CPOs can
At the same time, however, procurement must
opportunities for procurement to step in tacklethe enemies of
pay heed to the difficulties employees often face
and buy more efficiently. technology adoption
when trying to get hold of the things they need to
n Spend management tools generate
do their job. If their regular catalogues or sources
information that can provide better price
of supply dont carry whats needed, or if theyre
transparency, increasing procurements
too difficult to use and search when looking for
buying power for other purchases.
unusual items, then its little wonder when a

25
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


employees take matters into their own hands, buying what they need wherever they
can get it, even if it means having to disrupt their own working day to do so.
Tail spend can
Theres nothing wrong with employees having the freedom to make their own lead to compliance
purchases rather than do everything through procurement. But it has to be within
a procurement-driven, customer-friendly framework that devolves power but issues as well as
increases transparency.
According to the Hackett Group, a consultancy, as much as 15% of companies
leaving procurement
indirect spend consists of maverick, one-off purchases by people who dont vulnerable to
work in procurement. Thats a huge percentage and one which brings the scale
of non-sourced, non-contracted supplies sharply into focus even though such mounting costs
purchases dont, individually, often add up to very much.
Not only can this tail spend prove problematic for strategic sourcing, it can
also lead to compliance issues as well as leaving procurement vulnerable to
mounting costs which can, if left unchecked, spiral out of control.
Tail spend items can be a significant chunk of money, says Jason Seibert, shared
service centre manager at Westinghouse Electric Company. When combined with
the transactional costs [associated with these purchases] there is a real impact on
the efficiency of the procurement process. Without managing tail spend properly,
you can find yourself doing a lot of non-purchase order procurement such as using
T&E [travel and expense] cards and submitting an expense report.
That long tail can be expensive because purchase and payment processing costs
dont decline in proportion to the amount of spend with each supplier. Time spent
on invoices or dealing with coding errors typically correlates to invoice volumes, not
their individual value.

Getting spending back under control


Thats a classic illustration of the problems that one-off purchases can present,
not only for a budget but also for an over-arching procurement strategy. In short,
its taking power away from procurement and placing it in the hands of individuals
across the business. The benefits of managing it well, therefore, can be a RETURN TO CONTENTS

26
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

significant. Eighty per cent of the money with any buyer is usually [spent with]
20% of their vendors so that extra 20% [of spend] thats lying out there can be
STATS AND FACTS

15%
significant dollar amounts, says Barry Eisenberg, business development, contracts
and e-procurement at B&H Photo Video. Clearly getting that spend under control
should be a priority.
So what can companies do when the item employees require hasnt been
restocked in time or isnt included in the companys authorised catalogue? With The percentage of companies indirect spend
a solution such as Ariba Spot Buy, they can give employees a simple, consumer- that consists of maverick, one-off purchases
like way to find and buy non-sourced and non-contracted goods from online by people who dont work in procurement
marketplaces such as eBay all while simultaneously enabling the procurement Source: The Hackett Group
organisation to maintain control and visibility.
A macro trend in B2B procurement is reducing the time and effort for
finding and buying items that are not sourced but still essential for employees to
effectively perform their jobs, says James Tucker, senior director at SAP Ariba.
There are often gaps in the content of what end-users require searches within
the company catalogue that dont find what youre looking for.

Insight into employee spend behaviour


Over the last year Ive interviewed over 50 companies to understand how they
manage non-sourced catalogue spend, and have found that typically over 5% and
in some cases as much as 50% of their spend falls under this category, Tucker
says. They are all looking for a solution that will simplify the process of finding
and buying non-sourced goods.
The main advantage offered by Ariba Spot Buy is that companies are able to not only
gain greater visibility of all their off-catalogue spend but are also offered an invaluable
window into the buying patterns and behaviour of their employees. It might, therefore,
help them anticipate up-coming sourcing opportunities, Tucker says.
As an example, one customer told me they were recently provided with a
new Surface Pro 3 tablet device, he says. They wanted a docking station and
an extra power cord and unfortunately when they searched their company a RETURN TO CONTENTS

27
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


catalogue they were unable to find these items. This is just one example of a spot
buy something needed that wasnt available in the company catalogue.
Ariba Spot Buy can
It turned out, however, that many other employees had the same need, and double-up as an
used Ariba Spot Buy to get these items. Employee activity provided a trigger for
the procurement team to source the accessories, Tucker says. Ariba Spot Buy important market
not only reduces the time and cost to buy these items, but it also improves the
insight and control that procurement has over what people are buying.
intelligence tool and
In the past, procurement cards have traditionally been seen as the best provide an invaluable
solution when it comes to buying one-off items. The additional data provided
by solutions such as Ariba Spot Buy, however, provides organisations with a far bargaining chip
better opportunity to carry out a more in-depth spend analysis.
Typically on a P-card youll get the total amount of the spend, the date and
who the vendor was but it doesnt tell you what youve bought, says Tucker.
You can now get that level-3 detail youll know the vendor, youll know the
cost, the taxes, the shipping, youll have all the analysis at your fingertips.

Market intelligence
With so much potential non-contracted spend, its little wonder that this is an
area which has concerned procurement organisations still battling to be the
masters of their own destiny. As Seibert explains, though, Ariba Spot Buy a
solution that Westinghouse first piloted in May 2015 can also double-up as an
important market intelligence tool and one that provides procurement with an
invaluable bargaining chip.
You can search your existing catalogues and the eBay marketplace from within
SAP Ariba for the particular item youre looking for, Siebert says. We have found
examples on the open public market on eBay for less than what were paying
under a contract. We dont complete the purchase on Ariba Spot Buy based on
the search but we use that market intelligence to go back to our supplier and say,
Whats happening here? Why are we seeing this item on the open market at a
substantially reduced rate? a RETURN TO CONTENTS

28
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

Beyond that, Westinghouse is also now in a position to use the data gleaned
from Ariba Spot Buy to be able to see the emergence of commodity patterns and
supplier patterns enabling the company to go back to their suppliers and add
items to their Ariba Procure-to-Pay solution.
For us it has been a win-win all round, says Seibert. Weve taken a very
controlled approach to who has access to Ariba Spot Buy. With Ariba Procure-to-
Pay we utilised a big-bang approach as there were many other modules and facets
of the P2P program to coordinate and deliver concurrently. With Ariba Spot Buy
we had the opportunity to take a pilot approach and thoroughly measure the user
experience. We have a small set of users across multiple sites and the feedback
has really been phenomenal. We are eagerly awaiting the EMEA versions of Ariba
Spot Buy so we can finalise our deployment approach globally.
This would give much greater visibility into one of procurements final frontiers
and bring maverick long tail spend firmly under control. n RETURN TO CONTENTS

29
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
PART VII: TAKE A WIDER VIEW OF SUPPLY
P art 4: The benefits of better
CHAIN RISK contract management
By Lindsay Clark
Part 5: Making supplier
discovery as essential
BUSINESS HAS boomed on the back of supply KEY TAKEAWAYS and easy as your daily
chains. Look, for example, at Apple, the worlds
nO  utsourcing of more functions, cup of coffee
largest company by market value, which has
globalisation of supply chains and a
risen to success in part by outsourcing the
broader awareness of reputational, legal Part 6: Shining a light on
vast majority of its manufacturing to suppliers
and ethical issues have contributed to one-off purchases
in Asia. This trend has seen companies
increasing complexity in managing supply
entrust more of their value to increasingly
chain risks. n Part 7: Take a wider view of
complex supply chains, dispersed across
n Failure to address all such key risks can supply chain risk
remote geographies around the world. As this
result in brand damage, extra costs, supply
complexity increases, so does the difficulty of
chain disruptions and even loss of revenue. Part 8: Better payment
keeping track of what can go wrong.
n Procurement needs a single, holistic view processes pay dividends
Meanwhile, there is growing awareness that
of supply chain risk across the business,
businesses face a broader set of risks. Once,
but often faces a fragmented approach from Part 9: Relaying the benefits
the focus was simply on operations, continuity
a variety of stakeholders using disparate of end-to-end procurement
and quality. Though these remain complex and
systems and conflicting or out-of-date data.
costly enough, they have been joined by ethical,
n Risks in the supply chain beyond tier-1 Part 10: How CPOs can
environmental and legal risks.
suppliers must be considered, too. tacklethe enemies of
Toby Duthie, co-founder of the Forensic
Procurement should make a board-level case technology adoption
Risk Alliance, says: All corporates should
for a more comprehensive approach to risk.
undertake appropriate due diligence of new
business partners and implement robust
[ongoing] compliance programmes. Should
they fail to do so, they risk losing out on a

30
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


lucrative contracts and suffering reputational damage in the increasingly public Companies are
sphere of business ethics.
For example, bribery legislation on both sides of the Atlantic present businesses implementing stronger
with particularly challenging legal risks. The [bribery] transaction doesnt even
need to have been carried out by your company, Duthie says. It could have been
business models that
carried out by one of your third-party suppliers. set the foundations
As a result, businesses are increasingly focused on managing their supply
base against standards far wider than price, quality and location. They are for transparency and
implementing safer and stronger business models which set the foundations for
success in the world of transparency and best practice in order to safeguard their
best practice
reputations, he says.

A net work of risks


Companies are also focused on creating policies to avoid the use of conflict
minerals, as well as the inhumane use of bonded or child labour and other
forms of modern-day slavery, dangerous work environments and environmental
sustainability practices. Paying attention to these issues across the supply chain
is not only the right thing to do, but it also pays dividends in the form of meeting
corporate social responsibility goals and expectations, thereby enhancing respect
for a companys brand.
Matt Elkington, head of enterprise risk management in the UK with advisory
firm PwC, says supply chains have become extended through global outsourcing
and offshoring. At the same time, businesses have been continually pushing for
ever greater efficiency for example, by using the lean model. The issue is,
both of these factors can come at a cost and contribute to fragility. Through
their supply chains, businesses are facing a broad gamut of risk: macroeconomic,
geopolitical, reputational and legal, Elkington says. a RETURN TO CONTENTS

31
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


This, together with the nature of global sourcing and the tiering of the supply When teams take
chains, creates complexity in developing insight into risk.
differing approaches
Mitigating all the right risks
Elkington argues that the majority of effort in mitigating supply chain risk has to risk management,
been focused on due diligence for finance, quality, delivery and key performance
indicators. Broader risks can be a bit of an afterthought, he says.
it creates a siloeffect
However, more organisations are paying attention to a greater range of and firms oftenlack a
potential risk factors such as those that might adversely affect corporate social
responsibility strategies or cause reputational damage when creating more single view ofrisk
efficient and scalable supplier on-boarding processes. We are starting to see
those get baked into the initial analysis in some companies but its by no means
across the board, Elkington says.
Neither is it a do it once and forget it exercise it clearly has to be an ongoing
process of monitoring and evaluation. Whats perhaps less obvious, however, is the
effect that such processes can have on improving suppliers behaviour. Thats
the value-added part of this the success of seeing other companies bring on
and enhance their own practices, says Michelle Albanese, manager, procurement
corporate responsibility at TD Bank Group.

Mitigation obstacles
Nick Wildgoose, global supply chain product leader with insurance firm Zurich, says
that while different teams within a buying organisation may look at risk, there can
be a tendency not to share information.
A lot of organisations will carry out a financial appraisal of suppliers, through, say
Dun & Bradstreet, and think that is supply chain risk management. But what about
legal risk or labour practice? There is a lack of joined up thinking, saysWildgoose.
When different professional teams take alternative approaches to managing
risk, it creates a silo effect that means businesses often lack a single view
of risk across the business, he says. This can create the danger that risk data a RETURN TO CONTENTS

32
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

about suppliers can be incorrect, incomplete and out-of-date without a single


team being responsible for maintaining it.

Tiers of risks
Research carried out by Zurich and the Business Continuity Institute found that
74% of organisations reported at least one instance of supply chain disruption in
the last 12 months. Half said the disruption occurred beyond the first tier in the
supply chain, while 31% said they did not analyse where the cause of the supply
chain disruption took place, according to the survey of 500 managers from across
the globe.
Not all of those disruptions occur at tier 1, which is where procurement teams
have traditionally focused, Wildgoose says.
He adds that procurement should make a board-level case for a more
comprehensive approach to risk by taking the companys most profitable product
and showing just how much profit or brand reputation can be jeopardised by
supplier failure or malpractice.
Alan Day, chairman and founder of procurement consultancy State of Flux,
says procurement itself should be more aware of the risk it itself can create. For
example, the length of a contract can have positive and negative effects on risk. All
the things that purchasing does can create risk and that tends to get overlooked.
But some supply chain systems are helping to create holistic view of risk, he says. We
[use them] to see what you need to manage the relationship, performance and risk.
Businesses are increasingly aware of the broader range of risks they face, and the
need to manage that in large-scale, global supply chains. Supported by software
tools, there are efforts to integrate supply chain risk management across the business.
The variety of stakeholders, and complexity of supply chains, mean challenges still
remain, but once they are harnessed together and their goals aligned, then the result
will be significant value-enhancement for the organisation. n RETURN TO CONTENTS

33
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
PART VIII: BETTER PAYMENT PROCESSES
Part 4: The benefits of better
PAY DIVIDENDS contract management
By Richard Edwards
Part 5: Making supplier
discovery as essential
STREAMLINING THE corporate payment and KEY TAKEAWAYS and easy as your daily
transactional process can bring manifest boosts
nP  rocure-to-pay (P2P) automation can cup of coffee
to a business in terms of efficiencies and actual
reduce costs, produce efficiency gains,
savings compared with a more labour-intensive
improve contract compliance and provide Part 6: Shining a light on
process. More than that, best-in-class procure-
additional useful data in a timely fashion. one-off purchases
to-pay (P2P) processes can help improve contract
n Invoice automation is a key component
compliance, reduce error rates and provide
for any successful P2P implementation. Part 7: Take a wider view of
additional useful data.
It brings considerably greater insight supply chain risk
Any successful P2P implementation has
into what has been bought, delivered and
to include invoice automation as a critical
is still to be paid for, as well as giving n Part 8: Better payment
component. There is growing evidence that this is
clearer visibility into such things as processes pay dividends
now being viewed as an essential foundation for
upcomingdeliveries.
procurement organisations that are increasingly
n P2P automation makes it possible to
expected to be leaner and more efficient. It is
use financial supply chain tools such Part 9: Relaying the benefits
not a matter that is dealt with only by treasury
as dynamic discounting or supply chain of end-to-end procurement
or finance.
finance, so you can optimise working
A survey published last year by Oxford
capital and support suppliers.
Economics, The Future of Procurement, found
n Better payment processes provide suppliers Part 10: How CPOs can
that procurement had undergone dramatic
with the information they need to match tacklethe enemies of
changes in recent years and a key part of
payments against invoices and increases technology adoption
this shift was down to the desire and need for
bank account data security.
automation as the function looks to better align
itself with the business as a whole. a

34
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


The Oxford Economics study involved 1,000 respondents, comprising senior
procurement executives and daily practitioners. When asked which areas they expected
The obvious
to be completely automated within two years, 70% said invoice management. But advantage of having
its not just about what gets automated its also about how. According to Oxfords
research, business networks, the Internet of Things, and other new technologies are one network for
changing day-to-day work for practitioners.
Writing for SAPs magazine The Digitalist, Chris Rauen, senior manager, financial
PO and invoice
solutions marketing, SAP Ariba, explains how a networked approach connects automation is the
procure-to-pay processes. The obvious advantage of having one network for PO
and invoice automation is the ability to run simple, Rauen reports. With this ability to run simple
approach, you can send a PO to a supplier over the network, and that supplier can
simply flip that PO into an invoice. Add to that the ability to integrate e-catalogues
on the same platform, and you extend the benefit on the front end, ensuring that
orders come from preferred suppliers at negotiated prices. All this contributes to a
comfort level that promotes touchless, straight-through processing.

Broken processes
One business that is intent on harnessing better systems to automate its P2P
processes is UK-based technology firm e2v. The transformation is being led by
head of procurement Jared Griffiths who says that a number of fundamental areas
need to be addressed before any project of this nature is undertaken.
Theres nothing worse than automating a bad process it just increases the
complexity, Griffiths says. A lot of the problems we had here were down to the fact
that people werent utilising the available tools properly. You got an awful lot of input
errors because the [cost] categorisation within the system wasnt clear, for example. If
youre not putting the right data in, then the data you got at the back end is useless.
Therein lies the great irony of any attempt to automate the payment and transactional
process: its the people who have to use it who ultimately hold the key to its success.
With that in mind, its clear training plays a key role, as Griffiths explains.
With any of this, if you train people well so that they understand the upstream
and the downstream elements and the benefits it can bring them and also the wider
business, then youre going to reap the rewards, he says.
The key is to not only get that understanding but also train them and then
document that properly so that its in a central repository. Then people can keep
going to it and keep referring to it over time. The training also needs to be a RETURN TO CONTENTS

35
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

refreshed, so that every six months its updated. If you dont do that then people
get into bad habits like taking shortcuts and you end up back at square one. STATS AND FACTS

70%
The ultimate goal, however, is to significantly reduce the amount of human
intervention at the front end of the process. If its done correctly a lot of the
transactions can be handled hands-free, says Sidney Van de Steene, senior
process manager at Belgian manufacturing group Bekaert.
The person doesnt have to be involved anymore and thats the real saving. We have The percentage of procurement executives
processes in Latin America that are still fully-manual: invoices still come in on paper, that expect invoice management to be fully
theyre then reviewed by someone and then entered into the system one-by-one. This automated within two years
Source: Oxford Economics
can take a long time and can obviously lead to delays, says Van de Steene. It also
means that there isnt the level of visibility we require. Paper-shuffling provides very
little insight into whats been bought, delivered and is now due to be paid for.

Breaking barriers, better data


With the technology now offered by the likes of SAP Ariba opening up a wealth
of opportunities for those companies looking for easy-to-use network portals to
automate their entire P2P process, the barriers to adoption that once existed have
come tumbling down.
The business case is further strengthened by the improvement in data quality
that a transformation project of this nature can bring about. A P2P process
significantly helps businesses to get data in standardised formats, says Soroosh
Saghiri, senior research fellow at the Centre for Strategic Procurement and Supply
Chain Management at Cranfield University School of Management.
One benefit is that this makes it easier to match invoices to purchase orders and
delivery notes, thereby short-circuiting lengthy and error-prone manual procedures,
Saghiri says. It also helps businesses to add more information to the overall process,
such as ASNs [advanced shipping notices, which give electronic notification of
upcoming deliveries] and order acknowledgements. So its not just about more supply
chain data, its also about better supply chain data, Saghiri says.
Spelling out these advantages is essential to alter sometimes stubborn mind-
sets across the various business functions that can be impacted by such dramatic
changes in working. Getting buy-in, not just from the supply base, but also from
internal stakeholders is clearly crucial. a RETURN TO CONTENTS

36
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


I dont think the technology is the barrier, says Saghiri. I think the barriers
tend to come internally from stakeholders who are reluctant to change because they
Technology is offering
perceive its going to be more long-winded and require more effort on their part. the business an
There is often concern about implementation costs, Saghiri adds: They dont
understand the offset can be more efficiency internally. Its very easy to change invaluable opportunity
minds when you can see the benefits that are going to happen for you. You can point
to a dramatic drop in email volume, for example, and the gains that this can bring.
to, in a sense, turn a
So platform-based automation straddling the entire P2P process would appear to balance sheet liability
be a far easier sell than some would imagine. Its not just the company automating
the process that can gain tangible results, though suppliers can also realise the into an asset
benefits. As well as enjoying a more efficient invoice process, suppliers can also track
the progress of their invoice and be confident that it will be paid accurately and on time.

Taking the pain out of payment


Not only is this increasing productivity and improving efficiency on all sides, it also
means that the technology available is offering the business an invaluable opportunity
to, in a sense, turn a balance sheet liability into an asset. How? At a time when cash is
as important as ever, it offers the possibility of using dynamic discounting (DD) and the
extension of payment terms alongside the provision of supply chain finance (SCF) all
achieved for the good of the business and helpful to the supplier, as well. But it cant
be done unless the invoice approval processes are very streamlined: its simply not
possible to put in place early-payment arrangements such as SCF or DD if the buying
company isnt able to approve payment within a few days of receiving the invoice.
Payments are easier with a good P2P system. You can handle payments electronically,
without cheques. You can issue remittance notices that allow the supplier to know
exactly which invoices are being paid. And you can keep suppliers bank account details
utterly secure. Its no longer necessary for suppliers to phone up and say, Thanks for
the 12,457 payment but which of our 32 outstanding invoices is it for?
With procurement coming under increasing pressure to maintain cost savings
while increasing efficiency, the automation of the P2P process provides a priceless
opportunity to do both as well as providing clear value to suppliers. n RETURN TO CONTENTS

37
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
PART IX: RELAYING THE BENEFITS
Part 4: The benefits of better
OF END-TO-END PROCUREMENT contract management
By Lindsay Clark
Part 5: Making supplier
discovery as essential
IT DOES not matter if you have the fastest KEY TAKEAWAYS and easy as your daily
sprinter; mess up the baton change and you
nP  rocurement processes are commonly cup of coffee
wont win the relay. This applies to world-class
built up by disparate teams with
procurement as much as it does to Olympic
differentobjectives. Part 6: Shining a light on
teams. The problem for procurement is that
n Savings developed in sourcing, one-off purchases
different legs of a suppliers journey with the
tendering and contracting can be lost
buying organisation have been built by different
if they are not built into the end-to-end Part 7: Take a wider view of
people at different times. Whats needed is
procurementprocess. supply chain risk
an end-to-end approach from the starters
n A failure to connect procure-to-pay with
gun to the finish line giving the organisation
SRM and supplier performance systems can Part 8: Better payment
complete visibility over the whole picture, from
lead to greater supply risk. processes pay dividends
source to order to pay.
n Projects to create a more coherent end-to-
Its more common, however, to see parts of the
end vision for procurement can start with
picture, but not the whole thing. Philip Brown,
any single process and take a piecemeal n Part 9: Relaying the benefits
head of purchasing projects at National Express,
approach to updating systems, so long as of end-to-end procurement
says: Some organisations have a very fractured
they stay true to the ultimate goals.
approach to procurement. Departments may
design their own processes without being aware
of the bigger picture.
Part 10: How CPOs can
To understand procurement from business
tacklethe enemies of
need, to sourcing, right though to paying suppliers
technology adoption
it helps to map out each step with the end-users,
Brown says. I have worked on these mapping a

38
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


exercises and you identify gaps between what might be good processes in themselves.
However, its often the case that each department works in a silo.
A fracturedprocurement
Typically, an end-user has a legitimate conversation with the supplier, writes process can mean
down their requirement and maybe produces a purchase order. By the time an
invoice arrives it may match the purchase order, but unless it has a specific businesses lack clear
product number you find, in many cases, the wording is different, Brown says.
The matching process in accounts payable (AP) then has to try to make sense of
visibility of financial
information that doesnt quite fit together. You are relying on [AP] to interpret the liabilities and cash flow
invoice, without knowing any of the earlier conversations, and decide whether its
right to pay the supplier.

Fractured processes obscure visibility


Brown says that beyond the obvious risks of fraud, price escalation and mistakes,
a fractured procurement process means businesses can have no clear visibility of
financial liabilities and cash flow with suppliers.
Moreover, with different solutions such as spend analysis tools, contract
management tools and payment systems that dont work well together, if at all,
its typically necessary to have to copy over and reformat data files or to manually
rekey data. That causes delay and introduces the risk of errors.
Whatever systems a company uses, the purchasing function should own the
source-to-pay process, instil a policy of no PO, no payment with suppliers, and
ensure interactions with suppliers are recorded properly. It need not cost a lot for
procurement to gain more influence over the process and more opportunities for
strategic activities, Brown says.
The immediate benefit is procurement taking ownership of important
processes. Simply understanding payment terms with all suppliers can give you
more flexibility in negotiations and you will understand end-users and start to
influence their behaviour, he says.

Bits and pieces


But Browns experience of fractured procurement processes is not uncommon. SAP
Ariba sees a number of common trends as they talk to businesses about their
procurement processes. a RETURN TO CONTENTS

39
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


The vast majority of businesses have done some process automation but most
likely its in bits and pieces. In a lot of circumstances those projects are done by
Systems able to
different teams with different objectives, and theyre not looking at the entirety of the extract, share and
end-to-end process, says Emily Rakowski, global vice president audience marketing
and demand management with SAP Ariba. integrate data
Where there is an effort to integrate procurement processes, it is often limited in
scope, she says. For strategic sourcing, you might see some locations band together
give the function
to do some automation, but only leverage a small portion of spend. Typically, they do oversight of the whole
an evaluation based on a very specific set of requirements, but they dont look at the
big goals and the big picture. procurement process
The problem is that if sourcing and contracting, for example, are not linked to the
day-to-day procurement systems, the procurement department will never accrue the
savings they expect from the outset, Rakowski says. Even with a well-sourced category,
savings can easily leak out from not having its management fully implemented.
If youre not sure how to implement the contract, then you are leaving savings on the
table. You need to understand how it can be executed and make sure the organisation
knows about it and is using it, she says.

Integrating technologies, data integrity


Vendor information, contract details and volume discounts all need to be at the
fingertips of whoever is involved with purchasing or speaks to suppliers, she says. All
that needs to be instantiated in the purchasing system or you are not going to get the
benefit of what you put in the contract, Rakowski says.
Integrating technologies that share data helps streamline processes and workflows,
with each step flowing seamlessly into the next with no loss of data.
PA Consulting procurement expert Natalie Henfrey says businesses will often have
various systems managing different parts of the procurement process. They tend to
have a patchwork, but it is not always a disaster.
She says there are systems on the market able to extract, share and integrate data
from different business applications to give procurement oversight of the whole process.
Joining up procurement processes in this way not only helps realise savings, it can avoid
risks, she says. If you dont have access to this kind of information you might not see
risks and be able to react before it happens. a RETURN TO CONTENTS

40
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


For example, a supplier may have had its payment terms extended with no regard for
the size of the vendor, its financial wellbeing or how vital its products are to the buyers
An end-to-end
business. You may not see the triggers which tell you if the supplier has a problem and approach to and
you need to talk to them, says Henfry.
interaction with
Getting stakeholders on board suppliers can remove
To gain the benefits of an end-to-end procurement system, it is essential to ensure
that stakeholders are on board from the beginning, says Adil Al Mulla, vice president,
much of the manual
procurement and supply management, Etihad Airways. process and labour-
With stakeholders, the communication is very important. There should be a plan
and working groups. Their involvement should help define the KPIs and the wider intensive copying
implementation. Every department working with suppliers needs to understand how it
will operate and the reason behind it.
of data
Once in place, an end-to-end approach to procurement and interaction with
suppliers can remove much of the manual process and labour-intensive copying of
data, helping procurement free up time for more strategic activity and adding more
value to thebusiness.
But in doing so, procurement organisations need to make sure their people are
ready for the transition, Al Mulla says. It is very important that people are developed
and coached to equip them to understand how to do more strategic work. It means
procurement can get involved at budget time, rather than at the stage of tendering.
They have the information to help them understand whether the business should be
tender, single source, or form a joint venture with a third party.
The move towards a more strategic role for procurement does not need to start
with ripping out and replacing the procurement systems, however, says SAP Aribas
Rakowski. Components, such as sourcing, or end-user catalogues, can be swapped in
at the right time, so long as there is an eye on the over-arching vision and finish line. It
can be a gradual journey, not a sprint. n RETURN TO CONTENTS

41
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

CONTENTS
Part 1: How governance gets
procurement fit for the future

Part 2: Speak the language


of business to engage
stakeholders

Part 3: Specifying simplified


sourcing
PART X: HOW CPOs CAN TACKLE THE
Part 4: The benefits of better
ENEMIES OF TECHNOLOGY ADOPTION contract management
By Michele Sarko, chief design officer at SAP Ariba
Part 5: Making supplier
discovery as essential
PROCUREMENT TECHNOLOGY has KEY TAKEAWAYS and easy as your daily
the potential to radically transform your
n T echnology adoption can help drive cup of coffee
procurement organisation. But technology
procurement transformation, and is a critical
availability and technology adoption are not the
strategic goal for procurement organisations. Part 6: Shining a light on
same thing. You may covet or even own the
n E nterprise software no longer has to be one-off purchases
most sophisticated, space-age pair of running
complex. Engage the right stakeholders at the
shoes on the market. But if you never put them
start of the evaluation process to look for ways Part 7: Take a wider view of
on, lace them up, and get moving, they wont
that software can reduce complexity. Invite supply chain risk
help you get in shape. CPOs may want their
them to test the usability of potential systems
teams to be less mired in administrative tasks,
and participate in the purchase decision. Part 8: Better payment
more invested in strategic collaboration with
n Technology adoption gives procurement the processes pay dividends
suppliers, and more in tune with the needs
opportunity to not just retain control, but
of the lines of business. Having the right
to gain greater control while empowering
technology wont help them do any of those
users. Technology can make your policies Part 9: Relaying the benefits
things. They have to use it, which is not as
easier to learn, follow, and even re-invent. of end-to-end procurement
simple as it sounds.
nA  complex user experience can sabotage
Before you think about undergoing a
technology adoption by discouraging users
procurement transformation, be prepared to
from engaging with the software in the way n Part 10: How CPOs can
tackle the enemies of technology adoption.
it was intended to be used. Look for the tacklethe enemies of
Enemy #1: Fear hallmarks of a simple user experience technology adoption
Fear makes it difficult to adopt new procurement such as mobile features, community support,
technology. Fear of enterprise software. Fear a guided buying, and intuitive workflows.

42
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


of having to re-train people. Fear of making a purchasing decision, only to find that
nobody uses or likes the new solution.
We operate in a
To combat these fears, understand that the payoffs of greater technology adoption Software-as-a-Service
are tangible. Edward Cone of Oxford Economics, referring to Oxfords research on
the future of procurement, writes: Our surveys indicate that technology adoption world in which
is linked to superior financial performance. Companies with higher rates of growth
and fatter profit margins tend to be more aggressive in their use of technology.
enterprise technology
[Procurement] execs at high-profit firms are more likely to emphasise the importance gets easier to use with
of business networks, the Internet of Things andmobile.
Plus, enterprise software no longer has to be complex. We live and operate in a every new release
Software-as-a-Service (SaaS) world, in which enterprise technology gets easier to
use with every new release and the release cycle is frequent. At SAP Ariba, where
Im the chief design officer, we talk about a total user experience thats consumer-
simple, business-strong.
Even if youre just beginning to consider adopting new technology, dont limit
the decision-making process to a select few stakeholders. Modern source-to-
pay solutions will benefit colleagues far beyond your department, so invite those
stakeholders to the table from the beginning: finance, IT, end users from the lines
of business, key suppliers. Solutions such as SAP Ariba are meant to eliminate
fragmented processes, so dont fragment the evaluation process. Let users test
it and tell you whether they like it, so you can get validation and buy-in from your
organisation up front and make a purchase decision with confidence.

Enemy #2: Control


Inflexibility can hamper technology adoption. Until recently, control over software
decisions and usage traditionally belonged to a handful of the highest-ranking
people in the company. As software becomes easier to use, more people have
access to it and more people can use it, which organically shifts the pendulum of
control from the few to the many. The enemy here isnt so much loss of control,
as it is holding on too tightly to control. a RETURN TO CONTENTS

43
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity


To combat inflexibility, procurement organisations can realise that technology adoption
gives procurement the opportunity to not just retain control, but to gain greater control
Making solutions
while giving users a sense of knowledge and freedom. Consider this: technology can intuitive, with no
make your policies easier to learn, follow, rethink and re-invent. With the demographic
changes of the workforce, Millennials are your users. And younger generations that grew training required,
up with technology have much less tolerance for complicated products and learning
curves. Youll be more successful if they want to use your software than if you force it
encourages users to
on them. When people enjoy doing something, they learn how to do it naturally. do things the right
And all that goes along with getting users to follow policy. CPOs are recognising
that they mustnt be seen as gatekeepers and controllers in order to get people way your way
to go along with their policies. They have to make their policies very doable and
attainable. Making solutions intuitive, with no training required, encourages users
to do things the right way your way.
Asad Zaidi, director of procurement and performance improvement at the Al-
Futtaim Automotive Group comments, SAP Ariba solutions offer flexibility and
ease of use while still supporting robust policies. We were able to emphasise
transparency and fairness, which is very much appreciated by our vendors.
At the same time, perhaps your approach to rules and regulations needs to be
reinvented. Youre not going to send users to read a 20-page document. The key is
to set up your procurement system with the policies built-in, your catalogues with
category-based approval thresholds, and your sourcing event workflow so that no
steps are skipped. With your internal rules built into your system, your end users
can get their jobs done, and the procurement and finance people can have the
oversight and control they need.

Enemy #3: Complexity


A complex user experience can sabotage technology adoption. User experience(UX)
encompasses every touchpoint that a person has with your procurement organisation.
Your training materials, your policies, your people, and your software are all
touchpoints. You can address many of the fear and control issues discussed a RETURN TO CONTENTS

44
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

here by modernising your technology users experience. Even so, complexity can
still be a problem if you, as the technology decision-maker, dont think about your
software from the users perspective.
When users are faced with complex technology, they bypass the system to accomplish
their goal, then figure out a workaround to get their data back into the system. They
spend more time on tasks without ever knowing if they were successful in completing
them. And they may even feel inept. When offered a simple, friendly and delightful user
experience, employees enjoy the benefits of saving time and achieving their goals. They
feel smart, encouraged, and eager to engage with the software.
Heres a deeper dive into how to recognise simplicity in procurement software.
Mobile-first, global-first mindset: Let users work everywhere, on any device.
Dont expect a user thats primarily in the field to use a laptop. Think about
the various roles of your users, the tasks they need to accomplish, and the
places they may be when they need to get their job done.
Intuitive workflow processes: Dont make your users wonder if their work
is being saved, if your system will time them out, or if theyve failed or
succeeded. Make sure your workflow steps are designed and labeled with
the user not the backend system in mind.
Personalised for the individual user: A category manager has different needs
than an occasional user from marketing. User experience is role-specific,
so your software provider must understand each user, know their goals, and
provide an experience thats customised and intuitive for them.
Validation and feedback: Users of corporate technology want to know whats
in it for them how the technology makes their life easier. They want to
see evidence of their successes early on in their process, and they want to
feel that the technology has helped them achieve their goals not hindered
them. Zaidi comments, Change management was essential. Its key that
both internal employees and external suppliers understand the benefits of a
closed-loop value chain. They need to know whats in it for them. a RETURN TO CONTENTS

45
MAKING PROCUREMENT SIMPLE
Exploring how procurement teams can use technology and skills to cut through process complexity and embrace simplicity

Flexible, guided buying: With an ecommerce site such as Amazon, you know
exactly what to do at the very beginning of the buying process, and you
feel confident in your ability to complete your purchase. Business buying
must be consumer-simple. Look for software features such as guided
buying and off-catalogue purchasing, which give the end users freedom and
independence while allowing procurement excellent control over processes
and vendor management.
Community learning: Sourcing and procurement technology can provide
frictionless access to community-based insights, where users learn from
each other within the same platform they already use. Instead of going
off-line, your users can stay focused and on task while tapping into the
expertise of others in their industry or role around the world. Plus, the sense
of camaraderie they get by learning from their community sure beats looking
things up in manuals and training materials.

Drive technology adoption by driving simplicity. With more users on a single,


simple source-to-pay system, the procurement organisation at large reaps the
benefits of streamlined end-to-end processes, better data and visibility, and
greater control. If we make procurement systems and policies easier to use,
then not just the CPO but all the end users will adopt them morereadily. n RETURN TO CONTENTS

ABOUT OUR PARTNER


SAP Ariba is the marketplace for collaborative business processes with
digital business, creating frictionless an open technology platform. More
exchanges between millions of buyers than twomillion companies use our
and suppliers across the entire solutions to connect and collaborate
source-to-pay process. Our market- around nearly one trillion US dollars in
leading solutions enable companies commerce on an annual basis.
to simplify collaboration with their
trading partners, make smarter W: www.ariba.com
business decisions and extend their T: + 1 866-772-7422

46