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ManageMent
www.us-
tech.com Driving Successful Procurement Technology Initiatives By James Thomas, Manager-Strategic Marketing, Zycus
management is a good thing for a corporation. It is also relatively easy to per-
I
suade corporate executives to buy in- to the idea. After all, what corporate leader would not jump at the chance to save millions — sometimes billions — in unnecessary spending. However, an all-too-common
problem occurs once an organization buys into the idea of implementing procurement technology such as spend analysis, e-sourcing and sup- plier management. And it is one that is critical to its over-all success. Once the technology is imple-
mented, reality sets in and many are faced with poor adoption levels and negligible ROI. This is a typical oc- currence that tends to happen when management fails to make it a re- quirement for business users to leverage the solution and worse, neg- lects to convey the business benefits that can be realized. For procurement leaders in-
t is easy for an ambitious procure- ment leader to decide that enter- prise spend and procurement
volved in areas such as profit and loss (P+L), spend decision, supplier and/or budget management, winning genuine adoption and support from spend stakeholders is far and away their greatest challenge. A recent study was conducted of 600 procure- ment and supply management pro- fessionals representing an estimated $370 billion or more worth of collec- tive spending power. It concluded that there are specific and proven tactics and strategies that are most effective for persuading people in cor- porate enterprises to adopt and use new processes and technologies.
Benchmark Indicators According to the study, there
are three benchmark indicators for achieving both corporate and cultur- al adoption of procurement technolo- gy which include:
l Stakeholder compliance to both supply contracts and preferred pro-
cure-to-pay (P2P) process. l
both strategic sourcing and supplier performance management processes.
Active stakeholder participation in l Procurement technology adoption,
use, and utilization. As the procurement function
continues to transition from a tacti- cal, cost-saving entity to one that has a major role in organizational strate- gy, so does the need to standardize and accelerate processes and over- come the human limitations that can occur when operating in a highly complex, global economy. But invest- ing in technology alone is not enough as careful attention needs to be made to ensure successful change manage- ment. Let’s face it, introducing new technology and processes are never easy and this is especially true when it comes to procurement functions and personnel, as both are often set in their ways. Lack of compliance with enter-
prise contracts and processes, re- duced stakeholder participation, and non-adoption of procurement tech- nology can lead to several detrimen- tal effects ranging from missing out on volume discounts and/or rebates from your preferred suppliers to an inability to achieve ROI from exist- ing procurement technology like con- tract management and/or e-sourcing tools. This not only leads to manual and tedious methods that deprives procurement of the time it needs to focus on more strategic activities, but it also leads to loss of savings oppor- tunities which can directly affect the organizational bottom-line.
Driving Savings Stakeholder compliance, whe ther
compulsory or voluntary, bridges the rather large gap between the cost sav- ings that get encoded into strategic supply contracts and spending processes, as well as the cost savings that actually materialize on a compa- ny’s profit line. Compliance can come in two forms — adherence to contracts such as buying from preferred contact- ed suppliers, or adherence to process, such as adopting and using the pre- ferred, lowest-cost buying and pay- ment processes. This compliance can result in significant cost savings from procurement activities. It can also drive streamlined, repeatable process- es that free up procurement profes- sionals and allow them to focus on more strategic activities. According to the recent study,
doubling contract compliance may, over time, result in a six-fold increase in percentage cost savings from an or- ganization’s spend management ac- tivities. Despite the value that compli- ance can bring to the procurement process, the challenge is to under- stand what tactics work to enforce it. According to the best-in-class compa- nies — those with compliance rates at 70 percent or above —three out of five (60 percent) felt that monitoring and reporting was the most effective tactic to foster a culture of compliance. However, simply favoring this
tactic is no guarantee that it will de- liver the intended results. The ability to monitor and report on compliance is heavily tied to technology adop- tion, as it enables metrics such as off- contract spending, contract utiliza- tion, and contract performance relat- ed to terms to be tracked easily, con- sistently, and accurately right down to a specific department and/or an in- dividual spender. In fact, the recent study found that for all of the compa- nies that favored the “monitor and report” tactic for driving contract compliance, there was a dramatic 44- point difference in reported contract compliance rates between companies with high adoption and use of con- tract management (CM) technology and those with low adoption and use. Interestingly, this does not restrict itself to contract management tech- nologies either, as nearly half (49 percent) of the companies with high contract-compliance also reported high adoption and use rates for spend analysis technology as well.
Creating a Business Case Another important tactic that
can be utilized to drive compliance is the ability to create a business case and communicate the benefits in a tangible, verifiable manner; such as mentioning that you have seen an X percent increase in savings in a par- ticular category where the contract compliance rates increased by Y per- cent. However, this requires that the procurement professional is able to successfully market the benefits and value of any change in process or in- troduction of new technology. While creating a business case
and then combining it with high adoption of supporting procurement technology and monitoring can make a powerful formula for obtaining compliance to spend management contracts and preferred processes, they are not the end game when it comes to achieving a corporate cul- ture change that truly embraces and buys into enterprise spend manage- ment. Indeed, few procurement lead- ers will tell you they wish to spend the rest of their careers policing peo- ples’ behavior. On the contrary, what they really want is to embed best spend management processes and practices into their enterprises and move on to more important, value- adding and corporate performance- enhancing work, such as supporting innovation and new product intro- duction. The key to getting there is encouraging active stakeholder par- ticipation in strategic sourcing and spend management processes and stakeholder ownership of spend man-
agement decision making. Contact: Zycus, 103 Carnegie
Center, Suite 117, Princeton, NJ 08540 % 609-799-5664 E-mail:
james.thomas@
zycus.com Web:
www.zycus.com r
December, 2011
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