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ManageMent
www.us-tech.com By James Thomas, Strategic Marketing Manager, Zycus
ecently, I was discussing how important compulsory and/or voluntary stakeholder compli-
Active Participation The key to success is to encourage
ance is to achieving successful pro- curement technology adoption. After all, compliance bridges the rather large gap between the cost savings that get encoded into strategic supply contracts and spending processes and the cost savings that actually materi- alize on a company's profit line. Com- pliance — whether in the way of ad- herence to contracts such as buying from preferred contacted suppliers or adherence to process such as adopting and using the preferred, lowest-cost buying and payment processes — can result in significant cost savings from procurement activities. Today, procurement leaders aim
to achieve much more than just com- plete compliance, by adding value to the organization at a more strategic level. As a result, organizations now realize that procurement teams need to be an integral part of the activities that drive innovation, manage supply chain risk and optimize the supply chain process.
active stakeholder participation in an organization's strategic sourcing and spend management processes, and to create stakeholder ownership in spend management decision making. Going all the way back to the early days of en- terprise spend management in the 1980s and 90s, the popular wisdom has always been that when stakeholders actively participate in the process — from drafting the requirements, evalu- ating and selecting suppliers, design- ing the processes that make their work easier, and continuously measuring and managing both supplier and tech- nology performance — they are more likely to voluntarily abide by the deci- sions that ensued. In essence, there is a direct corre-
lation between the level of compliance and success of new technology and process implementations and the par- ticipation, collaboration and sheer number of participating stakeholders. Ensuring active participation also helps to identify organizational pro- curement "champions", or members of
the team who are eager to drive these processes throughout the enterprise. In fact, a recent study of 600 pro-
curement and supply management pro- fessionals — representing an estimated $370 billion or more worth of collective spending power — found that compa- nies who placed in the top performance tier for cost savings attributable to spend management (30 percent or greater) earned nearly an "8" on a 0-10 scale for cross-functional participation in spend management activities com- pared to a "4" for companies falling in- to the lowest cost savings performance tier. In the meantime, companies re- porting the highest participation rates in cross-functional strategic sourcing processes also reported contract com- pliance rates that are 3.1 times greater than companies with the weakest cross-functional participation. The implication is that organiza-
tions who win active and enthusiastic stakeholder participation in decision- making have an opportunity to spend much less time and resources on com- pulsory management of stakeholder compliance. For example, exceptions- only monitoring and alert system might replace more burdensome, de- tailed and frequent tracking of indi- vidual behaviors without any loss to compliance. So while achieving stakeholder
sourcing participation may seem ex- tremely obvious and necessary, it is actually anything but. According to the study, winning strong and consis- tent stakeholder participation re- mains a challenge for many enterpris- es with nearly half of study partici- pants grading participation at 5 or lower on a 0-10 rating scale. So the question becomes not how
important stakeholder participation is, but rather what are the tactics that need to be employed to achieve success- ful involvement? The tactic voted most effective by companies that do well with promoting stakeholder participation in strategic sourcing is to "communicate both the benefits and the business case." However, when developing the business case, it is critical that it is built using verifiable, tangible facts such as how reducing maverick spending by "X percent" will increase calculated sav- ings by "Y percent" etc. There is a strong relationship be-
tween technology adoption and cross- functional participation for eSourcing as well. Companies achieving the highest rates of cross-functional par- ticipation and collaboration in sourc- ing activities are nearly three times more likely than those achieving in- termediate participation rates. They are also 6.8 times more likely than those achieving the lowest rates to al- so have high adoption rates for eS- ourcing technology. This is because fully functional eSourcing technology is designed to support the most effec- tive tactics to promote stakeholder participation in strategic sourcing processes — as determined by the
March, 2012
A Path to Voluntary Procurement Compliance R
study — instead of being misjudged as a device focused solely on driving down supplier pricing.
Opinions Count Another way to encourage partic-
ipation is to ensure people's opinions count heavily. Considered the third most popular tactic for promoting par- ticipation among high performers, stakeholders should be given a struc- tured mechanism for registering their opinions, reviewing others', and un- derstanding clearly how a sourcing team's collective set of opinions influ- ences a sourcing event's outcome. A sourcing solution provides a platform for stakeholders to collaborate on drafting comprehensive request for proposals (RFPs) and request for quotes (RFQs) with input from all per- spectives. In the same manner, evalu- ation of suppliers can, and should, happen by multiple stakeholders us- ing a single platform. Similarly a contract management
platform that brings together legal and procurement departments in a collabo- rative way is also valuable. For exam- ple, using workflow to drive contract authoring ensures that not only the best contracts are created in terms of covering all necessary clauses and caveats, but also ensures that any devi- ation from contracted terms is moni- tored and compliance is adhered to. But simply deploying technology illustrates that driving technology adoption and use is a must. For example, companies who favor the number one tactic of "communicating benefits and business case" around strategic sourcing in con- cert with high adoption and the use of eSourcing, scored cross-functional par- ticipation that averaged three points higher than the companies where eS- ourcing was poorly adopted.
Stakeholder Participation So unless a department head or
procurement leader wants to spend the next several decades closely moni- toring and frequently reporting on compliance, it is critical that they pro- mote stakeholder participation at least as assiduously as they focus on compelling compliance. Building a strong business case with tangible verifiable benefits and implementing technology ensures that steps are tak- en for its adoption. It also provides a platform that makes it easy for stake- holders to participate in your process improvement decision making efforts. Over time, it also evolves the corpo- rate culture to one where all parties routinely participate in improving procurement and sourcing processes and efforts are made to measure com- pliance. This allows leaders to focus on activities that are more strategic
and value-added to the business. Contact: Zycus, 103 Carnegie
Center, Suite 117, Princeton, NJ 08540 % 609-799-5664 E-mail:
james.thomas@
zycus.com Web:
www.zycus.com r
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