There is a big gap in the market between companies with high performing procurement operations and those who underperform. Some companies report results such as 10% annual cost savings in purchasing, 50% productivity gains, or 30% process cost reduction while others gain no business benefits. So what marks the difference between success and failure in indirect procurement?
The answer to this is how they manage their buying channels. Optimizing buying channels drives increased usage, compliance and productivity. It requires some work, good organization, and experience to succeed in optimizing buying channels, and not just the online catalogs.
1. Take aim
It is important to first take a step back. What is it that you are trying to achieve?
Based on over 15 years of experience in the procurement space, my strong belief is that you should emphasize maximizing the business value and efficiency of your whole organization in terms of indirect spend. This will help you achieve high cost savings as well as high spend and process compliance. Here, collaboration with key stakeholders and understanding their real needs is crucial. If you need to make a trade-off between compliance and overall business effectiveness then select the latter.
It’s important to manage communication and engagement with employees to understand their needs and raise awareness of the optimal buying channels and their benefits. A good way to do this is to utilize integrated online feedback forms in order to ensure continuous improvement of processes and content.
A center-led indirect procurement organization with clearly separated roles for operational, tactical, and strategic procurement is a winning concept. The operational team will be responsible for driving the optimization of the buying channels, which will lead to increased purchase order automation and higher compliance. The tactical team will manage the medium value (typically € 1,500 to €150,000) non-catalog requisitions through a spot buy tool (three bids and a buy) to determine fair market value and supply urgent business needs.
To achieve success, the operational team has to collaborate with the strategic team in your organization to optimize the buying channels by analyzing repetitive non-catalog purchases and content. This is to determine opportunities where you can increase no-touch orders and improve the end-user buying experience. All your category managers should have eProcurement related KPIs and work with catalog scorecards for you to secure the best possible end-user experience and high compliance to frame agreements. It’s definitely a team effort.
The strategic sourcing team has an important task to contract suppliers and define a standard set of preferred items for commodities such as office supplies, IT products, trainings, spare parts, work clothes, catering, protective wear, and marketing material. These are great examples of products and services that can be ordered through catalogs and eForms that are used to order configurable items. Categories such as temporary labor, facility management, transportation services, one-time events, complex projects, and other non-standard products and services make up the majority of the indirect spend volume. Instead of being stuck with a large amount of inefficiently managed free-text requisitions for these categories, there are two much better buying channels.
The first buying channel or “speed option” is what we at Capgemini IBX Business Network refer to as the “price check” buying channel. Users find it easy and flexible to use. It involves a structured dialog between the end-user and one preferred supplier. It has the advantage that it provides correct prices on the order even for complex products and services and it provides an efficient and auditable process when complex configurations need to be confirmed by the supplier.
The second buying channel or “savings options” is the spot-buy process that lets you improve efficiency across your tactical procurement function and boost savings by leveraging competitive pricing. A spot-buying solution will empower your tactical procurement team – ensuring efficient distribution of workload, real-time SLA performance measuring and that the necessary data is collected from the user while guiding them to avoid sending non-catalog requisitions for items that exist in the catalog.
What makes top performing organizations stand out from their peers? Content management.
According to the Hacket Group, top performers drive 43% of indirect line items “through an e-catalog” compared with 20% of the peer group in the benchmark. When looking at overall indirect requisitions, “support by catalog content versus free text,” top performers report 54% spend coverage compared with 38% for the peer group. This tells us that catalog content is important to drive user adoption, organization effectiveness, and increase business value.
The operational team should proactively examine content to determine opportunities to increase no touch orders and improve end-user buying experience, while category managers actively work on moving spend and volumes from non-catalog to catalog procurement flows. This is done by including content requirements in RFPs and negotiating catalogs for repetitive non-catalog buys where category characteristics make it possible.
You have to remember the importance of a strong content management solution. The ability to manage and easily configure catalogs to enable users to buy from the appropriate suppliers, usually chosen by the procurement team, is vital. Procurement and Finance may also decide to control which goods and services are available to users within each catalog. This again makes flexible configuration a key element of usability for procurement and the ability to adjust to changes to organizational structure. Automated catalog scorecards to measure catalog quality, alarms for contract deviation, and smart enrichment functionality can provide further assistance to achieve good content management.
If you take the time and effort to fully optimize your organization’s buying channels, you are guaranteed to benefit from increased usage, compliance and productivity. In the end, the result will be cost savings and efficiency improvements across your organization. A potential 10% reduction in costs is a great achievement for any organization.