Very often it is difficult to assess the current state of procurement efficiency, let alone what potential business value and savings could lie ahead: What is the benchmark? What is the most suitable assessment methodology? We might think we know where we want to be, but we need to ensure the vision is achievable and that we know how to make it happen.
Why embark on an eprocurement transformation journey?
Before you start on your transformation journey, it is important to understand why you want to change. So the first question to answer is: What are your goals? In my experience, the main reasons that procurement leaders launch a change initiative is to drive improvements in three areas—quality, efficiency, and effectiveness—and here’s why:
Quality : Having a focus on quality and being outcome driven leads to less defects, errors and exceptions. These benefits may be difficult to compare to industry benchmarks because of differing assessment methodologies, but examples of improved KPIs include internal stakeholder satisfaction, staff retention, supplier satisfaction (improved relationships) and improved results from risk and compliance audits.
Efficiency: The drive towards increased efficiency means shorter cycle times, shorter waiting periods, increased automation and lower process cost. Improved KPI examples include reduction in PO process times, increased automation rate, reduced operating cost vs. managed spend, and lower cost per PO lines.
Savings and spend compliance have always been part of the procurement agenda, but in the last few years I have seen a growing interest in measuring efficiency and an increased focus on automation. One reason for this is that there are better solutions on the market to enable automation. Another reason is that the consolidation into shared service centers (in-house or outsourced) has streamlined the operational costs and made it possible to realize savings with process automation.
Effectiveness: Being effective comes down to having a lower total cost of ownership (TCO). This means increasing procurement’s contribution as a key business function and demonstrating your ability to achieve improved value for money. Increasing efficiency can help fund effectiveness while increased automation of operational processes frees up your resources to be reinvested, which will drive more savings. Examples of related KPIs are improved PO and spend compliance and increased cost savings as a percentage of managed spend.
This list is not mutually exclusive and is certainly not exhaustive, but I think these areas represent the most important reasons to embark on a procurement transformation. The moment when such a program becomes financially feasible and will reap the benefits depends on many factors.
It’s important to confirm whether a change initiative will help you to be better, faster or cheaper—and remember that any change comes with a cost of adoption and cost of implementation. So if you can´t justify your initiative with measurable improvements in at least one of the three aforementioned areas then maybe you shouldn´t change at all. However, if you have reached the “tipping point” where benefits outweigh investment, delay only incurs needless costs. Using the flexible, piece-by-piece principles of Lego®– IT concepts, the investment might not be as big as you might think.
What is the best way to orchestrate the change?
I strongly recommend being clear and specific; in fact, use SMART objectives (specific, measurable, achievable, relevant, time bound). I am still surprised how often I see unclear goals and objectives set by prospective clients. Don’t be vague with your targets because this will mean that you are unlikely to reach optimal efficiency with your transformation.
Start by asking yourself “why” and “how” the transformation should take place. Stakeholders want to hear your justification, including your direction and plans. They want to listen and understand, to ask questions and raise concerns. They want to know why they are supposed to change and how the change will happen. Last but not least, they want to know what is in it for them!
Set up a program to implement the changes using a wave-based approach. Change management activities are critical to implement the transformation properly. This applies to both the tools to increase automation levels and for the processes intrinsic in the eprocurement solution.
Do not forget your suppliers. Getting your most important suppliers on board early is an important success factor. Each wave of user roll-out should be accompanied by a wave of supplier enablement. An empty shop turns your casual users away and it is better to prioritize process compliance first and then gradually shift focus to contract compliance as your sourcing activities bear fruit and you can start to consolidate the supplier base.
Transformation requires discipline and perseverance. A purchasing transformation program is not a short sprint—it is a marathon. Typically, such projects will span at least six months to three years, depending on the scope of your transformation program. One of the hardest aspects is the ability to prioritize during this time. Fortunately, you should be able to call upon the experience and expertise of your eprocurement partner to support you.
If you consider these ways to orchestrate your transformation journey you will be better able to become more efficient and effective while delivering higher quality, ultimately ensuring that your transformation program brings positive business value.
This is the third, and final blog post in this series about selecting a suitable procurement solution. In the first part, “The Buyer’s Guide to SaaS Solutions” I talked about the type of ‘reading between the lines’ that is necessary when considering solutions and providers and the precautions to take. In the next, “Replace or reinvest? Three considerations when upgrading your procurement system” I questioned whether it always makes sense to commit to a full end-to-end eprocurement package.
I hope you found these blogs interesting and informative. I welcome your thoughts on the subject.