Procurement Automation. Key Trends and Hot Topics

Transcription

1 Procurement Automation Key Trends and Hot Topics

2 Contents Introduction Top Trends 1. The Changing Face of Procurement 2. End-to-End Procurement Plugging the Gaps 3. A Growing Focus on Know thy Supplier 4. New Buyer Initiatives to be Easy to do Business With 5. Cloud-Based Procurement is Here to Stay and for Good Reason 6. Blurring the Line Between Software and Services 7. A New CPO Mantra: Think Strategically, Act Tactically 8. A Growing Recognition of the True Cost of Shelfware 9. A Better Understanding of the Limitations (even Dangers) of Simple Self-Service Shopping 10. The Importance and Value of Integration 13 Summary 14 About PROACTIS Introduction These are not the macroeconomic trends you ll hear from the large consulting companies, nor are they the who s going to buy who predictions from the technology analysts. These are the trends that PROACTIS is seeing and hearing in our customer base, and in the companies we re out there talking with every day. We are participating in some of these trends and we are even leading the charge on a couple. Some are not really even trends yet some are just growing topics of discussion. But these are all things real procurement professionals and real finance managers are thinking about and doing today as they move forward in their quest for world class Spend Control. 2

3 Top Trends The Changing Face of Procurement End-to-End Procurement Plugging the Gaps A Growing Focus on Know thy Supplier New Buyer Initiatives to be Easy to do Business With Cloud-Based Procurement is Here to Stay and for Good Reason Blurring the Line Between Software and Services A New CPO Mantra: Think Strategically, Act Tactically A Growing Recognition of the True Cost of Shelfware A Better Understanding of the Limitations (even Dangers) of Simple Self-Service Shopping The Importance and Value of Integration 3

4 1. The Changing Face of Procurement Procurement is rapidly moving away from what was once a personality-centric function where senior procurement professionals did a lot of the work themselves, did a lot of the work manually, and did a lot of the work using mainly the knowledge they had amassed from years in the profession. But much has changed over the last few years. Today, the senior procurement leader is becoming much more focused on establishing standardised processes that enable and enforce good procurement practices, and on deploying technology tools that guide people on their team and throughout the wider organisation through those processes. The pressures causing this change are numerous, including: A shortage of procurement capacity makes it imperative that the team be freed up from routine administrative work and be given the tools to do more with less in critical value-added functions like strategic sourcing, beyond just the top few categories to lower profile or higher risk categories C-level executives want on-time procurement meaning faster fulfilment of the organisation s needs for any and all categories while obtaining them in a best-value manner and in compliance with corporate policies Younger tech-savvy staff coming into the procurement profession expect access to technology tools and information they need to do their jobs. And they need it, because they simply have not yet built up the level of talent (i.e. experience and knowledge) to do it on their own Staff turnover in Procurement and throughout the workforce exacerbates all these issues process speed, compliance, capacity and talent. When an experienced, progressive Procurement staff member leaves, it can disrupt current processes or even threaten business continuity. Procurement leaders need to be able to put new team members to work quickly with the confidence they will perform their functions correctly. The organisation needs to bring new employees into the purchasing process as soon as they come on board. Addressing these issues is only feasible with well-constructed technology tools that guide people through the right procedure in a fast, efficient and consistent manner. More mature organisations are recognising that to address these need for speed and capacity issues, they must enable people throughout the organisation to do effective procurement not just the Procurement team. This again takes technology frameworks along with well-thought-out policies and procedures. Some of the tools organisations are putting in place to make this a reality include: Greater supplier content available within the P2P system so people can quickly find and purchase catalogue-based items from qualified suppliers on their own Quick Quote processes built into the P2P system that enable departments to request and compare quotes from pre-qualified suppliers for routine services Pre-established step-by-step sourcing process and RFX templates that enable operational departments to largely self-perform even more strategic purchases in certain categories in a standardised, transparent manner that effectively involves Procurement at the right points Forward-looking procurement leaders are clearly focused on enabling a more standardised, collaborative and efficient approach to the entire process of purchasing goods and services within the Procurement team, throughout the organisation, and across a wider range of categories. Those taking this approach are seeing a steady increase in the percentage of Spend Under Management and the benefits that come with it. 4

5 2. End-to-End Procurement Plugging the Gaps Driven by the changing expectations of Procurement, there is now a growing vision of what end-to-end procurement looks like and a conscious effort to move toward that vision. At PROACTIS, we see end-to-end procurement organised around two complementary and highly integrated procurement sub-processes we call source-to-contract (S2C) and purchase-to-pay (p2p). S2C includes the supplier management, sourcing, contract management and catalogue management functions Procurement uses to create value, and P2P provides the framework that guides employees to established suppliers and agreements to fulfil their needs so that the organisation can consistently capture value created by Procurement. Of course P2P also ensures proper up-front purchase authorisation and drives PO-based purchases which, in turn, enable automated invoice processing at the back end. It also captures detailed spend history to drive spend analysis that enables even more value creation in the S2C cycle. Together, these two sets of inter-related processes create a closed-loop, end-to-end procurement process. PROACTIS End-to-End Solutions SUPPLIERS AGREEMENTS CATALOGUES Source-to-Contract Purchase-to-Pay Sourcing Supplier Management Contract Management Catalogue Management Purchasing Invoice Receipt Invoice Matching Employee Expenses As evidence of the trend towards this vision, Gartner recently stated that they are seeing a large increase in interest in what they call source-to-settle solution suites. They say that very few organisations have yet implemented the full range of such suites, but that many have a desire to do so and are taking serious steps toward that goal today. We are seeing this trend ourselves. Until recently, the great majority of PROACTIS clients did NOT start their relationship with us based on an end-to-end procurement vision. They just wanted to implement a good P2P system, or maybe supplier management or contract management. But now we have a growing number of clients that have achieved their initial goal and are beginning to develop an end-to-end vision. Those clients are beginning to ask us to help them start plugging the gaps where they have savings leakages. Many are interested in adding the S2C cycle to their P2P environment, or to fill in pieces they have not tackled to date. Others are looking to go after new pockets of spend by integrating peripheral purchasing activities like fixed assets or MRO into their P2P system so they have a more complete picture of spend in one place. Others are focusing in on cracking the culture to spread their procurement processes to a broader range of the organisation and a higher level of employee adoption. There are many different paths organisations are taking, but more and more have their eye on ultimately achieving their vision of end-to-end procurement and the resulting high percentage of Spend Under Management. 5

6 3. A Growing Focus on Know thy Supplier Be honest do you really have the breadth, depth and quality of supplier information you need to do all the things you need to do? Maybe you do for a few key suppliers, but do you have that kind of information for all your suppliers? We are having more and more organisations telling us they realise they don t. That realisation may be triggered by a change in ERP systems, the merger of two organisations, a supplier rationalisation mandate, the desire to beef up sourcing activity to increase supplier competition, or a severe supplier performance failure that makes the organisation suddenly aware that they have no idea what supplier risk may be out there. No matter what the triggering event, as procurement organisations move through the Spend Control journey, they are recognising that one of the fundamental requirements for success is to have a solid, sustained handle on their supplier base. They are realising that supplier information is the lifeblood of Procurement. Procurement leaders want to know Who are our active suppliers? Do we have all of the right information about them? Are they properly qualified against risk factors? How much do we spend with each? How are they performing? What does AP know about them that Procurement doesn t? It s simply not possible to direct the organisation to buy from the right suppliers if Procurement doesn t have a handle on who the right suppliers are. And it s simply not possible to perform effective sourcing (strategic OR tactical), contract management, or supplier performance management without this fundamental information AND without supplier management processes in place to keep this fundamental information accurate and up to date. Even raising a noncontract PO with a non-qualified supplier can be risky. PROACTIS is seeing that an increasing number of organisations recognise the need to cleanse and enrich their existing supplier records, properly qualify active suppliers and sometimes recruit additional suppliers before they can move further into Spend Control. After seeing this a number of times, we have now oriented our service offerings to quickly and efficiently address the full start & sustain process usually a clean-up effort combined with deployment of the SRM methods and controls that will enable them to keep their newly-cleansed supplier information in good shape. It s helping a number of our customers accelerate their Spend Control efforts. By the way a related trend we see coming down the road is for organisations to move toward making Procurement responsible for all supplier-facing functions, including invoice processing (though we accept that getting Procurement into the realm of AP may still be a little out there for many organisations). 6

7 4. New Buyer Initiatives to be Easy to do Business With Organisations that have put in place a solid Supplier Management environment (which typically includes a supplier portal) are seeing that they can leverage this new capability to drive added benefits. They are starting to go to their most important suppliers with the message: We want your very best price/value offering, but we are going to make that a win-win for both of us. These organisations are saying to target suppliers that they will reduce the supplier s cost to serve by making all forms of interaction easier. They will make it EASY for the supplier to: See what the organisation is buying (tenders) Participate in sourcing events for new products or services Put agreed upon segments of their catalogue content in front of day-to-day purchasers Receive purchase orders in whatever way is most productive for them Submit invoices in the most efficient manner for them (e.g. various options for electronic invoices or paper/fax/ if that s what they prefer) Consistently get paid on time Always have self-service visibility of their account status PROACTIS Supplier Portal ecatalogues Orders einvoices Supplier Portal Supplier registration Self-service Supplier websites & systems Supplier self-service Gartner says that the advantages of allowing suppliers to manage their own information, sourcing events, contracts, catalogues, purchase orders and invoices in one place should not be underestimated. They remind buyers that suppliers are important stakeholders in procurement technology implementations. Organisations that are expanding their use of technology to streamline supplier interaction and position themselves to confidently offer these supplier benefits are standing out from the crowd at contract negotiation time and getting the better deals. 7

8 5. Cloud-Based Procurement is Here to Stay and for Good Reason After looking at the options, the great majority of new PROACTIS clients are opting for our cloud-based approach to solution licensing, deployment and management. Traditional software licensing, on premise installation, and in-house technical management are just not making sense to a growing number of organisations. Why make a capital expenditure up front before savings are being realised? Instead, just factor in the annual expense of operating your Spend Control systems as part of calculating your procurement-driven savings each year just like you do the cost of staff, etc. Why take on the added work of technical systems management if you don t need to let someone who specialises in that do all the work and worry about all the systems issues, etc. Why let your organisation fall behind on software releases like you do with virtually every traditional software installation you have? Why not position your organisation to always have access to the most up-to-date innovations and capabilities? There is no question that this is the way software solutions like eprocurement are going to be deployed going forward. And apparently, it s not just us. Gartner says that 90% of new procurement business application deals involve cloudbased solutions. But it has to be done right. Some companies are opting to deploy in their own corporate cloud, while others are going to a PROACTIS-managed cloud environment. We ve invested in developing close working relationships with some of the industry s best hosting and cloud computing Infrastructure as a Service (IaaS) providers to offer enterprise-class systems infrastructure, data centre security, disaster recovery, and business continuity all as a single point of contact service. PROACTIS has been providing cloud-based application management services for multi-organisational, multi-tenant applications, as well as for individual organisations, for many years. Now it s the fastest growing deployment method in our user community. 6. Blurring the Line Between Software and Services As we have shifted our solution focus over the past few years from traditional on-premise software implementation to cloud-based solution deployment, we have started to see another trend begin to take shape: the combining of softwareas-a-service and associated people services into a broader solution to particular needs. For instance, when we talk with customers about doing a supplier record clean-up before implementing our supplier management solution, they are beginning to ask us things like Can you just do that clean-up and deliver us a quality supplier directory? or Can you just take on the job of on-boarding new suppliers to our directory and portal once we re up and running?. And when we talk with them about implementing automated sourcing tools, they are asking Do you know any experts in X category that can just run a few reverse auctions for us so we can concentrate on categories we know better? Another area where this is happening is with electronic invoices. Everyone understands and wants the AP process savings that are possible. A lot of companies have put the technology in place but still have very few suppliers actually sending einvoices. They ve come to realise that it takes a concerted outreach program to communicate the benefits to suppliers and to get suppliers on-boarded to the process that best fits their situation. They are asking PROACTIS Can you just handle that for us?, And in the short term, can you just take in all our paper invoices and turn them into electronic records delivered to us for processing?. Interestingly, one perspective on this trend is that customers are asking us to use our own solutions to perform various aspects of what they need to do but often don t have the time or expertise to do. In fact, we are increasingly doing that. It makes sense. Why should organisations apply limited resources to doing something that s infrequent or hard for them to do when it s something that s relatively easy for someone else to do? When we provide these kinds of services, we and our customers are actually working together around the same cloudbased solutions. Location becomes irrelevant. We become part of their team, sharing in responsibility for the information we jointly create and maintain. We did not necessarily see it coming, but the move to cloud-based solutions has given our customers and us new ways of working together that we did not envision even a few years ago. That s turning out to be very productive for both our customers and us. 8

9 7. A New CPO Mantra: Think Strategically, Act Tactically Even procurement leaders with a clear end-to-end Spend Control vision are recognising that the war against excess cost and risk is generally won one battle at a time. Nothing big is ever accomplished in one fell swoop and world-class Spend Control is a big thing. Procurement professionals are often frustrated by the difficulty of getting their organisation to see and understand the bigger picture of Procurement. Most of the procurement professionals we work with understand that the education process is part of their job and that they must get reasonably good at it to be fully successful. They understand that they must start by building a close working relationship with their CFO and then work through the senior management team and organisation. But many procurement professionals are also seeing a couple of important things: Many important aspects of Spend Control are within Procurement s remit The entire source-to-contract process is pretty much controlled by Procurement (or by Procurement-led cross-functional teams in some organisations). So Procurement CAN take the initiative to streamline and improve their own processes so as to a) add capacity for more value-added activities such as sourcing and agreement creation, and b) increase the effectiveness with which they deliver supplier, contract and catalogue information to the organisation s purchase-to-pay environment. Going after organisation-wide end-to-end Spend Control is like a D-Day initiative You have to concentrate your efforts in key areas in order to gain beachheads that will enable you to expand your hold until you have the entire geography covered. (OK it s not a war, exactly, but you get the point). A strategic Spend Control initiative that seems quite daunting when viewed as a whole can be very naturally broken down into small, manageable segments using key dimensions: a) Spend Category b) Supplier Adoption c) Organisational Deployment d) S2C Processes e) P2P Processes For instance, one initiative might tackle only a) IT products, b) from contract management through a quickquote purchase workflow within c) central offices. That s a manageable scope. Once that is in place, the process can be expanded to other parts of the organisation in sequence of importance, or to related categories like IT services, or to additional processes like competitive sourcing. In this methodical, small-bite way, solid Spend Control processes can be spread across the entire organisation without ever having to run a major project. It just takes vision and perseverance. Think about your organisation. You know the problem areas. Use these three dimensions to define quick, impactful mini-projects that can ultimately add up to big improvements. The fact is we are seeing procurement professionals who are using this approach to gain a constant stream of small wins moving more steadily toward their strategic goals than those who are not. 9

10 Key Dimensions Spend Categories 100% Supplier Organisational Adoption Deployment 100% 100% 100% Source-to-Contract Processes 100% Purchase-to-Pay Processes 8. A Growing Recognition of the True Cost of Shelfware Many larger organisations especially in the commercial sector have made the move to one of the mega Enterprise Resource Planning (ERP) or Financial Management systems over the past few years. What usually happens in the ITled selection process is that the organisation ends up with something called an enterprise license which gives them the right to use just about any of the solution provider s applications. That usually includes whatever the ERP vendor has in the way of procurement applications. So the assumption is that, when the IT department gets around to Procurement, that is the software that will become Procurement s next generation system. But several things are involved in this: The procurement applications are never looked at closely in the selection process they just come along with the package and are taken for granted IT never seem to actually get around to Procurement with anything but the basics because the ERP implementation always takes longer than expected So Procurement is left to fend for itself for an indeterminate length of time. They use little bits of the big system and small point solutions while they wait for their turn. When they finally start looking closely at what they have to work with, they often realise that it is not all that great. It s usually more oriented to direct materials than indirect goods and services. It s no more user-friendly than the rest of ERP i.e. not even close to something employees would readily embrace as their way of getting what they need. It barely scratches the surface in key areas like sourcing, supplier management, contract management and catalogue management. And it s extremely complicated to configure and implement. So Procurement either struggles through trying to make the ERP solutions do something for them or they lose interest and just keep making do with what they have. Either way, the ERP solutions become shelfware software that s just sitting on the shelf unused to any meaningful extent. 10

11 This situation quietly holds back Procurement progress for years. This happens in a couple ways: Most importantly, the Procurement department is unable to get even close to its potential to create savings because they are caught in this purgatory where the organisation feels it has already paid for everything, yet Procurement does not actually have the tools they need Secondarily, that software that was thrown-in by the ERP vendor actually carries an annual maintenance fee of 20% or more of the LIST price as if it had been purchased on its own. That can add up to a lot of money per year basically for nothing. But some procurement executives are breaking out of this mould. They are recognising that, if they are going to be successful, they must INSIST upon getting the right tools. And if they have to branch out from the ERP mother ship to do so, they will. They are saying Why should we pay maintenance fees for software that isn t what we need? We can use that money instead on subscription-based solutions developed by specialists who really do understand the needs of Procurement. With the right tools, we can position Procurement to save the organisation much more in annual purchase cost reductions and mitigated risk. It s really a no-brainer. Some companies are listening and taking action 9. A Better Understanding of the Limitations (even Dangers) of Simple Self-Service Shopping Over the past couple years, the growth of cloud-based software solutions has had many benefits, but it has also caused some confusion and has taken some organisations down a path they have later regretted. Everyone agrees that employee adoption is a key factor in the success of a purchase-to-pay roll-out within an organisation. The faster and more intuitive the experience, the more spend that s likely to go through the system. The problem is that the developers of some new solutions forgot that it doesn t do a lot of good to put spend through a P2P system if that system does not lead employees to purchase from approved suppliers using negotiated pricing and service agreements. If it just gives them a way to go to any website they wish, scrape off standard item and price information for whatever they like, then pass that along to their department manager for the OK based simply on purchase amount thresholds, that system is doing little to increase on-contract buying or true Spend Under Management. And if employees CAN do it this way, they probably WILL. The result can be a free for all that reduces compliance and therefore increases both cost and risk. Lots of potential cost savings are never realised in that scenario. Although that style of P2P solution may look and feel like modern software, it is actually a throwback to the limited capabilities and benefits of first-generation P2P software not a move in the direction of increased Spend Control. Some high profile organisations have started down the path of this type of software and then realised it was the wrong direction and had to start over again. If you are in the process of looking for your next generation P2P solution, be sure you look closely at how the solutions you consider are going to help with all aspects of increasing Spend Under Management not just a demo of the employee user interface. Look at how they help with supplier management, sourcing and contract management. Look at how all types of categories are handled from simple stationery to strategic categories, capital equipment and complex services contracts. Look at how employees are guided to preferred suppliers, or into a competitive quoting or sourcing process. Look at how budget-checking works. Look at how POs are generated. Look at how invoices are matched and how discrepancies are handled. Look at electronic invoice capabilities. Look at how Procurement and Finance will manage the system from the back end. Look at flexibilities for multi-national deployment. Ease-of-use IS extremely important but not at the expense of the controls you need to drive increased Spend Under Management. 11

12 10. The Importance and Value of Integration No eprocurement system should exist in a vacuum. And no existing information systems environment is a blank sheet of paper. Clearly, P2P systems should integrate seamlessly with an organisation s core financial systems for things like automatic budget-checking, spend pipeline visibility, cheque-writing, cost allocation and all GL posting. However, integration often needs to go beyond the basics. Basic Integration Points Commitments, accruals, invoices & payments New & updated supplier details RFx requirements & outcomes SRM P2P New & updated contracts Sourcing Contract Management ecatalogues Catalogue Management Every organisation that implements eprocurement to support their Spend Control initiative wants that system to ultimately encompass all spend. But let s be realistic all spend includes a lot of things. In manufacturing, distribution and retail companies, this includes direct materials used in the manufacturing process or items purchased for re-sale. Planning and PO release for those items is usually done in the organisation s ERP or merchandising system. In many organisations, certain large assets and service parts are planned for and purchased in specialised asset management, building management, or Maintenance, Repair and Overhaul (MRO) systems. Sub-contracting arrangements are usually managed in part by a manufacturing system. Some indirect goods are purchased in bulk, managed in stocking systems, and distributed as requested. Scheduling of temporary labour may be handled in a Human Resources system. Most organisations have a range of systems already in place to handle planning and purchasing of specialised goods and services. 12

13 But every category of spend still has the need for strategic sourcing, supplier management, and contract management. And every PO placement or release, and every non-po invoice ultimately arrives at Accounts Payable where it needs to be somehow matched to the right PO or contract to verify accuracy. In addition, organisation-wide spend analysis needs to have information about all spend through all channels in order to be fully effective. What we are seeing at PROACTIS is that, once an organisation gets the indirect spend NOT planned in other existing systems under control, they usually want to start tying the P2P system into all those other systems that generate purchases or manage stock so that they have a consolidated way of handling and seeing all spend from the point of PO placement onwards. That requires a P2P system with a well-conceived integration framework. Fortunately, PROACTIS software was built with integration in mind from the start. We are seeing some of our more mature clients integrating PROACTIS solutions with a wider and wider range of systems in order to create a single Spend Control umbrella over all aspects of enterprisewide spend. We are even seeing a few of our larger clients stretch that umbrella across multiple ERP systems to create a common Spend Control process across the entire organisation. Summary These are the trends that PROACTIS is seeing and hearing in our customer base, and in the companies we re out there talking with every day. We are participating in some of these trends and we are even leading the charge on a couple. Some are not really even trends yet some are just growing topics of discussion. But these are all things real procurement professionals and real finance managers are thinking about and doing today as they move forward in their quest for world class Spend Control. Contact PROACTIS to learn more. t: +44 (0) e: info@proactis.com w: proactis.com 13

14 About PROACTIS PROACTIS is a leading provider of Spend Control and eprocurement solutions. Hundreds of organisations around the world use PROACTIS software and services to streamline and automate processes and obtain best value and control in procurement. Source-to-Contract solutions help organisations to automate the full buying cycle from improving the way they find, evaluate and engage suppliers to increasing "on-contract" spending and enabling more effective collaboration with their trading network. Purchase-to-Pay solutions enable organisations to streamline the purchase-to-pay process, eliminate labour-intensive manual registration of invoices, speed up invoice matching and approvals and gain control of "after-the-event" purchase claims. Widely used in mid-to-large sized organisations across private, public and not-for-profit sectors, PROACTIS is routinely integrated with ERP and financial systems. PROACTIS also offers a range of on-premise and cloud-based delivery options, including Software-as-a-Service (SaaS) and dedicated-hosted application delivery, and flexible licensing models. PROACTIS Group was founded in 1996 and has been listed on the London Stock Exchange since 2006 (AIM: phd). Headquartered in the UK with direct operations in Europe, North America and Asia Pacific, PROACTIS also has an extensive global partner network. 10

15 PROACTIS: Spend Control & eprocurement Hundreds of customers across 90 countries Streamlining the purchase-to-pay-process Obtaining best value and control in procurement 11 15

16 e: w: proactis.com PROACTIS2014