Purchase-to-Pay Process Advisory Program Management Insight September 23, 2015 Best Practices for Capturing the Benefits of E-Procurement By Patrick Connaughton, Robert Derocher and Amy Fong Executive Summary While procurement organizations would like to offer more products and services on catalogs, challenges such as poor user experience, inconsistent data quality, and limited training and search capability can prevent companies from realizing the full benefits of e-procurement solutions. The Hackett Group has identified a number of best practices that can help mitigate implementation risks associated not only with the technology itself, but also the process and people-related aspects of projects. Given the maturity of the e-procurement solutions market, companies are better off working to understand the differences between products than trying to create an exhaustive feature/function checklist to review and rank solution capabilities. They should also make sure to choose a solution that aligns with the company s overall business strategy and supports future requirements in areas like mobile workflow and international support. Despite the Availability of E-Procurement Solutions, Utilization Rates Remain Lower Than Expected According to The Hackett Group s 2014 procurement benchmark data, 100% of requisitioners at world-class companies have access to some form of e-procurement solution. Even companies that have not attained world-class performance have access levels of 82%. Still, due to a host of challenges, the percentage of spend being managed in these systems remains relatively low and limited to a few, usually less-complex categories. The most common hurdles are: Redundant systems: The Hackett Group s 2014 procurement benchmark shows that companies have an average of 3.5 requisition and PO processing systems (Fig. 1). These systems are likely to have duplicate areas of functionality, so by consolidating to a single solution, companies can reduce IT maintenance fees, streamline support and set a foundation for better end-to-end capabilities. FIG. 1 Number of separate software applications used in various procurement functions 3.5 3.0 3.0 2.0 2.0 Requisition and PO processing Scheduling Receipt processing Supplier master file maintenance Item master file maintenance Source: The Hackett Group, 2014 Purchase-to-Pay Process Perspective I The Hackett Group I 1
E-procurement defined E-procurement is one component of the broader source-to-pay landscape. While used informally to refer to many things, the term technically refers to an Internet- or intranet-based solution that provides a self-service utility for buying goods and services, creating requisitions, viewing catalog content with pre-negotiated prices, finding preferred suppliers, obtaining approval for purchases, managing spend against a budget, and communicating POs to suppliers. Increasingly, solutions also support e-invoicing, a means to accept supplier invoices and match them to POs for approval. Poor usability: This is by far the most common complaint when it comes to legacy e-procurement software. The causes of usability bottlenecks include having to sign onto multiple systems because of a lack of integration; request forms timing out or some other error that requires the end user to re-enter information; and search engines that do not work as expected or display search results in an unintuitive way. Usability challenges are also cited as a major reason why guided buying has not had the level of success that was originally expected. In fact, the ability to guide requestors to an optimal supply source and process/transaction path through a simple, consumerlike business-to-business experience is one of the biggest technology-related capability gaps that companies report today (Fig. 2). FIG. 2 Top technology capability gaps in requisition and PO processing, by average gap to target maturity Degree to which self-service solution exists to support supplier and internal requests Degree to which strategy for e-procurement access aligns with buying patterns, training and support 1 2 3 4 5 Lagging Achieving Exceeding Leading 1.71 1.43 1.87 1.31 Scale: < 2.00: Lagging 2.00-2.99: Achieving 3.00-3.99: Exceeding 4.00: Leading E-procurement software may be acquired either as a module within a broader ERP suite or as a standalone, procurement-specific solution. Degree to which requisitioners can easily find approved supply sources ("guided buying") 1.0 1.79 1.31 2.0 3.0 4.0 CURRENT MATURITY GAP TO TARGET Source: Procurement Capability Maturity Model, The Hackett Group Limited training: The lack of an ongoing, formalized training program to support requisitioners and tie to enterprise training schedule/management is also a commonly reported capability gap. Often, end-user training is conducted at the conclusion of the initial e-procurement implementation, but no sustainable, ongoing training is budgeted for or established. As staff turns over and project consultants depart, solution expertise dwindles. Piecemeal support for low-volume, high-value, complex spend categories: One Hackett advisory member put it best: Outside of office supplies, I have not seen any real application for [e-procurement]. It works for acquiring widgets but for any type of complicated service involving strategic partners, it does not. This is especially true when it comes to procuring services for both contingent and SOW 1 -based labor. Traditional e-procurement tools are not designed to support the specific requirements of services procurement. As a result, a class of software tools designed specifically for procuring services has found a healthy niche capitalizing on the weaknesses of ERPs and e-procurement suites. Examples include Fieldglass, IQNavigator and Beeline. Inconsistent data quality/integrity: Many organizations have invested in improving item and supplier master data management to support an e-procurement initiative. However, they treat MDM as a one-time project, not an ongoing discipline. In some cases, utilities within e-procurement tools for managing the data are lacking or require too much IT support. Catalogs quickly become out of date and quality issues creep in. Once this occurs, end-users are likely to find alternative ways to buy, usually outside of the approved process. 1 Statement of work Purchase-to-Pay Process Perspective I The Hackett Group I 2
Success Starts with Choosing the Right Solution Only 45% of procurement organizations have an application strategy that is linked to the overall business strategy (Fig. 3). To better align the e-procurement strategy to overall business objectives, these applications must be able to support procurement s evolving requirements. FIG. 3 Percent of companies at which the procurement application strategy is linked to the business strategy We are currently developing a strategy 21% No strategy in place 17% 45% We have a strategy and follow it 17% We have a strategy but do not consistently follow it Source: The Hackett Group, 2014 Regardless of whether procurement organizations are selecting a new solution or evaluating whether their current one will meet their future requirements, it is best to avoid the traditional process of using an exhaustive feature/function checklist to review and rank solution capabilities. Given the maturity of the vendors in this space, most if not all will be able to check every box and provide well-polished responses to this type of RFI. A more effective approach is to focus on what differentiates the products. In our experience, the main differentiators between the e-procurement products on the market today include: The ability to support a global footprint: If procurement has global responsibilities, evaluate closely whether needed languages are supported. While most vendors will claim to support a long list of languages, what will differentiate them is how many customers are using it in each language today. Also, make sure to evaluate currency/ exchange rate requirements, compliance and tax requirements, whether 24/7 global support is offered, and the availability of electronic catalogs in each region. Support mobile workflow: Mobile requirements have gone beyond the ability to simply approve requisitions or payments. Solutions must allow the use of a mobile device to quickly sort through large amounts of data or conduct complex transactions as a normal part of doing business. Search capabilities: End users expect a Google-like experience when searching for information within the tools. Is strong keyword search available? Can it be extended to search content across multiple supplier catalogs? Spend extra time on the searchresults view: Can it be filtered quickly? Can the search criteria be saved to rerun on demand? Can the results list be personalized, for example by hiding or adding columns based on preferences? Take advantage of Web 2.0 usability advancements and social collaboration: For years, software was designed around the MS Office paradigm, with its drag-anddrop folder views. With the advent of the Internet, usability standards began as a total free-for-all, but eventually some industry standards emerged regarding what is expected from a search engine, how a shopping cart should work, the importance of one-click transactions, etc. Opt-in enterprise social networking may include using Web 2.0 technologies like wikis and discussion forums to enable or streamline business processes while enhancing collaboration and strengthening communication across organizational silos. Purchase-to-Pay Process Perspective I The Hackett Group I 3
Shopping carts and graphical event management workflow: When it comes to shopping carts, end users are looking for a familiar, Amazon-like experience. That means the solution has to excel at the basics of searching a catalog, comparing features, adding items to a cart, saving a cart for later, and one-click checkouts. During the buying process, users also benefit greatly from the presence of an indicator showing where they are in the purchasing process and how many steps remain. Reporting and analytics: For many years, designing and setting up recurring reports was left to the consulting team that was implementing the solution. Very little reporting and analytics capability was available out of the box. Times have changed, and end users expect a high level of predesigned reports and analytics to be available in the tools without having to pay extra to enable them. Agile, iterative implementation models: One reason why e-procurement projects failed in the past was that they took on a big bang approach to implementation, trying to enable too many processes in a single project. Companies are embracing smaller, more iterative projects to steadily climb the e-procurement maturity curve (Fig. 4). The vendor s ability to work in an agile model and price solutions accordingly is another important differentiator. Look closely to understand how different modules are intertwined and what dependencies exist to get the software working. FIG. 4 The e-procurement maturity curve Lagging Achieving Exceeding Leading Multiple systems of record, disparate processes Source: The Hackett Group Automated B2B transactions (order acknowledgement, advance ship notice order releases) Self-service enabled Mobile enabled E-catalogs and guided buying in place Partially automated receipt processing Automated ordering Automated approval workflow Fully automated receipt processing Integrated sourcing and procurement processes Sophisticated vendor portal in place for supplier data updates, inquiries and dynamic discounting Formal supplier master file maintenance program with well-defined accountability Embedded enterprise social networking Global, multilanguage rollout New-product design team can access to discover suppliers Process performance analytics to drive continuous improvement Quality of the implementation team: When software products are very similar, ultimately making a choice comes down to the culture of the vendor and the actual implementation team it can offer. Also, some software vendors have more experience in specific categories than others. If the company s in-house team must be augmented with resources from the vendor, evaluating its category specificexpertise is a must. Finally, when evaluating solutions, pay attention to the primary use cases and workflows for common exceptions. For example, a good scenario would be written as, I would like to create a new requisition by copying an old one and have as much information as possible preloaded based on my profile. The requisition should have a variety of units of measure and multiple suppliers on it. It should also allow me to attach documentation. This approach is much more useful than just a line item for requisitions management on the evaluation form. Have someone from the evaluation team try to complete each use case in the software during demonstrations, not the vendor s salesperson. By taking this approach it will become obvious which solutions are the most usable and will require the least training to operate. Purchase-to-Pay Process Perspective I The Hackett Group I 4
To Achieve Full Benefits, Identify and Plan for Project Risks Early A critical success factor for e-procurement is taking the time to evaluate projects risks and put mitigation plans in place early. A complete assessment of risk looks not only at the technology, but also the people, relationships and ancillary business functions that may be impacted by the change. Based on our experience, the biggest risks to plan for are described below and in Fig. 5. FIG. 5 When evaluating e-procurement risks, factor in the total impact to the organization Risks Overall Technology People Change management Area impact Business relationships Description Technology improvements, system implementation and integration efforts usually require significant investments of personnel and cash Failure to recognize the value of the system Potential disruption of business continuity Time commitment of assets that could be utilized elsewhere E-procurement technology is usually not used out of the box Additional design, development and deployment support may be required depending on the technical architecture and business and functional requirements Significant resources are involved, making training on system functionality a critical migration step Current skills of end users should be reviewed and evaluated to ensure that competencies exist in the future operating environment Do not underestimate the level of change management required; balance with the organization s current behaviors Recognize that change management related to user acceptance, forced business controls and compliance could be new for end users A system implementation that crosses functional areas will impact multiple functions both favorably and unfavorably, depending upon the outcome of the integration effort While success or failure may impact different areas, implications could be concentrated in specific functional areas that could affect other functional partners as well as suppliers System integration efforts need to ensure connectivity to customers, suppliers and other functional partners An understanding of other parties business and functional requirements should be a standard exercise as part of the system integration effort Source: The Hackett Group Technology: Usually, e-procurement technology cannot be used right out of the box. Additional design, development and deployment support may be required, depending on the technical architecture and on business and functional requirements. People: As with most system implementation and integration efforts, significant resources are involved and training associated with system functionality is a critical migration step. Current skills of end users should be reviewed and evaluated to ensure that competencies exist in the future operating environment. Change management: Do not underestimate the level of change management required, but balance this with the organization s current behaviors. The forced business controls, compliance and other requirements may be new for end users. Area impact: A system implementation that crosses functional areas will affect multiple functions both favorably and unfavorably depending on the outcome of the integration effort. The implications could be greater in specific functional areas that could impact other functional partners as well as suppliers. Business relationships: System integration efforts will need to ensure connectivity to customers, suppliers and other functional partners. An understanding of other parties business and functional requirements should be a standard part of the system integration effort. Purchase-to-Pay Process Perspective I The Hackett Group I 5
Strategic Implications Poor usability, limited training and data-quality issues are all commonly cited issues that have the potential to foil e-procurement implementations. To avoid them, companies have to start by selecting the right system. Differentiating criteria should be used to select the right tool, such as the ability to support multiple languages and currencies. Where a tool is already in place, the same evaluation criteria should be applied to gauge whether it is the right system based on expectations for future use and needs. By using an e-procurement solution to enforce buying from approved supplier catalogs at pre-negotiated prices, greater spend compliance can be achieved. Indirect procurement tends to benefit the most, with an average 20% increase in compliance (Fig. 6). FIG. 6 Percent of companies indicating that compliance to indirect preferred contracts rose as the result of using an e-procurement solution (by percent compliance increase) 13% 19% 13% Average compliance increase: 20% 9% 6% 6% No change <10% 11-20% 21-30% 31-40% >40% Totals do not add to 100% due to the number of companies that responded don t know or don t track. Source: E-procurement Poll, The Hackett Group, October 2013 Nevertheless, it is important to consider the impact of such a project on the company as a whole, not just procurement resources, and to understand the time commitment that will be required to ensure that the system is set up in a way that will best meet stakeholders requirements. Related Hackett Research 2014 Procurement Key Issues: Rethinking How Procurement Defines Its Value, Balances Risk and Gets the Most from Technology Investments, January 2014 How the BBC Automated and Streamlined Its Source-to-Settle Life Cycle, June 2013 Using Technology to Streamline Tactical Sourcing, May 2013 Purchase-to-Pay Process Perspective I The Hackett Group I 6
About the Advisors Patrick Connaughton Senior Research Director Mr. Connaughton leads the development of The Hackett Group s intellectual property in the areas of strategic sourcing and procurement. He has over 15 years of experience in supply chain and procurement research and advisory roles. He has published groundbreaking research in areas like spend analysis, contract life cycle management, supplier risk assessments and services procurement. Prior to joining Hackett, he was principal analyst at Forrester Research, where he focused primarily on helping executives mitigate risk through more effective supplier relationship management. Previously, Mr. Connaughton was a consulting manager at Manhattan Associates and Accenture. Robert P. Derocher Principal, Sourcing & Procurement Practice Leader, Strategy & Operations Consulting Mr. Derocher has over 22 years of consulting experience, working with Fortune 1000 clients in the areas of operations improvement, sourcing and procurement, supply chain, merger integration and cost optimization. He was previously a partner with KPMG and Deloitte Consulting in their Business Improvement practices and a co-founder of Archstone Consulting (acquired by The Hackett Group in 2009). He is the author of a number of publications on business-to-business procurement and supply chain topics. Amy Fong Senior Procurement Advisor and Purchase-to-Pay Program Leader Ms. Fong has over 17 years of experience in industry and consulting with a focus on procurement, supply chain and organizational effectiveness. She has considerable experience in P2P process improvement, managing complex global supply chain partnerships, sourcing, supplier performance and relationship management, outsourcing evaluation and implementation, and cost improvement. She has worked with numerous major companies in North America, Asia and the South Pacific. The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices implementation firm to global companies.services include business transformation, enterprise performance management, working capital management, and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement and information technology, including its award-winning Oracle EPM and SAP practices. The Hackett Group has completed more than 11,000 benchmarking studies with major corporations and government agencies, including 93% of the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and 51% of the FTSE 100. These studies drive its Best Practice Intelligence Center, which includes the firm s benchmarking metrics, best practices repository, and best practice configuration guides and process flows. It is this intellectual capital that enables The Hackett Group s clients and partners to achieve world-class performance. Email: info@thehackettgroup.com www.thehackettgroup.com Atlanta +1 770 225 3600 London +44 20 7398 9100 Sydney +61 2 9299 8830 This publication has been prepared for general guidance on the matters addressed herein. It does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. Atlanta, Chicago, Frankfurt, Hyderabad, London, Miami, Montevideo, New York, Paris, Philadelphia, San Francisco, Sydney, Vancouver