By Scott Walls
Chris Rock once said “you can drive a car with your feet if you want to…that don’t make it a good idea.” Well, any company can deploy eProcurement , that doesn’t make it successful. Successful eprocurement efforts achieve specific organizational goals (overall philosophy) and business objectives (reduce costs by X%, decrease net Costs Of Goods Purchased by Y%). This BLOG explains the goal of eprocurement, the business objectives used by best in class organizations, and 5 proven optimization tactics your firm can use to optimize its eProcurement efforts.
The Goal of B2B eProcurement Efforts
While eProcurement is only one small piece in the overall Total Supply Integration Paradigm, it is perhaps the most important piece. The eProcurement application is the connection between the providers of content (sourcing agents) and the consumers of content (requesters). The goal of every eprocurement application is to provide ever-increasing, higher quality amounts of purchasable content throughout the organization, while simultaneously decreasing procurement’s support costs (administrative & transactional) related to acquiring that content.
Best in Class Business Objectives
If the goal of eProcurement is to provide ever-increasing, higher quality content while decreasing the costs of acquiring that content, then all business objectives should measure progress against that goal. The amount of content (number of items in all catalogs) is easy to measure, but not a tremendously valuable number. Because an organization goes from 10,000 to 300,000 items, they are not necessarily reducing costs and/or decreasing COGP? By examining volume numbers in combination with a price measurement such as the Average Selling Price (using a well defined market basket), procuring can more easily measure decreases in net Cost Of Goods Purchased (COGP) as it increases the number of items available. Measurements such as breadth of content (how many commodities are being offered via eProcurement) and depth of content (how many business units are really utilizing the content) can be better at understanding the rate of adoption internally and externally. Monitoring resource requirements for technical and functional tasks internally will show the relative cost control related to the eProcurement efforts; successful eprocurement efforts eliminate item mgt and contract item association efforts, while reducing order, receipt, invoice, and payment support efforts. eProcurement is a race without a finish line, an exercise in continual improvement. Business Objectives are the benchmark to understand how well that race is being run.
NOTE: the past 2 years have shown dramatic adjustments in costs (up to 31%) and decreases in COGP (up to 20% within some categories).
5 Proven Optimization Tactics
After 10+ years of global eprocurement implementations across 7 different industries, 4 major applications and 15+ corporations, here are 5 major tactics that ensure big returns for my clients:
1. Simplify the Message – every eprocurement application/organizational marketplace must have a clear and simple message clearly explaining to both the providers of content (sourcing agents) and the consumers of content (requesters) what is in the marketplace and what is not in the marketplace. Ambiguity leads to confusion, rogue-spend, and can actually create more work for procurement instead of less. Does your marketplace offer items for non-requisitionables, off-contract purchases, under $2,500 purchases, travel, staffing?
NOTE: Read Marketplace Content Strategy to understand how to create marketplaces where all the participants know the contents of the marketplace.
2. Simplify the Search Process – this is the second most important rule, but the least well executed rule of almost every eprocurement application/marketplace I have ever worked with; the search must be “Amazonian” simple. If your process requires the requester to understand the cataloging method (hosted, punch-out, free-form text, etc.) in order to know what page or process to use when purchasing any item, then your process and application/marketplace strategy has failed. This cannot be stressed enough, start with the one thing every requester knows when he or she wants to make a request…the description and keep it simple. Requesters should not only be able to locate the item(s) they need, but intuitively understand how to acquire those item(s) once located.
NOTE: Read Marketplace Content Structures, and Marketplace Content Structure Rules to see different methods/tools for representing content. NOTE: these BLOGs assume the deployment of content management services, number 4 below; I am a strong proponent of content management services. They take eprocurement value to another level.
3. Simplify the Requisition Process – the number one variable determining success on every eprocurement project I have been involved with has been the requesters ability to intuitively understand how to locate items, requester those items, and then follow those requests as they work towards completion (order, receipt, invoice, payment, etc.)…yet every client I have ever known has minimized this and created training documentation. For those that believe you need to train users for the roll-out of ANY eprocurement application/effort, that simply isn’t true. In fact, the fact that requesters require training indicates that the eprocurement benefits received are likely to be minimal. With the tools available today and a good consultant, all of the ability to locate, purchase, and follow a procurement transaction through its lifecycle should be “Amazonian” simple.
4. Outsource Content Mgt – this is a no-brainer regardless of the size of the organization. The newer breed of third-party content managers can manage content better and at a much cheaper rate than internal procurement functional and technical staff. In addition, the catalog management tools offered are more mature than the traditional SRM (SAP, Oracle, PeopleSoft) counterparts. Besides, best in class organizations are creating transaction settlement revenue streams per supplier that far exceed the cost of outsourcing the content mgt.
5. Increase Content Available – increased content mgt help and better tools allow procuring orgs to easily move much larger amounts of content “in the store” so-to-speak. In fact, I use a Whole Foods example when I am lecturing. My wife loves to shop at whole foods, but not me despite loving the quality of the goods. Why? I can’t get all of my items in one place. Many of the items I need on a weekly basis are not there, so I am forced to go to at least one other store. Eventually, I feel that if I have to go to the regular store anyway, I will buy lower quality goods because I just don’t have time. In short, shoppers like to take the path of least resistance. The more limited the selection within your marketplace, the more likely your requesters will shop outside of it. Successful eprocurement efforts move WELL beyond the usual product aggregators (Dell, HP, Office Depot, Staples, VWR, etc.). Aberdeen Group notes that 78% of all spend can be on contract (I.e. run through eprocurement). My last client managed almost 100% of its spend via their shared organizational marketplace.
About SRM Plus
SRM+ is a boutique procurement business consulting firm. We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP). Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers. Visit us at www.srm-plus.com.
