It does not matter if you have the fastest sprinter; mess up the baton change and you won’t win the relay. This applies to world class procurement as much as it does to Olympic teams. The problem for procurement is that different legs of a supplier’s journey with the buying organisation have been built by different people at different times. What’s needed is an end-to-end approach – from the starter’s gun to the finish line – giving the organisation complete visibility over the whole picture, from source to order to pay.
It’s more common, however, to see parts of the picture, but not the whole thing. Philip Brown, head of purchasing projects at National Express, says: “Some organisations have a very fractured approach to procurement. Departments may design their own processes without being aware of the bigger picture.”
To understand procurement – from business need, to sourcing, right though to paying suppliers – it helps to map out each step with the end-users, Brown says. “I have worked on these mapping exercises and you identify gaps between what might be good processes in themselves. However, it’s often the case that each department works in a silo.
“Typically, an end-user has a legitimate conversation with the supplier, writes down their requirement and maybe produces a purchase order. By the time an invoice arrives it may match the purchase order, but unless it has a specific product number you find, in many cases, the wording is different,” Brown says. The matching process in accounts payable (AP) then has to try to make sense of information that doesn’t quite fit together. “You are relying on [AP] to interpret the invoice, without knowing any of the earlier conversations, and decide whether it’s right to pay the supplier.”
Fractured processes obscure visibility
Brown says that beyond the obvious risks of fraud, price escalation and mistakes, a fractured procurement process means businesses can have no clear visibility of financial liabilities and cash flow with suppliers.
Moreover, with different solutions – such as spend analysis tools, contract management tools and payment systems – that don’t work well together, if at all, it’s typically necessary to have to copy over and reformat data files or to manually rekey data. That causes delay and introduces the risk of errors.
Whatever systems a company uses, the purchasing function should own the source-to-pay process, instil a policy of ‘no PO, no payment’ with suppliers, and ensure interactions with suppliers are recorded properly. It need not cost a lot for procurement to gain more influence over the process and more opportunities for strategic activities, Brown says.
“The immediate benefit is procurement taking ownership of important processes. Simply understanding payment terms with all suppliers can give you more flexibility in negotiations and you will understand end-users and start to influence their behaviour,” he says.
Bits and pieces
But Brown’s experience of fractured procurement processes is not uncommon. SAP Ariba sees a number of common trends as they talk to businesses about their procurement processes.
“The vast majority of businesses have done some process automation but most likely it’s in bits and pieces. In a lot of circumstances those projects are done by different teams with different objectives, and they’re not looking at the entirety of the end-to-end process,” says Emily Rakowski, global vice president audience marketing and demand management with SAP Ariba.
Where there is an effort to integrate procurement processes, it is often limited in scope, she says. “For strategic sourcing, you might see some locations band together to do some automation, but only leverage a small portion of spend. Typically, they do an evaluation based on a very specific set of requirements, but they don’t look at the big goals and the big picture.”
The problem is that if sourcing and contracting, for example, are not linked to the day-to-day procurement systems, the procurement department will never accrue the savings they expect from the outset, Rakowski says. Even with a well-sourced category, savings can easily leak out from not having its management fully implemented.
“If you’re not sure how to implement the contract, then you are leaving savings on the table. You need to understand how it can be executed and make sure the organisation knows about it and is using it,” she says.
Integrating technologies, data integrity
Vendor information, contract details and volume discounts all need to be at the fingertips of whoever is involved with purchasing or speaks to suppliers, she says. “All that needs to be instantiated in the purchasing system or you are not going to get the benefit of what you put in the contract,” Rakowski says.
Integrating technologies that share data helps streamline processes and workflows, with each step flowing seamlessly into the next with no loss of data.
PA Consulting procurement expert Natalie Henfrey says businesses will often have various systems managing different parts of the procurement process. “They tend to have a patchwork, but it is not always a disaster.”
She says there are systems on the market able to extract, share and integrate data from different business applications to give procurement oversight of the whole process. Joining up procurement processes in this way not only helps realise savings, it can avoid risks, she says. “If you don’t have access to this kind of information you might not see risks and be able to react before it happens.”
For example, a supplier may have had its payment terms extended with no regard for the size of the vendor, its financial wellbeing or how vital its products are to the buyer’s business. “You may not see the triggers which tell you if the supplier has a problem and you need to talk to them,” says Henfry.
Getting stakeholders on board
To gain the benefits of an end-to-end procurement system, it is essential to ensure that stakeholders are on board from the beginning, says Adil Al Mulla, vice president, procurement and supply management, Etihad Airways.
“With stakeholders, the communication is very important. There should be a plan and working groups. Their involvement should help define the KPIs and the wider implementation. Every department working with suppliers needs to understand how it will operate and the reason behind it.”
Once in place, an end-to-end approach to procurement and interaction with suppliers can remove much of the manual process and labour-intensive copying of data, helping procurement free up time for more strategic activity and adding more value to the business.
But in doing so, procurement organisations need to make sure their people are ready for the transition, Al Mulla says. “It is very important that people are developed and coached to equip them to understand how to do more strategic work. It means procurement can get involved at budget time, rather than at the stage of tendering. They have the information to help them understand whether the business should be tender, single source, or form a joint venture with a third party.”
The move towards a more strategic role for procurement does not need to start with ripping out and replacing the procurement systems, however, says SAP Ariba’s Rakowski. Components, such as sourcing, or end-user catalogues, can be swapped in at the right time, so long as there is an eye on the over-arching vision and finish line. It can be a gradual journey, not a sprint.
This article has been written by an experienced journalist, commissioned by Procurement Leaders. It is part of a sponsored editorial product, published in partnership with SAP Ariba. Commissioned by Procurement Leaders.