Mission Impossible: Can You Achieve Total Spend Visibility and Control?
Procurement Trends, Source-to-Pay, E-procurement
Is it possible to achieve 100% of spend under management? Or even hit close to this ultimate procurement goal? Yes, it is, but it doesn’t come easy.
The other day I found myself in a conversation with a CPO of a multinational company. His focus was on indirect spend, more precisely increasing spend under management and improving spend visibility and control in his organization. I ended up challenging him over the question above. He admitted that 100% spend under management is a worthy goal, to say the least, but was doubtful if there was a way to ever reach it.
“How much of your spend is currently managed?” I asked. He didn’t know exactly but estimated that for indirect spend, probably less than 30%. “To be honest, managing indirect spend is a way bigger hassle than direct spend, especially in ratio to the amount of euros spent,” he confided. It was easy for me to agree, knowing it’s one of the most common struggles for CPOs today. And having a third of indirect spend under control is a start, I consoled, as it’s not at all uncommon that indirect purchasing happens mostly under the radar, even in well-managed companies.
Obstacles to achieving 100% spend under management
So, we started talking about the obstacles to achieving total spend visibility and control. Based on our own research (Indirect procurement: 2017 Market Report by OpusCapita and SSON), there are two major issues. “Guess what they are?” I asked. He didn’t know for sure, but based on his own experience, the CPO stated that managing suppliers is a constant issue. In fact, he wasn’t too far off.
The two biggest challenges of indirect procurement are services procurement and data management, and both have a lot to do with suppliers, supplier engagement, and direct supplier involvement both in the strategic and operational procurement processes. It seemed to me that he was on the right track in his mission, but had run into the typical wall of inefficient, manual processes in managing supplier information and performance. I can’t blame him for feeling discouraged, as the amount and complexity of supplier data can be enormous.
At this point in the conversation, I couldn’t help showing him what the art of the possible in modern e-procurement is. I don’t want to brag (well, maybe a little), but I was able to expand his horizons. It’s not like he didn’t already know what a supplier portal or a web shop was, but he hadn’t realized the depth and the breadth of functionality that sits behind it all.
So, our conversation continued on and around supplier management. We discussed the OpusCapita Business Network, and the vital role such a platform plays, connecting the buyer and the suppliers with self-service for supplier onboarding, supplier information management, catalog uploading, and sourcing. I even ended up doing a quick demo.
As I was showing him the tools that automatically validate supplier catalogs and flag discrepancies before the catalog content is imported to the webshop, I could see him going through their existing processes for managing catalog content in his mind and counting the time and effort that could be freed for more value-adding tasks in procurement. He asked if suppliers could be rated like on Amazon, and I showed him how supplier performance can be evaluated and put to good use when creating an RFQ.
Toward best-in-class procurement
Surprisingly, cost reduction was not this CPO’s main KPI, as it typically is in a procurement function these days. He was more interested in creating a function that broadly supported the organization as it evolved into the modern era. So, for the rest of our conversation, we talked about the value of procurement transformation and started building the business case for e-procurement. I introduced some key findings from independent studies that quantified the value of best-in-class procurement.
Firstly, best-in-class procurement is able to buy goods at up to 9% cheaper than their peers. Secondly, the overhead (i.e. the cost of the function) for world-class procurement departments was 20% less than the average. And thirdly, the best performers are able to derive savings of 9 times the cost of the function. All worthy goals to pursue.
My conversation with the CPO ended up with the conclusion that to start the procurement transformation journey toward total spend visibility and control, he’d need a roadmap. We are currently helping him to draw up one. The first step is to figure out exactly where they are today by conducting a maturity analysis of their procurement organization, including people, systems, and processes.
To continue the talk about achieving 100% of spend under management, go ahead and watch a recording of our webinar where one of our experts takes a deep dive into the topic. And if you just want an update on the CPO’s story in the next few months, come find me in LinkedIn or Twitter.
Rowan has more than 10 years of experience in the purchase-to-pay arena. During this time, he has managed the go-to-market for a diverse set of portfolios including Accounts Payable Automation, B2B Networks, Financing Services, eProcurement and Product Information Management.
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