It is easy for an ambitious procurement leader to decide that enterprise spend and procurement management is a good thing for a corporation. It is also relatively easy to persuade corporate executives to buy into the idea. After all, what corporate leader would not jump at the chance to save millions — sometimes billions — in unnecessary spending.
However, an all-too-common problem occurs once an organization buys into the idea of implementing procurement technology such as spend analysis, e-sourcing and supplier management. And it is one that is critical to its over-all success. Once the technology is implemented, reality sets in and many are faced with poor adoption levels and negligible ROI. This is a typical occurrence that tends to happen when management fails to make it a requirement for business users to leverage the solution and worse, neglects to convey the business benefits that can be realized.
For procurement leaders involved in areas such as profit and loss (P+L), spend decision, supplier and/or budget management, winning genuine adoption and support from spend stakeholders is far and away their greatest challenge. A recent study of 600 procurement and supply management professionals representing an estimated $370 billion or more worth of collective spending power found there are specific, and proven, tactics and strategies that are most effective for persuading people in corporate enterprises to adopt and use preferred procurement processes and technologies.
According to the study, there are three benchmark indicators for achieving both corporate and cultural adoption of procurement technology which include:
- Stakeholder compliance to both supply contracts and preferred procure-to-pay (P2P) process.
- Active stakeholder participation in both strategic sourcing and supplier performance management processes.
- Procurement technology adoption, use, and utilization.
As the procurement function continues to transition from a tactical, cost-saving entity to one that has a major role in organizational strategy, so does the need to standardize and accelerate processes and overcome the human limitations that can occur when operating in a highly complex, global economy. But investing in technology alone is not enough as careful attention needs to be made to ensure successful change management. Let's face it, introducing new technology and processes are never easy and this is especially true when it comes to procurement functions and personnel, as both are often set in their ways.
Lack of compliance with enterprise contracts and processes, reduced stakeholder participation, and non-adoption of procurement technology can lead to several detrimental effects ranging from missing out on volume discounts and/or rebates from your preferred suppliers to an inability to achieve ROI from existing procurement technology like contract management and/or e-sourcing tools. This not only leads to manual and tedious methods that deprives procurement of the time it needs to focus on more strategic activities, but it also leads to loss of savings opportunities which can directly affect the organizational bottom-line.
Stakeholder compliance — whether compulsory or voluntary — bridges the rather large gap between the cost savings that get encoded into strategic supply contracts and spending processes, as well as the cost savings that actually materialize on a company's profit line. Compliance can come in two forms — adherence to contracts such as buying from preferred contacted suppliers, or adherence to process, such as adopting and using the preferred, lowest-cost buying and payment processes. This compliance can result in significant cost savings from procurement activities. It can also drive streamlined, repeatable processes that free up procurement professionals and allow them to focus on more strategic activities.
According to the recent study, doubling contract compliance may, over time, result in a six-fold increase in percentage cost savings from an organization's spend management activities. Despite the value that compliance can bring to the procurement process, the challenge is to understand what tactics work to enforce it. According to the best-in-class companies — those with compliance rates at 70 percent or above — three out of five (60 percent) felt that monitoring and reporting was the most effective tactic to foster a culture of compliance.
However, simply favoring this tactic is no guarantee that it will deliver the intended results. The ability to monitor and report on compliance is heavily tied to technology adoption, as it enables metrics such as off-contract spending, contract utilization, and contract performance related to terms to be tracked easily, consistently, and accurately right down to a specific department and/or an individual spender. In fact, the recent study found that for all of the companies that favored the "monitor and report" tactic for driving contract compliance, there was a dramatic 44-point difference in reported contract compliance rates between companies with high adoption and use of contract management (CM) technology and those with low adoption and use. Interestingly, this does not restrict itself to contract management technologies either, as nearly half (49 percent) of the companies with high contract-compliance also reported high adoption and use rates for spend analysis technology as well.
Creating a Business Case
Another important tactic that can be utilized to drive compliance is the ability to create a business case and communicate the benefits in a tangible, verifiable manner; such as mentioning that you have seen an X percent increase in savings in a particular category where the contract compliance rates increased by Y percent. However, this requires that the procurement professional is able to successfully market the benefits and value of any change in process or introduction of new technology.
While creating a business case and then combining it with high adoption of supporting procurement technology and monitoring can make a powerful formula for obtaining compliance to spend management contracts and preferred processes, they are not the end game when it comes to achieving a corporate culture change that truly embraces and buys into enterprise spend management. Indeed, few procurement leaders will tell you they wish to spend the rest of their careers policing peoples' behavior. On the contrary, what they really want is to embed best spend management processes and practices into their enterprises and move on to more important, value-adding and corporate performance-enhancing work, such as supporting innovation and new product introduction. The key to getting there is encouraging active stakeholder participation in strategic sourcing and spend management processes and stakeholder ownership of spend management decision making.
Contact: Zycus, 103 Carnegie Center, Suite 117, Princeton, NJ 08540 609-799-5664 E-mail: firstname.lastname@example.org Web: http://www.zycus.com