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Driving successful procurement technology initiatives

By Procurement Bloggers
In Contract Management
Nov 23rd, 2011
1 Comment
13770 Views

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, and finally;
  • Procurement technology adoption, use, and utilization

In this post, we will analyze the importance of enforcing compliance within the organization and later focus on the need for stakeholder participation and the benefits that can be achieved by driving users to adopt automated procurement processes.

Driving Savings Starts by Enforcing Compliance

Stakeholder compliance — be it compulsory or voluntary — bridges the rather large gap between the cost savings that get encoded into strategic supply contracts and spending processes and the cost savings that actually materialize on a company’s profit line.  Compliance – whether in the way of 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 – 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.   According to the best in class companies – i.e. those with compliance rates is 70% or above — Three out of five (60%) of best in class companies (those with compliance rate 70% and above) 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.

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% increase in savings in a particular category where the contract compliance rates increased by Y%.  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.

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