White Paper: Trends in procurement technlogy

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  1. 1. WHITE PAPERTrends in Procurement Technology:Missing piece in end-to-end procurement www.gep.com 2011 GEP. All Rights Reserved.
  2. 2. Trends in Procurement TechnologyTechnology continues to transform the sourcing and procurement space, helping CPOs maximize efficiency andautomate mundane tasks. Early adoption of the right-sized mix of procurement technology has helped firmsreduce overall costs and catalyze internal process optimization. Irrespective of their size, Procurement organizationscan benefit from this technology revolution, especially in light of efficiencies garnered by Cloud Computing.What is e-Procurement?E-procurement is the electronic implementation of the procurement cycle that covers steps from spend analysis,identifying requisitions, setting up contracts with suppliers to the actual purchasing of products and evaluation ofthese suppliers. Studies indicate that procurement technology has helped professional consultants significantlyreduce the time spent on completing procurement cycles by an average of 40 percent. Traditionally without the helpof exhaustive technology applications, a procurement cycle took approximately five months for a sole category. Inthe past 10 years, the influx of technology automated many aspects of the process and helped simplify the laborintensive tasks, while shortening the cycles down to about three months.Over the years, Procurement departments have found the need to simplify processes and technology. While CPOshave had access to a host of applications, most of these solutions were fragmented. Dominant market players havetraditionally focused on the P2P arena, some other solution developers targeted various other stages of theprocurement cycle such as contract management, spend analysis tools, and requisition tracking tools. While eachtool was separate and only focused on a specific functionality, the solutions were fairly generic to fit all industries.Figure 1: Maturity of e-Procurement Initiatives24%18%More than 8 years5 to 8 years3 to 4 years 4% 1 to 2 years 22%Less than one yearNo current initiative 13%N=15620%Source: Aberdeen Group, November 2010 1
  3. 3. Trends in Procurement TechnologyBased on Figure 1, early adopters have benefited from e-procurement applications, according to Aberdeen Groupslatest survey in November 2010. But the survey also points out that only 18 percent out of a total 156 firms havebeen using e-procurement for over eight years. Up to 22 percent have used it for between five to eight years and 24percent currently have not initiated the adoption. This illustrates that e-procurement adoption is in the growthstage, and emerging with more presence in the market.Challenges with Current TechnologyWith disparate technology for each function, multiple procurement technologies need to be integrated for acomplete procurement cycle. This leaves loopholes in the cycle, resulting in a non- centralized and inefficientsystem. More often, volumes of data has to be extracted and re-entered from one module to another, which is afairly labor intensive process. The gaps between each phase also make the process more susceptible to errors. Hencemore manpower is needed to track status and verify data. These factors are all reflected in Aberdeen GroupsNovember 2010 survey.Figure 2: Top Actions for improving e-procurementIncomplete coverage spend types 36%categoriesConfusion on policy and requirement for buying28%products or servicesEmployee reluctance to use the eProcurementsystem(s) currently 28%Difficulty in understanding/leveraging information generated in the eProcurement22% Increased operational cost of IT management for existing procurement solution19%Difficulty in finding desired products services inthe eProcurement systems catalog(s)14%0% 5% 10% 15% 20% 25% 30% 35% 40%Percentage of Responders, n=156Source: Aberdeen Group, November 2010For any process, non-compliance with procedures limits its effectiveness. Stakeholder support is thereforeessentially intrinsic to the success of the procurement technology to capture the majority of spend. As illustrated inFigure 2, 28 percent of the respondents are reluctant to adopt installed e-procurement technology. Existing marketready technology offerings are fairly fragmented, making it cumbersome for stakeholders to adopt all the modulesand learn how to use them. This leads to confusion over policies and requirements in buying, which another 28percent of respondents claimed to be an obstacle in e-procurement. It is fathomable that stakeholders are notalways in favor of the introduction of these tools. Instead of making their lives simpler, the tool consumes more timeand is often problematic to learn and use. This results in minimal spend data captured in these tools, whichaccording to Figure 2, the highest number of respondents, 36 percent, thought was the top action to address. 2
  4. 4. Trends in Procurement TechnologyFurthermore, to encourage enterprise wide acceptance, most solutions providers are migrating their applications tothe Cloud space, from where they can be readily deployed and accessed by clients with authorization, over theinternet.Upcoming TrendsMajor players in the industry are moving towards a full service end-to-end procurement suite. Consolidation withinthe procurement technology space is driving larger companies to acquire smaller solutions and integrate offeringsin favor of a more holistic solution as opposed to developing a platform for their own module. This is again evidentfrom the November 2010 Aberdeen Group survey, where share of standalone solutions has decreased from 16percent to just under one percent.Figure 3: Current and preferred vendor solution approaches: Current Preferred Percentage of Respondents, n=15635% 29%29% 28%30% 24%23%25% 20%20% 16%15%10%5% 1%0%Collection of Procurement suite Integrated module(s)Hybrid mix ERP standalone point(multiple applicationsof our ERP system with selected pointsolutions (from from the same solutionsdifferent providers) provider)Source: Aberdeen Group, November 2010Furthermore, to encourage enterprise wide acceptance, most solutions providers are migrating their applications tothe Cloud space, from where they can be readily deployed and accessed by clients with authorization, over theinternet. 3
  5. 5. Trends in Procurement TechnologyEnd-to-End FunctionalityFigure 4: GEP Suite 5.0 offers the full end-end procurement cycle Performance Spend ComplianceReports RFxPurchaseContractActionDecisionAn integrated procurement cycle offers a seamless flow of the procurement modules shown in Figure 4. Thecontinuous flow of procurement activities increases organizational efficiency. Information is passed from module tomodule electronically, which saves employees from having to manually manage and input data points into thesystem.This has several benefits for the enterprise: Generates savings by reducing intensive labor tasks. Employees can focus more time on strategic issues. Improves compliance tracking and elimination of maverick spending by ensuring seamless transfer of data,an increased volume and accuracy of data is captured. Increased savings: improved spend visibility and spend managed increases savings across all categories.A traditional approach to procurement transactions would imply re-entering data in multiple modules and verifyingit to ensure accuracy and validity. Today, through advances in technology and more streamlined processes,procurement departments are able to reduce labor intensive tasks and achieve an average of 30 percent savings onhuman capital. Employees now have the bandwidth to work on more strategic tasks that add more value to thecompany. Automatic verification of terms and conditions in a centralized procurement system improvescompliance. Every step of the process is tracked and time stamped by an automated system, optimizing visibility andtransparency. A more meticulous tracking process for control over demand and spend, along with a moreexhaustive and user friendly catalog for purchases, will encourage buyers to purchase through the system withincontracted pricing terms and from preferred vendors, reducing the amount of maverick spending. Ultimately, thiswill grant upper level management and the procurement teams better visibility into the companys spend, whichwill improve strategic spending efforts, shorten inventory cycles and better control budgets contributed toincreased savings across all categories.4
  6. 6. Trends in Procurement TechnologyFinally, an end-to-end procurement technology suite will enhance client and supplier collaboration. Throughauditing and tracking of the process, clients gain visibility into the suppliers performance, and are better informedabout supplier deliverables versus expectations, and if a corrective action plan needs to be implemented. Dataaccessibility is optimized thorough an end-to-end solution for both suppliers and clients, providing a platform forcommunication to be transferred quickly and in an organized fashion. Such transparency will allow the client toobtain more value from the supplier and flag miscommunications to resolve disputes earlier. Furthermore, upperlevel management will be able to track the number of suppliers and spend easily. With information transmitted andshared within the various modules, one can easily determine a strategic roadmap to best in class procurement andwhether supplier consolidation is required.Migrating to the CloudThe advent of Cloud technology has driven procurement software providers to adapt their products to web basedapplications. As mentioned before, such solutions that are packaged, off-the-shelf programs are rigid incapabilities, and are not readily upgradeable. Since products on the internet are expected to be more flexible, toallow for easy access and frequent updates, some of these ready-made applications are having a hard time keepingup. Many of those offline tools would have to undergo a fundamental change to their program structure. Majorityof the strong players in todays market are the ones with homegrown solutions built for the web, and not adaptedto the web.Enterprise Wide AcceptanceTechnology is capable of making a process fairly efficient, however the complexity and sophistication of manycurrent tools require upfront, rigorous training time that may discourage stakeholders from adopting change. Withadversity towards switching their everyday practices to incorporate the tool, users opt not to use the technologysuite. Without stakeholders compliance and acceptance of the tool, the tool will not be able to capture the majorityof spend and procurement activities that take place within the enterprise, and as a result its capability isundermined. The lack of data points suggests that information reflected in the tool will not completely represententerprise wide spend, and any analysis resulting from the tool will not be holistic and accurate.Every procurement department has their own practices and work flows. One size fits all applications are unable tocapture what the enterprise needs, and will lead stakeholders to find loop-holes to carry out the process offline.According to Gartner, Inc., Best Practices for Choosing, Implementing and Using E-Sourcing Solutions, Deborah R.Wilson, report in January 7, 2011, 96 percent of references from their 2010 Magic Quadrant for Strategic SourcingApplication Suites indicated that they have a formal source of services to help users configure the application.Without business services to help users configure the tool and align tool functionalities to organizational strategy,productivity rates and adoption levels will continue to suffer. 5
  7. 7. Trends in Procurement TechnologyFigure 5: Source of Strategic Sourcing Application Product ServicesNo HelpThird Party Required 1.3%3.8% Technology Vendor 18.8%Internal Center ofExcellence76.1%Source: Gartner, January 2011A technology suite that is simple to use requiring minimal training, and is configurable to the enterprises businesspractices will naturally be more widely accepted by stakeholders, which will address one of the challenges in Figure2. As a result, this will allow users to reduce the amount of time doing labor intensive work, rectifying manualmistakes, and in turn capture functionalities that stakeholders desire. The change should not be extremely drasticthat the stakeholders would have to change their daily routine, but simply a minor tweak that can be adjusted to inno time, and save them abundant time in the future.6
  8. 8. Trends in Procurement TechnologyThe Missing PieceUpgrading offerings to complete end-to-end Software as a Service (SaaS) model and migrating to the Cloud hasmade procurement technology much more efficient. So why do enterprises not adopt procurement technology?Ultimately, a tool is just a tool - compliance and stakeholder acceptance is required for the tool to be effective in itsrole in procurement. The majority of existing tools offer stakeholders no incentive to change their current practices.The lack of functional expertise in these applications adds no further strategic benefits to the procurement process.Functional ExpertiseFunctional expertise is the area where a technology suite can ultimately add the most value; however it is also themost challenging objective to accomplish. Capabilities of current tools simply make the procurement process moreefficient by replacing the labor intensive work, however functional expertise is accumulated through historicalexperience in sourcing categories and knowledge in the procurement industry.Consulting firms are often hired to conduct strategic projects for their category expertise. Through exercising theirdaily consulting efforts, consultants offer functional expertise in three different ways: Cumulated functional database: Having sourced a broad range of categories and worked with different..suppliers, consultants acquire invaluable specific knowledge which can contribute towards a database. Intellectual best practices: With the consultants analytical abilities, they can offer insight into evaluatingdata and conjuring sourcing plans. Embedded sourcing and procurement best practices: By regularly conducting sourcing drives,consultants learn the best practices to carry out a project for each category, and more over know whattheir stakeholders need. Technology produced by sourcing experts will have best practices embeddedwithin the tool.By blending consulting and technology, it is possible to generate not just a computational transactional tool, but anintelligent procurement tool that automates the procurement process with a consultants mind set. Each stage ofthe procurement cycle has a unique best practice to resolve the problem; below are some examples.7
  9. 9. Trends in Procurement TechnologyFigure 6: Functional Expertise and Technology in One Collaborative SourcingBid andData Publish and Negotiation StrategySupplier Aggregation DevelopmentCommunicate and Selection Analysis Aggregate line Leverage RFx Leverage Automated Undertake item datato engage and spend analysisand manualmulti-roundcollaborate data andscoring ofnegotiations Automatedwith buyers eSupplier tosupplierwithin RFx, data imports identifyqualitative in-person or from spend Validate data,suppliers responses use eAuctions analysis develop supplemented baseline and Streamline Define Finalize by supplieradjustsuppliersuppliersuppliers and data collectionprojections interaction & selection awardengagementconstraints supplier bids Cleanse and Collect using ourwithin RFx classify qualitativeoptimizationrequirementstools anddevelopscenarios andsavingsRFxRFx + Decision AuctionGEP SpendConsultants understand the necessity to evaluate data across different dimensions. Procurement software shouldbe able to capture this flexibility. To bring it to another level, technology with embedded consulting expertiseshould also be able to extract the spend data from the tool, and conduct an analysis on its own to determinesourcing projects. The tool should have normalized databases reflecting consultants experience and enabling theexecution of intelligent analysis, to drive results and determine savings.By benchmarking potential saving percentages based on consulting experience, the procurement suite should beable to determine estimated savings and construct bubble charts. 8
  10. 10. Trends in Procurement TechnologyGEP RFxGEP Consultants carry out the RFP process day in day out. The two major pain points many consultants wouldidentify in the RFP process are: Consolidating information collected from suppliers Communicating and enforcing deadlinesMany current technologies provide a platform to automate the consolidation of RFPs from various suppliers.However many consultants still choose to conduct RFPs offline through excel sheets and e-mails. Even though theprocess is lengthy, and communication is often lost within the abyss of e-mails, the rigid timelines of the currentprocurement applications make the tool infeasible. Once the deadline is passed, the creator of the RFP cannotaccept any more responses. In reality, it is difficult for suppliers and even clients to meet rigid timelines, especiallywhen everyone is on different time zones, and have fairly busy schedules. A procurement technology built withconsulting best practices embedded within would address this by granting the flexibility with a built in grace periodthat can be set by the user as desired.Additional value that could be offered in the RFP technology module are templates and a question bank, bothgeneric and category specific, that covers questions commonly asked when conducting RFPs. This will give usersconsultants expertise and insight on sourcing categories without hiring external help. Stakeholder will be able toimplement metrics that consultants use to assess the capability and fit of a potential supplier. These metrics canthen be automatically scored to assist the stakeholder in the decision making process.GEP AuctionSimilar to GEP RFx, GEP Auction module should also have the capabilities to have category specific templates.Furthermore, since electronic auctions involve real time communication between suppliers to the client and biddingof line items, stakeholders should be able to visualize the trend of bidding with an auction graph, bid details and livechat with suppliers simultaneously. Many current technologies, have different windows within the tool to addressthese issues, however a consultant would know the benefit of a command center view that will allow thestakeholder to multi-task and accomplish all that is needed on one screen. While the auction is being carried out,the stakeholder will be able to graphically visualize each suppliers bid while also keeping track in real time ofcommunication between the suppliers through a chat box system. This prevents the stakeholder from missing outon any important information in the auction.GEP ContractSimilar to the other modules, templates can be replicated, with special word replacements to customize thecontract per supplier. To achieve the desired level of compliance, each transaction can go through authoritativeapproval. This prevents overspending and ensures that no contracts are signed without upper level managementconsent. However, the true value that can be added in a contract management module is the ability to alert contractowners when contracts are about to expire. Visual graphic view of the status of each contract on a chart will givestakeholders an idea of what contracts are about to expire, and whether a sourcing initiative can be adopted for aspecific category. In addition, the contract management tool should separate each purchase by line item. Thisfeature will allow for easy transfer of data to the other modules to take advantage of the end-to-end procurementtechnology mentioned above.9
  11. 11. Trends in Procurement TechnologyGEP PurchaseWhen implemented correctly, the purchasing module could be the key to ensuring compliance to the procurementtool. An easy to use purchasing application with an Amazon like interface sorted by categories will encouragestakeholders to buy through the tool from preferred suppliers, instead of searching for parts elsewhere andengaging in agreements offline. This not only will motivate compliance, but will also aid the tracking of spend.Again, line item data and price agreements can be exported into the purchasing module, and data for the modulecan then be exported easily to the other modules of the tool efficiently to support seamless flow of end-to-endprocurement.GEP SupplierThrough conducting multiple sourcing projects, consultants work with many suppliers, and learn who the best inthe industry are. With GEPs product category expertise, we have compiled a list of 35 million supplier knowledgedatabase. This offers our clients insight on which suppliers are the most appropriate to invite to their RFP for theirspecific categories. The supplier management tool should maintain the list of suppliers that the enterprise engagesin business with. However, the tool should go beyond the tracking of supplier, it should also facilitate the process ofsupplier performance evaluation. In order to optimize value from suppliers, performance should be measured toensure that they are adhering to the prices and services agreed on the contract. A metric question bank andtemplates with recommended question/criteria ratings can be created to offer clients with category specific best inclass metrics. Evaluation should be done automatically, with results presented in a comprehensive visual report.GEP ReportsEven though an end-to-end process can push data from module to module, the data is not very useful if it cannot beextracted in a comprehensive manner. Many consultants make a living creating reports and presenting the data toclients. Stakeholders are busy; they have no time to look through lengthy reports, searching for relevant data.Consultants understand what clients need to know, and present the data visually, so the key points arecommunicated effectively. Since stakeholders will have a better idea on the situation, this will motivate stakeholderbuy-in on the sourcing projects that need approval.With the philosophy of marrying Technology and Consulting, GEP is able to take advantage of its accumulatedfunctional expertise and integrate the knowledge into our very own Technology suite. GEPs business modelfocuses around client delight; through interacting day-to-day with our clients, we know what our clients need andwant. Our tool is created by sourcing people for sourcing people; the consultants use the tool, provide feedback,and contribute recommendations highlighting best practices and their sourcing expertise which are thenembedded into the tool. With the incorporation of category expertise into our highly automated end-to-end toolthat is configurable to each enterprises business, we answer our clients needs and present them with amechanism to efficiently carry out their procurement process, from start to finish.10
  12. 12. GEP (Global eProcure) is a leading procurement services firm dedicated to helping enterprises add valueand reduce costs through procurement and supply chain transformation. With a comprehensive portfolioof services and solutions, GEP helps many of the worlds largest organizations uncover savingsopportunities, and deliver these savings to the bottom line. We have managed over $50 billion of spendon behalf of these clients, across industry sectors and geographies.Our blended model combines management consulting, strategic sourcing support, implementation andoutsourcing services with a full suite of best-in-class procurement tools and technology solutions. Ourglobal footprint helps us to deliver these services wherever our clients need them. Headquartered in NewJersey, USA, we have offices in London (UK), Prague (Czech Republic), Mumbai & Hyderabad (India),Shanghai (China), So Paulo (Brazil) and Willoughby (Australia).Access our free knowledge resources at http://www.gep.com/Resources100 Walnut Avenue, Clark, NJ 07066 | P 732.382.6565 | F 732.382.6363 | www.gep.com 2011 GEP. All Rights Reserved.