This sponsored post is produced by Tamr.
A comprehensive study done by AT Kearney in late 2014 showed that 75 percent of procurement organizations have not improved their productivity since 2011. This seems hard to believe given procurement’s constant push for efficiency gains, declining commodity prices, and the rise of technology designed to make businesses more efficient. This is especially troubling with sales growth stagnating at the world’s largest companies.
A closer look at the challenges facing procurement organizations shows that procurement may be on the brink of a breakthrough not seen since the eProcurement boom of the late 1990s. When companies like Ariba, Emptoris, and SciQuest grew at astonishing rates, eProcurement was the hottest category for venture capital, and the procurement function was becoming a critical driver of profit growth. The good news is that solving these challenges would simplify sourcing managers’ activities while boosting EBITDA as much as 20 to 30 percent.
Procurement’s complexity challenge
The underlying challenge facing procurement organizations is complexity. Supply chains have become more complex through a combination of M&A and outsourcing, while technologies meant to make life easier for procurement organizations have suffered from poor usability, long implementation cycles, and low compatibility with existing processes and technologies. The result is three key challenges for procurement leaders.
1. Spend is difficult to analyze
Many organizations struggle to answer basic questions like, “How many suppliers do I have?”, and, “What’s my spend per category?” These challenges are especially common at companies with multiple ERPs, a global footprint, and significant levels of outsourcing, where spend information is spread across disparate sources in multiple formats. Record levels of M&A activity exacerbate this problem, and suggest it will persist for years to come. The result is long delays in capturing savings opportunities and making strategic decisions, as sourcing analysts must spend weeks cleaning data and meeting with sourcing managers to understand their spend.
2. Tactical activities consume most of a procurement professional’s time
Sourcing managers without good data on the impact of past decisions rely on anecdotal evidence or recent supplier performance to guide decision making. This puts sourcing managers in a constant state of reacting to immediate issues. A better solution is relying on holistic sourcing strategies that are supported by data and look beyond next quarter’s goals.
Unfortunately, only 40 percent of procurement organizations have automated spend analysis tools. Further, even companies with automated spend analysis tools might not be reaping the full benefits of these tools if data quality or availability is an issue — something that 67 percent of procurement organizations consider a problem. Organizations with this problem invest significant time preparing spend data to make strategic decisions and identify savings opportunities. Limited procurement resources means that only select categories are analyzed in-depth, exposing companies to risks in areas where they’re not looking.
3. Sourcing managers must work around technology
After the eProcurement boom of the 1990s, innovation in procurement technology has been limited. There are some pockets of innovation, such as procure-to-pay players like Coupa and Procurify, but technology improvements have not been nearly as widespread as they have been in sales and marketing. CPOs are dissatisfied with current user-experiences, and the talent challenge in procurement is still top-of-mind for many CPOs, creating a need for technology with better usability that can improve the performance of procurement professionals. Currently, too many sourcing managers depend on spreadsheets that have been passed through an organization and contain unreliable information.
Procurement’s opportunity to simplify
Procurement can overcome these challenges, and grow EBITDA as much as 20 to 30 percent, by implementing technologies and processes designed for today’s complex organization. In particular, procurement leaders should focus on opportunities to simplify sourcing managers’ workflows.
Three specific ways this can be done to elevate procurement’s performance are:
1. Break down barriers to internal collaboration
An immediate thought that comes to mind when thinking about collaboration in large organizations is endless “alignment” meetings with limited substance. This is a key reason why collaboration across functions and business units is often limited and 70-90 percent of mergers and acquisitions fail.
New technologies have made internal collaboration simpler than ever, and procurement leaders should make it a priority to implement these technologies into their organizations. Messaging tools like Slack and Yammer enable sourcing managers to ask their colleagues quick questions or share their activities without clogging inboxes. File sharing tools like Dropbox and Box allow sourcing managers to effortlessly publish files such as RFQs and keep everyone in the organization up-to-date on categories out for bid or under review. The increased transparency that comes from using these tools helps procurement organizations better understand the needs of internal customers, spot new opportunities, and communicate the value they’re delivering without more meetings or emails.
2. Implement a spend analytics solution built for the modern enterprise
Today’s spend analytics solutions must do much more than simply add charts and graphs to data in a single ERP or eProcurement system. Procurement leaders should look for a spend analytics solution that can pull information from across many different types of internal and external sources — from ERP and Excel to 3rd party company databases — and standardize this information to make it easy to spot spend overlaps or supply chain risks. These tools should also integrate seamlessly with existing technologies and processes. Modern sourcing analytics solutions from providers such as Tamr, Rosslyn Analytics, and Opera Solutions were built to tackle these problems and instantly provide procurement leaders to answers to questions about their spend.
3. Make cross-functional metrics and information more accessible
Procurement is a strategically important function that should align its decisions with overarching business goals. This only happens when sourcing managers have easy access to information such as sales performance, supplier contracts, product quality data, supply data, and commodity trends. Data preparation platforms like Informatica, OpenRefine, and Tamr enable businesses to quickly pull data from across multiple systems to put into dashboards that sourcing managers can slice and dice to understand the impact of sourcing decisions. This enables sourcing managers to quickly make long-term oriented decisions that reduce supply chain variability. Further, sourcing managers can end their Excel addiction and finally have a “single source of truth”.
The AT Kearney study revealed significant underlying challenges facing procurement organizations. Fortunately, solving these problems would make the procurement process much simpler — and deliver profit improvements far beyond the investment required. Party on.
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