Since launching Ardent Partners this summer, I have been spending a good deal of time introducing the firm to the different solution providers in the supply management space. One of the slides in my standard presentation talks about the advances in the solutions market since the late 90s. One proof point that I offer is that the solutions are increasingly affordable for and accessible by mid-market enterprises. To wit:
I recently spent a half day advising the Chief Procurement Officer (and his team) of a mid-market healthcare company on the development of a formal procurement organization and their approaches to sourcing and P2P. I always enjoy these kinds of engagements/workshops/discussions and actively seek them out. I decided to ‘cover’ this meeting because I think we hit upon some interesting topics and because I believe it is helpful for other CPOs and procurement organizations that are just getting started to understand how their peers are currently situated and how they are thinking about tackling different projects. The fact that this group represents two procurement groups that are certain to see vast changes in this decade – the “mid-market” and “healthcare industry” – may be useful too.
What follows today is a modified (for readability and context, not content) transcript of the company’s part of our discussion. Rather than focus on my input in this meeting, the case study below is structured more like a Harvard Business School Case Study than many of the case studies we’ve previously shared on CPO Rising (i.e. it is more open-ended and descriptive than prescriptive). You can read through our other case studies by clicking here.
Case Study – CPO of a Mid-market Enterprise in the Healthcare Industry
Background:
A mid-market healthcare company that was rocked by the economic downturn and faced with millions dollars in losses in each of the past few years decided to focus on procurement in 2010 for the first time in its history and began by hiring its first-ever CPO. The CPO’s background was heavy in sourcing, focusing largely on the indirect/services side as he worked for different companies and consultancies. The new CPO took the helm of the vendor management (“”VM”) organization in February, 2010 and set about to establish a procurement department. All processes were fully manual and whatever limited sourcing that was being performed by the company, was being done without the help of the VM organization – this is literally a greenfield opportunity.
Given the company’s tough economic situation, the “Procurement Transformation” project, which the CPO is leading, is one of the few ‘corporate-level’ projects going forward this year. The goal of the project is to establish a formal procurement department and start saving money as soon as possible; other traditional procurement goals exist, but the focus here and now is savings. Investments in staffing and process automation are the CPO’s top priorities. At the time of our meeting, the team had selected an eProcurement solution (deployment underway) and was considering both eSourcing and ePayables solutions.
General Discussion
CPO: Our transformation project kicked off in July with the selection of an eProcurement system. In addition to procurement being a “Greenfield” opportunity, we’ve just started a project to automate our PO process. When we started, only about 40% of spend was on PO, which is paper based. From the finance side we have little visibility into our obligations, and even less control over them. We’ve had very low adoption of EFT [electronic funds transfer] until just recently.
VP-Finance (Controller): We have a horrific month-end close process. The new eProcurement system will drive some improvements and help my team dramatically. I am looking for other activities that will add value once they have some free time (once we have the manual stuff automated). We do about 15,000 invoices per year and have three folks who spend half their time doing data entry.
CPO: This is going to be a big culture change for the corporation. We have manually signed POs, contracts, and invoices – when all that goes away, it’s going to be a big change for the company.
Ardent Partners: External to this group, do you have a sponsor?
CPO: This is one of the very few corporate projects, deemed critical to our overall strategy. The business challenges have placed us in a perfect storm situation – we have a mandate to reduce spend and a recent history of financial losses. Our CFO and CIO are both new and have a mentality geared on profitability.
Ardent Partners: Have you been working with the different business groups to get them engaged?
CPO: We have. The team has been hosting user groups to get feedback on the process and introduce the project to the larger company. Because we’re small and have a relatively low spend, we’ve been able to get strong adoption of the paper based POs. This will be a building block to the new eProcurement process.
Strategic Sourcing Lead: I’ve been in purchasing since 1997 and our staff has always wanted to do their own thing. It will be a big culture change for the organization.
CPO: We’ve also hired some sourcing experts to join the team….. Right now, we are also not centralized with our contracts or invoices and everything is paper-based….. we miss those opportunities now.
VP-Finance (Controller): We also have losses within our budgets. We would like to stop that by using a system to drive accountability.
CPO: What metrics should my organization focus on?
CPO: What should we do next?
We have a mid-market healthcare company (spend in scope today is all indirect and services spend) with a budget to add a few more heads and continue automating the function. Put yourself in this new CPO’s shoes…. What do you do next? Where do you focus your current resources?
