“Procurement transformation” has become a common theme for many Chief Procurement Officers (CPOs) and other procurement leaders who are searching for an advantage in an increasingly competitive and complex business marketplace. While these transformations typically begin with a focus in either strategic sourcing or operational procurement, they ultimately fall incomplete unless the two areas are connected and extend across the full “Source-to-Settle” process. No matter where a procurement organization begins its transformation efforts, it must be certain to take a holistic view of the entire process, keep the end vision in sight, and build towards a complete and total enhancement. This article discusses approaches and strategies that procurement organizations have successfully used to realize a complete transformation.
Strategic Sourcing: The Upstream Process
Beginning the procurement transformation process with strategic sourcing principles can be a familiar and valuable exercise for many CPOs who lack the human capital and technology assets for a radical transformation effort. Analyzing enterprise spend across a variety of categories and suppliers can unlock significant savings opportunities for the enterprise. Taking that spend intelligence and leveraging it during the sourcing process can help procurement teams source smarter and more strategically, resulting in contracts with more competitive suppliers. Starting “upstream” with strategic sourcing can result in many improvements, including:
- Enhanced visibility into spend
- Increased efficiencies via process automation, allowing for greater sourcing volume
- Rationalized supply base with preferred suppliers
- Codified supplier relationships via effective contract and supplier management processes
- Resultant savings, quality, and performance gains from all of the above
Once procurement teams have engaged in the upstream, strategic sourcing process and realized savings (as one result), they can reinvest those savings into highly-capable sourcing talent, like category managers and data scientists and/or robust process automation tools to elevate their transformation efforts to the next level. They can also begin to invest those gains in downstream improvements.
Procure-to-Pay: The Downstream Process
With a transformed upstream operation, significant opportunity still exists for procurement teams to continue their transformation by sailing downstream into the P2P waters. To capitalize on the quick wins and momentum that was gained upstream, procurement teams should extend their transformation efforts to the P2P process, which includes eProcurement and Accounts Payable (AP) automation. Although procurement often views P2P as more tactical and operational, it is actually where “the rubber meets the road” and the value that was negotiated during the strategic sourcing process is realized. By extending procurement transformation downstream to P2P, procurement teams can link strategic sourcing processes and tools with purchase and payment activities for a holistic view of the entire source-to-settle process.
For example, eProcurement systems and processes can provide enterprise buyers with visibility into existing contracts with preferred suppliers, allowing them to leverage the best available goods and services. As a result, buyers can purchase what they need at optimal prices, under optimal terms, with preferred vendors, and maximize the value that procurement secured during the sourcing process. It also allows internal stakeholders to drive greater contract compliance and adherence, since they are not recreating the sourcing wheel every time an internal stakeholder needs to procure an item or service. In the case of eProcurement, an incremental investment results in an exponential gain.
In 2018, a true procurement transformation should also include the accounts payable department and process in its scope. Much in the way an operational procurement transformation ensures that the value captured earlier in the strategic sourcing process is realized, closing the eProcurement loop with AP automation extends the value of all earlier investments by increasing efficiencies, accuracy, and visibility, and results in benefits that include better compliance and cash management.
Final Thoughts
A successful procurement transformation takes among other things, sponsorship, effort, collaboration, vision, expertise, and a supporting technology infrastructure; superior program design and execution also remain a critical elements in both the speed and level of operational excellence that is ultimately achieved. But, before taking the first step, CPOs and their procurement teams must have their end game in sight and keep a holistic view of the full Source-to-Settle process and the best ways to synergize people, processes, and technologies across it.
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