Editor’s Note: Over the next few weeks on CPO Rising, we’re publishing some “best of” 2022 articles as we reflect on the year and prepare for the new year ahead.
Suites or Best of Breed (aka “BoB”)
For most enterprises in 2022, technology has become a powerful enabler of the sustainable efficiencies and strategic value that can transform operations and improve performance. As a result, selecting the right technology has never been more important. And, as business proceeds into a post-pandemic world, solution selection has never been more important to a procurement department or team. In a recent Ardent Partners survey, 62% of all procurement leaders reported taking a suite-based approach to their technology deployments over the last two years. Supply management suites offer modularity to meet the unique needs of each enterprise while also providing uniformity in design, delivery, data management, and the end-user experience.
The Source-to-Settle Process
The “Source-to-Settle” process is often referred to as “supply management” or “spend management.” Each of these terms refers to the buyer-supplier relationship in its entirety, including the sourcing, contracting, procurement, supply management, as well as the accounts payable and B2B payment processes. How well an enterprise manages its spend and suppliers impacts operations, quality, and the bottom line.
Ardent Partners research has shown that enterprises that connect these processes and systems and manage their suppliers in a more holistic fashion generate significantly more value than those that do not. Seamless systems generally deliver more value because better data integrity begets increased compliance and accuracy, better integration begets improved efficiency, and better visibility begets superior decision-making.
A seamless source-to-settle process can capture and retain value efficiently and effectively in a repeatable and scalable way while doing more than simply managing supplier relationships. By linking sub-process areas like spend analysis with sourcing and procure-to-pay, the value created in one area is carried forward and often amplified within the next connected sub-process.
Quantifying the Value of a Closed-Loop System
A source-to-settle process that has its people, processes, and systems aligned and linked can be a highly-efficient, savings-generating machine. The value stems from taking a holistic viewpoint in the source-to-settle workflow – when everyone is moving in the same direction, enterprises can find new efficiencies and cost savings that were not previously apparent or available. The incremental gains achieved through each process linkage can, in turn, snowball to become much larger when taken as a whole. Value found in sourcing cascades to the larger procurement organization, which can translate into efficiencies in accounts payable, and even down the line to the cash management needs of treasury. Conversely, when there are system and process gaps, “savings leakage” is likely to occur.
Savings leakage is defined as the gap between identified (or negotiated) savings and realized (or implemented) savings. While the average company loses a sizable percentage of its cost savings via leakage across the full source-to-settle process each year, closing gaps by utilizing a closed-loop system can significantly reduce leakage. Ardent Partners research has also shown that when procurement organizations integrate solutions real value is generated. For example:
- Enterprises that leverage their automated spend analysis directly into their eSourcing projects save, on average, between 23% –42% more per project.
- Teams that connect their eSourcing and Contract solutions reduce their savings leakage by up to 38%.
- Best-in-Class enterprises use closed-loop P2P systems significantly more often and achieve compliance rates that are, on average, 26% higher than their peers.
- Linking and automating the P2P process can reduce invoice processing costs by up to 80%.
When the combination of benefits is calculated or simply understood, procurement departments quickly realize that a standardized, automated closed-loop set of processes is the desired way to approach their operations. Work must be done to design and streamline efficient and effective processes. Decisions must also be made regarding the approach to process automation – whether to pursue a digital transformation using a “suite-based” or “best-of-breed” approach.
