Procurement needs to transform and continue to transform to align to the business. Procurement has to move away from a transaction based function and become an advisory resource to achieve sustainable efficiencies and cost savings.
The Category Manager needs to become more integrated into key business processes and more consultative in nature. For example in the Retail Sector, The Category Manager is moving to be an “In-store expert” in the visual merchandising, pricing, management, and sales of a certain group or type of products and not just a buyer. As the expert of a specific category of products, the in-depth knowledge of the Retail Category Manager will drive the pricing, shelving, marketing and promotions of the category’s products to make them as visible, accessible, and appealing to customers as possible.
This change of emphasis, and the move away from the traditional transaction based order processing role of the Procurement Function, is occurring across all industries. With the associated need to develop the skills and background experience to support strategic decisions that impact on the wider organisation efficiency. Technology is enabling Procurement to move away from the day to day transactional administration to focus more on their wider impact.
However, the procurement environment is dynamic and constantly changing with many influences: political, environmental and technological. Whether it is thoughts of European fragmentation, the global impact of rising temperatures or technological advances that could significantly impact on strategic “digital transformation”. The Procurement team is expected to know how, where and when these will impact.
Removing the day to day transactional activities
It is essential that the day to day pressures of procurement transactional operations are addressed, to enable Procurement to take on these strategic challenges,
These transactional issues, that you are currently addressing, are mostly associated with poor processes and inappropriate automation tools or with the behaviour of your users within the organisation or perhaps the behaviour of your suppliers.
However, when you look at automation tools it seems there is no way to manage a purchase process without these tools involving you directly in the process. In fact, the presumption of most automated procurement systems is that there is a point to point process that involves a procurement team – a buyer and supplier process.
This article proposes that the most effective automation is “3-dimensional” and does not involve a procurement resource at all in over 80% of the transactions that need to be made.
2Defining the perfect Procurement world
Before we explore our 3-dimensional procurement world, let’s define what perfect looks like for a Procurement professional:
A perfect world in Procurement is…
- enabling end users to get exactly what they need quickly, easily, and in compliance with procurement policy without them having to understand the intricacies of that policy.
- goods arriving on time and to specification
- invoices matching orders
- inventory reflecting business demand
- sourcing at competitive prices all goods and services
- making savings across the organisation
- driving the company strategy in context of sustainable/ethical supply of goods and services to efficiently and effectively support the operations of the organisation
- having time to explore disruptive technologies that will impact on the procurement function
I am sure that you can add to this list. The challenge, though, is how to create such a world…
3Achieving the perfect Procurement world
Automation is a key element to achieving perfection. However, this automation has to reflect the new role of procurement within the organisation. There are too many examples of procurement technology being applied and not resulting in the improvements that were used to justify the spend: rather than freeing up the Category Managers they in fact tie the Category managers into administration associated with making the automation work and supporting users in placing orders.
The first thing to realise, when looking at process automation, is that automation is not about procurement. Automation is in fact about enabling the organisation to support operations and to be able to function effectively and efficiently as an organisation.
If the focus is on automating the procurement functions then the resultant eProcurement solution will only be adopted by the Procurement function! See our article on eProcurement Adoption
Enabling the organisation to procure
So, it is not about Procurement, it is about enabling the organisation. Therefore, the relationship that needs to be in place is one that provides the end users with an easy way to achieve their procurement needs.
The actual action of buying and receiving is no longer the concern of procurement – it should be totally automated and the primary concern of the departments that have the need for the products or services.
A Procurement teams function in this process is to ensure that policies are adhered to and that suppliers are appropriately selected, with associated terms and conditions tied down. The Procurement team need only to be able to monitor and report as needed on the flow of purchasing transactions, ensuring that policies are adhered to and that there is appropriate supplier selection (strategic suppliers, approved suppliers and competitive bids for example.)
We call this new way of an organisation operating the 3 dimensional procurement organisation. The following sections further explain the concept of a 3 dimensional procurement organisation.
4Are you a 2-dimensional or a 3-dimensional purchasing organisation?
Typically the purchasing activity, and hence the automation processes, are set up for a buyer to interact with a supplier. This is the two dimensional purchasing organisation.
In a 2-dimensional organisation the buyer is interacting with the supplier relating to each transaction.
However, this restricts the ability of an organisation to automate a significant percentage of purchases, since the involvement of a buyer in many purchases is not cost effective and put simply resources are just not available to support these purchases.
Typically, in 2-dimensional organisations inappropriate 2-dimensional automation systems are mandated throughout the organisation. Resulting in poor adoption and Procurement having to get involved in administration.
However, in a 3-dimensional organisation the relationship between a user and a supplier is more direct in a transactional sense. The organisation as a whole is now the purchasing authority. Here automation frees up the Category manager to focus on effective management of the category and achieving value for the organisation. The category manager becoming the driver and advisor for their category, rather than the transactional administrator.
An advantage of the 3-dimensional organisation is that the expert can now focus on the purchase activity. The following section highlights why this is important.
5Do you know what you are buying?
“You need to understand what you are buying, and why, how it will affect your business, and what the potential risks are. That detailed understanding may be beyond the scope of a procurement department. ”Owen Williams
Often, the user, who wishes to make the purchase is the expert on the nature of the purchase. They are the ones who need to be able to define and articulate their requirements and probably request feedback from potential suppliers.
The Procurement function cannot be the experts on all aspects. Their focus needs to be on becoming the expert on how their Category affects the organisation: a true understanding of the end to end impact of the Category of products or services within their organisation.
Specific details of a purchase may be more appropriately left to the user. In fact in many cases If procurement is involved in this process, in a direct line in the process, then this will be a very inefficient process. Potentially involving procurement in detailed discussions and iterative specification activity.
So, what should happen in the case of commodity items. How should Procurement be involved in these purchases in our 3-dimensional organisation?
6Buying a Commodity
The 3-dimensional organisation needs to be able to buy commodity items with zero involvement of Procurement. A user buying these items directly from pre-selected suppliers
Procurement needs to identify commodity items; select appropriate suppliers and then set these up on catalogues for the organisation to buy from. Automation has to allow for tweaks and changes to specifications, so that new requirements can be easily catalogued by the user. Minimising the involvement of Procurement in commodity purchases.
Then, Procurement’s involvement can be focused on ensuring competitive supply arrangements; getting the best market pricing for these commodity items; and, where appropriate, setting up strategic relationships with suppliers to maximise on efficiency within the organisation.
It should be noted, In context of commodities and excluding Strategic Spend, over 60% of purchase transactions made are repeated, either with exactly the same specification or with minor changes to specification. Why would or should Procurement be involved in these transactions?
Commodity transactions should be made through catalogues. Using repeatable purchase specifications or where necessary Requests for Quotation with approved suppliers. Without Procurement being involved at all in this process.
7Automation for the 3-dimensional purchasing organisation
The 3-dimensional organisation requires automation for three separate parties and an environment where these parties can collaborate.
The three parties are:
- a user who is making the purchase;
- a category manager who is managing the Category of products or services;
- and a supplier who is supplying the products or services
The following diagram demonstrates how a 3-dimensional organisation would function. The yellow arrows depicting the volume of purchase transactions. The Category manager is no longer involved in the transactions and can now focus on engaging with the users on strategy associated with their Category of products or services and with the suppliers to align to this strategy.
The user in a 3-dimensional organisation can purchase goods and services from the organisations catalog or automated RFQ process and do so without any involvement from the Category Manager. Rules having been set up to control spend, obtain appropriate departmental approvals and monitor activity.
Our Category Manager can now focus on ensuring there is competitive supply, that the eProcurement rules are set appropriately and that they have the necessary management reports configured for their category. Freeing them up totally from transactional procurement activity for 80% of purchases.
If necessary, the supplier can also be integrated to the system to automate a lot of their activity, including inventory management, electronic order/invoice processing and goods receiving.
A 3-dimensional automation process will ensure that an organisation can manage all categories of spend.
Not all eProcurement solutions supports this way of operating
However, it is important to understand that not all systems are set up to handle this 3-dimensional process. In fact the vast majority of eProcurement systems are set up to manage only a 2-dimensional process, involving a buyer/procurement function in the transaction process.
In selecting an eProcurement platform, to be sure to realise the benefits to your organisation discussed in this article, it is essential to evaluate whether they are designed to be 3-dimensional.
The final chapter of this article we will focus on these benefits.
8What are the benefits of a 3-dimensional organisation?
The three parties involved in a 3-dimensional organisation procurement will see significant benefits:
The end user (Purchaser):
- Quicker purchase process
- Automated approval process
- Supplier selection done for them
- Access to better prices, with favourable negotiated terms
- Ability to specify requirements
- Fewer process errors and easier approvals
- Simple Catalog access for frequent purchases
- Knowledge that they are aligned to organisational policies
The Category Manager:
- Easier to focus on areas for savings across the Category
- Significantly less time spent on administration
- Significantly fewer exceptions caused by errors of process
- More time to spend on wider strategic issues – staying ahead of the game
- Able to focus on supplier relationships will ensure a better working relationship and conformance in context of terms and conditions and social responsibility
- Wider and deeper spend under management
- Visibility of activity. If needed to a granular level
- A clear audit trail of all user and supplier activity
- Able to focus on effective management of the category and achieving value for the organisation
- Become driver and advisor for their category, rather than the administrator
- Focus on ensuring compliance, governance and aspects of Social Responsibility
- See more purchase activity as an approved supplier
- Less purchases being randomly placed with other suppliers
- Clarity on the purchase process
- Fewer errors associated with processing orders and invoices
- Better inventory management
- Single point of contact into the organisation to develop the relationship
See Claritum customer case studies