If Nike the sports Brand was software, it would be e-procurement, which is now becoming fast, fleet of foot and a nimble world-class player.
Procurement is now much more of a utility type, online service, where things can be easily switched on and off using user-driven permissions and decision making, whereas in the past some purchases might have taken 18 months to install and deliver.
Organizations now need to be ‘fleet of foot’
Organizational structures need to be far more flexible than they used to be. There’s a lot more matrix management and this reflects the rise of the ‘hybrid professional’ where someone may be called upon to work across a number of different areas. Depending on the project, they could now be called upon to become the project lead or the boss or, for other projects, they may only be assigned a relatively small role, inclusion may also be dependent on physical location. So there is now a significant need for flexibility as people in the building on any given day may vary from an agency worker, to a partner or a contractor employed as part of the Business Process Outsourcing (BPO) project, or be remotely located.
The need to manage tail spend in the procurement process
The respected procurement industry watcher, Promixa, states that over 70% of an organization’s revenue is spent with external suppliers meaning a lot of those suppliers are strategic and essential to a business. On the other hand this may mean there is a relatively small amount of money going to a lot of people. This is the ‘tail’ and managing the tail is typically very manual and very onerous with a lot of people making lots of small decisions. To cope with this, it is essential to have a very flexible user model, with the ability to have different roles and/or enable people to be physically located in different places, so the whole process of engagement becomes much more collaborative. This is the modern business model that procurement needs to relate to.
Three types of purchasing model in the procurement process
The advantage of this model is that it supports ‘Self-Service Purchasing’: an employee of the business who has a requirement can buy direct; the other model is ‘Assisted Purchasing’ where that employee needs help to specify suppliers and the third type is known as the ‘Expert Model’ where the buyer doesn’t know how to buy, or who to buy from, so they end up calling an external supplier and getting them to do it.
The need for transaction based purchasing
So just these flexible purchasing models need to be supported on a transaction-by-transaction basis. A few years ago a company would set up a 3-to-5 year model to set up its purchasing, now it needs to be much more transaction based.
The Lifecycle of Outsourcing
Operations these days also need to be a lot more nimble and flexible as contracts mature and suppliers get more sophisticated.
The lifecycle of outsourcing is cyclical. Twenty five years ago most companies in-sourced and then came the trend to outsource – that’s fine in the first term and ongoing then, when it has driven all the savings out, an organization may say that it can manage as suppliers are more sophisticated and more mature; in addition, when organizations look at what they are outsourcing and the percentages (that may be large and complex), they may end up deciding to buy direct as long as they have the right technology in place.
One of the key issues in procurement is whether to centralize or decentralize.
In this instance, the procurement professional will take into account a variety of factors, in-sourcing or outsourcing and whether it is going to be managed centrally or devolved. Rather than look at an entire spend, e.g. catering supplies, it now depends on a transaction by transaction level and whether it is right to in-source an order.
The traditional management style used to be where decisions were based on outdated or incomplete data, the world envisaged now for procurement is where there is a mass of high quality, real time data from right across the supply chain, globally. So the office in Singapore can see what is being quoted in N.Y. in real time. Because it is transaction based, people can use the technology to manage transactions centrally and locally, having a centralised procurement policy with local purchasing.
The decision making process is now much more about ‘approve, decide, deliver’ and it is important that the procurement function educates organizations that they do not now need to buy xyz widgets and call consultants in to make it happen! Buying products from China now can be done within the hour - from specification to price - and an order placed 10 minutes later, with the goods being manufactured and shipped within a week.
Procurement professionals have to learn to cope with the flexibility required in line with the business requirements. For example, in a company with a large sales force of 300 people, 70% may need cars, however, for the other 100, some want to be leased, and some may want to buy their own.
The key benefits of taking this new approach to procurement, are:
• Enabling you to enter previously closed markets
• Undercut the competition
• Create Nimbleness
• Offer more Flexibility
• Launch products more quickly
• Shorten time to market
• More flexibility to react to competitor activity
• Lowers risk
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