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Procurement Analytics

Jul 05

Competitive Sourcing in Procurement

By Procurement No Comments

Effective sourcing in procurement is no longer a luxury—it’s a necessity.

For finance and procurement executives, understanding the intricacies of sourcing is crucial in ensuring a stable supply chain, mitigating risks, and ultimately achieving a competitive edge.

But what exactly is sourcing in procurement, and how does it unlock value for businesses?

Understanding Sourcing in Procurement

Sourcing is the process of finding the most suitable suppliers of goods and services for a company. It’s about balancing cost, profit margins, and competitiveness. The right supplier must offer a good enough price so that the acquiring business can make a profit margin by trading or using the product in their production process, all while considering the actions of competitors.

Although often used interchangeably, sourcing and procurement are distinct but related concepts. Sourcing involves finding, vetting, and onboarding suppliers, whereas procurement deals with the steady flow of goods through the supply chain.

The Importance of a Sourcing Strategy

In order to attain a stable supply chain, it’s important to develop a proper sourcing strategy. A sourcing strategy serves several purposes:

  1. Consolidating purchasing power: A strategic approach to sourcing allows a business to negotiate for lower unit prices through bulk purchases. This can result in higher profit margins or lower selling prices, thereby increasing the competitiveness of a company’s products.
  2. Risk mitigation: By conducting research on prospective suppliers, a company can avoid suppliers who are not a strategic fit, perhaps in terms of capacity, culture, or regulatory compliance. This can protect the company from possible disruptions arising from a supplier’s non-performance.
  3. Scouring the market for opportunities: Strategic sourcing is an ongoing process of searching the market for new opportunities. New suppliers with superior product quality, more competitive prices, or even new production technology may emerge. The role of the sourcing team is to establish contact, gather intelligence, and lay the groundwork for future contracts, helping the business stay competitive in the long term.

The Sourcing Process: A Step-by-Step Guide

The sourcing process can be broken down into seven key steps:

  1. Analysis of Internal Needs: This involves determining the goods and services the company needs to acquire, as well as how much of each item is required based on past requirements and activity growth projections.
  2. Researching the Market: The organization should research the market to find potential suppliers and their offerings. This includes considering logistical costs and the risks that arise from working with each of them.
  3. Developing the Sourcing Strategy: The company comes up with a method of determining which supplier to work with, ensuring both reasonable costs and supply chain stability.
  4. Requests for Proposals and Quotes: Once potential suppliers have been identified, the company will invite them to send in their bids to supply goods or deliver a service. These proposals need to be detailed enough for the sourcing team to assess the supplier’s capacity to deliver.
  5. Negotiating Contracts: After receiving proposals, the company will shortlist suppliers they want to work with based on an objective criterion. This often involves negotiations for adjustment of certain terms.
  6. Onboarding and Integration of the Suppliers: Once a contract is signed, the supplier undergoes a formal onboarding process, which involves setting up communication lines.
  7. Assessment of Results: Sourcing is an ongoing process, and for current suppliers, the company has to monitor their performance against predetermined standards continually. This is a critical part of supplier relationship management.

Sourcing Strategies to Consider

There are several types of sourcing strategies, including near-sourcing, insourcing, global sourcing, sub-contracting, captive service operations, manufacturing, vertical integration, and joint ventures. Each comes with its own set of benefits and challenges.

For instance, near-sourcing can save on cost and time in transportation but may require a higher initial investment. Conversely, offshoring can offer cost savings but often incurs additional time and costs in transportation.

The Power of Technology in Sourcing

The use of technology can help streamline sourcing activities. From gathering information about suppliers and sending requests for proposals to performance benchmarking and assessment, digital tools have revolutionized the sourcing and procurement process.

According to a Gartner survey, 85% of businesses have already implemented, or plan to implement, digital procurement solutions in the next two years.

 

With a proper understanding of sourcing in procurement and the use of strategic sourcing practices, finance and procurement executives can unlock significant value for their organizations.

By adopting efficient sourcing strategies and leveraging the power of technology, businesses can streamline their procurement processes, reduce costs, increase competitiveness, and ultimately drive growth.

 

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Sep 12
Procurement Analytics and Rogue Spend

Procurement Analytics and Rogue Spend

By Procurement No Comments

Summary: Rogue spend—unmanaged spend—puts businesses at risk of noncompliance, creates unpredictable budgets, reduces forecasting accuracy and completeness, and overall reduces business profits. By using spend analytics, rogue spend can more quickly be spotted and managed, reducing fraud, duplicate purchases, noncompliance risks, and allows leaders to make better-informed decisions based on complete and cohesive data. 

In procurement, an and unwatched budget can quickly spiral out of control, sometimes in ways that can be severely detrimental to the organization both culturally and even legally. Spend analysis is a vital aspect of any procurement strategy and allows decision-makers to gain an accurate snapshot of spending, reduce fraud, and optimize and strategize at both a high and granular level. Failure to control rogue spending can result in over-stretched budgets which are draining to the organization and the employees who must deal with it.

What Is Rogue Spend?

Rogue spend is often mentioned in the same breath as maverick spending and tail spend. No matter what you want to call it, it’s spending that you don’t want in your organization because it is unmanaged and unpredictable. Of course, unmanaged and unpredictable spending means your business’s budget, forecasting, and insights are incomplete at best and completely inaccurate at worst. Issues with rogue spend may also place your business at a much higher risk for non-compliance. 

Rogue spend can happen for a variety of reasons, from the innocent to the ignorant to the downright fraudulent.

On the innocent side of the spectrum, employees may not work within an organization where clear spend policies are in place, causing businesses to lose out of discounts. Procurement professionals may have been directed to focus on other objectives. Lack of proper tools and procedures for contract management may prevent procurement from properly managing spend.

On the ignorant side of the spectrum, there may be a cultural mindset that small purchases are “too small to matter” even though they can quickly add up. Management may accept unmanaged spend because they are unwilling to or do not understand the need to put manpower or money towards managing spending, because they do not understand that, left unchecked, unmanaged rogue spend can quickly spiral far out of control.

And on the fraudulent side of the spectrum, rogue spend can occur in many different ways. For example, in August and September, office supply spend may spike because employees take supplies home to their children to use at school. Similarly, employees may make miscellaneous purchases on personal cards then request reimbursement. Also on personal cards, employees may pay for flights and conferences, request reimbursement, and cancel the flights and tickets in order to pocket the money themselves. According to a white paper from Chrome River titled 10 Ways to Prevent Business Expense Fraud and Abuse, some employees may report many purchases barely below the audit threshold in order to steal money from the company—this sort of risky behavior can quickly be caught using automated spend analytics.

How Can Spend Analytics Help Find Rogue Spend?

Maintaining and clear and accurate picture of your company’s spending data can reveal many insights, not the least of which is rogue spend. Especially if your company utilizes machine learning technology, objective data can be utilized to spot risky behaviors, target spend that is likely to be out of compliance, and find key opportunities to reduce spend by utilizing and strategizing with key suppliers in order to maximize discounts and efficiency. ERP solutions like SAP S/4HANA can be especially helpful in aggregating and analyzing these sorts of spend data into one integrated dashboard.

Spend analysis, by its very nature, increases visibility, allowing decision-makers to make better-informed choices regarding the company’s finances.

Spend analysis can be used to analyze uncategorized spending and assess risks associated with it, determine if there’s a high likelihood that the spend is fraudulent, and help clarify where rogue spending can be reduced in exchange for managed, strategic spending that benefits the company’s bottom line and supplier relationships alike.

Sep 12
intelligent spend management

What is Intelligent Spend Management?

By Procurement No Comments

Intelligent Spend Management: Why it Exists, and Why you Need it

Between global sourcing initiatives, product lifecycle management, supplier diversity milestones and more, the procurement operation in any sizable company is tasked with processing immense volumes of data.

And with the immense popularity of lean and tech-oriented skill sets in the discipline, no data is more relevant to procurement than the things that impacts company spend.

The Problem: Data Islands

Often, supply chain data is kept on systems that don’t talk with each other. Some systems may be deprecated, while others exist only on certain peoples’ machines.

In operations like this, the company is said to lack something called business intelligence– the ability to efficiently analyze data with technology and derive actionable information.

Introducing business intelligence to a company typically involves change management processes with long time horizons, affecting the bottom line. The growing pains required to become a business intelligence-enabled company may require a major culture shift, too, even while dropping large amounts of money on new ERP systems and consultants.

For those procurement operations that do have all their data efficiently accessible in one place, they’ve still only ach

  1. Procurement Strategy

ieved half the battle. Approaching the data with informatics, or the science of how to use data, poses another challenge altogether.

Intelligent Spend Management: How it Works

Thankfully, for small and medium-sized procurement operations, it doesn’t take a reverse auction guru, enterprise software wiz, and sourcing strategist all in one to enhance the unit’s business intelligence with technology. The traditional methods of enhancing business intelligence have been tailored for procurement professionals in a new, simplified process called Intelligent Spend Management.

First and foremost, Intelligent Spend Management (ISM) streamlines your software suite into a centralized hub. From there, ISM allows the supply chain professional to anticipate threats, understand their market, and work across business units to deliver efficiencies that were virtually impossible before.

SAP Ariba, the most comprehensive ISM software suite, generates more data from across the source-to-pay cycle than any other network. As the company website notes, “SAP Ariba’s vast repository of data has been aggregated from millions of companies conducting trillions of dollars in spend over the course of more than 20 years.”

Thanks to the flexibility of SAP Ariba, third-party solutions and custom flexibility can be easily integrated into the software. Efficiency-oriented solutions like Premikati Marketplace fit squarely into the suite without disruption to the end user.

Intelligent Spend Management: Starting the Conversation

With any change management process, the business needs executive buy-in for the initiative to be truly successful. Achieving that buy-in can be a challenge to procurement professionals, who may face pushback for introducing disruptive, new ideas.

Thanks to the presence of consulting companies specializing in the process, like Premikati, the conversations over how best to introduce ISM to one’s own business can take place in a guided, easy-to-understand manner.

Intelligent spend management is as much a philosophical approach to the procurement operation as it is a function of corporate business intelligence. Reach out to the folks at Premikati, who offer an SAP Qualified Partner-Packaged Solution, to start the intelligent spend conversation.

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