Introduction: The Next Opportunity for Procurement
In this paper, we explore how procurement decisions are made and how the outcomes of those strategies make their way to the boardroom. Too often procurement teams are reacting to the stream of asks from the business and focusing on operational efficiencies, instead of proactively driving value. Technology can close the gap between strategy and execution, and the missing piece of this puzzle historically has been a Procurement solution purpose-built to inspire, plan, manage, and measure impact.
Procurement for the past two decades has had no shortage of available solutions to assist with the efficient scaling of execution-related tasks across source-to-pay (S2P) functions. The intent of those solutions is to bring greater speed, consistency, accuracy, and transparency as business structures and supply chains get larger and more complex – with the goals to improve cost savings and compliance.
And S2P products have delivered strong, clear value as they have digitized and automated repetitive activities: competitive eRFPs, e-sourcing, and e-auctions; contract execution and storage; e-catalogues, e-purchasing, and expense management; invoicing and AP/AR tools for finance; and even integrating supplier information for easier access.
After all, the execution-level work should be in support of the overall direction and needs of the business. Spend Matters in an analysis report (July 12, 2022) made a comment about the trappings of only focusing on transactional solutions: “One needs to take the perspective of the future direction of the procurement technology market — which, we would argue, requires thinking beyond the framework of the traditional source-to-pay (S2P) suite.”
For those with management-level responsibilities, areas begging for support include:
STRATEGIC GOAL SETTING
• Financial and cost-saving KPIs
• Spend compliance and consolidation
• ESG (environmental, social and governance) goals
• Risk management
• Operational resiliency
PRIORITIZATION & RESOURCING
• Identification of new sourcing opportunities
• Collaborative review and prioritization of initiatives
• Resource capacity planning and allocation
• Project progress tracking
• Risk monitoring
MEASUREMENT
• Savings and non-financial outcomes
• Spend under management
• Trends and benchmarking
• ESG progress by category and subcategory
• Preferred supplier utilization
• Team member performance
What’s been left out of this legacy focus on productivity tools and reactive thinking are solutions that drive improvements in the strategic, forward-looking planning, goal-setting, and active oversight of procurement’s performance.
Today, those needs are hard to address without easy access to the right insights. Procurement organizations are missing that “go-to” source to access the data in just a few clicks. And if reports are produced, they are often met with skepticism. This all hinders the effectiveness of Finance and Procurement from the top down. And if strategy and management isn’t built on a solid foundation, value is left behind.
This paper covers the opportunity to address this glaring gap in the Procurement solution landscape. We will define the problems that have persisted where technology innovation can provide an answer. It will be clear how a platform for Strategic Procurement Planning and Performance Management is distinct from – but also a substantial enhancement to – the source-to-pay process and tools often already in place to empower leadership.
The Problem: Poor Support for Strategic Leadership and Performance Oversight
Procurement leaders and their teams must frequently make planning decisions and conduct assessments of their results, but what information is available to them? The overall value and positive impact of Procurement is blunted when you can’t get the right insights at the right time about spend activity, projects, and performance outcomes. This problem exists – and persists – for several common reasons:
The Data Issue
Why is it so hard to get good information? For starters, the data that you need is everywhere and in different formats. You need to integrate your historic spend, your suppliers, past outcomes, and your current active projects and status – it’s a big lift but required to make the best decisions and properly manage priorities, goals, and resources.
And as Ardent Partners said in its Procurement 2023 Big Trends and Predictions report: “CPOs running their procurement operations without visibility into their spend are committing procurement malpractice.”
Once integrated, spend data must be made useful to Procurement, and in its current state, it is likely not in the right shape. Transforming data from existing sources and ERP systems involves merging, normalizing, categorizing based on the right taxonomy, and often enriching it. It’s not easy to gather and prepare this data one time, let alone on an ongoing basis.
See the below “before and after” visual regarding spend data at one organization. Before this company’s spend data was processed and enriched with SpendHQ’s Spend Intelligence AI-enabled solution and best practices, their spend taxonomy was too complicated and left more than 70% of spend unable to be classified into proper subcategories. The ideal is to get to 99% of spend classified into an appropriate, repeatable taxonomy to make analysis easier.
Similarly, current data about projects and initiatives are scattered across a variety of tracking tools and often not uniform in how each project is reported. Potential project ideas awaiting decision may be even harder to consolidate, if even captured at all.
Reporting efforts to show pipeline, project status, and outcomes are handled in either an ad hoc fashion (with heavy reliance on error-prone spreadsheets) or using an internal BI team to try to integrate and visualize the data.
This all becomes a massive headache for leadership. As Ardent Partners also stated in its 2023 Big Trends & Predictions report, CPOs are increasingly pushing forward with digital modernization and data-driven decision making within their team and when collaborating with other executives. The data piece is critical.
Imagesource:SpendHQ’sstrategicpartnerInsightSourcingGroup
Decentralized Teams and Processes
Another issue often faced is that not all Procurement teams are centralized or have a center of excellence (COE) to establish and standardize practices. This not only contributes to some of the data problems described in the previous section, but also leads to:
• varying approaches to data analysis
• missed opportunities to find spend and supplier consolidation
• inconsistency in managing sourcing and procurement initiatives
• different processes and data when engaging with suppliers and stakeholders
• different interpretations on how to report on status and risk
• inconsistency on how results are reported
Without a centralized management-level application built to codify best practices for its users, improvements to process adherence require ongoing internal education, coaching, and auditing. Trust is lost, time is wasted, and the value to the business is undermined.
The Wrong Tools for the Job
When all you have is a hammer, everything looks like a nail – a common saying that applies well here. For companies that have already invested in procurement productivity solutions across any or all of the source-to-pay span, there is a natural tendency to try to “squeeze as much juice” out of the tech that’s already in place.
Many of the procurement suites will promote their embedded features for spend data visibility and reporting. However, that only captures the data running through those tools, often leaving out major pieces of the enterprise. On the project and performance side, those tools are simply not designed to deliver that functionality. Teams may find they are trying to fit a square peg into a round hole as they attempt to use these tools in that way.
So instead, generic project management tools, document-sharing apps, report-builders, and of course spreadsheets serve as a patchwork of workarounds. None of these are designed to do the job that’s needed, and certainly not for procurement’s specific requirements.
What is Needed: Elevate Your Strategy and Oversight
Historically, this gap in procurement management had persisted because the market lacked appropriate, purpose-built solutions and a consensus on what to build. Providers of software suites remained focused on what they did well: transactional source-to-pay offerings.
That has changed in recent years, as an increasing number of offerings now focus on delivering to procurement the strategic intelligence and performance management benefits – and are now available to help you solve for this very quickly and effectively with rapid ROI.
Two key pieces needed are
(1) comprehensive Spend Intelligence coupled with (2) centralized
Procurement Performance Management (PPM). Those solutions leverage data from source-to-pay applications and other ERP, financial, and external systems to get the most complete picture of your data and also trigger new execution activities based on insights and projects identified. (See diagram below)
This integrated solution picture allows everyone from procurement managers, finance leaders, procurement practitioners, spend category owners, and analysts to:
• Discover new areas to drive savings and value to the business based on the full spend picture
• Improve collaborative decision-making for prioritization, resourcing, and goal setting
• Use insights to continuously iterate and improve over time, especially as changes, regulations, and new inputs impact plans
• Access and share auditable, centralized reporting whenever needed
Converting Spend Insights to New Initiatives
Spend Intelligence solutions, also known as spend visibility or spend analytics, have been in market for many years. What most leave out, however, is that as you discover a particular insight into some spend behavior or trend, it’s not easy to swiftly mobilize a new trackable project with clear goals based on that information.
The ideal Spend Intelligence solution will have a proven, technology-driven best practices approach for capturing as much spend history data as possible and categorizing the data to the taxonomy needed by each procurement team based on their business.
From there, the data should be easy to navigate, filter, compare, and report on within the application – and then provide seamless flows to collaboratively initiate new sourcing based on the insights gained.
This solution bridges the gap between Procurement’s strategic vision and action. Procurement performance is elevated across the strategic-to-operational lifecycle. As a result, you are continually adding more value to the business while advancing your practices:
Example Scenario with Supplier Diversity: From Spend Insights to Projects to Measurement
• Corporate Goal: A company has clearly communicated SMART goals for increasing its spend with diverse suppliers by 10% this year.
• Capturing Spend Data: Using Spend Intelligence, supplier data is enriched to capture those with diversity designations.
• Finding Your Benchmark: You can see and benchmark your spend across diverse suppliers, category-by-category, or even filter by locations or other criteria to identify new opportunities.
• Project Ideation: Use these insights to collaborate with stakeholders to assign diversity goals to a new project (or projects).
• Project Launch & Oversight: Integrate with your e-sourcing tool where the eRFP, bidding, and awarding will execute, while tracking the project’s status and risks in your management hub.
• Outcome & Contracts: All projects with diversity flags are easily found in the overall pipeline view with their final results reported. Contracting information is captured for visibility and tracking.
• Executive Visibility & Governance: Clear reporting shows how well the project performed against its diversity goal, and dashboards provide aggregate-level measurement. Key stakeholders can audit and confirm the results, thereby ensuring good governance.
SpendHQ: Delivering a Proven Solution for Strategic Procurement Planning and Performance Oversight
SpendHQ’s Spend Intelligence solution, following its merger with Procurement Performance Management platform pioneer Per Angusta in July 2022, has integrated its offerings to enable the continuous, seamless interaction that delivers spend insights to inform and launch Procurement’s next wave of plans, goals, projects, and impact measurements.
As analysts from Spend Matters described in their coverage: “In merging these two solutions, intake, strategy, visibility and execution-based opportunities and insight will come together on both a control tower and category-basis for firms” and that for customers, this will “create a closed-loop procurement and spend management solution that covers the full scope of sourcing starting at opportunity identification all the way until performance and spend analysis and tracking.” (July 12, 2022)
Here are key benefits reported by customers from the use of these solutions:
New savings and value can be continuously discovered
It’s crucial for Procurement to be able to proactively identify new ways to reduce costs and/or generate more value. Rather than a blanket “cut costs across the board by 15%” mandate, Procurement and Finance leaders use SpendHQ’s solutions to quickly identify clear targets that makes good business sense. As an example, our customers report a 3X average increase in spend compliance with the spend insights they obtain.
By connecting your Spend Intelligence with Performance Management, new initiatives – whether focused on savings or strategic goals -- are more data-driven than ever and the reporting is defensible.
It also provides transparency and access to more team members, so that you have even more eyes who can discover compelling insights and then proactively propose opportunities on which to capitalize.
Get to trusted insights and measurements faster
Often, performance reports are met with skepticism when there is a lack of transparency and auditability. With data is centralized and accessible to many stakeholders, SpendHQ builds confidence in the outcomes you are measuring. A customer survey found that 76% experienced an increased trust in procurement performance reporting with our solution. Trust also relates to the completeness of the spend data picture. How much of that data is captured and how ready is it for Procurement to use? SpendHQ’s approach guarantees that at least 97% of your spend data is classified into a Procurement-ready taxonomy.
The head of global indirect procurement for Under Armour said that the Spend Intelligence solution “opened up entirely new views into our spend. The improved visibility helps us in negotiation preparation, RFP development, and strategic sourcing pipeline development.”
Gaining that much-needed holistic view across all spend and procurement projects translates to better management control and oversight. It also means high credibility when reports are shared with Finance, business stakeholders, strategic suppliers, and even at the board level.
Drive progress towards strategic ESG and non-financial goals
Other goals beyond savings must be met to preserve the operations and value of the business. Many advanced sourcing projects arrive at supplier award decisions by considering more than just pricing inputs; delivery time, diversity, quality, payment terms, sustainability criteria, and other factors can tip the scale.
Having SpendHQ’s strong Spend Intelligence solution connected with our Performance Management means you can more quickly and clearly see how you are progressing and benchmarking relative to corporate-level commitments such as spend compliance with preferred suppliers, supplier diversity, sustainable packaging, or greenhouse gas emission reductions.
Easy access to such insights also facilitates greater collaboration with stakeholders, to have a more productive dialogue to find the right balance between preferences, costs, and strategic goals.
