This is Gopi Krishnan from Infosys. As the supply chain practice lead and a regular blogger in our company blogsite, I really couldn’t pass off the opportunity to turn guest blogger for someone as passionately dedicated to the SCM cause as Bob Ferrari is. So, I thank Bob for the opportunity and would be writing a few words on a function way upstream in supply chain consciousness, viz., procurement.
Last month, one of my colleagues called me from Houston to bounce off some ideas on a procurement project he was working on for a large Oil Field Services company based there. There were optimization opportunities galore in their procurement universe – analytics, contracts, sourcing, invoicing, master data…the works. However, the questions he asked were centered on (a) where to start and (b) what to harmonize. I had a déjà vu moment as it suddenly took me back to the time as we were listening with our mouths wide open to the story of one of our banking customers were telling us about the 35+ systems they had solely for procurement purposes – in banks, as you would realize, all procurement is indirect and hence considered a cost-optimization opportunity.
On one hand, ‘centralized procurement’ is a kind of an anathema to the business team bringing with it “big brother” visions while on the other, large organizations have fairly autonomous entities spread across countries and divisions. It’s the freedom and local decision making ability that got each of these entities where they are today, so how do we keep that spark burning while bringing in the overarching theme of implementing a corporate-level rule-set (or constitution, as some would put it!)? We would need to start with the humbling thought that some form of “center-led procurement” is the maximum we can push the system to accept gracefully and comply.
The typical way of starting off would be by doing a portfolio assessment of spend applications. I personally believe this is a must-do activity at some point as it gives an excellent birds-eye view on what’s going on in the organization from a deployment/user behavior point of view. However, this may not give a category level picture at all, any hopes of getting some form of spend classification has to come from the accounting heads maintained by the finance folks. My issue with stopping at application portfolio assessment is that there’s very little one can do in the short run without inflicting substantial change management (a.k.a significant end-user pain) especially for those users who are getting their systems sunset, however medieval or worse, paper-based their current processes may be.
A better way could be to accept that procurement may still happen in myriad ways and means across the organization and focus energies on building a spend analytics dashboard instead. Being a post-facto, back-end activity, this is clearly non-disruptive for the end-users. That said, it is going to expose the first major problem every organization innately knows, but doesn’t want to deal with – that of calling the same supplier by seven different names and the same item by twenty seven more. Again, due to country/departmental whims, having a unified master data model could be another humongous, multi-year, multi-million program. Assuming no dollars are going to flow there in the short run, we would need to tackle the data issue via a bit of manual analysis coupled with system-driven transformation logic before it gets into the dashboard.
Considering diverse source systems and their technological peculiarities, adding each of these sources into a single dashboard would pose unique challenges. But this can be a phased, multi-step process, celebrating success along the way upon each wave of expansion. There could be category based challenges also – ‘Invoices without POs’ for legal services may have a different attribute set compared to ‘consumption POs from multi-year contracts’ for cleaning services. There would be many more order specific nuances like preferred vendor agreements, payment penalty clauses for certain orders, RFP/contract-specific parameters that need to be vetted during receipts etc.
Once the dashboard is created, we can attack the upstream processes of sourcing and contracts in order to try and bring a modicum of standardization out there. Further improvements can happen if procurement category heads are aligned to accounting heads used in the financial systems and that would mean tightening up the receipt-invoice-settlement process, which is usually a shared responsibility of procurement and finance.
In all of this, the key words are ‘non-disruptive’ and ‘progressive elaboration’ through which we can finally get to realize the aspirational dream of a ‘self-funding procurement program’ . Along the way, if there are holy cows to be dispensed with (or slaughtered, if you insist!) in terms of sunsetting ancient applications, non-standard technologies and e-mail/paper/fax based ordering processes, so be it. Portfolio assessment followed by portfolio rationalization further followed by portfolio consolidation in the spend apps area would definitely have a drastic impact on maverick spend, but if you ask me, spend analytics might be a way to test the waters in terms of prioritizing execution strategies.
Disclosure: Infosys is one of other financial sponsors of the Supply Chain Matters blog.