Global viewpoints: how procurement technology can benefit performance
Efficio’s sector heads highlight the latest trends in their operating regions, and how the role of procurement technology, used correctly, can improve performance.
Tim von der Decken, Vice President
Around 90% of businesses in Germany with purchasing volumes above €1 billion will have both ERP and spend management systems in place. But many firms are frustrated by the generic nature of their procurement and, in particular, source-to-contract software and support systems.
These systems support the process of consolidating tenders or collecting responses to requests for proposals, but they don’t allow you to look at how a tender for temporary labour differs from a tender for fleet. Often this means that such generic process automation software is not being used consistently. Most importantly, these standard solutions do not provide intelligence around how to drive cost out of categories – they simply automate the process.
The primary focus for CPOs needs to be on getting accurate spend transparency, which can then be used as the basis for more strategic savings. One of our public transport clients, for example, identified that it spent €600,000 a year on coffee. It changed its model, partnering with a major coffee manufacturer to sponsor the coffee and coffee cups in exchange for advertising space and visibility. This transformed the former cost position into a revenue stream of €200,000 a year. Source-to-contract software would not have delivered this idea, which was developed by experienced sourcing practitioners.
Accurate spend transparency should be a greater priority than systems which automate the procurement process. People costs are a far smaller proposition compared to spending your efforts on external costs in the industry. CPOs need to take a critical view on what the business case looks like.
To find out more, please contact Tim.
CPOs want procurement technology to better their business, make their teams more efficient and drive insight through data.
Toby Munyard, Vice President
The UK is a relatively mature market in terms of procurement technology. Most FTSE 250 companies in sectors such as manufacturing and finance have established ERP systems.
Now, however, firms are questioning the value they’re getting from these platforms. Most have some form of procure-to-pay technology, but what do these systems deliver in terms of insight? They know they could be getting greater value, whether that’s driving supplier management and innovation, or removing processes from their business.
There’s also a greater emphasis on return on investment. CPOs want procurement technology to better their business, make their teams more efficient and drive insight through data. Thames Water is one organisation, for example, making good use of supply chain data to deliver better service to its customers.
We’re also seeing more UK businesses purchasing technology with a service, such as data analysis, wrapped around it. A service that uses technology – with the supplier providing added-value expertise – is a far more beneficial proposition than just a licence for a product.
To find out more, please contact Toby.
Jesper Schade, Vice President
Many businesses in the Nordic countries have wasted money on implementing eSourcing suites that have failed to meet their needs. This has prompted a rise in companies looking to install separate spend transparency solutions, among other key tools.
The challenge is to align these solutions with business processes, within the company set-up. This isn’t easy, particularly when you have companies with manufacturing sites spread up and down long, narrow countries like Norway, Finland and Sweden. It’s largely about change management.
Those at headquarters, including senior management, want to see the benefits from these solutions but they are often distracted by other demands. They need to pay attention and focus on all sites based on practical prioritisation. Communication and local involvement are crucial.
Another challenge is that technology providers can be reluctant to customise products to individual countries in the Nordics. This means customers are left with packages designed for the US or UK, which of course isn’t ideal.
The focus for CPOs needs to be on using the right technology that supports the business processes, to identify savings and benefits that can be recognised by finance. This means real value creation and real savings, not just on paper – this should be the priority for procurement. With that you can get the management dashboards and better communicate progress – or the lack of it.
To find out more, please contact Jesper.
Patrick Traynor, Vice President
Procurement technology is well established across firms in the US. Most companies have some form of spend analytics, electronic request for tender, and contract repository system. But many firms are not realising a measurable return on their procurement technology investments.
There are two areas where companies miss out. One is a project management or category management technology that tracks progress on a project and links it from identifying an opportunity to executing it. Larger companies tend to use these modules well, but they don’t tie them together, which could be either a user or a technology issue. The second area is around post-contract supplier management. More companies are talking to us about how they can use technology to monitor suppliers’ performance, not just from a costing, pricing and economic standpoint but also in terms of quality and service.
Getting approval to implement new technology isn’t a huge challenge in the US, but internal resistance to change can make things difficult. There’s also a risk of assuming technology on its own is the solution. CPOs are either oversold on the technology or miscalculate how they should use it. Underestimating the effort and the degree to which teams and customers need to change behaviour to improve performance is one of the biggest challenges.
To find out more, please contact Patrick.
There’s also a mistaken belief that implementing technology will be a panacea – rather than first addressing any underlying issues with current processes.
Middle East and Africa
David Mooney, Vice President
Many businesses in the Middle East have yet to fully embrace procurement technology, but wider factors are prompting them to reconsider.
Businesses in the region are facing significantly more change than those in Europe or Asia, as they are forced to rethink the use of existing operating models using low-cost foreign labour. They are also experiencing major interruption and disruption to their supply chains because of political change and/or fiscal regulation, e.g. the introduction of VAT.
With the future looking uncertain, some companies are concerned about investing in long-term solutions – including the latest procurement technology. They are also grappling with the big question of what technology to invest in to improve their supply chains.
Where companies do spend on procurement technology, there can be a tendency to go for best-of-breed systems, which may not always be right for them. There’s also a mistaken belief that implementing technology will be a panacea – rather than first addressing any underlying issues with current processes. New technology layered on top of existing bad practices rarely brings the improvements hoped for.
On the plus side, companies in the region that are not restrained by investment in legacy systems have leapfrogged those in other parts of the world by adopting new tools and techniques and making the transformation quickly. Organisations in Saudi Arabia and the Emirates are entrepreneurial by nature and are often open to trialling new technology. This has led them to become regional leaders in their sectors.