CPOs have long understood the potential for procurement to add strategic and bottom-line value to the business. They’ve also become increasingly successful in convincing the C-Suite to invest in transforming procurement from a largely transactional function, to a world-class organization.
The investment case is compelling. World-class procurement teams are characterized by a clear understanding of business needs, strategic relationships with suppliers, and a focus on driving digitization and simplification for stakeholders. They can deliver significant savings and strategic benefits to the business – and ensure those savings reach the bottom line.
Proving a return on that investment, however, can be challenging. Too often, procurement-led initiatives begin with high hopes and promises, and end in frustration as the promised benefits fail to materialize. We have seen this across all organizations – especially larger and decentralized ones seem to be challenged, as they cannot easily enforce top-down compliance or a consistent approach across their business.
In our experience, when projects fail there are typically two fundamental issues. Firstly, low levels of compliance can sabotage the intended benefits – for example, stakeholders continuing to use existing local suppliers even though the procurement team have negotiated better pricing from new suppliers.
Secondly, an inefficient procurement infrastructure can also hinder the achievement of benefits – for example, where different regions have different standards, processes and tools.
Content – the missing link
There’s wide agreement that technology and digitization is key to addressing these challenges and enabling world-class status, but technology is only part of the solution.
Technology provides the platform, but success requires a more holistic approach that focuses on content as well as technology. In our experience, it is the integration of the right content with the right technology that unlocks real transformation.
What do we mean by content, and why does it matter?
From a procurement perspective, we define content as all the elements (tools, knowledge and information) required to complete an end to end procurement process efficiently and effectively.
For example, it includes sourcing-related content such as category strategies, RFP templates, pricing benchmarks, supplier lists, etc.; buying-related content such as buying channel guidelines, catalogue items etc.; and contract-related content such as contract templates, NDAs, etc.
The very best technology, without the very best content, will not bridge the gap to world-class performance. In fact, it could even make things worse.
A cautionary tale
Here’s an example that will be all too familiar to many procurement professionals.
John, a sourcing manager with a multinational manufacturing company, negotiates a deal with a new supplier for Maintenance, Repairs and Overhaul parts. The new arrangement will deliver significant cost-savings and faster, easier ordering through a new technology platform and buying portal. The CFO, CPO and business stakeholders are all very positive and John’s career trajectory is looking bright.
Fast forward a few months. The solution has taken much longer than scheduled to deliver and everyone is frustrated:
- End-users are frustrated because the purchasing process is time-consuming and it’s difficult to get the right parts at the right time.
- In addition, some of the preferred suppliers are unable or unwilling to meet their promised commitments – for example, negotiated service levels.
- Because of this, many continue to source parts from previous or even blacklisted suppliers at higher prices.
- The CFO is frustrated that the promised savings haven’t materialized.
- The CPO is frustrated because the project is undermining the credibility of his department – not to mention his own credibility with the CFO.
- John is frustrated at the length of time the project has taken and the high level of non-compliance by the business. Fed up at the dimming of his once-bright career prospects, John leaves the company for new opportunities – taking his knowledge with him.
What went wrong?
In situations like this, failure is attributed to poor change management or a failure of technology (in this case, the failure of the new portal to deliver to the needs of business stakeholders). However, the underlying issue in this project is a failure of content.
- Significant delays in finalizing the necessary contracts were a result of not having readily available contract templates. This required significant additional effort and meant contract closure took much longer than anticipated. This, in turn, pushed out the delivery of the solution – causing frustration in the business.
- Once the solution was implemented, end users were hampered by catalogue items not being set up properly to match the business requirements. Catalogue items did not cover the full range of the equipment needed and some items did not meet the specifications provided by the business.
- The new buying channel provided a poor user experience. A lack of user guidelines coupled with poor search function made it difficult and time-consuming to use.
- The combination of an incomplete catalogue and difficulties with the user experience meant many stakeholders reverted to using previous suppliers – or found new ones. The resulting lack of compliance with purchasing policies made it impossible to achieve the intended savings.
These kinds of issues are not uncommon. When a new platform is deployed, it is ‘empty’, and users must begin to populate it. There is a natural tendency for users to ‘translate’ the old system and ways of working into the new system – which means existing issues and inefficiencies are duplicated. A more holistic approach, focused on both technology and content, is needed.
Bridging the gap
To understand the importance of content, let’s use the analogy of a website. The technology (code) used to create the website is meaningless without the content it contains. Without content, the technology is just an empty shell.
It’s the combination of technology and content where the magic lies. That’s what enabled Amazon to revolutionize e-commerce through their ability to bring together their platform (technology) with connected and embedded content (what you can buy), to add value to users and make their buying experience easy.
That’s why a procurement platform on its own will not create world-class efficiencies, savings, and end-user experiences. In fact, without a well-designed content strategy, it may well intensify the problem by raising expectations that inevitably can’t be met.
However, our experience has shown that by combining the right procurement platform with the right content, organizations can transform their procurement function.
Those who get it right can:
- Increase the efficiency and productivity of their procurement teams by providing easy access to templates, negotiation decks, contract documentation and much more – avoiding the need to reinvent the wheel each time.
- Ensure knowledge is retained within the organization and not lost when key people move on
- Increase compliance by routing business stakeholders towards the preferred solution and making it easy for them to comply
- Drive automation and process simplification
- Support decentralized teams to make a global impact
- Make it easier to track and monitor spend - and savings.
Developing a world-class content strategy
We believe a procurement content strategy is an often overlooked but increasingly critical factor for CPOs looking to make a step-change in their organization. But where do you start?
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The next article in the series will explain the three key areas to consider in your content framework and provide insights from Efficio’s experience of designing and implementing world-class content strategies.
However, if you require immediate support with your content plan, please contact our experts Thomas Karger and Cesare Baratto.