A look at best practices in managing supplier and contract lifecycles.
I recently had the privilege of participating in Ardent Partners’ third Annual CPO Rising 2018 Summit. The calibre of CPOs and procurement professionals who attend this annual event is outstanding, and there is a considerable amount of shared learning. The article here combines content from my presentation, concepts and ideas raised during the event, and feedback from the Q&A session. The net takeaway from the summit is, procurement as a practice is changing fast, and those who can think and act ahead of the curve will be that much further ahead.
What’s in your data?
If there is one thing that is critical for source-to-pay professionals, it is having complete visibility over all data and processes. For procurement organizations, the only way to have a 360° view of all suppliers is to manage them in a centralized location, along with direct access to all purchasing contracts attached to each vendor.
But in too many companies, supplier master data is handled through an ERP, not a dedicated supplier management solution. This scenario does not provide nearly the capabilities required to correctly manage the supplier lifecycle, from initial request (new prospect not yet doing business) to auditing, scoring and potential suspension.
For contracts, it’s even worse. By their very nature, contracts are cross-functional, involving operations, procurement, legal, finance, sales and every other area of an organization. Unfortunately, very few companies have the correct technology tools that enable them to correctly manage not only the lifecycle of contracts, but more importantly the execution and compliance associated with the metadata they contain (dates, prices, terms, etc.) and obligations they represent (what needs to be done to execute the contract terms).
At the same time, having access to this supplier and contract information is a must-have foundation to correctly initiating a true digital transformation in procurement.
The rise of self-service technology.
During our panel discussion at CPO Rising 2018, we talked about several use cases that are fully dependent on the levels of maturity and digital transformation at each organization. Some of these are obvious quick wins that bring immediate value to a company, e.g., implementing a procure-to-pay application to automate transactions or leveraging sourcing tools to negotiate better deals.
However, it is necessary to go beyond these “low-hanging fruit” advantages and think long-term — and think bigger — in order to be able to manage complete end-to-end processes. That means, if an organization is going to fully benefit from the promise of future gains using artificial intelligence and robotic process automation, the foundation and fundamentals have to be in place. Now is the time to make sure that supplier and contract management — and the associated data — are correctly implemented, actively embraced and achieving results.
From our experience with customers at Determine, the most efficient way to ensure suppliers, contracts and data are correctly entered and maintained in a centralized platform is to use self-service tools. Slightly counterintuitive, maybe, but these tools enable a standardized process that is completely reproducible, repeatable and compliant — exactly like those tools used when employees make a purchase request or requisition. In this case, it’s simply asking for a supplier request or a contract request.
From that point, the process is pretty similar. It involves internal and external collaboration to enter all necessary information, and approval rules to decide who needs to be in the loop to review information or validate the request. Once the process has been correctly initiated with the correct data, it is then very easy to manage the lifecycle around a particular supplier or contract. By contrast, if a supplier entry is created after the fact, usually the data entered is incomplete and the quality and accuracy is suffers because there is no real collaboration nor process. Same thing for contracts.
Ultimately, self-service technology enables procurement to become a true business partner by providing value-added services to the rest of the organization through an agile, efficient process that creates total visibility and transparency for customers.
Q&A from the CPO Rising 2018 panel.
During and after our panel discussion, a number of challenges and issues were raised, most of which were echoed by many organizations. Here are some of the most pervasive:
Q: I do not have the technology tools I need, nor do I have executive support, and if it involves others departments it becomes way too difficult to implement a solution. What is my best strategy?
A: Start small and simple, and use the tools you have to provide procurement services to your internal customers — ideally with self-service and visibility. Once you start becoming integrated across business processes and showing the value procurement brings, it is way easier to get more internal support in order to expand and add more services.
Q: My supplier master data is in SAP and my contracts are managed by legal; this means I can only focus on transactions, not tactical or strategic procurement.
A: Automating transactions by implementing a P2P solution is also a very good way to start a procurement transformation. From there it makes sense to add supplier and performance management once integration with SAP is complete. Connecting execution purchasing agreement in a contract repository is also an easy move, especially if there is integration with an internal document management tool.
Q: We do not manage purchasing contracts because it is too time consuming and complex. What shall we do to improve processes and lower risks?
A: First, a purchase order is a contract that is usually more important than anything else. Correctly managing POs in a P2P solution is critical (avoiding no-po invoices). Attach your general conditions to each PO by default — especially for services procurement. Then if a supplier disagrees with the terms, you can start negotiating a master agreement. Templates are ideal for that, and you should try to limit changes in the terms as it can very easily generate inconsistent or even contradictory terms if there are too many changes. Having a clause management tool is the ultimate goal, but very few organizations are ready for it.
Procurement transformation isn’t a waiting game. Staying ahead and staying competitive requires adapting and leveraging technology, trends and best practices to proactively transform the procurement function for a successful future. This means having parallel paths in the realms of strategy, tools and organizational (stakeholder) mandate. As I learned at CPO Rising 2018, leading procurement professionals are eager to embrace the coming changes, and the most successful already have.
If you’d like to learn how your organization can future-proof its procurement function — and your entire source-to-pay capabilities — schedule a personalized demonstration of the Determine Cloud Platform.
This article first appeared on Ardent Partners’ CPO Rising blog.