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July 16, 2015

Getting clarity for building a holistic approach to Procurement technology (Part 2)

In a recent post, Getting clarity for building a holistic approach to Procurement technology, we looked to address the challenge of the terms often used to describe procurement technology. Even the other day our sales team encountered a client RFP that asked us to elaborate our capabilities of RFx and auctions in the context of eProcurement. What? The initial reaction was that RFx and auctions are a part of eSourcing, not eProcurement.

Based on this example, and hundreds of others out there, it’s clear no consistency exists for using terms like eSourcing, eProcurement, or ePurchasing. Hence, one approach posited in the earlier post was to provide some transparency by breaking down the source-to-pay process into two core parts – upstream and downstream.

While not new terms to most in procurement technology and used by some technology providers for years, they perhaps provides the easiest and simplest way to conceive of the processes that encompass the complete “source-to-pay” cycle without getting bogged down with e-anything. And what’s interesting, the upstream / downstream concept is not unique to procurement.

An obvious model is the usage of those terms in the petroleum industry. Professionals in this industry refer to upstream as the processes used for locating underground or underwater oil reserves, and bringing the oil to the surface. Downstream pertains to the processes for converting the crude oil into other products and then selling those products to customers.

In a similar way, the “crude oil” for procurement is savings. In this vein, upstream procurement involves the all processes that identify and source the savings, and downstream procurement includes the all processes that can deliver those savings.

Just like petroleum and petroleum products, savings can come in many “forms” – from savings identified through analytics and sourcing activities, to savings realized through better contract compliance, to savings from costs/risks avoided through improved supplier on-boarding or performance management.

Looking deeper at the context, understanding upstream and downstream also relates to how you are going to accomplish the end goals.  Some processes in source to pay are more strategic in nature than tactical, or involve a greater number of individuals for managing and using various processes for measuring success.

Using the Concept of Upstream and Downstream

In this vein, using upstream versus downstream creates a visual similar to what we often refer to as the wave graphic. To break down the concept of upstream and downstream consider the following:

  • Upstream processes – tend to include analytics, sourcing (RFX, auctions), contract (e.g., authoring, workflow) are often more strategic in nature, involve a fewer number of users, and have a strong analytic component to them for visibility, such as analyzing spend or other procurement-related activities like sourcing, supplier profile management, or supplier scorecards.
  • Downstream processes – tend to include purchasing (requisitioning, contract compliance, catalog management, order management) and/or payment activities (invoice, three matching, and reconciliation); they also tend to be more tactical and involve a large number of users. The focus here is also on volume and transactions, policy enforcement and wider user adoption, and throughput of technology.

Internally, at Selectica, we’ve often used the terms upstream and downstream for training both our clients as well as new employees. From a technology standpoint, using this concept in discussions sets us free from the confusion of the terms in the market, and allows us to focus on where the problems reside within the source-to-pay continuum and how to fix them, rather than get bogged down by e-(Fill in the Blank).

Regardless of how savings and other benefits are gained, how technology is viewed for solving problems is essential for establishing a holistic procurement approach. And by way of describing source to pay in the context of upstream and downstream components, we get further clarity on our goals for procurement and what procurement is really looking to achieve.

Do you often struggle with describing what problems need to be solved with technology?  Have you ever used the terms upstream and downstream in a discussion?

* Watch an on-webinar with Forrester Research Vice President Duncan Jones to learn about the complete source-to-pay process, importance of collaborating with your stakeholders, and how to define a vision and goals for your procurement IT needs.

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