We do love our acronyms in procurement, but rather than being an exclusionary tactic designed to keep “them” out, I like to think that shortening our long phrases to “TLAs” is in line with the resource efficiency we apply to spend management.
Now that P2P systems—meaning either purchase to pay or procure to pay—are more common, organizations are seeing a re-emergence of the buyer role. This person no longer sits in Procurement; they are distributed throughout the enterprise, enabled to make purchases based on contracts and prices already in place. If the P2P process starts with purchasing or procurement activity, where does that put sourcing?”
— “P is for Procurement”
Determine Blog, September 22, 2015
And isn’t it lucky that procurement, purchasing and payable all begin with P? This happy coincidence means that P2P can basically stand for anything a company wants it to. Well, except sourcing. As I wrote in P is for Procurement two years ago this month, procurement may own all of the P acronyms, but we honestly don’t own any of the P activities. Purchasing is done by buyers distributed in the enterprise and payments are made by Accounts Payable. Sourcing: that is where procurement has the greatest ownership stake.
SPEND ANALYSIS to P
This is probably the most common starting point for S2P. And just as procurement isn’t done by procurement anymore, spend analysis doesn’t usually sit in sourcing from a technology point of view. Whether your spend analysis is done via an end-to-end platform or is an add-on between multiple point solutions, this tech has very different functionality and business value than sourcing.
When preparing to bid out a new contract, it makes good sense to start by understanding what has been spent in the past, by whom, with which suppliers, and for what. Spend analysis solutions provide cleansed, trustworthy, enriched data that can be accessed and analyzed without hours of research or meetings with budget owners.
But spend analysis isn’t a silver bullet, especially when the category is new or undergoing a dramatic change because of internal demand shifts or external market forces. Historical spend data also doesn’t represent the success or failure of existing contracts and supplier relationships. For that, procurement needs to speak with the suppliers themselves – both current and prospective.
SUPPLIER MANAGEMENT to P
Incumbent suppliers are typically very happy to share what they think can be done to improve the company’s ROI by continuing to work with them. The same goes for prospective suppliers. If they sense that there is a legitimate “in,” they will spend lots of time offering up ideas and pointing out missed opportunities with the product or service in question.
Of course, this assumes that supplier management only matters when the contract is up for renewal, and that purchasing decisions are only made in line with existing contracts. Particularly when there is a multi-year contract in place, procurement should be willing to make changes in response to suggestions from suppliers and requests from internal buyers. This is one of the best opportunities for procurement to create impact by assuring that the value of the “S” and the needs of the “P” remain in alignment over the course of the agreement.
STRATEGY to P
You would think that – being the first word in strategic sourcing – strategy is central to strategic sourcing. Unfortunately, it is too easy to sacrifice optimal results for the sake of process consistency. Just as strategic sourcing is not a one-size-fits-all approach to spend management, it can also mean different things based on the maturity of the category, the level of importance to the organization, and the competitive landscape of the market.
Formulating a sourcing strategy, and then presenting it to the project team for discussion and approval, is one of the most important things procurement does. It is not in the administration of an RFx that procurement adds value, but in the perspective and options they bring to the team.
Some examples of sourcing strategies include:
- Continuing with incumbent supplier(s) only, looking to drive down prices or secure improved contract terms
- Throwing the category wide open and looking for innovative approaches to satisfy the business objectives (rather than just detailed requirements) of the category
- Single sourcing the category, whether with an incumbent or new supplier
- Deliberately fragmenting the award in order to mitigate supply chain risk or incorporate certified diversity suppliers
The strategy that is selected will determine the right course of action:
- Will procurement go straight to RFQ (incumbent only)?
- Run a multi-stage event designed to winnow down a large pool of possibilities (innovation)?
- Focus on in-person strategy sessions designed to root out whether a close partnership is possible between the two organizations (single sourcing)?
- Evaluate relevant risks as well as the multi-tier supply chains of each supplier (fragmentation)?
Strategic sourcing technology can accommodate them all, but procurement needs to lead the way and apply each to best effect.
The wild world of procurement acronyms may create confusion, but it also creates huge opportunities. By never being “just one thing” procurement can act with agility and foresight in the face of radically different spend categories and business requirements. It also gives us a great deal to discuss as a professional community, learning from the differences and similarities between each company and their industry peers.
In fact, it’s an exhaustive topic that is always changing, so there is always something new to learn. To that end, Determine features a host of resources on this topic on their website: