A Pre-Flight Checklist for Installing E-Procurement Software
By Dr. Tom DePaoli
The rush to e-procurement and e-procurement technologies continues to be fraught with mistakes that have left some companies with unfilled high expectations and little to show for their e-procurement investment. According to Forrester Research, the cost of a traditional procurement transaction or a purchase order can vary from $50 to $250 per transaction. Many companies rushed into the e-procurement arena with the goal of reducing transaction costs as the primary justification. Companies targeted the “low hanging fruit” or the indirect materials that often account for 80% of the procurement department’s resources but account for only 20% of the total spend. The “fruit” was usually non-critical, turn and burn, or MRO materials. E-procurement seemed like an easy win for the procurement department. Much of the initial software and technology mimicked the standard Internet buy experience such as at Amazon.com. Ease of use and straightforward steps to check out strongly suggested a smooth path to high volumes of transactions. For many companies “they have built it… but the transactions have not come.”
This article is an attempt to establish a pre-software deployment checklist. It is not meant to be comprehensive or excessively detailed. The purpose is to have you the client pre-think about the many implications and software options that must be decided. More detailed discussion must take place with the software installation consultants.
If it seems overwhelming, it is! Unless thorough preparation is done the e-procurement software will not meet its goals or be well accepted.
Procurement is first and foremost the managing and enrichment of relationships. These relationships are broad, multi-dimensional and critical to the success of an enterprise. E-procurement still needs to significantly evolve to become the primary tool to improve these complex relationships. Transaction reductions, shopping convenience, on line auctions, pricing breaks, electronic transactions etc. are just examples of solutions that mislead companies that go down the e-procurement path with excessive great expectations. Companies that do not have existing good solid relationships and communication with suppliers, internal departments and customers cannot take full advantage of existing e-procurement tools. Eventually e-procurement will fulfil its great promise and help companies achieve true collaboration and better relationships with suppliers and customers. Until then, forward thinking through all the possibilities of an e-procurement installation will keep companies on track towards true supply chain collaboration.
These are the most common decisions or check points in implementing e-procurement software. It is important to be aware that many decisions must be made or at least thought about before software installation.
Here is the short version of the checklist.
|Creating a comprehensive procurement strategy first or a plan that aligns with an e-business strategy and an e-procurement strategy.|
|Putting the e- before procurement. Technology and e-procurement won’t fix current unsound procurement practices. Workflows and approvals must be clear.|
|Performing comprehensive strategic supplier sourcing first and failure to prepare suppliers for e-procurement.|
|Properly identifying materials-services groups and the proper e-procurement tool(s) to use for these groups. Not assessing supplier capabilities, which include readiness for e-procurement software and compatibility.|
|Dealing with resistance to change and the primary need for ease of use for end-users. A strong component in this area is the content (catalogue) quality and the transaction details.|
|Investing in thorough and diverse software training. All types must be considered. Online, live classroom, self-paced etc.|
|Enforcing the use of the software system and not allowing maverick buying. Employee discipline procedures for violators must be clear and endorsed by human resources.|
|Creating a comprehensive marketing plan for rollout of the software. This should be very much like a new product rollout or introduction.|
|Pre-deciding on the number of modules or a partial installation. Sometimes called the grand slam installation (all modules) or just a trial like installation.|
|Pre-simplifying all procurement processes before installation of the software and documenting the current processes thoroughly. Lean the process first before installation.|
|Seriously pre-reducing (rationalizing) the number of suppliers before installation and standardizing all payment terms.|
|Making a comprehensive review of procurement headcount via the impact of the software.|
|Establishing savings tracking rules with financial people and tracking the Total Cost of Ownership (TCO) implications and savings.|
|Considering the benefits of a cloud setup or in house storage of data.|
|Insuring the proper documentation of workflows and approvals.|
|Considering the use of AI, machine learning and block chain.|
|Pre-designing or roughing out the tracking dashboard design and metrics.|
|Defining the role of social media, mobile capability and collaboration.|
|Making sure contracts and RFQs are standardized.|
|Understanding your possible industry specific applications needs.|
|Adequately stocking or expanding catalogues and e-commerce experiences.|
|Identifying preferred suppliers and their estimated spend totals.|
|Tracking the full cycle time for orders.|
|Preparing for culture change and change management training in procurement.|
|Considering the global visibility and transparency of supply chain and order status.|
|Preparing for any contingent workforce and services issues.|
|Making sure receiving is directly tied into production and inventory.|
Here are some more details or points on the checkpoints.
1:Creating a comprehensive procurement strategy first or a plan that aligns with an e-business strategy and an e-procurement strategy.
The Institute for Supply Management (ISM) notes that 95% of procurement organizations do not have a procurement strategy or long-term plan. Of the 5% that do have a strategy, only half have successfully aligned the strategy with overall business strategy. Most purchasing departments are continually embroiled in tactics and transactions. Much of their energy is distracted to the intensive transactions (80% of the work) low dollar volume (20% of the dollars) aspects of the supply chain. E-Procurement is a critical aspect of e-business and must be incorporated into any e-business strategy. You need to first focus on a procurement strategy. How does it fit into the organization’s mission and vision?
2:Putting the e- before procurement.
Technology and e-procurement won’t fix current unsound procurement practices. Workflows and approvals must be clear A Company must focus on its current business or procurement practices first. For many companies these still remain very archaic and transaction intensive. The process of the reengineering or leaning of purchasing is an excellent first step in achieving the full benefits of e-procurement. This is where a comprehensive current procurement assessment is mandatory. (The “as is” state). You can do a gap analysis and install standardized purchasing processes and rules that are the essential preceding steps. Procurement procedures should be clearly defined along with current supplier relationship depth. If your organization has ISO9000 or standard operating procedures this is very helpful. E-procurement is a powerful tool but a disciplined procurement approach should be in place before e-procurement solutions are implemented. The procurement must come before the e. Unfortunately, many organizations do not have good information on procurement spend, transactions, commodities and suppliers, which makes a current state assessment extremely difficult.
3: Performing comprehensive strategic supplier sourcing first and failure to prepare suppliers for e-procurement.
Strategic sourcing is a disciplined process organizations implement in order to more efficiently purchase goods and services from suppliers. The goal is to reduce total acquisition cost while improving value. Forrester reports that 40% of the total reduction in costs is associated with technology while the other 60% are associated with strategic sourcing techniques. Here are four key points to jump start strategic sourcing:
- Understand the state of current spending.
- Prepare a sourcing strategy for particular commodities and tie the strategy into business and e-business strategy.
- Evaluate the current competencies of your sources of supply and how to extract value from these sources
- Decide what’s important for you in your sourcing strategy and how it relates to selecting your technology solution.
- Have a standard sourcing methodology.
4:Properly identifying materials-services groups and the proper e-procurement tool(s) to use for these groups. Pre-assessing supplier capabilities, which include readiness for e-procurement software and compatibility.
The need to classify materials and services into particular categories is essential for the success of e-procurement software. Each material group may require not only a different procurement strategy but also a different e-procurement software solution. Companies often try to apply the same e-procurement strategy across the board to all materials and services. These categories demand different strategies, different types of suppliers and relationships along with the use of multiple tools. Currently e-enabled tools do not exist for certain specific materials needs. They are however rapidly evolving.
The placement of a certain materials or services into a particular group may vary by company, industry or a number of factors depending on the criteria. The key is to have and articulate a strategy by group and to utilise the appropriate tool.
|Leverage Materials Strategy: Price leverage Use competitive bids Long term market agreements Possible Tools: On Line Auctions E-RFQ Hedging||Strategic Materials Strategy: Alliances Long term relationships Alliance contracts Possible Tools: Partnering Collaborative Design E-sourcing software|
|Non-critical Materials (MRO) Strategy: Consolidation Improve logistical costs Reduce administrative costs Possible Tools: E-procurement software Exchanges-marketplaces Outsourcing Storerooms||Bottleneck Materials Strategy: Minimize risk Replacement or redesign Minimize risk of supply Possible Tools: Value Engineering Shared higher inventory Product re-design Collaborative design|
5: Dealing with resistance to change and the primary need for ease of use for end-users. A strong component in this area is the content (catalogue) quality and the transaction details.
End-users (internal buyers) demand ease of use and they want to quickly find the items that they need. Companies need to realise that e-procurement is competing with the easiest method to buy in the minds of their end-users. Many end-users would rather pick up a phone, tell their supplier what items they want, charge it to a corporate purchase card and hang up. Unfortunately in many companies this method is still faster than using the current e-procurement software. Any impediments to the fast purchase of materials will quickly turn off end-users and kill transaction volumes. Speed is king in the world of e-procurement. End-users also want powerful search engines to quickly find their items. If the content supplier catalogue is poorly organised and the quality poor, end-users will quickly be frustrated by unfruitful searches and become non-users of the e-procurement system. The software also needs to be seamlessly integrated to mobile apps with a familiar interface. In addition special instructions that need to be given to suppliers about delivery or other issues can’t easily be given with some e-procurement tools or require additional end-user training which raises the frustration levels.
Finally there is the relationship factor with new suppliers. Often new suppliers are installed for indirect materials solely because they seem to have more e-procurement capabilities. End-users value relationships with suppliers that they have trusted over the years. E-procurement is highly impersonal and web based.
Resistance to change for an e-procurement system is fierce but can be readily overcomes with strong commitment to change management. This change management process must be an integral part of any e-procurement installation.
Never underestimate the role resistance to change plays in this transformation.
There are three sayings to be aware of when e-procurement is implemented:
- Sound procurement practices must be in place first.
- Resistance to change is fierce and needs top management attention.
- Indomitable spirit which means never giving up helps.
6: Investing in thorough and diverse software training. All types must be considered. Online, live classroom, self-paced etc.
Many companies like to save money by limiting e-procurement software training. My advice is to invest heavily in it in many ways, classroom, online, self-paced etc. Make sure the training is tailored to the responsibilities and access of the users. Consider update training when the software is updated. Insist your software installer trains-the trainers, your own people, to teach classes also initially and in the future.
7: Enforcing the use of the software system and not allowing maverick buying.
Employee discipline procedures for violators must be clear and endorsed by human resources. Be prepared for the rebels and maverick buyers. Create a policy and clear penalties for violating the policy in advance. Be prepared to enforce it especially the first offender. Warn that you will refuse to pay for unauthorized purchases,
8: Creating a comprehensive marketing plan for rollout of the software. This should be very much like a new product rollout or introduction.
Collaborate with your marketing department and create a comprehensive marketing plan to roll out the e-procurement software. Use every communication media and avenue your company offers. You must convince or sell people that the e-procurement software is essential.
9: Pre-deciding on the number of modules or a partial installation. Sometimes called the grand slam installation (all modules) or just a trial like installation.
Make an initial decision on what modules you are going to install the sequence of installation. ROI should not be the sole metric for deciding the modules. Work reduction benefits should also be considered.
10: Pre-simplifying all procurement processes before installation of the software and documenting the current processes thoroughly. Lean the process first before installation. This is like a soft reengineering approach.
Take the time to streamline your existing processes and eliminate unnecessary steps via process mapping. The use of kaizens and lean principles can help.
11: Seriously pre-reducing (rationalizing) the number of suppliers before installation and standardizing all payment terms.
Set up expectations for your suppliers and eliminate those that do not meet them. Consider using distributors to consolidate some suppliers. Create a sort of supplier elimination methodology or decision process to help. Have a supplier evaluation system ready.
12: Making a comprehensive review of procurement headcount via the impact of the software.
Be prepared with a new headcount plan in plan for the new software. The plan can be phased or structured by the modules installation timetable.
13: Establishing savings tracking rules with financial people and tracking the Total Cost of Ownership (TCO) implications and savings.
Have some meetings with financial personal and get agreement on how to track savings both hard and soft. Involve them in the savings tracking process and reports. Make the savings visible to all.
14: Considering the benefits of a cloud setup or in house storage of data.
Make a list of the advantages and disadvantages of data storage techniques.
15: Insuring the proper documentation of workflows and approvals.
Re-look at your workflows and approval processes. Eliminate any that are redundant or unnecessary. Process map them out.
16: Consider the use of AI, machine learning and blockchain.
Do your research on these technologies and see if the fit is appropriate and necessary.
17: Pre-designing or roughing out the tracking dashboard design and metrics.
Rough out your dashboard and the metrics that are essential. Get buy in.
18: Defining the role of social media, mobile capability and collaboration.
Create a rough branding and coordinated strategy for your social media. Make sure the software modules can be used on mobile devices. Make sure the software has robust collaboration tools.
19: Make sure contracts and RFQs are standardized.
Work with your legal department to standardize your contracts and RFQs
20: Understanding your possible industry specific applications needs.
Make sure you have a list of industry specific needs to be discussed with the software installer.
21: Adequately stocking or expanding catalogues and e-commerce experiences.
Think about reviewing the catalogue and enhancing the user experiences with the software.
22: Identifying preferred suppliers and their estimated spend totals.
Pre-identify preferred suppliers and suppliers who you want or have a partnership with.
23: Track the full cycle time for orders.
Design and define your cycle time for orders and make sure it is tracked. When does it start and when does it finish.
24: Preparing for culture change and change management training in procurement.
Insist on change management training for procurement personnel and articulate and describe the expected behavoir and culture changes expected with the new system
25: Consider the global visibility and transparency of supply chain and order status.
Target for real time status updates and visibility on all orders to include expected arrival times.
26: Prepare for any contingent workforce and services issues.
Make sure services are all listed and any contract labor agreements.
27: Make sure receiving is directly tied into production and inventory.
Insist on a seamless and quick data update to production and inventory control.
The preparation for the installation of e-procurement software is intense. Many companies leap into the installation of e-procurement software with little or no thought about the large amount of work and the remaking of procurement involved. E-procurement is no longer a broad enough term for the software; it covers more and more aspects of the entire supply chain.
Using a checklist at least starts the remaking of the procurement and supply chain. The main benefit of using a pre-flight checklist is a shorter installation time of the software. The remaking of procurement or what I also call soft reengineering has another benefit. It helps stop the buggy-whip effect. I categorize the buggy-whip effect as people trying to get new technology to mimic there old technology because it is more comfortable to them. The first automobiles looked like horse carriages.
Procurement personnel often want the new software screens and options to look like the old software screens and functions. This only leads to more expensive customization and more expensive additional customization when the software needs to be upgrades.
A thorough examination of all current supply chain functions and processes, with an emphasis on streamlining and simplicity, will greatly help the smooth and timely installation of e-procurement software.
Dr. Tom DePaoli