Elements of a Diversified Procurement Technology ROI
When procurement is looking to select and implement new or replace Source to Pay process software, our focus is often on gathering requirements and comparing qualified alternatives. But we can’t view ourselves as the only stakeholders for the effort.
One of the earliest hurdles we must often get past is delivering a business case that documents the ROI corporate leadership can expect to see from the implementation.
Sure – there’s always savings, and no procurement technology ROI calculation would be complete without that element, but in an environment where every function, team, and individual is looked at to deliver ‘more’, a savings-only ROI may seem one dimensional.
If you are looking to diversify your ROI equation, and showcase procurement’s broad capabilities in the process, here are some elements you may want to include:
Value of Time
If anything is worth as much to an enterprise as money, it is time. Since it is a fixed (and scarce!) resource, the less time we spend on any particular activity, the closer we get to ‘turning back the clock’. In addition, having more discretionary time creates opportunities for new value creation, opportunities that might have been passed up in a situation where resource constraints seem to be forcing our hand.
• Reduced Time to Contract: No company decides to select a supplier or put a contract in place because ‘maybe someday’ it will come in useful. No – both of these activities are associated with a defined need, a set of requirements that the business has before they can meet or increase demand.
• Compressed Onboarding Timeline: Procurement may think of contract signature as the point of project completion, but the enterprise won’t benefit from supplier capabilities until they are fully onboarded. Using templates and workflows can accelerate this process, an improvement that is likely to elicit cheers from buyers as well as suppliers, AND start the conversion of negotiated savings into realized ones.
Value of Efficiency
When the concept of strategic procurement was new, it was considered a best practice to position us as a ‘Center of Excellence’ through which all spend decisions and supplier relationships would flow. Although the move was well-intentioned, it also created a constraint to progress and led to frustration from executives and internal stakeholders. The controls and standardization enabled by procurement technology make it possible to put strategic spend management into the hands of distributed buyers – and suppliers.
- Sourcing Self-service: The difference between structured and unstructured sourcing is usually tied to consistent processes, standardized documentation, and principled decision making. Procurement technology can easily handle the first two and facilitate the third.
- Direct Supplier Access to Information: Effective suppliers manage their accounts receivable as well as their customers manage accounts payable. This means a constant flow of questions about payment status and associated documentation. Rather than dealing with the time sink of email and phone-based information, companies can use their technology to give suppliers direct access to the status of invoices and payments.
Value of… VALUE & Risk Management
The emphasis procurement places on strategic supplier relationships and innovative supply chain management acknowledges the competitive advantage that lies in the capabilities of our external partners. Accessing those capabilities in a context-sensitive way sometimes eludes efficiency and scalability-driven procurement technology, especially when they are designed to prioritize risk mitigation over innovation. But procurement no longer needs to choose one or the other, and can innovate while minimizing risk.
- Increased Collaboration with Suppliers: Collaboration requires a free exchange of information and ideas. It takes time and must be allowed to influence enterprise requirements and decisions made during the sourcing process. When it can also be facilitated by procurement software, supplier collaboration produces a high value record of opportunities that impact current and future business needs.
- Improved Compliance: When the philosophy behind a procurement platform recognizes the importance of everything from collaboration to governance, it is possible to enable both with equal effectiveness. Selecting the best suppliers and then ensuring buyers exercise those contracts creates a ‘best of all words’ situation for the company and their suppliers.
Executive teams intuitively understand why savings is good for the enterprise. As such, it is their preferred metric for capturing procurement – and procurement technology – ROI. When procurement wants to diversify that calculation, the challenge is less about identifying the most meaningful additional metrics and more about positioning the impact those improvements have in an operational context. Measuring the ‘what’ and describing the ‘why’ makes it clear that procurement’s ROI extends far beyond a reduced bottom line.
Kelly Barner is the owner of Buyers Meeting Point, an online resource for procurement and purchasing professionals. Her unique perspective on supply management is based on her time as a practitioner, a consultant at a solution provider, and now as an independent thought leader. Kelly has led projects involving members of procurement, supplier, and purchasing teams and has practical skills in strategic sourcing program design and management, opportunity assessment, knowledge management, and custom taxonomy design.