Update that Catalog! It's Still the Best Cost Control Tool You Have
Against all expectations, Michael Lamoureux encourages you to use and keep updating your Procurement Catalog System so you have more power over Cost Control.
Those of you who know me and my constant pursuit to get your organization to implement modern analytics and optimization-backed sourcing platforms, probably either have a look of confusion on your face thinking you read the title wrong or a look of dumbfounded shock thinking the doctor has finally gone cuckoo from talking to deaf ears.
So I'll pause for a bit while you re-read those words just so you can be sure you read them right.
Now that you've satisfied yourself that you've read the words right, I'm going to say it again. Update that Catalog! It's still the best cost control tool you have.
Why Catalog Management System Software Is Your Best Tool for Cost Control
There's Cost Savings, Cost Avoidance, and Cost Control. Catalogs do squat for cost savings and have minimal impact on cost avoidance, and, moreover, only achieve cost avoidance if there are proper approval mechanisms in place (to insure only valid purchases are made) and deterrents to avoiding the catalogs (to prevent maverick spend). But when it comes to cost control, catalogs can do wonders.
Why? First of all, a catalog is often the best tool for ensuring that negotiated savings get captured. It's a well-known statistic that, in an average Procurement organization, 30 cents to 40 cents of negotiated savings never materialize. There are a slew of reasons for this, including intentional maverick spend, but common reasons include lack of knowledge of what products and services are covered by a contract and lack of ease in identifying the right product or service.
A good organizational catalog, which captures all contracted (and preferred) products and services both makes it easy for an organizational buyer to identify both what is on the contract and to buy it. A user can do a simple search and the smart catalog brings the user right to the product and allows the user to requisition it with a single click if approval is required and buy it with that single click if they have purchase authority.
Secondly, a catalog is one of the best tools that an organization has in its arsenal to ensure that there is a central portal to capture all organizational spending, even if there isn't a contracted product or solution in place that meets the user's needs. A modern catalog allows a buyer to not only buy on-contract products and services, but punch-out to third party sites for other products and services using a mechanism and standard that allows the spend to be captured and, if necessary, pushed through an approval process (which will allow the invoice to be automatically matched and paid). And we mean products and services. A great catalog comes with e-Forms that allow standard services to be requested with minimal specifications (hours/days or fixed tasks, locations, etc.) and, if necessary, be put to quick bid.
But it doesn't stop there. A great catalog also includes the ability to do simple RFXs for custom product or services not in the catalog. A user simply enters the specs, pushes it to suppliers in the system, gets bids back, selects one, and makes an award, which is automatic if they have the budget and approval authority or routed to the right approver if they do not.
Thirdly, if the user needs something that they really should get help with, they can immediately put in a request for help to a senior buyer with all of the information they have. The senior buyer can then guide the more junior user to a proper catalog product or service if it exists, create a proper RFx/Auction if a proper product or service does not exist and the event value is small, or the senior buyer can take over the process if the event value is large or the buy should be part of a managed category.
Great catalogs capture spend throughout the organization, and that's the real key to cost control. Knowing how much you spend, on what, with whom, and what percentage is captured by preferred and on-contract suppliers is fundamental to managing cost and defining category strategies. That's why all true spend analysis projects start by collecting spend from disparate systems and trying to normalize it to a schema that allows it to be analyzed on an apples-to-apples basis across categories and suppliers. But, as we all know, this is typically a monumental undertaking and by the time the data is collected, cleansed, enriched, mapped, and analyzed, which often takes anywhere from 6 weeks to 6 months, the spend is stale. But if all spend goes through a catalog, the centralization, categorization, and cleansed data is already there, and spend can be analyzed in real-time. Changes in the cost profile can be identified quickly and addressed just as quickly.
And that's why catalogs are still the best cost control tool that you have. What else can you roll out to (tens of) thousands of users across the organization?
Accelerate Catalogue & Webshop helps you create and manage state of the art “online store like” catalogs that can be used by every employee of your Company for their purchase requests. No training is needed to use our customer-oriented solution, what guarantees a maximum user adoption and results in a significant decrease of the Maverick spending in your Organization.
Michael Lamoureux - Lead Analyst and Futurist The doctor of Sourcing Innovation (.com), who holds a PhD in Computer Science, is an experienced professional in enterprise technology and Supply Management who has been a Chief Architect, Chief Research Scientist, and Chief Technology Officer before taking up the mantles of blogger and analysts. He works with businesses and their internal knowledge transfer, positioning, and planning problems, specializing in working with clients who want to update their sourcing process, technologies, and strategies to lead the way in innovation.