In the past few years, procurement has finally started getting some love at boardroom level, as C-suiters increasingly recognise how the function can favourably impact savings, agility, transparency, flexibility, and resilience. At a time when such things are desperately needed one of the ways procurement helps the all-important bottom-line is through spend management.
“Traditional spend management is a process that has been around for decades, and continues to be seen broadly,” says John Callan, Product and Segment Marketing Senior Director at Coupa, a global technology platform for spend management.
Callan defines traditional spend management as an organisation using tools not designed in the cloud, that lack modern user interfaces, modern data structures, and that are fragmented and distinct from one another.
“These things are core issues when you're trying to improve and transform the spend-management process holistically. It's impossible to do it if you have fragmented processes, and processes that are manual, outdated and labour intensive,” he says.
He also points out that old-school systems “have friction everywhere, and friction just slows things down”.
He adds: “They lack visibility. You really don't know what your organisation is spending. One of the biggest challenges for procurement leaders right now is understanding where the money is being spent. Only when you understand this can you focus on making improvements to the supply chain, and reducing risk.”
For many organisations, it is legacy systems, data silos and unstructured data that is hindering their transition to modern spend management solutions.
Jonathan Laverentz is Head of Product & Consumer Marketing and Digital Innovation at Tradeshift, a supply chain payment company. He agrees with Callant that old systems are riven with issues
“Many companies are relying on outdated solutions that operate individually rather than finding a holistic solution that can be modified to suit their needs,” says Laverentz.
Laverentz uses the analogy of LEGO to describe an optimal holistic spend management solution: “The cool thing about LEGO is once you’ve built a set you can pull it apart and put it back together again in new ways. That is what cutting-edge solutions need to offer. If a company doesn’t like the way a solution works they need to be able to pull it apart and put it back together in a way that meets their needs.”
The best way to move to modern spend management solutions
Laverentz stresses the need to understand the concept of “digitise versus digitalise”. He says this is an “aha moment” all procurement leaders need to have: “There’s a world of difference between digitising processes and being able to truly run digitally. It’s important senior procurement leadership open their eyes to the truth that digitalising processes and implementing technologies is an opportunity for them to grow and scale their business. It’s not about robots assimilating procurement and taking over people’s jobs.”
Laverentz adds: “Digitalising not only brings speed and flow but also provides feedback. It generates data and actionable intelligence that can be utilised to better understand processes and to recognise where the gaps are.”
He also says procurement organisations should consider taking a step back and analysing their processes.
“Take a look at where those gaps and hurdles are. It’s also important to get your team involved, and they need to be willing to be flexible. Going back to the LEGO analogy, they have to be willing to pull things apart if things aren’t working and put it back together in a new way. Ultimately it’s about data. It’s about learning, and having a willingness to recognise things won’t change overnight. These processes can be painful but the outcomes can be extraordinary.”
Agreeing with Laverentz is Sammeli Sammalkorpi, CEO and co-founder of Sievo. He says the key to any kind of change always comes down to the same thing: mindset.
“Mindset is everything. In the quest to impose processes on the wider company, and in their bid to become more compliant, much of procurement has become a slave to process and compliance. Yet today’s world is volatile, unpredictable and chaotic, so it’s hard managing the procurement function using processes designed for a different, more stable, time. This is why procurement needs to change its mindset. It needs to ask how it can I survive in such a complex world.”
Sammalkorpi goes on to explain that becoming more data driven is crucial for success. “It’s no longer enough to offer stakeholders savings or financial returns.”
He adds that companies need to embrace both internal and external data, relating to market prices, supplier risks, and sustainability.
“Procurement needs to see itself as the internal interface between the company and its upstream ecosystem,” says Sammalkorpi. “This means they need to acquire and process all this data.
He also feels procurement needs to become sustainable because doing so “is a great opportunity to increase its perceived value within companies”.
While sustainability is undoubtedly important for procurement’s standing within businesses, its ability to deliver meaningful and powerful spend visibility can elevate it even further, insists Callan.
He says: “We have so many customers who say they benefited from using our product in the early stages of the pandemic when there was acute focus on spend visibility and changing the authorisation structure for the thresholds for spend.
“One of our them was able to reconfigure their approval structure across the entire company in less than one hour, which is exactly the kind of functionality that was needed when the pandemic first hit.”
With the pandemic now entering a less disruptive phase, Callan feels the role procurement has to play in a company’s success will be no less critical.
“As we continue to mitigate and manage risk, procurement will have a huge role to play. Procurement leaders have proven they can deliver meaningful value to organisations. Now they're being asked to promote value that’s more strategic in nature, such as spend management. Executives are realising all this value is tied up together in procurement.”
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