1. FULFILLMENT – order creation for services / service providers

1. Resource-Based Fulfillment – Person x Rate (Staff Augmentation)
2. Multi-Resource-Based Fulfillmnt – People x Rate  (SOW or Professional Services)
3. Deliverable-Based Fulfillment – Unit of Work x Negotiated Price (Phase, Milestone, Percentage, Monthly, etc.)

2. ON-BOARDING – integrate service provider w internal systems

3. SETTLEMENT – order settlement and “Lights Out” payment

1. Time Entry Settlement– creating time sheet (by service provider or supplier admin as a proxy)
   
2. Expense Report Settlement – creating expense report (by service provider or supplier admin as a proxy)
3. Progress Log Settlement – creating progress log (based on phase, milestone, % complete, Monthly amount, etc.)

4. EXTENSIONS – adding duration to existing orders

5. OFF-BOARDING – dis-integrate service providers from internal systems

1.       REQUESTER DEFAULTS AUTO-RESET – When a requester is changed on a requisition, the new requester’s “requester defaults” overwrite the prior requester’s information on the changed requisition.  Depending on whether or not the req has been sourced, this could make the WO incorrect.  Regardless, this would make any requisition-driven reporting incorrect.  This code can be adjusted.

2.       SETTLEMENT TRANSACTION AUTO-RESET – Changing the requester on requisitions which have been sourced, would not change the requester on the WO, nor would it change the approver (which is used in T&E/Plog approval transaction).  However, this can be mitigated by changing the Approval Process Definition for settlement (T&E and Plogs) to look at the req approver(s).

Scott

NOTE: For the sake of argument, I included several appendix slides which were used to discuss potential next generation models and their value/flaws.  The latter is more theoretical as none have successfully designed and prototyped/developed just yet.

Working on getting this PPT integrated so you can see it without downloading…until then, please download using the link below.  Sorry for the inconvenience.

eProcurement Space Maturity Assessment – SRM+ Ver

This BLOG highlights 5 major drivers and their benefits.

As always, please provide comments based on what you see in your firm.

Driver 1 – Single Search

Single search refers to the ability to search for ALL content (requisitionable/non-requisitionable, contract/non-contract, capital/non-capital, internal catalogs, external catalogs, supplier catalogs, whatever/wherever) in one place and at one time.  It allows every user, regardless of procurement knowledge, to acquire the right product/contract at the right time with NO support from procurement.  It leverages the one piece of information all requesters have when searching…a description.

Within eProcurement, search is the “Tip of the spear”.  From this process, many other processes/best practices follow.  When done correctly, it allows procurement to truly deliver an “Amazonian Simple” self-service experience.  To illustrate how important the acquisition algorithm is to success, ask yourself how successful Expedia would have been if my 55 year-old-mother needed to watch a video or read an instruction manual in order to book her flight?  While corporate procuring isn’t as simple as B2C, the parallel has relevance.  In fact, change management videos, training, and documentation are indications the acquisition algorithm  (where do I go to buy any given item?) is too complex.  Complexity leads to “leaks” in the strategy; increased off-contract spend, secondary sourcing, requisition denials, and compliance efforts, as well as general requester dissatisfaction.

Business Benefit – “Single Search” reduces change management and increases requester adoption allowing prouing organizations to more easily increase spend under on contract.  Requesters use a universal known, description, to locate and understand how to acquire items; allowing the marketplace to effectively manage change.

NOTE: because marketplaces are SaaS, they can provide a “window shopper” environment for smaller organizations who may not have a dedicated ERP window.

Driver 2 – Superior Content Tools

Content tools refer to the data structures any application provides to store and present securely its content.  In order to facilitate best practices such as “single-search”, the underlying application must have some level of “base” functionality.   In particular, it must allow the procuring organization to create instructional items, make live price calls, link to contracts, and show only certain content to certain requesters.

Instructional items are pseudo-items used as pointers.  For example, a rental car can be on contract, but is rarely purchased via a requisition.  However, if it is on contract, the requester must find it in the single search.  Instructional items are displayed as part of the search with links to purchase instructions, contract limitations, and external content.  The instructional item could link to the contract or even several reservation hyperlinks based on the requester role within the marketplace.

Live price calls allow procuring organizations to bring punch-out content into marketplace catalogs (the right course of action for all but configurables).  Having content in the marketplace gives the procuring organization control over price changes.  Live price call makes a call to the supplier’s site when the pseudo-item is returned as part of the search results.

Lastly, contract linkage and catalog security should be easily manageable and quickly configurable.  Best of breed procuring applications make these tasks easy and fast.  Old world structures not allowing single and mass assignment and change are labor sink-holes and should be avoided.

Business Benefit – superior content tools allow procuring organizations to enable mass content, keep price updated, support single-search, maintain contract linkage, and easily attach to the right requester(s) search results.  Increasing adoption, while managing content support costs.

Driver 3 – Content Enablement Managed Services

“Content” refers to 4 key elements used to create transactions (think requisitions) within most procuring applications; suppliers, contracts, catalogs (AKA items), and requesters.  Managed services refer to shared resources that enable and manage this content.

As organizations drive ever-increasing amounts of spend on contract, procuring organizations struggle with the enablement of “content” as well as being able to effectively broadcast that content to the right requesters, at the right moment in time.

Without even discussing the management of price changes related to internal content and managing compliance related to punch-out content, the enablement of content must be supported solely by the procuring organization and/or its technology department.  While elapsed time far exceeds the actual dedicated or “working” time, these processes are a labor sub-optimizer.

Content enablement managed services are services provided by the SaaS providers allowing procuring organizations to source content (given contract stipulations) and completely outsource the enablement of said content.

Business Benefit – Content Enablement Managed Services decrease procuring organization labor requirements by allowing procuring organizations to outsource large portions of the enablement and management efforts; deploying the “we source, you enable” model.  This can results in thousands of hours of saving as well as having spot transaction failure skills available without having to staff for the need internally.

NOTE: marketplaces also manage the on-boarding of requesters, deploying within the security framework you create/instruct.

Driver 4 – Catalog Management Tools

Content management tools allow procuring organizations to manage item attributes (color, size, price, description, UOM, etc.).  For procuring organizations of size, managing annual changes on the hundreds of thousands, or millions, of items is a major effort.  For this reason, superior content management tools are essential.

It is not uncommon for a supplier to have a catalog with over 50K items and have only a small portion of those items change in price (i.e. Dell sees a RAM price spike within SE Asia).  Some send only the changes, others the whole file.  Procuring organizations need a way to quickly see only the changes relevant to them.  Pricing changes, changes only greater than 5%, description changes, UOM changes…the content management tools need to be flexible in this area in  order to avoid labor charges escalating.

Business Benefit – best in class content management tools increase pricing accuracy while decreasing the labor costs associated with managing content.

Driver 5 – Procurement Connectivity Experience

Marketplaces are “trading rings” where buyers and suppliers connect to exchange items, orders and potentially more.  Because these firms have architected and managed their trading rings, they have years of experience in creating, managing, and supporting buyer/supplier connections.  Because this gateway is appealing to suppliers, the trading ring has the ability to standardize the connections making it easier for the procuring organization to communicate en mass and quickly on-board suppliers.

Business Benefit – years of connectivity experience primarily accelerates the connectivity and error resolution process, decreasing the dollars spent on labor.  Secondarily, Marketplaces bring years of cataloging experience and are great resources for internal/external education.

Driver 5 – Consolidation

Consolidation refers to application consolidation, point of contact consolidation, reporting consolidation and more.  Marketplaces can act as points of consolidation for buyers, suppliers, and data mining parties.  Procuring organizations “expose” services via a marketplace form multiple applications to multiple parties and report on all the activity. With SOA, applications can be interconnected and services could be exposed across many platforms in any number of configurations.

Business Benefit – marketplaces can be a logical and less expensive way to consolidate transaction reporting by funneling all applications’ procuring transactions through the same external marketplace.  A major government entity uses their marketplace to serve content to 120+ sub-agencies, often running separate instances/procuring applications.  Their marketplace serves content  (suppliers, contracts, catalogs, and items) across all applications form one location.  As the content transactions run through the marketplace, consolidated reports are run within it.

Point of contact consolidation (exposing ERP services like a supplier portal via a marketplace) is also growing in popularity.  Point of contact consolidation allows the procuring organization to present one, simple front-end for all of its suppliers to manage their content in.

In the past week alone, two readers have asked about UNSPSC codes (universal product coding scheme) and Don Sweeney, Partner at Emerging Solutions, forwarded a related question he noticed via a Yahoo Group seeking assistance re UNSPSC codes as PeopleSoft categories.  For these reasons and because UNSPSC codes offer amazing value, I thought it would be helpful to write a quick BLOG about UNSPSC codes, their government equivalent NIGP codes, and three examples of how these codes can be very useful to today’s best in class procuring organization.  For more information, please email me directly at scottwalls@srm-plus.com.

UNSPSC & NIGP Codes

Definitions via Wikipedia:

• UNSPSC – the acronym for the United Nations Standard Products and Services Code. UNSPSC is a coding system for the classification of both products and services for use throughout the global marketplace. It is managed by the GS1 US, which is responsible for overseeing code change requests, revising the codes by interfacing with industry projects, issuing regularly scheduled updates to the code, communicating with members, as well as managing special projects and initiatives as determined both by the UNDP and by member requests.
• NIGP – The NIGP Commodity/Services Code is an acronym for the National Institute of Governmental Purchasings Commodity Services Code. The NIGP Code is a coding taxonomy used primarily to classify products and services procured by state and local governments.

While I have known about UNSPSC codes for much longer, their adoption has picked up dramatically over the past 5 years.  I am seeing NIGP more and more now that the predominant amount of work being sold is in the United States government arena.  From a 10,000 foot level, I attribute the rise in popularity of these universal coding mechanisms to the need to identify common items and their attributes among buyers, suppliers, and third-parties.  For more on buyer, supplier, third-party connections, see Supply Integration Solutions. 

3 Major Advantages Offered by UNSPSC/NIGP Codes

Because all serious marketplaces and suppliers provide this information for free and it is relatively accurate, here are a few great ways to take advantage of your procurement partner’s efforts.  The following three sections provide a high level overview of the advantages offered by universal coding schemes such as UNSPSC and NIGP:

1. Assign set downstream defaults with little to no effort.  When using an external organizational marketplace (SaaS marketplaces, AKA content management, are a best of breed must for every company) these values come back automatically assigned and all setup/maintenance is performed by the marketplace/supplier.  All marketplace items are assigned a UNSPSC code.  The SRM application uses those codes to set its downstream defaults.  Here are a few valuable examples
   1. Use universal codes to set the asset profile – determine depreciable life, capitalization, and more
   2. Use universal codes to set the asset tracking information – require receiver to tag and note ID in SRM app
   3. Use universal codes to set a default GL account – requester gets the correct GL account without any accounting knowledge
   4. Use universal codes to set the NIGP Code (Periscope and others translate UNSPSC to NIGP codes)
2. Real-time acquisition (requests/purchases) reporting with little to no effort.  Again, when using an external organizational marketplace, the purchasing/reporting categories (in PeopleSoft these are called categories and required on ALL requisitions) within the SRM application can be setup to mirror the UNSPSC/NIGP codes.  Using the SRM application to set the category, or a portion of it, to the SRM category allows for an easy, free classification for all acquisitions.
3. Identify items for special routing automatically.  Items requiring imaging, special workflow, safety concerns, etc can be identified at request, purchase, receipt, etc. via their UNSPSC/NIGP code.

I would be remiss if I didn’t mention that UNSPSC has some complications; which version suppliers use, keeping current, cross referencing.  However, the benefits almost always outweigh the related costs.

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

Third-party settlement refers to the third-party tools, applications, and services used by procuring organizations to electronically receive payment requests from, approve payment requests to, and transmit payments to suppliers.  These tools, applications and services are not to be confused with licensed “eSettlement” applications which simply allow suppliers to electronically transmit invoices to procuring organizations.  Both eSettlement applications and third-party settlement services should be part of any procuring organization’s overall procurement strategy (for more on strategies leveraging third-party solutions, see the BLOG entitled Total Supply Integration Paradigm). 

Although there are numerous providers of third-party settlement services, they all essentially work in the same manner.  The settlement service provider (typically a banking institution) provides the procuring organization with account numbers its suppliers can request payment from using their credit card terminal(s).  The actual account numbers are presented to the supplier, either during negotiations or at the point of purchase.  At one (or several) point during the year, the third-party settlement service provider issues a small percentage of the overall dollars spent on each account back to the procuring organization in the form of a “rebate”.  Rebate percentages typically vary based on volume and card type.

The two obvious benefits of third-party settlement services are the reduction of buyer/supplier administration (complying transactions do not require invoice/payment creation) and the rebate (ranging from 1.3 to over 2%).  Both the services and its benefits are essential solutions within the Total Supply Integration Paradigm.

Third-party settlement accounts are continuously evolving, but all accounts fall within one of four types; person-specific, supplier-specific, group-specific, and transaction-specific accounts.  Each account type is profiled below:

1. Person-Specific – these accounts are the more traditional accounts.  Often referred to as p-cards, purchasing cards or procurement cards, these accounts are created to allow select employees to purchase goods and services without going through onerous procurement processes (requests, approvals, orders, invoices, and payments).  Employees are given a physical card and use it like a credit card with the bill going to the company.  The “bill” comes electronically to the company and each transaction receives a default GL coding (often incorrect, but close or even to a suspense account).  Employees must review, and amend if required, every transaction prior to it being able to be recorded in the General Ledger.  This review step often creates delays in the reconciliation of p-card transactions.  Person-specific accounts were setup for high transaction volume, low dollar, but the administration requirements previously mentioned and the potential for fraud make them less effective.   
2. Group-Specific – these accounts were created to allow any number of users within the procuring organization to make transactions.  Each account issued a physical card which can be used by anyone within the procuring organization/company.  They are usually used by a department or procuring organization and reconciled by someone at that level.  As with p-cards, these accounts offer some basic controls (MCC code limitations, daily/monthly dollar limits, etc.), but the possibility for fraud and reconciliation issues still exist.  Group-specific cards often have an internal set of P&P associated with them.
3. Supplier-Specific – these newer accounts have been created to provide a settlement vehicle specific to a given supplier.  Like the p-card above, the supplier knows the card number (usually revealed as part of the contracting process) and charges the card using the supplier’s credit card terminal as appropriate per the contracted terms.  These accounts rarely issue a physical card.  Transactions related to this card typically must provide the bank and the procuring organization with a purchase order number; negating the need for GL coding once transaction comes back to the procuring organization (unless it has changed since the issuance of the purchase order).  These represented a dramatic improvement over the person-specific cards, decreasing fraud and administration.
4. Transaction/Event-Specific – these are the latest and greatest accounts and they represent a new direction for settlement.  They allow for a single transaction or single event (company party, annual electric bill payments, etc.) to be settled via the third-party mechanism.  They can now be used in completely different ways such as a blanket order, drawn down, declining dollar order payment vehicle (good for certain amount, over a certain time, until completely drawn down).  In addition, they are now being created automatically at the point when the purchase order is created via a programmatic call out to the banking institution.  These new vehicles represent a new and exciting shift for electronic settlement.

As mentioned, these accounts and services will continue to evolve.  Third-party settlement services, in particular, are one of three new revenue-generating tactics being deployed by best in class organizations.  When used correctly, they are resulting in the creation of multi-million dollar revenue streams.  As with all tactics, third-party settlement must be heavily integrated with all related business processes, applications, and reporting in order to achieve maximum organizational benefits.

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

Organizations large and small, public and private are extending the value of their traditional SRM application (SAP, Oracle, PeopleSoft)  by integrating it with third-party tools, applications, and services (referred to collectively as supply integration solutions).  Two effective supply integration solutions are content management and settlement management.  Content management solutions allow procuring organizations to eliminate item management and item-contract management, provide mature content review/approval tools, and create significant contract revenue streams.  Settlement management solutions allow procuring organizations to reduce invoice, payment, and match management tasks, while creating significant settlement revenue streams (light years beyond “P-Card”).  This model, integrating traditional SRM applications with third-party solutions, is referred to as the Total Supply Integration Paradigm.

Very large, multi-level organizations (holding companies and state/national governments) are taking the Total Supply Integration Paradigm a step further by creating Trans-Organizational Sourcing Functions(TOSFs).  These entities aggregate spend across all sub-organizations, negotiate favorable contracts with preferred suppliers, and broadcasting contracted items via a shared marketplace (centralized item repositories, accessible regardless of ERP/SRM applications).  The efficiency gained by spend aggregation is nothing short of dramatic; $5+ million dollar revenue streams (1 million for every 200 million in spend approx), 30% reductions in operational expenses, improved tools sets, and decreases in Cost Of Goods Purchased (COGP).  One large, multi-level organization in particular has deployed the TOSF in an effort to become “self-funded”; new revenue sources exceed reduced operational expenses (employees, hardware, software, office space, supplies, and more).  Early results indicate it is well on its way to accomplishing this.

Most encouraging is that The Total Supply Integration Paradigm and the Trans-Organizational Sourcing Function model are just getting started.  These implementations nearly scratch the surface of what is possible.  The dramatic reduction of operational expense and net COGP, creation of revenue, and improved operational tools will allow forward thinking organizations to turn cost centers into cash centers for some time to come.

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

A comedian once said “you can drive a car with your feet if you want to…but that don’t make it a good idea.”  All funny-business aside, any company can deploy eProcurement , that doesn’t make it successful.  Successful eprocurement efforts achieve specific organizational goals (overall philosophy) and business objectives (reduce costs by X%, decrease net costs of goods purchased by Y%).  This BLOG explains the goal of eprocurement, the business objectives used by best in class organizations, and 5 proven optimization tactics your firm can use to optimize its eProcurement efforts. 

The Goal of B2B eProcurement Efforts

While eProcurement is only one small piece in the overall Total Supply Integration Paradigm, it is perhaps the most important piece.  The eProcurement application is the connection between the providers of content (sourcing agents) and the consumers of content (requesters).  The goal of every eprocurement application is to provide ever-increasing, higher quality amounts of purchasable content throughout the organization, while simultaneously decreasing procurement’s support costs (administrative & transactional) related to acquiring that content. 

Best in Class Business Objectives

If the goal of eProcurement is to provide ever-increasing, higher quality content while decreasing the costs of acquiring that content, then all business objectives should measure progress against that goal.  The amount of content (number of items in all catalogs) is easy to measure, but not a tremendously valuable number.  Because an organization goes from 10,000 to 300,000 items, they are not necessarily reducing costs and/or decreasing COGP?  By examining volume numbers in combination with a price measurement such as the Average Selling Price (using a well-defined market basket), procuring can more easily measure decreases in net Cost Of Goods Purchased (COGP) as it increases the number of items available.  Measurements such as breadth of content (how many commodities are being offered via eProcurement) and depth of content (how many business units are really utilizing the content) can be better at understanding the rate of adoption internally and externally.  Monitoring resource requirements for technical and functional tasks internally will show the relative cost control related to the eProcurement efforts; successful eprocurement efforts eliminate item mgt and contract item association efforts, while reducing order, receipt, invoice, and payment support efforts.  eProcurement is a race without a finish line, an exercise in continual improvement.  Business Objectives are the benchmark to understand how well that race is being run. 

NOTE: the past 2 years have shown dramatic adjustments in costs (up to 31%) and decreases in COGP (up to 20% within some categories). 

5 Proven Optimization Tactics

After 10+ years of global eprocurement implementations across 7 different industries, 4 major applications and 15+ corporations, here are 5 major tactics that ensure big returns for my clients: 

1. Simplify the Message – every eprocurement application/organizational marketplace must have a clear and simple message clearly explaining to both the providers of content (sourcing agents) and the consumers of content (requesters) what is in the marketplace and what is not in the marketplace.  Ambiguity leads to confusion, rogue-spend, and can actually create more work for procurement instead of less.  Does your marketplace offer items for non-requisitionables, off-contract purchases, under $2,500 purchases, travel, staffing?

NOTE: Read Marketplace Content Strategy to understand how to create marketplaces where all the participants know the contents of the marketplace. 

2. Simplify the Search Process – this is the second most important rule, but the least well executed rule of almost every eprocurement application/marketplace I have ever worked with; the search must be “Amazonian” simple.  If your process requires the requester to understand the cataloging method (hosted, punch-out, free-form text, etc.) in order to know what page or process to use when purchasing any item, then your process and application/marketplace strategy has failed.  This cannot be stressed enough, start with the one thing every requester knows when he or she wants to make a request…the description and keep it simple.  Requesters should not only be able to locate the item(s) they need, but intuitively understand how to acquire those item(s) once located. 

NOTE: Read Marketplace Content Structures, and Marketplace Content Structure Rules to see different methods/tools for representing content.  NOTE: these BLOGs assume the deployment of  content management services, number 4 below; I am a strong proponent of content management services.  They take eprocurement value to another level.

3. Simplify the Requisition Process – the number one variable determining success on every eprocurement project I have been involved with has been the requesters ability to intuitively understand how to locate items, requester those items, and then follow those requests as they work towards completion (order, receipt, invoice, payment, etc.)…yet every client I have ever known has minimized this and created training documentation.  For those that believe you need to train users for the roll-out of ANY eprocurement application/effort, that simply isn’t true.  In fact, the fact that requesters require training indicates that the eprocurement benefits received are likely to be minimal.  With the tools available today and a good consultant, all of the ability to locate, purchase, and follow a procurement transaction through its life-cycle should be “Amazonian” simple.

4. Outsource Content Mgt – this is a no-brainer regardless of the size of the organization.  The newer breed of third-party content managers can manage content better and at a much cheaper rate than internal procurement functional and technical staff.  In addition, the catalog management tools offered are more mature than the traditional SRM (SAP, Oracle, PeopleSoft) counterparts. Besides, best in class organizations are creating transaction settlement revenue streams per supplier that far exceed the cost of outsourcing the content mgt.

5. Increase Content Available – increased content mgt help and better tools allow procuring orgs to easily move much larger amounts of content “in the store” so-to-speak.  In fact, I use a Whole Foods example when I am lecturing.  My wife loves to shop at whole foods, but not me despite loving the quality of the goods.  Why?  I can’t get all of my items in one place.  Many of the items I need on a weekly basis are not there, so I am forced to go to at least one other store.  Eventually, I feel that if I have to go to the regular store anyway, I will buy lower quality goods because I just don’t have time.  In short, shoppers like to take the path of least resistance.  The more limited the selection within your marketplace, the more likely your requesters will shop outside of it.  Successful eprocurement efforts move WELL beyond the usual product aggregators (Dell, HP, Office Depot, Staples, VWR, etc.).  Aberdeen Group notes that 78% of all spend can be on contract (I.e. run through eprocurement).  My last client managed almost 100% of its spend via their shared organizational marketplace.

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

Trans-Organizational Sourcing Functions or TOSFs are procurement super-structures.  These entities exist to aggregate spend across multiple sub-organizations.  For example, if a holding company wanted to aggregate spend across its sub-companies, it would do so using a TOSF (think Sears holdings over K-mart, Sears, etc.).  The TOSF would aggregate spend from all sub-entities and group it according to the commodity being purchased.  It would then publicly auction this aggregated spend amongst like suppliers and place the contracted results in a centrally located marketplace (see also Shared Marketplaces & Marketplace Content Strategy).

TOSFs are to holding companies and governments (state, national), what procurement departments are to large organizations.  Procurement aggregates inter-organizational demand, where as the TOSF aggregates intra-organizational demand.  These new super-structures represent some of the newer thinking in procurement operational improvement today.

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

This is a quick BLOG to introduce the concept of the Strategic Procurement Paradigm.  The SPP has been around for years.  It was created on the principles of reducing the net Cost Of Goods Purchased (COGP) by electronically integrating buyer/supplier process touch-points.  While the SPP decreased the direct Cost Of Goods Purchased (COGP) through electronic connections and spend negotiation, it had a less impactful effect on the net COGP due to the increases in administrative costs required.

The mid 1990s saw the emergence of spend management software vendors such as Ariba and Commerce One.  Many soon followed and the drive to leverage spend eventually worked its way into the traditional ERP in the form of the Supplier Relationship Management(SRM) application suite.  The functionality of the larger suites and their integration with the “back-end” ERP applications (ledgers, projects, AR, assets, inventory, etc.) makes them the product of choice, however the administrative costs required to make this happen mute any real enthusiasm and have prevented this model from reaching its real potential (see The Total Supply Integration Paradigm for potential solutions).

The Strategic Procurement Paradigm has four high level steps:

1. Identify pools of repeatable spend not currently on contract.  This is typically done via BI tools by a business analyst.

2. Competitively auction pools of repeatable spend amongst like suppliers. This function is performed using the Strategic Sourcing application (often in concert with a supplier portal).  This same application can also be used to sell existing assets.

3. Automate buyer/supplier source to settle processes with key, contracted suppliers.  This is most often done via an eprocurement application connecting with some level of external catalogs and leveraging a newer, more simplified requisitioning user interface.

4. Continually drive increasing amounts of spend on contract via this process.  This is part of an overall business strategy to locate spend pools whose contract and integration benefits exceed the costs of integration and catalog maintenance.

SPP Benefits – This model provides a better requisition user interface, lowers the overall COGP, and allows buyers to remove the burden of constant sourcing (source once, place in central location for request/purchase, and move on to sourcing other items).

SPP Disadvantages – This model favors larger companies.  The cost of integrating and managing item catalogs, forms and/or connections adds up; particularly for the smaller company with a lighter IT and administrative support cast.  In addition, the simplified requisition UI does not mean it is simple.  Requesters still struggle with these pages.  MOST IMPORTANT – these applications require the requester to understand the cataloging method (internal item, punch-out, form, etc.) in order to know where to go and how to make the purchase.  These type of complexities limit adoption similar to if Amazon required book-buyers to understand architectural nuances prior to being able to order books.

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.