In a recent blog post for procurementleaders.com, Tom Linton poses the question: “Can we cut the cost of procurement itself”? Tom writes: “The first point of call for many procurement organisations has been suppliers. The thinking often goes: ‘our hard time is your hard time’, and the upshot is not only several rounds of negotiations, but also a reversion to a familiar stereotype for the function”.
We certainly think Tom’s views have merit and, in a recent blog post, we talked about how technology is a great enabler in helping to reduce costs and drive efficiency across internal procurement administration. Tom’s view was also echoed by a number of Finance and Procurement leaders who contributed their thoughts at Invenio’s recent Thought Leaders Procurement dinner, held in London in September. They too suspected that some of the greatest opportunities may no longer lie in supplier cost reduction but in transforming the way the procurement function itself operates.
But, whilst the desire exists for procurement to change, there are many internal and cultural hurdles that stand in the way. Software solutions like Invenio’s Invenio’s P2P Solutions for SAP can cut millions from the cost of procurement – but these savings can only be realised by redefining the way procurement is managed. And change itself is difficult to manage. Here, for example, are three challenges our customers needed to address on the journey to redefining the way they approach procurement.
1. Resistance to Change
The “we’ve always done it this way…” attitude is something we’ve seen time and time again when it comes procurement transformation. In fact, this attitude can be found not just in procurement – but ANY system change. The first step is to recognise this attitude. The next? To change it… Below are a few specific steps that our customers have taken that have helped lessen the anxiety their people feel about impending change.
The most important aspect of all is to involve as many affected departments and users as possible – right from the project’s inception. By ensuring there is regular communication and participation in the process, users can feel like they are helping drive change for the greater good. This ensures users don’t become disenfranchised and that they feel more comfortable with impending change. It also gives the users a chance to contribute feedback and ask any questions. Typical tactics we’ve seen work well include drop-in sessions, roundtable discussions and regular email updates.
Educating affected users about the reasons driving transformation (and what they stand to gain from it) can serve to enlighten and inspire users to make changes more easily. Involving the users at the design and testing stages, giving short demos or even opportunities for hands-on experiences during the implementation is a great way of fostering involvement and building enthusiasm.
By asking too much of users, you may find that they become overwhelmed with the additional workload, thereby making them more resistant to incoming changes. Make sure expectations are realistic and goals are achievable to help keep the users on side.
2. Board Level Clout
Research tells us that one of the most common challenges facing the procurement department is in gaining support for change from Board Level Executives. Many CPOs believe procurement functions are simply not seen as a value-added function by these executives and that they are therefore less likely to invest the time and money needed to drive change. A recent Proxima study showed that the overwhelming majority of CPOs do not have a seat on the Board –with some 46% reporting to the COO and another 52% either directly to the CFO, or even a level below. To successfully drive transformational change needs the buy-in of the Board. Therefore Procurement Executives who are proposing changes must be equipped with a sound business case that helps them demonstrate how they can cut costs, improve efficiencies and deliver tangible savings to the bottom line. In addition, as the project takes shape, the procurement function must be able to rely on the Board to help them drive through changes. Again, this requires a sound business case and strong executive sponsorship.
3. Tackling Organisational Complexity
As a company grows so does process complexity. And redefining process takes a lot of time and energy. Procurement in particular touches many parts of the organisation and so redefining a procurement strategy will often highlight many complex processes that require a major rethink. Driving through the changes necessary to eradicate this complexity and fix processes can be a challenge for even the most forward-thinking business executives.
But tackling this organisational complexity head-on can have very positive effects on the organisation as a whole. For example, research carried out by The European Business Review shows that most organisations have evolved to be too complex. This prevents people in these organisations from focusing on the important things, performing key activities efficiently, or making important decisions fast enough. One of the particular issues they highlight is the difficulties in making operational expenditure decisions. The report states “too many layers of management was a common complaint, highlighted as a major driver of additional, costly (non value-adding) complexity”. By tackling the complexity issue at source, procurement executives can bring real benefits to all those who are encumbered by these difficulties.
Simply being aware of these challenges can help mitigate many of the difficulties in the journey to greater procurement efficiency. Invenio’s P2P Solutions can deliver real benefits right across an organisation – from massively reduced costs, to increased process efficiency and greater insight into global spend. It’s clear from our customers that the benefits to be gained from implementation far outweigh the challenges.
If you’d like to learn more please email firstname.lastname@example.org or call our SAP Advisory Team on +44 (0)330 440 1800.