14171678 Deploying Best Practices in Supplier Relationship Management

8/6/2019 14171678 Deploying Best Practices in Supplier Relationship Management

1/4B U S I N E S S B R I E F I N G : G L O B A L P U R C H A S I N G & S U P P L Y C H A I N S T R A T E G I E S 2 0 0 4

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Technology & Services

a report by

P eo p l e S o f t

With economic conditions continuing to apply

downward pressure on corporate profits, world-class

companies are now recognising the value that the

source-to-settle process brings to increased margins

and competitiveness. At these companies, the

procurement organisations are committed to

consistently deploying best practices across theorganisation to improve efficiencies, reduce costs and

increase visibility into supplier relationships and

spend. Ultimately, these measures serve to improve

company profitability.

Be s t P r a c t i c e s D e f i n ed

Talk of best practices may ring through many

corporate hallways, but, in the end, best practices are

often just that: talk. However, as proven by leading

companies that actually employ best practices with

measurable results, it is clear that it is not just a theoryor a good idea.

In real world implementations, best practices produce

predictable results with lower risk. To do so, they

must be proven, put into practice, demonstrating and

driving measurable change. They also must be

documented not only in writing, but with data that

certifies the success or efficacy of the practice.

Perhaps most important, best practices must create

sustainable performance and lower costs by applying

to a broad spectrum of organisations, not just isolatedareas. It is only when it is repeatable and widely

applicable that the value of a best practice is evident.

It also needs to ensure effective control and risk

management, enabling broad control across the

organisation while still empowering individuals

throughout. To achieve these measurable results, best

practices must also leverage proven technologies

without relying just on technology, a point that will

be elaborated on later.

Probably the best definition of a best practice is that it

is a proven methodology, aligned with strategicbusiness objectives, that results in increased quality and

productivity, faster cycle times and greater efficiency. It

allows companies to outperform competitors in specific

operational areas and deliver more value at less cost.

More T h an T e c hno l o g y

Although exploiting proven, available technologies is

certainly an important part of best practices, they

encompass more than technology, and even more

than revising or automating processes. The most

successful implementations of best practicesincorporate all of the following:

People People participate in and drive the

source-to-settle activities and must be able to

focus their time on value-added strategic work,

not just clerical or administrative duties. The

strategic focus of team members should include

empirical data gathering and application of

analytical tools, improving planning and policy-

making, negotiation and supplier evaluation.

Processes Processes must be simplified whereverpossible, creating efficiencies and eliminating

excessive rework and unnecessary detail. A key

component in process improvement includes

automation, which shortens processing cycle times

and helps eliminate human error. Standardisation is

also important since consistent treatment of data

reduces redundancy and saves time. Standardising

data management enables a focus on the analysis of

results, which increases visibility into information

and allows for more strategic decision-making and

buyersupplier interactions.

Information Fundamental to good decision-

making is getting access to the right information,

regardless of where it is in the company and

whether it is distributed or centralised. To be of

value, data must be consolidated into a single

source of truth instead of multiple silos and

shared as appropriate. For example, all team

members need access to supplier performance data

and spend analytics regardless of where they are in

the organisation.

Technology Overall, technology supports,automates and reinforces the enablement of

recognised best practices across people,

processes and information. It also serves to

consolidate and centralise systems and control

Deploy ing Best Prac t i ce s in Suppl ie r Re la t ionsh ip Management


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and provide the necessary visibility into data and

performance analysis.

Together, these components of best practices allowcompanies to simplify, automate, consolidate and

standardise processes, enabling them to work smarter

and be more productive.

Impo r t an c e o f B e s t P r a c t i c e s i n

S upp l i e r R e l a t i o n sh i p Managemen t

The Hackett Group, a US-based business processes

consultancy, has conducted exhaustive research in the

area of best practices for supplier relationship

management. This research was recently published in

a white paper entitled Achieving World Class Sourceto Settle Through Best Practices, which provides the

basis for some of the data presented in this article.

When The Hackett Group compared companies that

have an average performance in key practice areas

with companies that have embraced and adopted best

practices, they made some interesting discoveries.

While the average company counts 37% of its

contracts as long term, 75% of contracts from

companies adopting best practices are long term. The

benefits these long-term contracts bring to an

organisation include lower administrative costs andthe ability to negotiate better prices.

Another key finding from The Hackett Groups

research underscored how world-class organisations

leverage technology to increase efficiencies. For

example, generation and approvals of purchase orders

using paper and e-mail is inherently time-consuming,

but cycle times can be reduced from a high of 50.2

hours for an average organisation to 1.4 hours for an

organisation applying best practices to automate the

process through Web-based technology. The

automation of procurement activities drives the cost

of procurement down as a percentage of spend,

meanwhile reducing cycle times.

Be s t P r a c t i c e 1 S t r a t e g i c S ou r c i n g

Bidding and negotiation are time-consuming, often

paper-based processes that significantly hinder an

organisations ability to source strategically.

Dispersed information and latency of data on

supplier performance only add to the challenges.

What is more, once better practices are identified, itremains difficult to make them pervasive

throughout the organisation. In fact, it is not

unusual to only have 5% of all commodities sourced

strategically in a given organisation (Center for

Advanced Purchasing Studies).

With Web-enabled sourcing, organisations can

automate the entire cycle to speed the transfer of

information and to share knowledge. Organisations

also need to adopt a common commodity

management strategy based on standardised coding

for consistent, streamlined processes, whether thepurchase is direct or indirect goods or services.

Once an organisation has automated and

consolidated information, leveraging spend

performance analytics to examine the historical

performance of suppliers provides a valuable basis for

strategic sourcing. With these sorts of best practices

in place, organisations are in a much better position

to negotiate long-term agreements to reduce costs

and improve profitability.

Be s t P r a c t i c e 2 S t r a t e g i c P ro c u r emen t

One of the biggest challenges faced by organisations

is unauthorised, maverick spending, which is

especially hard to track and control when suppliers,

buyers and systems are dispersed. Time-intensive

manual processes only add extra steps and introduce

greater chances of human error in the process. In

most organisations, materials and services are

procured through separate systems and departments,

further fragmenting the process.

By shifting the procurement focus from tactical to

strategic with an eye to automating and centralising all

procurement, organisations are able to recognise

tremendous gains in time and cost savings. World-class

B U S I N E S S B R I E F I N G : G L O B A L P U R C H A S I N G & S U P P L Y C H A I N S T R A T E G I E S 2 0 0 4

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Figure 1


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Deploying Bes t Prac t i ces in Suppl ier Relat ionship Management

organisations process 80% of their purchase order in

electronic form, while an average would cover only

17% and the rest is paper-based. Just automating the

request-to-cheque processes accelerates procurement

cycles, saving time. Walking purchase orders around

for signatures is expensive and is an obvious area to

target cost savings. The Center for Advanced

Purchasing Studies (CAPS) estimates that best practices

enable companies to decrease the cost per purchase

order from US$121 to US$33, adding up to substantial

savings when applied across the organisation.

Managing all spend for direct materials, indirect

materials and services enables organisations to gain

visibility and control into total spend, in turn

minimising maverick spend. As mentioned

previously, consolidating the number of suppliers

directly results in lower costs of goods and services,

as does an increase in the number of long-termcontracts. Another direct benefit of gaining visibility

and control into the procurement of services is the

reduced lead time to fill positions.

An important hallmark of organisations applying best

practices is the strides they have made to consolidate

and standardise the source to settlement, not only of

goods, but also of services. In addition to the cost and

time savings mentioned already, strategic

procurement of services results in decreased legal risk

with enforced compliance, which is especially

important in litigious environments.

Be s t P r a c t i c e 3 E f f e c t i v e S e t t l emen t

Settlement and dispute resolution processes are

complex, tending to be very paper-intensive and

error-prone. The area of settlement is one that is very

frustrating for most organisations, causing a large

administrative burden that is often underestimated.

The reality is that most accounts payable organisations

are mired in paperwork and the communication lines

between requestors, buyers and suppliers are

completely broken. This is one area that benefitsespecially well from the application of best practices.

In highly effective, efficient organisations, best

practices provide a framework for preventing

disputes, minimising errors and settling accounts

more rapidly. Technology plays an important role

here, since Web-enabled invoice transmission and

dispute resolution streamline processes and quickly

resolve issues, while automating the request-to-

cheque process helps to improve cash flow.

There are myriad time and cost benefits to effectivesettlement, but the greatest value to organisations can

come in the form of lucrative cash discounts.

According to US-based consulting and research firm

Celent Communications, companies can often

capture as much as a 1% to 2% discount off invoices

for paying suppliers within 10 days savings that

rapidly add up to an increase on the bottom line.

Be s t P r a c t i c e 4 Mean i n g f u l

P e r f o rman c e Managemen t

Applying best practices across sourcing, procurement

and settlement has clear benefits. What are

sometimes not as obvious are the benefits derived

from strategic, proactive supplier performance

management. Without this, organisations will lack

visibility into total spend and into actual

performance. If there isnt a single source of truth for

supplier performance and especially if the

performance is self-reported by suppliers theinformation will not be consolidated or consistent

and ultimately cannot be strategic to the business. As

a result, organisations are unable to identify the best

suppliers or issues easily or in realtime.


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By leveraging best practices into the area of

performance management, organisations can make a

significant, lasting impact on supplier relationships.

When suppliers are able to review their own

performance metrics and to respond in realtime,

research has proven that they do respond. Simply

measuring supplier performance can result in a 26%

improvement, according to The Hackett Group.

The use of Web-based tools for realtime access to

performance ratings and to decrease data latency

gives the visibility that decision-makers need to best

leverage supplier relationships. Analysing supplier

performance and purchase history to target suppliers

with high volumes and high performance enables the

negotiation of better contracts. Meaningful

measurement based on actual commodity types,

whether they are goods or services, is far more

indicative of performance, again supporting betterdecision-making. Metrics should be aligned with the

commodity being procured.

F i r s t S t ep s T owa rd s B e s t P r a c t i c e s

By enabling best practices through an efficient

source-to-settle process, organisations make smart

buying decisions. By relying on best practices, these

decisions become part of an overall strategy for

achieving business goals, meanwhile facilitating the

building of long-term relationships with the highest

performing suppliers. This happens by:

linking and automating critical spend management

processes including analytics, sourcing and

procurement to organisational objectives;

proactively managing all categories of spend

direct, indirect, assets and services everything

the enterprise is buying;

providing for an automated linkage of steps in the

process and viewing the entire process beyond a

purchase order to payment of an invoice;

reducing manual processes, iterations and

duplicative work; and

simplifying supplier interactions.

When reviewing current processes and exploring

opportunities for best practice enhancements, it is

necessary to ask:

Is the transfer of information timely, or are there

disruptions and stops in the process?

Is the information accurate and reliable?

Are stakeholders more informed by greater access

to information, leading to a more nimble

procurement process?

Are actions traceable and can they be tracked?

Are they consistently repeatable?

Are they measurable with accuracy?

A well-considered best practices strategy will not

only improve the effectiveness and efficiency of the

procurement function, but will benefit the larger

goals of the organisation. By moving source-to-settle

processes online and focusing on supplier

relationships rather than processes, procurement

professionals have the opportunity to managestrategically to help deliver bottom-line benefits to

the enterprise. s


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Contact Information

For more information on PeopleSoft Supplier

Relationship Management and a copy of The

Hackett Group executive white paper entitled

Achieving World Class Source to Settlement

Through Best Practices, please visit

http://www.peoplesoft.com/goto/srm

14171678 Deploying Best Practices in Supplier Relationship Management

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