Formulating Strategic Marketing Programs. What are the Benefits of Strategy?
CRITICAL SUCCESS FACTORS...1. Know the Business Strategy In formulating a purchasing strategy there...
Transcript of CRITICAL SUCCESS FACTORS...1. Know the Business Strategy In formulating a purchasing strategy there...
CRITICAL SUCCESS FACTORS IN
ePROCUREMENT SOFTWARE ADOPTION
BY ANTHONY FLYNN
White paper series
White paper series SourceDogg
5 steps to procurement
as boardroom strategy and
how e-sourcing can make it happen
C ont en ts
Introduction 1
Designing a Purchasing Strategy 2
e-Sourcing and Strategic Purchasing 7
Conclusion 10
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 1
The value-adding potential of
procurement is now widely recognised. It was
not always so. In previous times procurement
occupied a peripheral position within most
organisations. It was viewed in operational or
tactical terms, but rarely as a strategic, value-
adding activity. Trends in global business,
industry, organisational management, and
business education have all contributed to a
new perspective. Notable among the changes
are the following:
• Borderless commerce has placed
pressures on firms’ cost bases. This,
in turn, has caused firms to search for
efficiencies throughout the supply
chain.
• Realisation that suppliers can
represent a source of competitive
advantage, through either lower
prices, higher quality, or more
innovative products and services.
• Much greater emphasis on
transparency and corporate
compliance. This has percolated down
to transparency and compliance in
purchasing.
• Purchasing and supply chain
management are now included
alongside finance, management,
and marketing as part of the
college business curriculum.
Today’s graduates are aware of
the link between purchasing and
organisational competitiveness more
than at any time in the past.
Introduction
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 2
There are five main stages involved in
crafting a purchasing strategy. These five
stages are as applicable to firms designing
a purchasing strategy for the first time as
they are for firms re-designing an existing
purchasing strategy (Fig. 1). They are explored
in detail below.
1. Know the Business Strategy
In formulating a purchasing strategy there
needs to be clarity on the business strategy
to begin with. Purchasing is strategic to the
extent that it underpins and strengthens
the business strategy. Hence, having a clear
understanding of the overall purpose of the
business and its goals is essential before you
plan a purchasing strategy. For example, a
firm may have the strategic aim of improving
profitability. The orientation of the purchasing
function under this scenario should be
towards cost reduction. Alternatively, a firm
may have faster delivery times for customers
as part of its strategic objectives. In this case
the priority of purchasing is to expedite
sourcing times.
2. Analyse the Purchasing Function
Having clarified the business strategy,
Designing a Purchasing Strategy
Fig. 1: Designing a Purchasing Strategy
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 3
the next stage is to conduct a fundamental
assessment of purchasing within the
organisation. Conducting a spend review
is always a good starting point. Relevant
questions to be asked here include: What
was bought? Who bought it? Who supplied
it? How much did it cost? Was it within
budget? Was it compliant with company
procurement policies? Additionally, firms
might decide to follow the Kraljic’s Portfolio
Matrix method (Fig. 2). This involves assessing
purchases based on (i) the financial weight
of the purchase and (ii) the supply risk
associated with the purchase. Thereafter,
typically purchased items can be categorised
as either strategic, leverage, non-critical, or
bottleneck. Each of these four categories will
require a different management approach.
Many encounter significant difficulties even
at this early stage of the purchasing strategy
design process. The reason is to do with poor
co-ordination of purchasing. Incomplete
records, or sometimes no records at all, can
make it difficult to assess spend profiles.
Accounting systems that are not synced across
organisational units can cause difficulties
when analysing the purchasing function.
e-Sourcing is one solution to this problem, and
is discussed in due course in this white paper.
“Purchasing is strategic to the extent
that it underpins and strengthens the business strategy.”
Fig. 2: Analysing the Purchasing Function
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 4
3. Analyse the Purchasing
Environment
If the second stage is all about looking
inwards, the third stage is about looking
outwards. It involves finding out about
suppliers and their capabilities, currently
available products and services, industry
technology trends, supply and demand
forecasts, macroeconomic conditions,
and threats and opportunities within the
commercial environment. In other words, it
involves purchasing personnel doing their
homework on marketplace developments.
The importance of obtaining reliable and
accurate information cannot be overstated.
Sources of information include: websites,
trade journals, annual company reports,
industry reports, economic data, conferences,
industry and trade fairs, and direct interaction
with suppliers. Data collected can be used
in a number of formal analyses of the
business environment; for example, Porter’s
5 Forces Model or a Strengths, Weaknesses,
Opportunities and Threats (SWOT) analysis.
4. Design the Purchasing Strategy
Stage four moves into the actual
design of a purchasing strategy. Crucial
to the design phase is translating business
objectives into purchasing objectives. While
every organisation should have a purchasing
strategy that is tailored to its own particular
requirements and competitive position,
commonalities in purchasing strategies exist
within and across industries. Examples of
generic purchasing strategies include cases
where:
• The business objective of cost reduction
leads to the procurement objectives of
reducing unit costs, reducing overheads
“Crucial to the design phase is translating business objectives into
purchasing objectives.”
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 5
and administration costs, and reducing
stock levels and associated holding costs
• The business objective of introducing
new technology leads to the procurement
objectives of automating more purchases,
improving electronic funds Transfer
(EFT) systems, and increasing use of web
technologies
• The business objective of introducing
new products leads to the procurement
objectives of enhanced problem
solving between buyers and suppliers,
heightened market awareness, and
faster qualification of suppliers for new
materials
5. Implement the Purchasing Strategy
The final stage involves putting the
purchasing strategy into practice. This is
among the most challenging aspects of
introducing a new purchasing strategy in any
organisation. Up to this point all efforts have
been directed towards analysis and design.
Now it is time for action. The implementation
stage requires taking all necessary actions to
ensure that designed changes are introduced
and operations are performed as planned. It
means that there is a common understanding
among the implementation team over what
tasks are to be done, a schedule for task
completion, allocation of roles to oversee task
completion, and ensuring adequate resources
are in place to make strategy implementation
a success. Central to the success of any
new strategy is on-going monitoring and
a willingness and ability to alter course as
conditions demand. Rarely do strategies
implement without some deviation from
the initial plan. Purchasing strategies are no
exception. As part of on-going monitoring of
a recently implemented purchasing strategy,
firms are advised to:
• Conducting regular review meetings
“Central to the success of any new strategy is on-going
monitoring and a willingness and ability to alter course as conditions
demand.”
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 6
• Check that key objectives are being met
• Assess internal customers’ views of the
purchasing strategy
• Assess external stakeholders’ views
of the purchasing strategy (especially
suppliers)
• Report back to top management on
progress achieved and targets met
• Alter strategy as circumstances demand
(any purchasing strategy should have
built-in flexibility)
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 7
e-Sourcing is a key enabler of strategic
purchasing and its potential is deserving of
some further consideration here. On a number
of levels e-sourcing enables firms to leverage
purchasing in more value-adding ways. Three
are of particular note: reduced sourcing costs,
enhanced transparency, and data analytics.
• Reduced Sourcing Costs: e-sourcing
allows buyers to access a greater number
of suppliers than was ever previously
possible. These can be national or
internationally-based suppliers. From
the buyer’s perspective, more suppliers
equals more choice; and more choice
leads to more competitive bid prices and
a wider range of product and service
offerings from which to choose. Astute
use of e-sourcing thus helps firms to
reduce their sourcing costs and improve
their overall cost competitiveness. This
has direct impacts on firm profitability.
Moreover, e-sourcing can dramatically
bring down the transaction costs
associated with purchasing. Again, the
net effect is a more competitive cost base.
Reducing costs with SourceDogg e-sourcing:
• Browse and search hundreds of
thousands of verified suppliers in our
global directory; pool and tag them
according to certification, preferment,
product category etc.; and easily invite
them to your sourcing events. Increase
competition and source better quality
goods and services for less.
• Import all your existing suppliers
in bulk with a quick and painless
registration process – SourceDogg
supplier accounts are free.
“On a number of levels e-sourcing
enables firms to leverage purchasing
in more value-adding ways.”
e-Sourcing and Strategic Purchasing
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 8
• Enhanced Transparency: e-sourcing
confers a benefit critical in today’s business
environment – an audit trail. An easily
auditable purchasing function is essential
to demonstrating compliance, regardless
of whether a firm is in the public or
private sector. Stakeholders get to see
how much was spent, on what, and by
whom. Adherence to rules and regulations
on purchasing also sends a message to
stakeholders that the firm is proactive
when it comes to risk management
• Data Analytics: linked to the foregoing
two points, e-sourcing is an enabler of
strategic purchasing precisely because
it captures valuable data on purchasing
activity. Purchasing data can then be used
to determine trends in bid prices received,
• Reduce administrative costs with
effective requests for quotation, tender,
information or proposal created in
minutes and distributed to suppliers
instantaneously. Clone top-performing
requests and use our readymade, best
practice request templates for even
faster ROI.
Achieving transparency with SourceDogg e-sourcing:• Comply with auditing and head office
requirements by exporting and sharing
all data for any or all sourcing events.
• Discourage ‘maverick buying’ with a
request approval system and a high
level of usability that encourages staff
buy-in.
• Sourcing objectivity and fairness is
upheld with an even-handed and like-
for-like scoring system; a sourcing event
message board visible to all competing
suppliers; and managed access to
supplier quotations and tenders.
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 9
actual prices paid, and future expenditure
levels. It can be used to micro-analyse
purchasing activity and to isolate spending
patterns associated with particular products
or services. Having high quality purchasing
data also allows firms to take more informed
decisions over such areas as consolidation of
the supply base.
Detailed reporting with SourceDogg e-sourcing:• Create comprehensive purchasing
reports presenting complex data in
an easy-to-read format and capturing
trends across suppliers, product
categories, departments and more.
• Customise your reports with
comparison and cross tabulation of data
streams.
• Create graphical representations of
sourcing and spending data for effective
communication with your stakeholders.
SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 10
Conclusion
The role of purchasing has evolved from
operational to tactical to strategic over the last
number of decades. Some firms have embraced
strategic purchasing. In other words, they
seek to make purchasing add value to their
organisation. Other organisations have not
yet reached this stage and still see purchasing
as having a relatively inconsequential part to
play in driving competitiveness. The degree
to which purchasing is recognised as strategic
is dependent on the characteristics of the
organisation. When purchasing accounts for a
high percentage of operating costs, firms are
likely to accord purchasing a more prominent
role, and vice versa.
Having said that, competitiveness
improvements will come to any firm that
succeeds in aligning purchasing objectives
to business strategic objectives. Even little
improvements can make all the difference in
highly competitive sectors with low profit
margins. e-Sourcing technologies have become a
key enabler of strategic purchasing. They make
it easier for firms to directly link purchasing
to impacts on bottom-line performance. What
is more, they contribute to openness and
transparency in the organisation, and assist
firms in making evidence-based decisions on
the planning and strategic management of
purchasing.
About the Author
Anthony Flynn is a Procurement Researcher
in Dublin City University Business School
(DCUBS). He is a member of Winning in
Tendering (http://www.winningintendering.
eu/): a strategic partnership involving DCUBS,
the Irish Institute of Purchasing and Materials
Management (IIPMM) and Bangor University
School of Law.
Tel UK: +44 203 481 0904
International: +353 1901 5096
Email: [email protected]
w w w . s o u r c e d o g g . c o m
Realise your procurement strategy
with SourceDogg e-sourcing
Discover how your sourcing events can be transformed
Add value to your business by reducing costs, achieving transparency
and managing spend
Sign up for a 30-day trial with SourceDogg
Experience the savings, efficiency and sourcing transparency for yourself
Visit: www.sourcedogg.com/free-trial
30-DAY TRIAL
30
No credit card required