Globalization of e-Procurement — Does Your Organization Measure Up?

Best practices to jump start, or validate, your global e-procurement rollout approach

By James A. Kandilas, CPA

So your organization embraced the promise of e-commerce tools used to enable the source-to-settle cycle; you are amongst good company. For the majority of us, the vortex of the e-procurement tornado swept us into this world during the late 1990s.

If you are like most, you have tweaked your internal business processes, peppered in an appropriate level of best practices and actuated those processes using an enterprise resource planning (ERP) system or chosen a best-of-breed route.

Your organization has presumably spent the last several years fostering deeper relationships internally between Sourcing, Procurement, Legal, supplier relationship managers, Application Development, Shared Services, Infrastructure IT and lines of business. Externally you have done so with suppliers, software vendors and system integrators/consultants.

To illustrate this point, Aberdeen Group recently issued "The E-Procurement Benchmark Report," which indicated that respondents who implemented e-procurement reduced requisition-to-order cycles by 75 percent, reduced their requisition-to-order costs by 48 percent, reduced maverick spend by 36 percent and increased spend under management by 36 percent.

Now fast forward to 2007. As your organization has developed, you have played a role in the birth of a latter-day trend — global deployment of your enterprise technology for your source-to-settle process. Since the frenzy of early B2B adaptation in the late 1990s, proven results have directed us to this new fork in the road. But what motivates us to explore this concept further? What are most organizations looking to accomplish? From our experience, the following are common goals:

  • Attain increased total spend under management, globally.
  • Attain increased contracted spend compliance.
  • Gain spend visibility, which fosters improved decision making and more sophisticated supplier relationships, including supplier consolidation and contract negotiation.
  • Lower total cost of ownership (TCO) of enterprise systems by leveraging one footprint, in lieu of managing disparate enterprise systems or legacy/homegrown systems globally.
  • Lower operating costs by leveraging streamlined business processes and best practices that have been refined after years of hard work and lessons learned in one region.
  • Leverage as many common data elements as possible to improve not only spend reporting but also transactional reporting for financial systems and roll ups.
  • Migrate from internal software adoption at the business unit or line-of-business (LOB) level, where data reside in a local server with its own customizations, to software adoption at the regional/global level, with data resident for the enterprise on a real-time basis.

If your organization identifies with these motivating factors, you are most likely among a number of organizations in the same boat, expecting to achieve your goals through a global rollout.

The Shelby Group has gathered and summarized strategic, tactical and operational highlights surrounding global rollouts from our involvement with thought-leaders in spend management and scores of Fortune 500 organizations. Here are the data points we have collected, which may help to either get you started or validate your current approach.

What Is Your Global Strategy?

Let's start with some of the questions that are necessary to create, build upon, revise or validate a global deployment strategy.

What salient points should we address in the construct of the strategy? As you set out to implement a corporate-wide strategy across the globe, executive leadership will need to paint broad brushstrokes as to the particular vision of the organization's rollout. At the early mile-marker, organizations typically define the vision by fleshing out those motivating factors into a more definable purpose, for example:

  • Using a common or scalable system to enable process improvement across the sourcing and purchasing functions. This would include leveraging repeatable and globally scalable sourcing processes that can be shared within the organization — in other words, not having to recreate the wheel in every business unit, country or region where a new deployment occurs. Perhaps even consider comparing your approach to that of your peers.
  • Considering limitations upfront to sharing processes and practices, based on statutory, regulatory, cultural and compliance considerations.
  • Gaining global spend visibility across the global supply base to later leverage a larger pool of spend dollars.
  • Leveraging a global strategic sourcing initiative so as to truly unleash buying power.
  • Devising consistent cross-country business processes, including:
    — Supplier selection and contracting management process
    — The requisition/purchase order/invoice process
    — Settlement with accounts payable (AP) and data to general ledger (GL), closing the loop
  • Assigning a time horizon to achieve the vision for the project.
  • Ensuring that executive leadership creates a synergistic hierarchy and priority set for the rollout. This would include organizing a rollup of business units, LOBs, countries and regions.
  • Having executive leadership validate the business case at the business unit, country and regional levels to the corporate-wide strategy. Again, allow room for the reality of limitations at the local level; however, there must be an overall fit.

Tactical Considerations & Challenges?

As we move to the tactical layer, beyond the palpable executive level commitment to steering committees, change advisory boards and funding, the following critical path topics must be addressed:

Regional and Cultural Considerations

  • Does the corporate-wide strategy have buy-in from the targeted geographic regions, countries and business units/LOBs?
  • Will the initiative be viable within a proposed region given, for example, regulatory differences or data privacy regulations unique to the region, as well as labor implications?
  • What is your company's track record when taking projects to other countries?
  • What are the capabilities/relevant experiences of local personnel involved in the project?
  • How do cultural differences traditionally impact new initiatives at the company?
  • Is there a communication and change management team dedicated to the project, and are they structured to handle the challenges of a global implementation? Are there regional extensions capable of handling the communication and change management onsite?

Global versus Local Compliance Needs

  • How have the supplier contracts been negotiated?
  • Have the regional corporate compliance needs been considered during the initial agreement negotiations?
  • What are the considerations for known regional legislative or regulatory requirements, and do regional or local representatives on both sides understand the relative importance of the requirement? This could include such requirements as:
    — European Union financial reporting requirements (e.g. VAT)
    — U.S. financial requirements (e.g. SOX)

Technology Challenges

  • Was our initial implementation designed to accommodate a global scope?
    — Architecturally, is the organization migrating to an instance-by-region approach or a single global instance?
    — What are the bandwidth and hardware implications appropriate for a global scale?
    — Can we mix on-demand, hosted and enterprise versions of different applications or different versions of the same software?
    — What is the current lifecycle of your ERP or other enterprise systems as you plan the global rollout?
  • Consider major upgrade paths or releases of further back-office modules (finance and human resources applications, etc.) as you set expectations around scope, people and timelines.
  • If we are rolling out functionality by business process work stream, what sequence should we follow?
    — For example, which comes first, the e-sourcing/auction engine or the e-procurement transaction engine? What follows, contract management or invoicing?
    — If the global plan calls for multiple business process work streams, is our approach to roll out all technology by module, at once or in a staggered fashion?

Is It Working?

As the wheels of change are in motion, what are the basic structures that organizations have in place to measure success in a global framework? Here is a sample of input loops:

  • Clear goals are defined, typically derived from the business case, which is usually constructed from motivating factors.
  • End-user feedback is monitored and worked into a continuous improvement cycle.
  • Consistent metrics are the key to having statistically relevant measures across any process.
    — Is user satisfaction higher/lower following the implementation?
    — Have you achieved headcount reduction or reorganization goals?
    — Have the supplier rationalization targets been met?
    — Has rogue spending decreased (percent of total dollars through the system)?

A rule of thumb dictates that organizations will blend goals, stakeholder feedback, metrics and general project management tools together as mechanisms for iterative improvement.

As your organization continues to meet with delegates from business units, LOBs, countries and regions, you will measure your success against your global framework, knowing that your corporate benchmarks have been clearly defined by your vision, channeled into purpose and focused into goals.

Finally, as we strive toward success, consider it healthy to look outside your organization for substantiation. Relying solely on your own internal indicators can be limiting; where possible, gauge your organization with homogenous organizations, your broader vertical industry, and even heterogeneous industries. Do this well, and collectively we will continue to shift the perception of the sourcing and procurement functions from operational to strategic.

About the Author: James A. Kandilas, CPA, is a managing partner at The Shelby Group, LLC, a boutique consulting firm specializing in e-sourcing, e-procurement and supplier management process and technology consulting. Based in the Chicago area, he can be contacted at [email protected] or 312-925-5164.