BUYING RIGHT

It is critical to understand that today’s business environment is significantly different from the past. The world is becoming smaller, more connected, faster moving and more reliant on methods of commerce that were not available 10 years ago. Some call this the “new normal”. In working with dozens of analysts and hundreds of commerce leaders, three success factors have evolved: Intelligently Reducing Costs; Increasing Agility; and Managing Complete Business Commerce.

It is very important to understand these high-level factors since they are used as organizing principles for the solution selection criteria. Should one of these issues not be appropriate to your unique business situation, identify that early and come to agreement on what three factors will be used to organize and align the corporate objectives with the solution selection.

When it comes to eProcurement, selecting a solution can be difficult, and a wrong decision can have immeasurable costs. There is no one organization best suited to this decision since Procurement, Finance, and IT all play key roles in the aff ected business processes.

Procurement solutions can be difficult to evaluate because of the number of interorganizational dependencies. Taking too narrow of a project view or looking to others to make the decision often results in under-performing solutions. Through alignment of the project success factors, C-level objectives, and critical corporate success factors, a decision matrix can be created that minimizes a great number of risks associated with solution selection.

When this is coupled with a diligent review of other companies using the solution, a procurement organization can have a high degree of confidence that it is making the right eProcurement selection for both the near and long term. By providing a specific framework and tools, as outlined in this article, an organization can minimize the decision time, optimize cross-functional buy-in, and maximize the likelihood of making the right eProcurement selection decision.

STRATEGIC OBJECTIVES

Today’s commerce does not happen in a vacuum. Procurement professionals serve many different “masters” often with very diff erent goals and objectives. When JetBlue’s corporate supply manager Joseph Gigliotti explored their infl uencing factors, he revealed a large number of interdependencies, as shown in Figure 1.

[ Figure 1: Infl uencing factors on the procurement process. ]

Trying to manage and coordinate all of these elements within an eProcurement decision process would be an overwhelming task. However, there is another approach that can take into consideration all of the necessary elements in a process that encourages a comprehensive and collaborative decision.

Begin by identifying the four or five key departments that interface with and are impacted by the proposed solution. These will typically be: Finance, IT, Procurement, Sales/Marketing, and Legal. The next step is to collect the C-level initiatives for each of these five functions. Table 1 captures the current most-common initiatives based on industry analyst research.

While the departments you work with may have objectives that differ from those listed In Table 1, if you find a dramatic variance from this list, STOP! This may be a variance that is appropriate to your business, or it may be a sign that something is wrong or out of alignment. If you understand and identify these issues up front, you are much less likely to be “trapped” in a bad decision or a stalled process at a later time.

You may also find that you’re not asking the objectives at a high-enough level, and there may be a disconnect within one of these organizations between the C and lower levels. In either case, it is much easier to answer this now than when you’re in the heat of debate over which solution to select.

TACTICAL REQUIREMENTS

In addition to the strategic alignment, any eProcurement selection must take into account the tactical requirements of the solution. However, it is important to push for the tactical definitions to be in the form of a business need rather than simply defining the current process. The example below highlights what is meant by this:

Process: Route a purchase order (PO) for approval to the manager when the value exceeds $1,000.

Business Need: When a PO is submitted, a check is done against a set of flexible, configurable criteria to determine the appropriate approval routing.

The importance of this distinction is that the business-need approach allows for rearchitecting to create best practices that might be otherwise missed with the traditional process approach. For each of the Tactical Requirements, be diligent with the selection criteria. If you find that you are identifying features and functions, this is a clear warning signal that you have not pushed hard enough to understand and specify the underlying business needs.

Based on the specific project objectives, tactical requirements can take on many diff erent forms. Examples of typical tactical requirements could include:

• All aspects of commerce management (visibility, sourcing, contracts, procurement, payment, working capital management), can, in the future, be addressed within a single solution interface

• Goods and services can be managed in the same solution

• Catalogs can be maintained by non-in house resources (ideally suppliers)

• The user interface is easy and intuitive enough to allow wide-spread user adoption

• Proven ability to reduce invoice process times greater than 30 percent

• Able to bring 90%+ of orders through the process within compliance

• Solution can easily address the needs of new business units in different regions or countries

• Solution works with any ERP vendor or version (this supports future flexibility)

• Proven ability to be rolled out within 30 weeks (not just a pilot in this time)

This list will then form a key component of the selection criteria, but in a manner that allows it to be a part of a larger strategic view rather than the only focus of the project.

HIDDEN GEM – SERVICES

Before organizing the selection criteria, it is important to discuss one oftenoverlooked aspect of spend: Services. Most organizations choose to focus on the goods portion of an eProcurement solution. While an appropriate place to start, it is important to move beyond goods, whether in the initial or future phases, to address more of your total spend.

While services can be complex, a plan should be in place for addressing areas such as:

• Hourly labor

• Project labor

• Custom/complex Products

• Custom/complex Services

• Third party general managed services

Only recently have there been viable options that allow the management of goods and services within the same solution. With this being an emerging area of procurement management, organizations often are blind to the amount of services spend within their company. The benchmarks below show clearly the importance of having a strategy to manage services spend.

It should also be noted that typical services savings range from 15 to over 30 percent per year. This means that services alone have the potential of contributing a five percent to 20 percent spend reduction, making it a key element of any procurement solution.

SELECTION CRITERIA

The next step is to align all of the strategic and tactical criteria into a selection matrix. Begin by grouping the 25 key stakeholder initiatives and Tactical Requirements in a way that aligns them with the corporate success factors and tactical needs. For the example outlined in the “score sheet” (Table 3), we use the recommended success factors of: Reduce Costs, Increase Agility, and Manage Complete Commerce.

It is very important that the criteria remain as objective as possible to ease the acceptance of the future recommendation. An effective approach to this is to assign a score from 0 to 5 for each of the identified requirements. Reasonable defi nitions of these rankings would be:

0 – The solution does not support this objective.

1, 2 – The solution barely supports this objective.

3 – The solution is average or maintains status quo on this objective.

4 – The solution makes signifi cant contributions to this objective.

5 – The solution will support best-in-class performance on this objective.

Weighting is another factor that arises in considering a solution. If you are dealing with a very near-term tactical issue, the tactical portion may receive higher weighting than the strategic. However, it would be a grave mistake for all the weighting to go to the tactical aspects without consideration for the strategic needs.

Criteria validation forms a final “reality check”. For example:

• Do the requirements seem to align well in the different areas?

• Are there certain objectives that don’t fit? This is ok, but be explicit about what they are.

• Are there any conflicts between objectives? If so, figure out how to change the criteria now.

• Does this reflect what would be needed for a successful solution at a project and corporate level?

Once the criteria are established, and prior to solution review, it is recommended that they be circulated to the stakeholder organizations for buyin. Explain the evaluation process that will be used and how the criteria will be measured (weighting and scoring). Doing this early in the selection process, particularly with upper management, is a great way to establish a foundation for future decisions and to reduce the risk of inter-departmental conflicts.

Following initial solution review, and upon totaling the scores, there should be one or two clear leaders. Frequently, the solutions selected may come as a “surprise” to some organizations, which is why the initial buy-in on selection criteria is so important. These “shortlisted” solutions should then undergo further reference validation and business case evaluation prior to making a fi nal recommendation.

SOLUTION VALIDATION

Unfortunately the information received from vendors in the sales cycle may be skewed from the reality of what the solution delivers. This is particularly true around areas such as ease of deployment, time of deployment, and usability. To help avoid a “skewed” reality, it is important to talk to other companies using the current solution.

Click here for TABLE 2

It is strongly recommended that at least two customers be interviewed as talking to just one may not give a valid reference point. Prior to this discussion a list of key questions should be compiled. Some of the areas to address may include:

• How long did it take to deploy the solution?

• How did deployment costs and times align with what was budgeted for the project?

• Has the solution delivered any value and, if so, what (specifics)?

• How have the users responded?

• What was a vendor issue you faced during deployment and how did the vendor handle it?

• Who is maintaining the rules and configurations and how is that work load relative to expectations?

• Who is maintaining the catalogs and how is that work load compared to expectations?

• Have they had any experience with needing to expand (new business unit, region, etc.) and how easy or difficult was that?

• Identify three areas that you are most uncertain about the products from your demos and ask for specifics on the user experience in these areas.

• How are they addressing their services spend?

• Have you had any product enhancements (upgrades) and how were these handled? What were the costs associated with these?

• What are your lessons learned from this project?

• If you had it to do over, would you select the same solution today?

In addition to the customer responses, look at the long-term viability of the solution vendor. Consider their employee count, global locations and cash on hand. Understand the makeup of their customer base in terms of companies your size or larger. This is more valuable than whether they have customers in your specific industry.

SOLUTION RECOMMENDATION

For any project of this magnitude it will be necessary to develop a business case that can be presented to management for approval. Develop the framework that will be used for your business case. This will typically include:

• Executive Summary

• Project Objectives

• Inter-Dependencies

• Evaluation and Selection Criteria

• ROI

• Time to Value

• Resource Plan

• Deployment Strategy

• Adoption Plan

• Ownership

• Success Metrics

• Expansion Potential

• Requests of Executives

Understand which of these components need further evaluation and refi nement prior to making a selection. Using the recommended steps, you should be able to identify a clear solution leader that has cross-functional support and satisfies:

• Corporate Objectives

• Tactical Requirements

• Return on Investment (ROI) Requirements

• Time to Value Guidelines

This will give you the greatest chance of success, not only from the perspective of having the right solution, but also from establishing the right cultural expectations to maximize value postdeployment.

Click here for TABLE 3

John Lark is Senior Solutions Marketing Manager for Ariba, a provider of Spend Management solutions (www.ariba.com).

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CHECKLIST FOR A SUCCESSFUL SOLUTION SELECTION

The following is quick reference guide that can be used during the eProcurement selection process:

1. Identify your top four to five stakeholders, e.g. Finance/AP, IT, Procurement, Sales/Marketing, Legal.

2. Identify the top five initiatives within each stakeholder organization. Whenever possible, use the C-level objectives.

3. Identify three global success attributes. A good starting point is: Cost Reduction, Agility, Complete Commerce.

4. Identify the project requirements based on business need and not current process or feature/function.

5. Create a decision matrix that aligns each of the corporate objectives and project requirements with the corresponding success attribute.

6. Establish the objective criteria that will be used to evaluate the solutions. For example, score of 1 is if limited or no support, 3 for same support as current systems, and 5 for best-in-class capabilities.

7. Receive buy-in from the five stakeholders as to the decision criteria and ranking method that will be used in the solution evaluation.

8. Evaluate the solutions and reduce the list to the final one or two.

9. Interview current users of that solution. You should interview at least two different companies. 10. Develop the business case, and be sure it includes ownership and metrics that will allow strong postdeployment adoption.