The Pitfalls of Legacy Procurement Reporting Tools
Using procurement reporting tools to illustrate and communicate benefits we deliver to the business is not a new concept. However, in this short article, we want to highlight some of the constraints which teams can encounter when using either legacy tools or non-specialist applications to report on procurement performance.
What is procurement performance reporting?
As Procurement increasingly becomes more than just an administrative and reactive function, with it comes the need to step up our internal communication capabilities.
We’re notoriously bad at marketing to the business our strengths around how and where we can add value. In more mature organisations, we’re now seen as a strategic sourcing and supplier management function. We’ve gone beyond being a reactive price-down and contract negotiation department.
We can typically manage and influence up to 60% of a company’s revenue. That’s the average figure of what a typical manufacturing business spends on goods and services from external suppliers.
And yet, most CEOs are just focused on Sales, Marketing and Operations. According to a recent publication Profit From The Source, written by four BCG partners and published by Harvard Business Review, CEOs spend less than 1% of their time with suppliers.
This is slowly changing. Inflation is forcing companies to look more closely at what they buy. Along with this comes the question of how the supply base can influence both top and bottom line.
Communicating this value requires us to step away from the generic tools used for procurement reporting.These have now come to the end of their useful life. Let’s take a brief look at them and some of their pitfalls.
What procurement reporting tools are typically used?
There was recently a spoof LinkedIn post that awarded Microsoft Excel the award of “best procurement software”. Sadly, it’s a bit too close to the mark to be a spoof. Excel has been the de-facto procurement reporting tool across most organisations for decades now.
Now, there’s nothing wrong per se with using Excel to track procurement savings and projects. The issue typically rears its head when it comes to using it for reporting, collaboration and communication.
First of all, it’s very prone to human error. A simple slip of the mouse can mess up a formula or delete some numbers without you noticing. Multiple people collaborating on one spreadsheet can also overwrite valuable data. If nobody is the overall custodian of checking the data, it can quickly become corrupted. Auto-save is both a blessing and a curse.
Then there’s the challenge of sharing an Excel sheet. It usually has to be sent by email. And we all knowwhat happens to non-urgent emails which land in our inboxes.
Add to this that many procurement professionals are not advanced Excel users. Sure, we all know basic formulas and how to enter data. But we’re often not comfortable with using someone else’s spreadsheet containing complex formulas to report our own numbers.
The next step up is using a SharePoint hosted application.
SharePoint’s biggest challenge is that anyone who is not a core collaborator usually doesn’t know where to find the site. They’re usually housed on departmental intranet sites, far removed from the more accessible places on a company’s intranet or shared workspaces.
Add to this a general lack of user-friendliness to modify or customise the layout.
Unless you’ve got a great Centre of Excellence or Process team who knows how to put together a kick-ass looking SharePoint UI, you’re going to struggle to bring inbound traffic to the site from other departments within the company.
And that’s a problem.
You need internal stakeholders who are collaborating on projects to use the site as a reference point. Otherwise, how are they going to understand what you’re working on and reporting?
In-house built software
Way back in 2006, I worked for an organisation that had built a halfway decent database for measuring and tracking Procurement projects.
It was called the “GateDatabase”. It followed a process of moving through 5 different toll gates. These began at project ideation and moved all the way through to completion and sign-off of the project savings.
In theory, it was a great system.
We had monthly reviews withour SVP of Procurement and with the VPs of the respective Business Units. Finance had access to and signed off on the numbers.
But it had two very distinctand critical flaws.
1. The UI/UX was horrible. It was built in Lotus Notes (remember that?). OK, it was in 2006, but still, it wasn’t very user-friendly.
2. If you didn’tknow what the database was, where to find it, or who could give you access,then you were left in the dark. Internal project collaborators from Operations could access it, but in reality, they never did. More importantly, external suppliers couldn’t access or collaborate on it, meaning there was very little alignment or real-time collaboration on procurement savings initiatives.
Specialist best-of-breed procurement software
This brings us to the final category of procurement reporting tools. Specialist, custom-built software applications that have been designed for the sole purpose of collaborating and reporting on procurement initiatives.
How are these different to spreadsheets?
Firstly, they have a more intuitive UI/UX, which is built to be user-friendly on the front end. They are also designed for non-procurement team members to easily access and navigate their way through to their projects. This enables project stakeholders involved in delivery to quickly access real time status and sign off on project gates.
It also gives Finance the means to review, align on and approve savings methodology without the need for email ping-pong or formal project reviews.
Unlike in-house software, you don’t need to worry about updating or improving these tools. Because they are cloud-based SaaS applications, any revisions are automatically pushed to you as the customer.
So, what is a procurement performance management tool?
Essentially, a performance management tool is an interactive, versatile app which enables real-time collaboration on projects and initiatives.
Platforms which utilise similar technology and user interfaces have also been successfully deployed to manage capital investment projects, or to work on sustainability initiatives.
The essence is that Provalido and other similar tools are built to give an easily accessible, easy-to-use portal to enter, track, measure and report on procurement initiatives.
Wider adoption of these tools within an organisation can make them a de-facto reporting tool for all value management activity. This goes beyond just cost savings projects, and is wherethey really come into their own. By demonstrating that Procurement is about more than just delivering cost-downs and commercial negotiations, it raises our stature within the business.
Examples of this are supplier innovation, material usage, and initiatives around reducing waste and rework.These are all value management projects which can be reported and managed through Provalido.
What value does procurement software add to reporting?
The biggest value-add from a specialised procurement performance management tool is the communicative power that it brings. It’s very easy to amplify the value that Procurement delivers to the wider organisation with an easy-to-access, intuitive collaboration tool.
Let’s be honest: us Procurement folks are bad at internal marketing and communication. Look at how Sales, HR or EHS teams do it, and then have a long, hard look in the mirror. We’re too technocratic and boring in the way we communicate our value to thebusiness.
Yes, it requires a financial investment that using Excel or SharePoint doesn’t.
On the flip side, you’ll be surprised that it’s almost certainly cheaper than investing time and resources into developing an in-house software app.
By choosing a solution like Provalido, it also gives you plenty of customisation options. Yes, it’s a SaaSproduct, but it also has customisable options.
The mindset shift required is that it’s an investment, not a cost. What if the increased visibility of procurement projects and supplier innovation initiatives means that more of them get implemented and prioritised?
What is the typical ROI of procurement performance management software?
Surely then, the cost of somesoftware will pay for itself several times over. Based on our historical datafrom our existing customers, they see on average an 18% increase in reported savings when they implement Provalido.
So, is it worth the investment for your organisation? Well, it’s easy to work it out for yourself. Let’s use a more conservative estimate than our own figures, just to be sure.
Let’s assume you only see 5% more savings being reported rather than the 18% we saw based on our existing customers’ data.
What’s your annual savings target? Let’s take $20 million as a figure which is quite conservative for most medium-to-large procurement teams.
5% in additional savingswould mean an extra $1 million in savings being identified and reported.
Sure, not every egg becomes a bird.
But even then, it’s a no brainer. A modest 5-figure investment into Provalido as a procurementperformance reporting tool will easily pay for itself. You’ll typically see an ROI within weeks rather than months years.
Add to this all the soft benefits of having your projects and data in an easily accessible, centralised tool. No more fiddling around with spreadsheets or your stakeholders not being able to find your SharePoint site.
Book a demo here so we can show you just how versatile and easy-to-use our tool is.
We’ve also created a report to give you some inspiration. Here, you can find 16 different types of financial benefits to report as part of your role of delivering total value management. Grab a copy here!