Digit(al)ization in Procurement. A field report.
Implementing a full-service strategic sourcing suite
Strategic Procurement contributes significantly to the overall performance of enterprises, is one of their main drivers for business growth, and thus receives high attention from top management. Especially as digital technologies and innovative supply management applications help to increase the collaboration with suppliers, and smart analytics steadily support the transparency on and thus optimization of procurement processes. By implementing a sourcing suite that depicts the entire Demand-to-Contract (D2C) process, Procurement departments get visibility into project health, cost and portfolio performance, along with the ability to centralize, bundle and prioritize all of their hitherto scattered demands. Besides, new possibilities to monitor and steer their strategic procurement operations enable firms in their ability to assess, manage, and more accurately forecast their demands for any products and services across their material groups. This automatically leads to new savings for our clients – as you may derive from one of our Procurement project success stories below.
First things first: Know your processes, tools and partners
In a very intensive, challenging and cross-departmental project assignment at one of Europe’s biggest telecommunication operators, we as Detecon Consulting have managed to implement a holistic, full-service, end-to-end strategic procurement process and IT suite – which depicts the complete D2C process chain. This new strategic sourcing suite –composed of state-of-the-art functionalities like demand-, contract-, tender-, vendor- and master data -management, a collaborative dashboard, and, finally yet importantly, a reporting module – now guides Group-wide strategic buyers with regard to their daily D2C activities.
Based on a game-changing vision and roadmap, we identified and comprehensively designed sophisticated digital procurement processes and a compliant (IT) governance structure. Some of these best-practice processes and tool requirement specifications were modelled completely from scratch in close collaboration between Detecon’s and our client’s purchasing experts. Certain were re-configured to better suit the demands of the affected procurement professionals in their daily business. Others meant to replace time-consuming, erroneous approaches or outdated, unintuitive systems by means of a seamless, homogenous IT landscape.
Since Detecon does not offer in-house developed procurement IT solutions, choosing an adequately experienced external system supplier was crucial to the further success of our project and hence the solution deployment of the strategic sourcing suite (see also here: “Die Nadel im Systemanbieter-Heuhaufen” by Magdalene Piec). Consequently, in a next very elaborative step, the most suitable and promising tool provider had finally been selected and awarded the implementation of our vision of a fully digitized D2C process. This marked the start of a new business relationship between our client – a multinational company of high renown – with a rather unknown system supplier – among the undisputable leaders in any Magic Quadrant by Gartner rather a niche player. The latter however managed to excel among a long-list of about a dozen of initially screened, interviewed and thoroughly evaluated potential suppliers in multiple rounds of vendor pitches, use case-based workshops and beauty contests.
Nevertheless, the collaboration between “David and Goliath” has been a smooth and fruitful one for both sides. The big player can learn much from an agile and flexible startup-like mindset; the professionality of an established large-scale enterprise easily impresses the latter. Numerous benefits are continuously derived from this collaboration: The quick response time of the software developer and its flexibility when it comes to requirement adaptions on short notice is astonishing. And since the client is still the largest Group ever collaborating with small supplier “David”, “Goliath” has always been enjoying a service premium.
But, as often observed, there is also a downside to such unbalanced power. One of the challenges for the software developer was – as in many startups or SMEs – the limited potential of scaling their business. The relationship between the software provider and our client was put to the test, as the vendor was not able to keep its promises anymore. The demand for ad-hoc requirement adaptations grew rapidly in the course of the project, and it became more and more difficult for the vendor´s change request team to follow up on them due to their restricted resource capacity. Discontent hit its peak with the delivery after a supposedly finished test-development-cycle: Unsolved and even new bugs sprang up like mushrooms. It became apparent that our software provider could not keep up with multi-managing and maintaining its various systems anymore – such as the test-, pre-go-live- and training-environments.
By now, the D2C process and its IT solution in this multinational are not only harmonized across all subsidiaries; they are even in tune with an external procurement joint venture to which specified commodities are outsourced. Customized interfaces ensure a seamless collaboration between hundreds of involved users, stakeholders, and beneficiaries across multiple departments and countries. Nonetheless, we came across many challenges during this project lifecycle; the above-mentioned vendor management related ones were just a few of our lessons-learned. Problems were mainly caused by the project’s short time span. At first view, two years seem long. Not when put into perspective though: when the ultimate goal is to turn the entire strategic Procurement department of a multinational inside out – by starting small with digitizing its D2C processes and data, while thinking big about a corporate-wide digital transformation. Here is how our project team overcame all hurdles by using a six-step-approach for the implementation of this sourcing suite.
Six main ingredients to our recipe for success
Detecon and the system provider ensured a quick and predominantly smooth implementation of the new solution within only six months. After the initial endeavors of conceptual design and vendor selection, the main project phases until the successful go-live of our D2C suite can be split into six key stages: from “activation”, “design”, “build”, “test”, “data migration” up to “change and roll-out”, as described in figure 1. Bitter and sweet experience of countless implementation projects was mingled into this best-practice recipe mix.
In each of these phases, different stakeholders get included and a variety of challenges – minor or major – comes up to the surface. “Activation” actually involves all key project protagonists. It is critical for success to get the supplier side of IT vendors and consultants, on the one hand, and the business sponsors and future tool beneficiaries, on the other, physically together and closely aligned to avoid Chinese whispers when the first requirement specifications, expectations in and cornerstones of the collaboration are set.
It is even more crucial to articulate constraints at an early “Design” stage. Only seldom can all items on a client´s wish list be realized in a new system; many compromises have to be agreed upon. And in order to then ensure a smooth configuration in the later “build” stage, as early as in the course of the onboarding event, the system provider needs to be familiarized with the project modus operandi, any templates, etc. – especially in case of IT solutions affecting existing modules or different departments.
Thorough “testing” of all the configured solutions follows – within and most importantly across different modules of the IT suite, such as between e-sourcing and contract management (e.g., whether the approaching expiration of a contract triggers a reminder for a new sourcing event). Here, it is highly important to align on prototypic use cases with so-called “heavy users” or rather sourcers. Only then relevant sources of error can be identified in the test environment. Also, make sure to not circulate the use cases among the team of testers since different behavior leads to different results.
Our most critical pain point with “data migration” resulted from contract management. It is worthy of mention that the migration of historical data – as in archived partner agreements stored within the legacy system – needs to be thoroughly prepared in advance of any migration activities. Often, the new and old system cannot exchange bits and pieces without any modification in a blink of an eye. Harmonizing the language of data exchange can – and in our case has been – time consuming, but an indispensable task with respect to procurement compliance policies.
The implementation of the suite ended with a structured change management approach and a process and tool rollout. Paradoxically, this very last step seems like the most important to determine project success or failure. Detecon supported a comprehensive change campaign by means of several roadshows and stakeholder-customized education events, intensive trainings, Q&A sessions, forums on the intranet, tailor-made mailings – just to mention a few. Especially for the e-sourcing module, elaborate coaching services were provided to help strategic sourcers familiarize with the new overwhelming tool and its extensive functionalities at their first point of contact.
At this point in a project lifetime, high management attention and clear top-down communication are of outmost importance to underline the necessity of change by highlighting the benefits from applying this new digit(al)ized form of the D2C environment. And as human beings are reluctant to change, introducing a revised KPI system to (enforce and) measure the successful usage of a strange new workstation might result in the least intrinsic but most fruitful motivator to avoid bypassing the innovation.
What is in it for business introducing an E2E sourcing suite?
The major benefits worth highlighting from such a resource-intensive big bang implementation of an end-to-end strategic sourcing suite can be broken down to these three: transparency, efficiency and benchmarking.
Transparency of all transactions within the tool – e.g., ongoing auctions and contract negotiations – and throughout the entire organization can be secured from such a large-scale rollout of an implemented solution across all affected functions and business areas. By these means, key stakeholders, tool users and project sponsors within the procurement as well as adjacent departments (controlling, compliance, finance, etc.) get visibility into the health, costs, and performance of their department, along with the ability to bundle and prioritize all demands from manifold requesters. Besides new possibilities to monitor and steer strategic procurement operations, the sourcer gets the ability to assess, manage, and more accurately forecast the demands for various products and services in its company. This automatically leads to new savings within a centralized Group Procurement.
Efficiency is reached by getting one sourcing suite in place for the entire company, which inhibits individually realized components and thus uncontrolled growth of the IT landscape. Any specific requirements are determined only in consultation of the service provider. Sourcers usually have high transaction costs due to several media disruptions and offline work. With an integrated D2C suite that automizes and standardizes former error-prone manual processes to seamless transactions, such costs can be cut enormously. Additionally, a seamless communication and one-stop work station impact usability immensely. Such a favorable user experience constitutes a game-changing pre-condition for user acceptance and consequently success in tool usage, as already mentioned in the context of change management.
Moreover, a Group-wide introduction of a new sourcing system improves the (inter-)national collaboration within the procurement community. The overarching integration of the supplier relationship application and its master data facilitates the qualification, evaluation and development of vendors worldwide. Plus, fixed maintenance costs are reduced resulting from the retirement of multiple local legacy systems.
After having reached a pre-determined goal of usage rates, the strategic sourcing suite also enables top management to establish a new benchmarking level within the company. An aligned set of KPIs – such as demand bundling, spendings, price negotiations, margins, processing time – can now easily be trac(k)ed and analyzed across different departments. The complete D2C lifecycle can be drilled down and investigated both on a central and subsidiaries’ level. The work of each sourcer becomes transparent; so does the value contribution of procurement to the Group.
Think big. Start small.
This field report of the successful integration of an end-to-end strategic sourcing IT suite at one of our clients sheds light on a few of the challenges to face during its implementation as well as some benefits to await after project closure. Triggered by the thirst for digital transformation, the introduction of innovative tools is more than ever on CPOs` agendas. However, before being able to derive mind-blowing insights from real-time smart data analytics or likewise advanced gimmicks in innovative procurement, many companies still need to engage in the grassroots work first. Detecon Consulting observes the daily struggle of multinationals with getting the cohesive process, tool and data basics in place before being able to dedicate themselves to more groundbreaking gadgets. Integrated full-service procurement suites are a small but inevitable next step towards digitalization. Many innovations are to come that will revolutionize today’s known standards. Companies that want to stay competitive in the brutal world of global sourcing need to be receptive to the omnipresent transformation.
Amira Zayed is working as consultant at Detecon International with a focus on innovation management and organizational change. She is experienced in process optimization and digital business models.
Jaroslava Mattova is working as consultant at Detecon International with a focus on procurement. She is experienced in supply management, sourcing strategies and applications.
Magdalene Piec is a senior consultant at Detecon (Schweiz) AG, specialized in operative and strategic procurement and passionate about innovative procurement applications.