Maximizing the Use of Procurement Technologies

Javier Carnevali P., Chief Procurement Officer, Grupo Herdez

The success of the implementation and use of any tool that supports the procurement process depends mainly on four elements: Process, Structure, Technological Platform, and people´s Competencies.

Figure 1.- Elements for maximizing the use of technology

An implementation strategy must be defined to ensure consistency among these four elements. Otherwise, efficiency and effectiveness in the performance of the procurement area will be lost.

Suppose that a company wishes to acquire technological tools to improve its procurement processes. There are various types of tools, each with different functionalities and scopes. At a general level, the tools that exist in the market respond to different needs to support specific processes carried out by the procurement area. The most common are:

● Strategic Sourcing or Strategic Supply (S2C)

● Procurement or operational purchases (P2P)

● Spend Analysis

● Contract Management (Contract Management)

● Supplier Relationship Management

There is an almost direct correlation between the process that is supported and the modules of the existing technological tools. This allows a company to acquire only the modules that they need according to the maturity of its procurement area. It is possible that a company has already managed to implement a system to carry out operational purchases and is evaluating options to support other processes. Other companies could already have tools that allow the automation of supply and operational procurement processes and only want to support additional processes such as contract or supplier management. In the following graph, we can identify that there is a direct relationship between the maturity level of the procurement area and the type of tools that have been implemented to support their procurement processes (see figure 2).

Figure 2.- Technological solutions according to the maturity level of procurement

Alignment between Process and Structure

The relationship between the processes that must be executed and the organizational structure is the key to achieve efficiency in the performance of any area of the company.

Each process has a different “driver”. The "driver" is what moves or encourages the people who execute the process. It is the indicator under which their performance should be measured.

This differentiation of processes allows each of them to focus on generating specific and concrete results. The Strategic Sourcing process is designed to optimize spending while minimizing supply risks and support innovation programs. The Purchasing process must satisfy the needs of the users, who normally want the purchase to comply with time, quality, and quantity requirements. The Support processes serve to improve the productivity of the other two processes, through activities related to catalog, supplier, and contract management.

"The relationship between the processes that must be executed and the organizational structure is the key to achieve efficiency in the performance of any area of the company."

When implementing these new processes, it is important to prevent them from being executed by the same previous procurement structure. In order to maximize the productivity of the area, it is necessary to restructure the way in which authority and responsibilities were distributed.

The relationship between the processes that must be executed and the organizational structure is the key to achieve efficiency in the performance of any area of the company.

Typically, in a procurement organization structured by functions, each buyer is responsible for the execution of activities in a specific group of materials for a certain geographical location. For example, buyer A is responsible for the procurement of raw materials and to perform activities of listing, searching for suppliers, negotiating, preparing, shipping, and monitoring purchase orders, and in some cases even monitoring the payment to suppliers of raw materials. Another buyer B is responsible for the purchase of packaging and performs the same activities, but with another group of suppliers and so on, there are buyers of spare parts, services, office supplies, and technology. Each buyer is measured by the same performance indicators and their "driver" is to save and at the same time ensure supply in a timely manner.

New Processes require a New Structure. The alignment between the new processes to be executed and a new way of organizing people is the key to the success of the area. Each Process must be executed by a group of people who have the necessary means to do it productively. The name that finally remains in the structure is variable, the important thing is that the responsibilities that each one will have in the execution of the new processes are clear.

Figure 3.- New Procurement Structure executing New Processes

It is important that each area requires results in accordance with what is expected of the process they execute. Once an organization by process is implemented, we must measure the results of the processes according to the correct "drivers". We cannot expect speed in the purchase from strategic sourcing and we should not expect savings from purchasing. Each process is required to do what it was designed for and no more.

Alignment between Processes and Competencies

Just as each process is executed by a different group of people, the profile of each of the positions in the structure must be different. What can be done is to design a development program where the skills of the people who execute a process are developed so that they are capable of executing other processes. Typically, reorganization processes represent an opportunity for the development of the organization's talent because new skills and knowledge are required in people and whoever has these skills and knowledge will have a guaranteed career plan.

Alignment between Processes and the Technological Platform

Many companies that have gone through ERP implementation processes already have a tool that allows them to record purchase and payment transactions to suppliers. However, there are activities in the Procurement process that do not necessarily have the support of any module of these systems. To this end, companies that develop software and computer applications have increased the scope of these tools so almost the entire procurement process can be automated. Obviously implementing them or not depends on the return on investment in these tools.

Figure 4.- Main functionalities of the tools that support each Procurement process

This alignment is necessary and make it possible to optimize the synergy between each of the components and ensure good performance in the procurement area. The investments in these tools are significant; however, they generate a significant return on investment, if their use is maximized according to the level of maturity of your procurement organization.