To be effective at source-to-contract, procurement organizations must be able to properly align data and processes with automation.
Often referred to as upstream procurement, “source-to-contract” defines the approaches for how to connect the efforts related to spend analysis, sourcing, contract management and supplier management. At its most basic, these processes encompass all the pre-requisites necessary for procurement to understand and optimize how an organization acquires the goods and services needed to run the business.
What procurement is looking to accomplish within source-to-contract (S2C) has a direct impact on the ability to get better spend visibility, promote savings and drive contract and policy compliance. But to be effective at source-to-contract, procurement organizations must be able to properly align data and processes with automation.
Approaches to S2C technology are often centered around procurement being utilized by different parts of the organization (i.e., sourcing managers, category managers, supplier management). But unlike purchase-to-pay technologies like e-Procurement or Invoice-to-Pay, most people in the organization will never need to touch the source-to-contract technology. However, the ability to automate source-to-contract processes can have a dramatic impact on the business.
Examples of this source-to-contract / S2C impact includes:
- Improving the understanding of spend patterns by category to predict the demand product and service requirements – Spend Analysis
- Reducing manual time consuming processes to promote savings opportunities by sourcing to a new or existing supply base – E-Sourcing (RFP/RFX & e-Auction)
- Creating a digital contract repository to improve contract visibility and compliance – Contract Lifecycle Management
- Centralizing the storage of supplier information and improve understanding supplier performance and risk – Supplier Management
Despite the impact they these technologies can have, we often don’t see procurement bringing the business into the conversation when buying these tools. This is very important, because when it comes to wider scalability and adoption, implementing tools with the “business in mind” is critical for success. However, from our experience, getting desired outcomes from source-to-contract technologies often remains a challenge when this business alignment is not considered. In this regard, the importance of these outcomes can best be understood by addressing the big picture of what we should be looking for when considering source-to-contract as part of meeting the wider requirements of the business:
Spend Analysis – what do you want to do the with the data?
Addressing how we buy and who we buy from requires a good grasp on corporate spend. After spend data has been properly normalized and categorized, the level of depth into spend can be driven by a number approaches organized by taxonomy (UNSPSC, NAICS), level of detail (e.g., line item detail) or spend volume by supplier, business unit or geography. But when it comes to understanding its impact on the business, having a thorough understanding how to bundle the sources of spend (i.e., internal or 3rd party data) and getting to the right level of categorization necessary is critical.
Therefore, for organizations going into a spend analysis implementation, it is important for the business to understand what will be done with the data so the desired data can be obtained by procurement, but also so that it can be bundled in aggregate for capturing savings or even in assigning the right level of risk management tied to different categories being analyzed. It also means leveraging solutions that can ensure accuracy and consistency in both the data aggregation and data visualization, so that spend analysis becomes a repeatable solution for delivering true spend visibility to maximize the opportunities that can be gleaned from it.
E-Sourcing – managing for complexity but not forgetting about every day users
Often when organizations recognize the opportunity, the question becomes now what is the approach or action that should be taken. Actions taken in the form of strategic sourcing can wide vary in approaches whether it be the ongoing use spreadsheets or improvements through automation such as RFP/RFQ tools, e-Auctions or bid optimization. But based on our experience, it is clear that most companies have their own sourcing methodology and often find it difficult to just assume one tool may not fits nicely into the classical six stage sourcing process.
In this regard, when procurement is going out and implementing E-Sourcing, they are usually doing this with understanding of how to run large strategic sourcing event that can require specific needs around RFx, project management or bid optimization bidding. But when you consider what you are really trying to do when you buy a sourcing tool, make sure the business can also use the same tool.
Perhaps based on the dollar amount or spend thresholds or size of the opportunity, flexibility is needed in any sourcing strategy from the strategic to tactical. When an organization is looking for more tactical sourcing approaches, business agents will make their spot purchasing decisions primarily based on price and available delivery dates. Thus sourcing solutions must also be able to accommodate tactical requirements based on need, and not just strategic factors such as total cost of ownership (TCO) or the objectives of the larger organization
While the strategic approach involves a longer-term focus, when you’re using a more strategic approach, your procurement decisions are based on multiple factors. But really a major criteria should be thinking about everything with adoption in mind first, in terms of getting the widest variety of use cases and users into the system, and address automating complexities around areas like bid optimization or even AI cognitive approaches as a second or even a third iteration of leveraging technology.
In part 2 of How to Maximize Value from S2C Solutions, we address contract management, supplier management and approaches to tying it all together.