critical success factors...1. know the business strategy in formulating a purchasing strategy there...

CRITICAL SUCCESS FACTORS IN

ePROCUREMENT SOFTWARE ADOPTION

BY ANTHONY FLYNN

White paper series

White paper series SourceDogg

5 steps to procurement

as boardroom strategy and

how e-sourcing can make it happen

C ont en ts

Introduction 1

Designing a Purchasing Strategy 2

e-Sourcing and Strategic Purchasing 7

Conclusion 10

SourceDogg 5 steps to procurement as boardroom strategy and how e-sourcing can make it happen 1

The value-adding potential of

procurement is now widely recognised. It was

not always so. In previous times procurement

occupied a peripheral position within most

organisations. It was viewed in operational or

tactical terms, but rarely as a strategic, value-

adding activity. Trends in global business,

industry, organisational management, and

business education have all contributed to a

new perspective. Notable among the changes

are the following:

• Borderless commerce has placed

pressures on firms’ cost bases. This,

in turn, has caused firms to search for

efficiencies throughout the supply

chain.

• Realisation that suppliers can

represent a source of competitive

advantage, through either lower

prices, higher quality, or more

innovative products and services.

• Much greater emphasis on

transparency and corporate

compliance. This has percolated down

to transparency and compliance in

purchasing.

• Purchasing and supply chain

management are now included

alongside finance, management,

and marketing as part of the

college business curriculum.

Today’s graduates are aware of

the link between purchasing and

organisational competitiveness more

than at any time in the past.

Introduction


There are five main stages involved in

crafting a purchasing strategy. These five

stages are as applicable to firms designing

a purchasing strategy for the first time as

they are for firms re-designing an existing

purchasing strategy (Fig. 1). They are explored

in detail below.

1. Know the Business Strategy

In formulating a purchasing strategy there

needs to be clarity on the business strategy

to begin with. Purchasing is strategic to the

extent that it underpins and strengthens

the business strategy. Hence, having a clear

understanding of the overall purpose of the

business and its goals is essential before you

plan a purchasing strategy. For example, a

firm may have the strategic aim of improving

profitability. The orientation of the purchasing

function under this scenario should be

towards cost reduction. Alternatively, a firm

may have faster delivery times for customers

as part of its strategic objectives. In this case

the priority of purchasing is to expedite

sourcing times.

2. Analyse the Purchasing Function

Having clarified the business strategy,

Designing a Purchasing Strategy

Fig. 1: Designing a Purchasing Strategy


the next stage is to conduct a fundamental

assessment of purchasing within the

organisation. Conducting a spend review

is always a good starting point. Relevant

questions to be asked here include: What

was bought? Who bought it? Who supplied

it? How much did it cost? Was it within

budget? Was it compliant with company

procurement policies? Additionally, firms

might decide to follow the Kraljic’s Portfolio

Matrix method (Fig. 2). This involves assessing

purchases based on (i) the financial weight

of the purchase and (ii) the supply risk

associated with the purchase. Thereafter,

typically purchased items can be categorised

as either strategic, leverage, non-critical, or

bottleneck. Each of these four categories will

require a different management approach.

Many encounter significant difficulties even

at this early stage of the purchasing strategy

design process. The reason is to do with poor

co-ordination of purchasing. Incomplete

records, or sometimes no records at all, can

make it difficult to assess spend profiles.

Accounting systems that are not synced across

organisational units can cause difficulties

when analysing the purchasing function.

e-Sourcing is one solution to this problem, and

is discussed in due course in this white paper.

“Purchasing is strategic to the extent

that it underpins and strengthens the business strategy.”

Fig. 2: Analysing the Purchasing Function


3. Analyse the Purchasing

Environment

If the second stage is all about looking

inwards, the third stage is about looking

outwards. It involves finding out about

suppliers and their capabilities, currently

available products and services, industry

technology trends, supply and demand

forecasts, macroeconomic conditions,

and threats and opportunities within the

commercial environment. In other words, it

involves purchasing personnel doing their

homework on marketplace developments.

The importance of obtaining reliable and

accurate information cannot be overstated.

Sources of information include: websites,

trade journals, annual company reports,

industry reports, economic data, conferences,

industry and trade fairs, and direct interaction

with suppliers. Data collected can be used

in a number of formal analyses of the

business environment; for example, Porter’s

5 Forces Model or a Strengths, Weaknesses,

Opportunities and Threats (SWOT) analysis.

4. Design the Purchasing Strategy

Stage four moves into the actual

design of a purchasing strategy. Crucial

to the design phase is translating business

objectives into purchasing objectives. While

every organisation should have a purchasing

strategy that is tailored to its own particular

requirements and competitive position,

commonalities in purchasing strategies exist

within and across industries. Examples of

generic purchasing strategies include cases

where:

• The business objective of cost reduction

leads to the procurement objectives of

reducing unit costs, reducing overheads

“Crucial to the design phase is translating business objectives into

purchasing objectives.”


and administration costs, and reducing

stock levels and associated holding costs

• The business objective of introducing

new technology leads to the procurement

objectives of automating more purchases,

improving electronic funds Transfer

(EFT) systems, and increasing use of web

technologies

• The business objective of introducing

new products leads to the procurement

objectives of enhanced problem

solving between buyers and suppliers,

heightened market awareness, and

faster qualification of suppliers for new

materials

5. Implement the Purchasing Strategy

The final stage involves putting the

purchasing strategy into practice. This is

among the most challenging aspects of

introducing a new purchasing strategy in any

organisation. Up to this point all efforts have

been directed towards analysis and design.

Now it is time for action. The implementation

stage requires taking all necessary actions to

ensure that designed changes are introduced

and operations are performed as planned. It

means that there is a common understanding

among the implementation team over what

tasks are to be done, a schedule for task

completion, allocation of roles to oversee task

completion, and ensuring adequate resources

are in place to make strategy implementation

a success. Central to the success of any

new strategy is on-going monitoring and

a willingness and ability to alter course as

conditions demand. Rarely do strategies

implement without some deviation from

the initial plan. Purchasing strategies are no

exception. As part of on-going monitoring of

a recently implemented purchasing strategy,

firms are advised to:

• Conducting regular review meetings

“Central to the success of any new strategy is on-going

monitoring and a willingness and ability to alter course as conditions

demand.”


• Check that key objectives are being met

• Assess internal customers’ views of the

purchasing strategy

• Assess external stakeholders’ views

of the purchasing strategy (especially

suppliers)

• Report back to top management on

progress achieved and targets met

• Alter strategy as circumstances demand

(any purchasing strategy should have

built-in flexibility)


e-Sourcing is a key enabler of strategic

purchasing and its potential is deserving of

some further consideration here. On a number

of levels e-sourcing enables firms to leverage

purchasing in more value-adding ways. Three

are of particular note: reduced sourcing costs,

enhanced transparency, and data analytics.

• Reduced Sourcing Costs: e-sourcing

allows buyers to access a greater number

of suppliers than was ever previously

possible. These can be national or

internationally-based suppliers. From

the buyer’s perspective, more suppliers

equals more choice; and more choice

leads to more competitive bid prices and

a wider range of product and service

offerings from which to choose. Astute

use of e-sourcing thus helps firms to

reduce their sourcing costs and improve

their overall cost competitiveness. This

has direct impacts on firm profitability.

Moreover, e-sourcing can dramatically

bring down the transaction costs

associated with purchasing. Again, the

net effect is a more competitive cost base.

Reducing costs with SourceDogg e-sourcing:

• Browse and search hundreds of

thousands of verified suppliers in our

global directory; pool and tag them

according to certification, preferment,

product category etc.; and easily invite

them to your sourcing events. Increase

competition and source better quality

goods and services for less.

• Import all your existing suppliers

in bulk with a quick and painless

registration process – SourceDogg

supplier accounts are free.

“On a number of levels e-sourcing

enables firms to leverage purchasing

in more value-adding ways.”

e-Sourcing and Strategic Purchasing


• Enhanced Transparency: e-sourcing

confers a benefit critical in today’s business

environment – an audit trail. An easily

auditable purchasing function is essential

to demonstrating compliance, regardless

of whether a firm is in the public or

private sector. Stakeholders get to see

how much was spent, on what, and by

whom. Adherence to rules and regulations

on purchasing also sends a message to

stakeholders that the firm is proactive

when it comes to risk management

• Data Analytics: linked to the foregoing

two points, e-sourcing is an enabler of

strategic purchasing precisely because

it captures valuable data on purchasing

activity. Purchasing data can then be used

to determine trends in bid prices received,

• Reduce administrative costs with

effective requests for quotation, tender,

information or proposal created in

minutes and distributed to suppliers

instantaneously. Clone top-performing

requests and use our readymade, best

practice request templates for even

faster ROI.

Achieving transparency with SourceDogg e-sourcing:• Comply with auditing and head office

requirements by exporting and sharing

all data for any or all sourcing events.

• Discourage ‘maverick buying’ with a

request approval system and a high

level of usability that encourages staff

buy-in.

• Sourcing objectivity and fairness is

upheld with an even-handed and like-

for-like scoring system; a sourcing event

message board visible to all competing

suppliers; and managed access to

supplier quotations and tenders.


actual prices paid, and future expenditure

levels. It can be used to micro-analyse

purchasing activity and to isolate spending

patterns associated with particular products

or services. Having high quality purchasing

data also allows firms to take more informed

decisions over such areas as consolidation of

the supply base.

Detailed reporting with SourceDogg e-sourcing:• Create comprehensive purchasing

reports presenting complex data in

an easy-to-read format and capturing

trends across suppliers, product

categories, departments and more.

• Customise your reports with

comparison and cross tabulation of data

streams.

• Create graphical representations of

sourcing and spending data for effective

communication with your stakeholders.


Conclusion

The role of purchasing has evolved from

operational to tactical to strategic over the last

number of decades. Some firms have embraced

strategic purchasing. In other words, they

seek to make purchasing add value to their

organisation. Other organisations have not

yet reached this stage and still see purchasing

as having a relatively inconsequential part to

play in driving competitiveness. The degree

to which purchasing is recognised as strategic

is dependent on the characteristics of the

organisation. When purchasing accounts for a

high percentage of operating costs, firms are

likely to accord purchasing a more prominent

role, and vice versa.

Having said that, competitiveness

improvements will come to any firm that

succeeds in aligning purchasing objectives

to business strategic objectives. Even little

improvements can make all the difference in

highly competitive sectors with low profit

margins. e-Sourcing technologies have become a

key enabler of strategic purchasing. They make

it easier for firms to directly link purchasing

to impacts on bottom-line performance. What

is more, they contribute to openness and

transparency in the organisation, and assist

firms in making evidence-based decisions on

the planning and strategic management of

purchasing.

About the Author

Anthony Flynn is a Procurement Researcher

in Dublin City University Business School

(DCUBS). He is a member of Winning in

Tendering (http://www.winningintendering.

eu/): a strategic partnership involving DCUBS,

the Irish Institute of Purchasing and Materials

Management (IIPMM) and Bangor University

School of Law.

Tel UK: +44 203 481 0904

International: +353 1901 5096

Email: [email protected]

w w w . s o u r c e d o g g . c o m

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