2. 3The Future of Procurement and The CPO Whitepaper
Companies own less infrastructure, inventory and manufacturing
equipment than ever. They’ve outsourced everything from customer
service to supply chain. And a growing portion of their workforce isn’t
even on their full-time payroll.
usiness is no longer about executing a process
within a company, but across an entire value
chain. It’s not only about the intelligence within
an organization, but the intelligence of entire
communities. It’s not about automating and
doing things faster, but tapping collective
insights and best practices to do things
better - and in entirely new ways.
Welcome to the Virtual Enterprise.
And a new era for procurement.
THE CHIEF COLLABORATION OFFICER
Cost savings. Process efficiencies. They’re synonymous with
procurement – and with good reason. The function has become
a strategic enabler of business value by routinely delivering
them. But a new term has entered the lexicon: collaboration.
The 21st century businesses simply can’t achieve its cost, reve-
nue and cash flow goals without being connected. Empowered by
business networks, the Chief Procurement Officer can effectively
become the Chief Collaboration Officer, organizing resources
and optimizing collaboration within the enterprise and across
the supply chain to achieve new levels of innovation, efficiency,
and agility.
There’s no doubt that procurement today is a different game.
What’s driving the transformation?
ORGANIZATIONAL CHANGE
Over the last decade, there has been a fundamental shift in
how companies are organized. Traditional vertical integration
where everything was managed internally, or structures where
suppliers supplied parts and pieces and companies did all the
assembly work, has transitioned to a matrixed organization
where different suppliers are doing everything from initial product
design, partial assembly and postponement to managing final
assembly and delivery to the customer.
GLOBALIZATION
Today’s supply chain is no longer right down the street. It is
stretched around the globe, and that not only increases oppor-
tunity for cost-savings, efficiency and scale, but the units that
need to be reported on and opportunities for risk and delays. It
also requires different cultural approaches, different mores
with respect to labor practices, environmental conscientious-
ness, and the like that need to be managed.
TECHNOLOGY
At the end of the day, procurement wants to spend its time
working with suppliers, developing supply, capturing innova-
tion, and driving long-year roadmaps. But all too often, the ba-
sic blocking and tackling of negotiating agreements, managing
suppliers, and executing orders prevents them from doing so.
Technology has changed this.
CHARTING A NEW COURSE
When it comes to technology there are two phases that
companies go through:
First, they automate core processes - sourcing, procurement, and
payables - to eliminate paper and hassles and gain transparency
into order status, shipment status, invoice status. Second, they
begin looking for the next level of efficiency and reach beyond
the four walls to discover, connect and collaborate with their
trading partners in entirely new ways. This is where this
concept of business networks comes in.
EXTENDING THE ENTERPRISE
Companies have spent billions of dollars in personnel, reengineer-
ing, and systems to improve internal process and information
flows. Great strides have been made in sharing information
and collaborating between employees and departments. Unfor-
tunately, these islands of efficiency are often disconnected from
the outside world and fall down where it matters most – when
buying, selling, or exchanging cash with other businesses.
In fact, despite all these investments and advances, 80% of
purchases, invoices, and other transactions still take place
1. Basex research
Collaboration Inefficiencies Cost
Companies $650B(1)
Annually
PAPER BASED
TRANSACTIONS
nearly 77% of all incoming in-
voices are still paper based.”
Aberdeen, 2012
70% of payment is still
handled via paper checks.”
2013 AFP Electronic
Payments Survey
LACK OF VISIBILITY INTO
SPEND BY CATEGORY
Companies are losing
$260 billion each year due to a
pervasive inability to organize
and analyze spend date.”
Aberdeen, 2010
90% of companies still use
spreadsheets application as
their primary analysis tool.”
Aberdeen, 2010
“
“
TOO MANY
EXCEPTIONS
15% of invoices have
exceptions adding
6.6 days to the cycle.”
TAPN, 2010
“
LEAKAGE OF
VALUE
4.6 million in contract
leakage per billion in spend on
average.”
The Hackett Group, 2012
50% of prenegotiated discounts
are never captured.”
Aberdeen, 2012
“
“
“
“
BUSINESS IS
DIFFERENT TODAY.
3. 5The Future of Procurement and The CPO Whitepaper
Considering all these pains and inefficiencies, best-in-class or-
ganizations are beginning to prioritize use of business net-
works to enhance collaboration and results within their compa-
nies and across their value chains.
THE BUSINESS NETWORK IMPERATIVE
Personal networks from Facebook to Uber have made it simple
for consumers to shop, share and consume in new and more
informed ways. When shopping on Amazon, for instance, you
don’t worry about connecting to individual merchants, banks
or credit card companies. It’s all done for you within the
network.
Business networks provide an equally simple and scalable way
for companies to discover, connect and collaborate with the
trading partners and resources they need to operate in today’s
dynamic world.
Take SAP’s business network. With a few clicks, companies can
shop for goods and services, place and manage orders and
pay for them electronically. They can view and manage spend
across all major categories and manage their entire workforce
–temporary and full-time employees alike. And they can engage
customers across multiple channels – all through a single, con-
nected platform.
Just as network-powered upstarts like Square and Airbnb are
creating new models that are transforming entire industries,
business networks are leveraging the automation, scale, and
ubiquity of the cloud to further simplify the way complex business
gets done.
Fueled by networks, procurement can take a much more pro-
active role in integrating business processes and collaborate
across functions in entirely new ways that drive value. Freed
from the basic blocking and tackling of negotiating agreements,
managing suppliers, and executing orders, CPOs can, for in-
stance, engage in helping to manage the financial supply chain,
turning payables into a profit center because they have real-time
visibility into whether an invoice is okay to pay and whether it
has it been matched against purchase orders and contracts .
Or extending days payable outstanding to improve the overall
balance sheet while at the same time offering early payment
discounts to suppliers because to mitigate both
financial and supply risk.
In the case of sourcing, business networks provide the ability to
tap into a large global community of suppliers and get qualifying
information for vetting partners they might never have known
existed. And this not only leads to a high quality supply chain,
but creates greater cost efficiencies and mitigates risk – which
remain critical priorities for the CPO.
THE FUTURE OF PROCUREMENT
Procurement is fast becoming a platform for value creation.
And aided by business networks, it will continue to transform
and add strategic value beyond cost reductions and processes
efficiencies. This value will come in four key areas:
1) Product and service innovation
2) Expanding into new and emerging markets
3) Compliance and cash flow optimization
4) Marketing and branding
It’s already happening. When Tata Motors set out to make the
world’s most affordable car for the retail equivalent of $2500, it
was procurement that went out and identified suppliers and
created innovative new materials and manufacturing assem-
blies to make the vision a reality. When Rio Tinto laid out the
uniquely bold objective to create the world’s largest mine in the
hinterlands and outer reaches of Mongolia, it was the supply
chain organization that went out and developed local supply and
created entire towns, roads and transportation infrastructure
where none existed.
offline or in a partially automated way, involving lots of paper and
people, and resulting in higher inefficiency and costs. And busi-
nesses lose $650 billion per year in missed sales opportunities,
higher operating and supply chain costs, and slower cash flow.
Such inter-enterprise inefficiency impacts nearly every corpo-
rate function and has hindered the performance of even the
best-performing companies. Some examples:
•• At the plant level and on the manufacturing floor, plant man-
agers struggle with poor visibility into order status, resulting
in greater stock outs, higher inventory levels, and poor buying
and supply chain practices.
•• In procurement, limited order confirmation and status from
suppliers keep manufacturers from taking new customer
orders due to uncertainty of parts availability and delivery.
•• In HR and other departments, leaders are challenged to iden-
tify, engage, and retain the skills and talent pools needed to
compete in a rapidly changing, global marketplace.
•• Accounts payable groups are drowning in paper, waiting on
invoices, rekeying data into their core systems, and trying to
work with procurement and suppliers to resolve resulting ex-
ceptions and disputes.
•• Treasury wants to do more with short-term payables cash
but limited visibility into invoice status makes it impossible to
forecast, plan, or optimize terms.
•• IT struggles with managing multiple and often costly meth-
ods for integration with external suppliers, customers, banks,
and other partners.
2.5 billion
Connected people on
social networks by 2020
The digital Economy requires a shift to a
Real-time Business Collaboration.
75 billion
Connected devices
by 2020
$65 trillion
Global business
trade by 2020
Procurement is fast
becoming a platform
for value creation.
4. 7The Future of Procurement and The CPO Whitepaper
Complete source
to pay process
LARGEST NETWORK
IN THE WORLD
This is the future of procurement. And business networks
will drive it.
THE SAP BUSINESS NETWORK
SAP provides the world’s largest and most global business
network, with more than 1.6 companies in over 190 countries
electronically connected and transacting over half a trillion
dollars of commerce on an annual basis. Using the network,
companies of all sizes, across industries can:
•• Connect to customers, suppliers, and partners to facilitate
collaborative commerce processes like sales, procurement,
and finance – all through a single integration point.
•• Gain new levels of process efficiency and transparency by
fully automating key business processes like procurement,
invoicing, payment, and staff augmentation and talent
management.
•• Make more informed, real-time decisions through
network-derived intelligence.
•• Access new insights and solution innovations only possible
in a network-based model
•• Manage all purchase, invoice, and payment transactions
across all categories with all trading partners – regardless
of their backend systems.
SAP can support a comprehensive category
management across the commerce lifecycle
And deliver measurable and sustainable results:
•• Lower costs – 1% - 8% reduction in supply chain costs and a
60% reduction in operating costs, on average.
•• Greater efficiency – 50% - 75% faster transaction cycles,
with many customers achieving >90% fully automated
(“touchless”) transaction processing.
•• Real-time process transparency and greater data
accuracy – 60% improvements in order accuracy, reducing
risks for stockouts or the need to stockpile excess inventory.
•• Improved working capital performance – 50% improvements
in discount capture with suppliers and 20% faster payment
cycles with customers.
•• Increased sales – 5%-20% revenue increase with
new customers and 30%+ greater share of wallet with
existing customers.
•• Better customer retention – 15% improvements in customer
retention rates.
CONCLUSION
The opportunity for procurement to contribute to the compa-
ny’s strategic agenda has never been greater. Driven by busi-
ness networks, the CPO can become the Chief Collaboration
Officer, fueling alliances across the enterprise and automating
key commerce processes—from sourcing and order through
invoice and working-capital management—both within the en-
terprise and across their supply chain that deliver their organi-
zations to new worlds of excellence.
#1
in Procurement
#1
in Contingent
WOrkforce / VMS
#1
in the world
#1
in Expense &
Travel Management
DIRECT & SUPPLY CHAIN
INDIRECT & MRO
CONTINGENT LABOR & SERVICES
TRAVEL
INTEGRATION
TO SAP SYSTEMS AND NON SAP
SOURCE &
CONTRACT
PROCURE
& BUY
INVOICE
& PAY
