The document discusses how procurement technology can help companies achieve procurement mastery and high performance. It outlines four key ways that technology improves procurement: 1) spend management through increased visibility and tracking of spend activity, 2) supplier performance management, 3) sourcing, and 4) contract management. Leading procurement technology combines data extraction, normalization, and enrichment capabilities to provide a comprehensive view of company spend and identify opportunities for savings. This level of visibility and analysis allows procurement organizations to make better strategic sourcing decisions and quantify the financial benefits of procurement initiatives.

1. High Performance Through
Procurement:
The Role of Technology
Kevin Potts, Emptoris, and Rob Woodstock, Accenture
Consulting Technology Outsourcing

2. “ Procurement mastery”—significantly Not, at all. Like supply chain
outpacing competitors in areas such as management in general, procurement’s
sourcing, category management and potential to foster growth and reduce
supplier relationship management— costs is significantly greater than
can be immensely profitable. A recent most companies imagine. The mission
Accenture study1 makes this clear: of this Point of View—a collaboration
“Procurement masters achieve 30 between Accenture and Emptoris—is
percent higher savings than companies to help readers understand the
with lesser capabilities. Yet masters’ nature of procurement mastery
procurement organizations cost about (how we define it), the rewards
half as much to run.” of procurement mastery (why the
investment and effort are worth it)
With such stellar potential, it’s and, most germane to this paper, the
surprising how many companies tools and technologies that connect
never move ahead with a major procurement mastery with high
procurement-optimization effort. To performance.
some extent, their reticence indicates
old school thinking: “Procurement is
basically a clerical function—a cost
center. As long as we’re reasonably
efficient, there’s more benefit in
devoting our strategic energies to
other things. Right?”
Contents
Procurement Insights, Research and Rewards............................................. 3
Four Technology Keys to Procurement Mastery.......................................... 5
1. How Technology Improves Spend Management................................... 6
2. How Technology Improves Supplier
Performance Management...........................................................................10
3. How Technology Improves Sourcing.........................................................13
4. How Technology Improves Contract Management..............................17
High Performance and Procurement Technology........................................19
1High performance through procurement: Accenture research and insights into procurement performance mastery.
2

3. Procurement Insights,
Research and Rewards
" For a company with In late 2006, Accenture solicited management; workforce/organization;
procurement-related input from and technology. For example, in
US$1 billion in controlled executives at leading companies sourcing and category management,
spend, a procurement across North America and Europe. we asked respondents about formal
master would incur costs Information from 225 respondents was supplier collaboration processes (1 =
ultimately gathered. Eighty two percent minimal, 5 = extensive). For requisition
of US$8 million and of that group are chief procurement to pay, we asked about the use of
savings of US$82 million, officers or directors of procurement. common requisition portals (1 = none,
while a procurement low 5 = fully standardized). In this way,
Via the survey and follow-on Accenture was able to create basic
performer would incur interviews, Accenture’s goal was distinctions between low performers
costs of US$16 million to establish clear, measurable (17 percent of the survey population),
and savings of only distinctions among procurement midrange performers (67 percent) and
“masters,” “midrange performers”
US$63 million." and “laggards.” Using these metrics-
procurement masters (16 percent).
based distinctions, we would then be To understand the relative rewards
able to determine the relative level attained by each performer category,
of benefit (particularly cost savings) Accenture then tracked low
achieved at each level. Details on performers, midrange performers
this categorization process—how and masters to the documented
procurement masters were defined benefits attained by the respondents’
and how their success was measured— procurement organizations:
is detailed in “About the Study”. y Total cost of ownership savings
(compared to “controlled, normalized
About the Study spend”)
To understand the nature and y Total cost of ownership savings
rewards of procurement mastery, as a percentage of procurement
the study first sought to develop operating costs
criteria for defining procurement y Percentage of spend controlled by
masters, midrange performers and the procurement organization
low performers. Our research team
asked 225 executives 25 questions y Percentage of new product designs/
for each of six core components of introductions in which procurement
procurement: strategy; sourcing and has a material role
category management; requisition y Share of suppliers managed through
to pay; supplier relationship a formal process
Low Performer Midrange Master
(17%) Performer (16%)
(67%)
-1 +1
3

4. Survey results confirm that Accenture also observed that 4. Supplier Relationship
procurement masters achieve procurement masters enjoy a Management: Eighty four percent
significantly greater financial benefits significant edge in every one of the of masters use a supply-base
than the balance of the survey six procurement specialty areas that segmentation strategy that aligns
population. The right side of Figure were used to segment respondents approaches and types of relationships
1 shows that survey respondents (Figure 2). For example, with specific supply markets and
qualifying as masters achieve supplier characteristics. Almost no
savings equal to 10 times the cost of 1. Procurement Strategy: Masters low-performing organization operates
running their organizations, based are five times more likely than similarly.
on controlled normalized spend from low performers to use a balanced
one year to the next. By contrast, the scorecard approach and almost 20 5. Workforce and Organization:
savings achieved by procurement low times more likely to benchmark Procurement masters face fewer
performers are only four times their procurement performance against organizational challenges. And the
costs (left side of Figure 1). In effect, competitors. Masters also were found challenges they do confront are
masters spend half as much as low to be almost four times more likely generally less constrictive or severe
performers, yet they save 30 percent than low performers to outsource one than those faced by procurement
more. For a company with US$1 or several procurement functions. organizations of lesser stature.
billion in controlled spend, this means This implies that a more effective
2. Sourcing and Category operation structure encourages
a procurement master would incur Management: Procurement
costs of US$8 million and savings of pursuit of greater savings and
masters are 16 times more likely increased effectiveness.
US$82 million, while a procurement than low performers to have a
low performer would incur costs of dedicated sourcing analyst pool that 6. Technology: The use of technology
US$16 million and savings of only provides support during the sourcing to support sourcing programs is
US$63 million. and category-management process. 10 times more prevalent among
And procurement management is masters than low performers. Plus,
$82 centrally led at 100 percent of masters’
10x 87 percent of masters report that
$63
organizations, compared to only 26 they harmonize master data and use
4x percent of low performers’ organizations. common technologies to support their
requisition to pay processes. Less than
3. Requisition to Pay: Seventy 5 percent of low performers do either.
nine percent of masters have
$16 successfully implemented a common
$8
and automated requisition-to-pay
Low Performer Master platform, compared to just 3 percent
Cost to procure Savings delivered of low performers.
Vision, mission, core values Performance management
Figure 1. Comparing cost savings. On 1. Procurement Strategy
Operating model Category strategic planning
US$1 billion of controlled, normalized
spend, procurement masters save Strategic sourcing Category mgmt. framework
2. Sourcing and Category Mgmt.
10 times as much as it costs them Category policy setting Compliance monitoring
to operate their procurement
3. Requisition to Pay (R2P) Transaction processing Master data management
organizations. Assisted buying Fulfillment
Supplier performance mgmt . Supplier development and
4. Supplier Relationship Mgmt.
Contract management integration
Having the right network Organization that facilitates
5. Workforce & Organization
of competent people working together
Technology that delivers Systems cover all functions:
6. Technology
right information strategy to operations
Figure 2. The six procurement characteristics assessed for Accenture's High
performance through Procurement research.
4

5. Four Technology Keys to
Procurement Mastery
The Accenture survey makes it remainder of this report looks at
abundantly clear that procurement some of the key challenges faced by
performance pays—that companies procurement organizations and the
willing to invest in better processes technology innovations available to
and technologies are amply rewarded. surmount those barriers.
Better processes are difficult
to achieve but somewhat self-
explanatory. They are: collaborative,
information-driven strategy setting;
exceptional supplier relationship
management; holistic procure-to-
pay cycles, and so forth. But what
about procurement technology? We
know that procurement masters
make better decisions because
of technology and that they are
more likely to leverage cutting-
edge tools to make a financial and
competitive difference. But what
are the specific challenges that
procurement technology can help
companies surmount? What do those
technologies look like? And how can
companies quantify their value? The
5

6. 1. How Technology Improves
Spend Analysis
From a technology perspective, limited than those of their customers. procurement leaders recently lobbied
exceptional spend analysis is Classification and naming schemes for actually produce the 23 percent
synonymous with two interconnected may also be different. savings they predicted? How much has
capabilities: maximizing organization- “rogue spending” dropped as a result?
wide visibility and (then) tracking, Visibility problems undermine What is the exact level (and impact) of
monitoring and enforcing spend companies’ ability to produce ”leakage” and what can we do about
activity. At most companies, spend actionable business insights. Instead— it? Most companies lack the data-
visibility is limited to “spend by vendor” without clean, consistent information gathering and measurement abilities to
and “spend category.” This is a complex on stock keeping units (SKUs), prices, answer such questions with certainty.
problem that has only gotten more stakeholder preferences and supplier
difficult as companies’ spend becomes performance—they develop ad-hoc
more global. Nowadays, for example: (workaround) processes to manage
sourcing events. These companies are
y Spend data is generally dispersed similarly ill positioned to quantify
across myriad internal data sources. savings opportunities to C-level
The ability to draw and consolidate executives, and thus to secure
information from multiple locations in approval for budget increases or
an efficient, repeatable manner is rare. improvement initiatives.
y To maximize procurement efficiency, Not surprisingly, visibility problems
companies need highly accurate and sabotage companies’ ability to track
granular classifications of spend data. and monitor spend activities and thus
However, the information available attain high levels of compliance. This
to them is frequently “dirty” or is actually the heart of the spend-
incomplete. management challenge: Businesses
must be able to identify opportunities
y The most significant shortcomings and track savings. Have we chosen
are often outside the company. Vendors the most-fruitful spend-reduction
systems may be just as (or even more) initiatives? Did the program which
6

7. " Best-in-class
applications go
beyond providing
basic spend visibility
by zooming into real
opportunities and
tracking the results of
savings initiatives for
those opportunities.
Users can make better
decisions about what
they are buying and
what those items
actually cost."
Technology Solutions for These applications extract transaction databases that consolidate transactions
Spend Analysis data from multiple systems and (for example, across “parent-child”
databases, and then represent organizations), cluster them (for
Leading-edge procurement technology (normalize) the data in a single example, across similar suppliers) and
is geared to maximizing visibility— format. Best-in-class applications go map them to various commodities,
using “spend analysis” to acquire, beyond providing basic spend visibility contracts and other sources of data.
update, consolidate and share by zooming into real opportunities Armed with this capability, companies
information in ways that encourage and tracking the results of savings can discover when multiple business
and support the identification of initiatives for those opportunities. units are sourcing from the same
savings opportunities. Users can make better decisions supplier but possibly working with
about what they are buying and different price and payment terms
Best-in-class spend-analysis
what those items actually cost. They (this scenario is common in companies
technology combines three key
also can begin quantifying spend for that have grown through mergers or
capabilities: a deep knowledge
specific commodities or categories, acquisitions). Together, extraction,
base, automation and content. The
eliminating spend duplication across normalization and data-enrichment
knowledge base provides extensive
multiple suppliers, and doing a better capabilities help companies attain a
vendor and item information: millions
job of leveraging discounts and early single-lowest price for each supplier,
of vendor names, item descriptions and
payment options (some suppliers along with new opportunities to
associated information. Automation
offer discounts of up to 2 percent capture volume discounts.
(for example, machine-learning
algorithms incorporated in trainable for payments made within 10 days).
auto classifiers) helps to rapidly and Simply put, spend analysis helps
accurately relate spend data to a companies make better procurement
commodity structure. Content (aka, a decisions and build a stronger case for
library of information) contains data continuous improvement.
on spend transactions, ”parent-child” Complementing these extraction and
commodity structures, etc., and thus normalization capabilities are data-
provides maximum visibility into enrichment functions: intelligent
companies’ spend initiatives.
7

8. Spend Analysis and makers’ needs with aggregated, procurement organization instead of IT.
Data Warehouses normalized and enriched data. Users Reports can be examined collectively
can parse data in myriad ways to rather than sequentially, thus making
Quite often data warehouses are gain greater spend visibility and tap the company more responsive to
considered to be able to provide the improvement opportunities that market dynamics. Bottom line? Spend
the same results as spend analysis. greater visibility provides. analysis provides data enrichment,
This is not true. Data warehouses do consolidation, speed, accuracy,
aggregate information, but it usually is Key metrics such as lowest potential granularity and sophisticated,
too broadly based—too likely to be “all cost, percentage of spend under proactive reporting.
things to all people.” Data warehouses’ management and suppliers’
approach to spend analysis is to roll commitments to their contractual A related spend-tracking/monitoring
up information and then analyze the obligations shift regularly. That’s issue is contract compliance—
data offline, without making changes why spend analysis also provides understanding the extent to which
to the data in real time. Because the frequent (monthly or even weekly) contractual obligations are being
user is working with summary data, data refreshes that help companies followed. Most companies have not
this approach limits the ability to slice acquire, consolidate and present implemented a contract management
and dice in a way that is specific to the latest spend, sourcing and (CM) solution. But those that have—and
the user’s needs. To drill down and do contract information. Procurement integrated the solution with accounts
further analysis, a user must leverage organizations that rely solely on payable information—enjoy particularly
specialized spend-analysis technology. traditional data warehousing fall detailed data that are tightly
short in this area as well. Most data associated with terms and conditions
With spend analysis, data is held warehouse reports are insufficiently and service-level agreements.
in memory, which allows a user granular and wait times for the
to drill down into the spend data information are often lengthy.
(physical transactions, not just Delays also ensue when a different
roll-up summaries) in real time. view is requested. Spend analysis
Spend analysis attacks one problem— avoids this problem by putting the
managing spend—in a focused manner reporting process in the hands of the
that targets procurement decision
8

9. The Next Big Thing(s) in Spend Recipe for Growth
Analysis Technology
Beyond the benefits they currently Syngenta is among the world’s than 15 different types of systems,
enjoy, spend analysis users are better top agribusinesses, with revenue including every major Enterprise
positioned to leverage capabilities exceeding US$9 billion and more than Resource Planning (ERP) platform.”
whose unveiling is just around 21,000 employees in 90 countries.
the corner. A good example is The company is also a leader in crop Low-cost-country sourcing, e-sourcing
benchmarking and best practices. protection and is fully committed and spend analysis have contributed
Today’s tech-savvy company knows to sustainable agriculture through significantly to the company’s
what it is paying and is confident that innovative research and technology. attainment of all its merger-related
its costs are low and that its suppliers Syngenta was formed nearly eight sourcing goals. For example, the team
are in compliance. But no commodity years ago—a spin-off of Novartis’ and used to only have visibility dating
manager really knows what (or how AstraZeneca’s agribusinesses. Innovative back a year or more. But it now knows
well) the company’s competitors approaches to procurement and exactly what the company is spending
are doing. In the near future, spend procurement technology have played a at any given time—past or present—
analysis technology will incorporate big role Syngenta’s meteoric rise. and with what suppliers (Syngenta
data on what the market is doing works with 45,000 suppliers on six
with respect to direct and indirect Early on, Syngenta senior executives continents). Looking more broadly, the
(MRO) spend. insisted that the company’s newly company now is able to:
formed procurement group develop
y Take a global, holistic view of spend.
Another looming innovation is the best-in-class sourcing principles
ability to more-rapidly refresh the supported by best-in-class technologies. y Rapidly transform raw data into
spend dataset. Companies that use Sourcing and spend analysis were actionable information.
spend analysis to track savings and deemed particularly critical. y Make that information “rich” and
compliance generally need weekly easy to find.
(rather than monthly) visibility y Sourcing. The Syngenta procurement
team launched a highly successful y Readily understand the supply
into new data. They may also want
low-cost-country sourcing program markets and cost drivers within each
their commodity managers to make
for chemical intermediates and active category of spend.
changes to commodity structures
or to improve data accuracy by ingredients. E-sourcing became the
Upcoming procurement projects for
reclassifying transactions that weren’t focal point on the technology side.
Syngenta will focus on enhancing
appropriately categorized the first Syngenta now uses “e-RFX” across all
supplier relationship management
time around. Changes such as these categories of direct and indirect spend.
capabilities, contract management
need to be controlled with appropriate y Spend Analysis. As the sourcing and supplier negotiation. The
authorizations, approvals and rules function evolved, the procurement company thus will be embracing and
and applied to the dataset in real- or team recognized the need for highly engraining new tools and processes
near-real time. Conflicting rules must accurate and consistent data with across the organization, segmenting
be arbitrated. Virtually none of these which to inform the company’s and categorizing suppliers based
capabilities are present in current sourcing priorities and decisions. It first on multiple attributes that define
data-warehouse-type solutions, which tried using a global data warehouse relationships, and ensuring proactive,
rely on rigid schemas without means supported by a business intelligence best-in-class management of
to submit corrections and changes. tool. This proved ineffective. Its contractual relationships throughout
next recourse—an advanced spend- their life cycle.
A third pending advance is the ability
to forecast spend for several upcoming analysis solution—is now being used
years based on historical information. by more than 180 trained users across
Traditionally, planning and forecasting purchasing, finance and at the cost
functions have interacted with center level. According to Dr. Hans
Operations and Sales organizations, Elmsheuser, Syngenta’s head of global
but not with procurement. Tomorrow’s purchasing, “The solution allows us to
spend analysis technology will analyze spend on up to 30 different
examine historical and predicted usage dimensions or axes, including category,
and connect forecasting/planning, cost center, GL account, geography,
operations, sales and marketing time, payment terms, UNSPSC code
departments with procurement. and supplier diversity status. It also
helps us aggregate data from more
than 45 countries retrieved from more
9

10. 2. How Technology Improves Supplier
Performance Management
Accenture’s research on procurement partnering agreements, and even this approach is neither scalable nor
mastery reveals that significant rewards developing joint operations based cost efficient. Even at the master level,
accrue to supplier-management on knowledge sharing, seamless most supplier management programs
leaders. Specifically, masters achieve 5 processes and mutually beneficial are managed manually. Such programs
percent savings from both sourcing and product improvements. Perhaps most also are likely to be reactive, with
post-contract activities against total revealing, Accenture research shows companies constantly putting out
procurement operating spend, versus that procurement masters are three fires that result from undermanaged
3 percent savings for the remaining times more likely than low performers supplier performance.
survey respondents. to have a formal program for managing
their supply base. Figure 3 depicts other
As noted earlier, masters achieve supplier-management advantages
much of their edge by using supply- enjoyed by procurement masters.
base segmentation strategies that
align approaches and types of Despite the advantages, few companies
relationships with specific supply actually use specific supplier
markets and supplier characteristics— performance management technology.
including relevant strengths and Some have patched together Excel-
weaknesses, product complexities based systems to track performance
and geographies. It is this proficiency but find this approach onerous.
that abets other capabilities, such Others have invested in armies of
as forging deeper relationships with assessors who systematically log the
key suppliers, establishing long-term performance of key suppliers. However,
Segmenting the supply base 84%
1%
Partnering with key suppliers on a 46%
risk-reward sharing basic 3%
Central logging and proactively 80%
managing contracts 8%
Automatically tracking/reporting 83%
supplier performance
1%
Master Low Performer
Figure 3: Percentage of survey
respondents (masters versus low
performers) that engage in, or
perform, specific supplier relationship
management activities.
10

11. Technology Solutions for to make the right moves in response
Supplier Performance to the supplier information they’ve
Management acquired. SPM technologies also are
key to the successful application
“Opportunity identification” is the most of best practices and improvement
important contribution that advanced methodologies, such as Lean Enterprise
procurement technology brings to and Six Sigma.
supplier performance management
(SPM). Basically, technology
automates the collection, analysis and
dissemination of supplier performance " Consider an
metrics. Using a standardized approach organization with a
to measuring supplier performance,
it links the setting of metrics at the total cost of ownership
start of the supplier relationship (TCO)-based SPM
with processes for monitoring and
communicating actual supplier system. When a
performance. Supplier scorecards also supplier delivers a
become part of the equation—ensuring
that buyers can factor quantifiable
part, a first inspection
supplier-performance levels into their is performed. If the
purchase decisions (figure 4).
part is rejected, extra
Leveraging SPM technology, supplier costs are automatically
performance credentials (qualitative
and quantitative) are consolidated assigned to the
in a supplier performance repository relationship, not just
that is tightly integrated with spend
analysis, sourcing and contract the part."
management processes. This makes it
possible to determine on an ongoing
basis the total cost of doing business
with a supplier and to track more of
the supply base without incurring
additional overhead. Companies also B
g
can minimize leakage and discover Supplier Supplier
oin
ef
Assessment Qualifications
o re
hidden costs by determining which
g
On-going Who?
On-
suppliers are not performing and, certifications Meet standards?
more importantly, why they are not Root cause Risks?
analysis
performing. It thus becomes possible Continuous
to work proactively with suppliers to Improvement
develop fixes, curtail purchases from
underperformers, develop new suppliers
Supplier Performance
and/or ratchet up business with Monitoring
other (nonsuspect) vendors. Consider Timeliness?
an organization with a total cost of Quality?
ownership (TCO)-based SPM system. Service?
When a supplier delivers a part, a first
inspection is performed. If the part is
rejected, extra costs are automatically
During
assigned to the relationship, not just
the part. Costs are similarly associated
with every aspect of the procurement Figure 4: Supplier scorecards also
process. In effect, SPM technology become part of the equation—
helps companies develop a holistic ensuring that buyers can factor
view of the hard and soft costs of quantifiable supplier-performance
doing business with suppliers, and levels into their purchase decisions.
11

12. The Next Big Thing(s) practices. Green supplier management
in Supplier Performance capabilities could even spearhead
Management Technology new component- and material-
standardization programs that extend
Tools for supplier performance the life of various products, while
management will soon become more making them more scalable, reusable
valuable because they will “embrace or recyclable.
diversity.” With additional weighting
and analysis capabilities, technology In a larger sense, you could say
enhancements will help companies that increased compliance and
incorporate regulations for working (consequently) lower risk are
with small, minority-owned or the hallmarks of tomorrow’s
female-run businesses into their supplier-management technology.
supplier-management and supplier- Economically speaking, supplier
assessment operations. relationships that seamlessly conform
to internally and externally mandated
Those same capabilities will make it rules and key performance indicators
easier and more economical to meet (KPIs) will provide a clear competitive
government- or self-imposed standards edge. Monitoring and pursuing
for green operations and sustainability. formal certification programs (for
“Green rules” embedded in technology example, Lean Enterprise, Six Sigma,
streamline the quantification Supply Chain Operations Reference)
and comparison of a product or become more automatic, which
component’s lifetime environmental increases the value and decreases the
impact. It thus becomes simpler to cost of those programs.
identify and winnow out sourcing
partners that sell environmentally
unsound items or engage in antigreen
12

13. 3. How Technology Improves Sourcing
Among the more than 25 metrics that y Activities that are formally tracked.
Accenture used to identify leading y A tight focus on total cost of
practices in sourcing and category ownership.
management, the five described in
Figure 5 are particularly noteworthy. y An end-to-end, supply chain-
For example, all companies classified wide orientation, with top-down
as procurement masters have administration from a procurement or
implemented a centrally guided category board. These boards typically
category- management structure that include senior people from different
cuts across organizational entities. And technical and user departments, as well
almost 90 percent of masters have a as the procurement organization and
“leading practice” strategic sourcing project leaders.
process and structure in place—one
that emphasizes:
y Common processes across the
company.
y Widespread use of cross-functional
sourcing teams for coordinating
projects, formulating strategies,
managing supplier selection and
implementing contracts.
Centrally led category 100%
management structure
26%
Leading practice strategic 89%
sourcing process & structure
5%
80%
Focused sourcing analyst
pool 5%
Maximum leverage of 81%
global sourcing
5%
Value tracking & budget 76%
integration with full control
over non-compliance 5%
Master Low performer
Figure 5: Percentage of survey
respondents (masters versus low
performers) that engage in, or
perform, specific sourcing and
category management capabilities.
13

14. Technology Solutions for constantly refined. It remains intact
Sourcing regardless of turnover and can be
shared across the enterprise. An audit
But what about technology? What trail of what has and hasn’t worked
exactly is sourcing technology and is also kept. The net effect is that,
what does it seek to accomplish? How as buyers shift from one category
much further could it take companies to another or new buyers join the
along the road to high performance? organization, they can contribute
To answer these questions, consider immediately and meaningfully
four of the most prevalent/pressing by leveraging embedded best
problems encountered by many practices. Even relative novices can
companies’ sourcing organizations. quickly grasp a category’s sourcing
dynamics—for example, relevant
Low levels of credibility and
suppliers and corresponding KPI
recognition. Sourcing and
scores, cost components/attributes
procurement organizations often find
and attachments.
it difficult to quantify the value they
bring to the company’s bottom line. As Inability to see beyond cost. Manual
a result, recognition from the executive (spreadsheet) systems, and even some
ranks is hard to secure—as is approval of the more-advanced solutions,
for improvement initiatives or new don’t provide the deep analytical
technology implementations. This is information that sourcing professionals
one reason why reporting capabilities really need. As a result, item cost
are so important. Executive summary continues to be the sole basis upon
reports developed by leading-edge which too many of their sourcing
sourcing solutions provide both decisions are made. It’s not unusual,
program and project-level metrics (for for example, for a supplier’s quoted
example, number of programs run, unit price to be prohibitively high due
number of events run, total and per- to difficulties procuring a particular
item spend, total and per-item savings). raw material. However, that same
These solutions can also help identify supplier might be extremely effective
contents of the sourcing pipeline, at processing the raw material. For this
document-sourcing opportunities reason, it could be considered a worthy
on an annual or quarterly basis, and supply candidate if the buyer can
track savings by providing projected, purchase the raw material elsewhere
forecasted and actual spend figures and then leverage that supplier’s
based on the events already run. In net, production efficiency and lower
the impact and value of the sourcing manufacturing cost. Of course, without
organization become more quantifiable. advanced sourcing analyses, none of
this will happen. Unable to quantify
Loss of knowledge due to talent
non-direct costs and requirements,
turnover. When sourcing professionals
our hypothetical buyer will have little
" Summary reports leave the organization, processes
choice but to pay less (in the short
and category expertise often go with
developed by leading- them. New and remaining employees
term) but get substantially less in the
long term.
edge sourcing are consequently left with more
responsibility but fewer sourcing Sourcing it is not just about finding
solutions provide both insights. They may have no choice but the best price. It is about finding the
program and project- to spend less time on each category optimal mix of suppliers to meet all
and thus are more apt to pursue/renew of the buyers needs based on price,
level metrics (e.g., contracts at noncompetitive prices or performance, purchasing policies
number of programs to engage less-qualified suppliers. and supplier relationships, all in a
run; number of events Sourcing and category management
highly dynamic environment (figure
6). Sourcing technology makes it
run; total and per- technology addresses this problem
possible to run hundreds of “best-fit”
because it is built around a central
item spend; total and repository of best practices.
scenarios—objective pictures with
far more detail than just acquisition
per-item savings)." Information is stable, cumulative and
14

15. cost. Basically, buyers define their data, buyers can easily create
specifications, business needs and category-specific sourcing models
preferred options. Suppliers respond that are as simple or as detailed as
with their unique advantages, necessary. For example, a particular
competencies, prices and even category model might show 20 pieces
alternative approaches (for example, of item information and 10 elements
“bundle bidding”). New acquisition of total-cost-of ownership information
avenues open up for the buyer, who for a particular strategic category.
is also capturing more information in However, it might capture only one
the process. Leveraging the technology, data-point (most likely, price) for an
he or she scrutinizes hundreds of indirect category.
complex “what-if” analyses in a matter
of minutes and consequently makes Unlimited numbers of unique,
far more holistic buying decisions. template-driven category structures
Longer term, the buyer has identified a can then be stored in a “smart data
sourcing allocation plan that balances library.” This makes it possible for
price components with qualitative companies to make more and better
factors (for example, supplier scores decisions about a wider range of
by KPI) or location-specific constraints contracts and purchases. They’re
(for example, 35 percent domestic also better equipped to take a more
content for an international plant). commodity-driven approach to
In addition, suppliers appreciate the procurement in general, and to slice
collaborative process and are more and dice data as needed to make
inclined to work with the buyer’s firm better risk assessments, develop
in the future. “what-if” scenarios and negotiate
more effectively.
Lack of key performance indicators.
Advanced analyses are essential.
Without them, buyers have little
Flexible Supplier Bidding
choice but to overemphasize basic Bundling
acquisition costs. However, advanced Multiple Price Breaks
Rebates
sourcing tools actually do more Substitutions
than gather and track purchase Quality and
Quantity Ranges
considerations. They also help buyers
aggregate, organize and prioritize
Supplier Performance
those considerations. Basically, key Flexible Total Cost Rating
performance indicators (KPIs) are Modeling
Lowest Total Supplier category and
Item item level
developed. Buyers use these KPIs to Spec Cost of Qualification
assess and quantify the relative value Quantity Ownership Quality
Due Date On-time delivery
of hard and soft costs, such as: Proprietary Attributes Item attributes
(i.e. tolerance)
y Expedite fees resulting from a
supplier’s inability to deliver in a
timely manner. Scenario Modeling
y Risk to reputation resulting from a Budget Limits
Award Splits
supplier’s poor product quality and the Switching Costs
impact on finished product. Contractual Obligation
Preferred Suppliers
y Poor procurement decisions resulting
from a dearth of buyers available to
scrutinize and make purchases.
Consider the many actions involved Figure 6: Sourcing it is not just about
in analyzing supplier responses to finding the best price. It is about
requests for information (RFIs). Armed finding the optimal mix of suppliers
with the ability to capture and weigh to meet all of the buyers needs based
quantitative and qualitative (business on price, performance, purchasing
constraint and supplier performance) policies and supplier relationships, all
in a highly dynamic environment.
15

16. The Next Big Thing(s) in Superior Sourcing Another up-and-coming practice is
Sourcing Technology tighter control of prices and pricing
Wolters Kluwer, a leading provider of
opportunities during the sourcing
Green is red hot. Customers and business-information services, grew
and supplier-negotiation processes.
consumers support it. Governments rapidly in the 1990s through several Consider that most allocation decisions
and regulatory bodies increasingly acquisitions. It subsequently moved are made shortly after the conclusion
insist upon it. And, by identifying, from a holding company model to a of a sourcing event. But because
logging, assessing and comparing multidivision company, with divisions price is executed at purchase time, a
suppliers, sourcing technologies can acting autonomously. This change buyer’s actual cost may change due
help companies cash in on it. It won’t prompted a need for more formal, to fluctuations in commodity prices.
be long, in fact, before green is an company-wide procurement processes In fact, the actual allocation often
entrenched part of how procurement that could scale with the business and changes as market factor values
organizations do business—a basic reduce the cost of Wolters Kluwer’s change. Sourcing professionals soon
criterion for evaluating suppliers, will be able to use technology to
US$1billion annual spend.
products and business processes. As specify a range for a particular market
that happens, systems that can fully Toward these ends, Wolters Kluwer value, thereby obtaining allocations
quantify green tradeoffs—for example, created a shared-services strategic that align closely with best price. For
justifying the plant-wide replacement sourcing department and acquired example, as resin prices rise or fall,
of incandescent bulbs with (initially the best allocations across suppliers
additional technology capabilities in
higher cost) compact fluorescents (Supplier A: 60 percent; Supplier B:
sourcing and contract management.
light (CFL) bulbs to reduce energy 40 percent) should also change. New
The company also expanded its
consumption (including cooling costs sourcing algorithms will make this
associated with bulb-generated heat)— technology scope with advanced
possible, along with the ability to
will be essential. It’s a largely new supplier-selection capabilities. identify which factors/items/suppliers
aspect of cost/benefit analysis that will most dramatically affect allocations
These innovations made it possible
inevitably apply to scores of categories, and costs.
for the company to develop more
including transportation services, office
equipment, business materials and standardized, collaboration-intensive
utilities. Imagine, for example, if large sourcing processes and templates, while
retailers were forced to contribute to reducing the effort needed to draft,
the “green costs” of stocking bottled review, approve and file contracts. The
water. Even ignoring the fact that a result is continuous improvements
lot of bottled water is from public across the contract management and
water sources (i.e., tap water) yet costs sourcing spectrum:
about 100 times as much, there are
y A more efficient contract-
still extensive environmental penalties,
particularly 1) pollution caused by management process.
trucks shipping thousands of tons of y Fewer inadvertent contract lapses or
product each year, 2) huge amounts of automatic renewals.
plastic waste and 3) increased crude oil y Improved contract compliance.
requirements resulting from production y Faster, more precise spend baselining
of plastic bottles. and supplier consolidation.
y Improved control of the contracting
process.
y More thorough contract reviews,
resulting in more favorable terms and
less risk.
y Reduced administrative overhead.
y New opportunities to leverage best
practice templates.
y Better visibility into events in
progress.
y Collaboration in parallel, rather than
in serial.
16

17. 4. How Technology Improves Contract
Management
Sourcing skills, experience and approach: the contract is literally
leading practices make procurement placed in a file cabinet, along with any
opportunities clear. But contract amendments, and forgotten about until
management makes those a problem arises. Inefficiency reigns.
opportunities real. And leading-edge
technology is key to effective (cost- It also is common for companies’
efficient, accurate, timely, insightful) contract-documentation mechanisms
contract management. to not connect with their Enterprise
Resource Planning (ERP) systems. As a
Sourcing bids are not legally binding result, business entities are unable to
without a contract in place. However, track all contract terms and conditions
roughly 80 percent of companies (pricing, service level agreements,
still depend on a manual contract performance and delivery guidelines)
management process, which nearly or to monitor compliance with internal
always results in contract delays. and external (regulatory) mandates.
Collaboration across departments (for This is crucial step—making sure that
example, procurement, purchasing, final purchases are compliant with
legal, IT) also is compromised. And prices and terms negotiated in the
compared to procurement masters contract. Failure to do so makes it
(who nearly always log and manage doubly hard to enforce compliance to
contracts centrally), manual users contract terms.
lack visibility into, control over and
compliance with the sourcing awards.
They simply have less understanding
(and thus less control over) contract
terms and conditions, service level
agreements and amendments. Most
simply follow a file-and-forget
17

18. Technology Solutions for Efficiency and control also come The Next Big Thing(s) in
Contract Management together in one technologically Contract Management
Coming to the rescue, procurement
advanced system. Imagine that the Technology
procurement organization needs
technology is all (and always) Contract management will become
its legal department to approve
about visibility. With an automated increasingly central to the sourcing
changes made to a contract. However,
enterprise contract management (ECM) process. More contract negotiations
procurement only wants Legal
system, companies have a single, will happen in parallel with sourcing
to approve changes that deviate
easily searchable repository for all events. Exceptional visibility into a
from approved company language.
contracts. That repository is end-to- supplier’s (and their own) performance
Procurement masters can make this
end and cradle-to-grave—a living, against contract will move users
happen quickly and accurately by
accessible home for contract-related of advanced contract management
using a template-based library of
information. ERP systems are not technology ahead of the competition.
preapproved clauses within its contract
the place to keep this information. For them, contract management will be
management system. Without this
Nor are file servers or document the basis of compliance.
capability, the wheel must be recreated
management systems. Only ECMs
each time there is a contract clause Contract management and supplier
are designed to accept contract
change. It also becomes less likely that governance systems also will mature
data; manage contract workflows
compliance statutes will be adhered to. to include contract rating and scoring
(contract creation, approval, review,
negotiation); compare products and models. Buyers and legal departments
Improved supplier performance
performance to compliance-related thus will be able to set up standards
management is another byproduct.
conditions; and track, monitor and for judging and measuring contract
When a company and supplier forge
enforce legally binding terms and risk. Those standards could include
a contract, both must approve its
conditions. component quality, delivery accuracy,
requirements and expectations. For
previous on-contract performance and
example, is the buyer expecting
so forth. Currently, there is no objective
the supplier to respond within 30
way to determine the quality/viability
minutes of the first call? To make
of a contract. The ability to measure
sure, the tech-savvy buyer can load
contract risk will also extend to sales
average response times (by supplier
contracts, covering areas where
or by category) into its contract
revenue recognition could be affected.
management system, and thus have an
increasingly vast and reliable library A third contract management
of key performance indicators. Per the breakthrough focuses on easier
above example, the buyer can set a management of multiple contract
baseline measurement to the contract layers. A business relationship is rarely
value of, say, 30 minutes. If the represented in a single document.
supplier fails to meet that requirement, More likely, these relationships are
it receives an alert stating that the represented by multiple contracts,
contract has been violated. which change over time and can
involve master/subordinate hierarchies.
In net, contract management is
" Procurement the final piece in the procurement-
In addition, contracts frequently
involve relationships across multiple
technology is all integration equation: seamless,
partners. Managing all this requires
enterprise-wide data flows that
(and always) about encompass the process and the
technology that provides immediate
and efficient management and visibility
visibility. With an relationship. Companies can drill down
of the complete business relationship.
into spend to see how much is on and
automated enterprise off contract. They are managing the
content management entire process and ensuring the quality
of the entire relationship.
(ECM) system—fully
integrated with
ERP—companies
have a single, easily
searchable repository
for all contracts."
18

19. High Performance and
Procurement Technology
Research into achieving high investments. One reason for this is y Reduce sales cycle time.
performance through procurement the many forms that procurement y Stimulate new product development
confirms that huge disparities exist technology value can take, including: with supplier innovations.
in the degree to which companies y Capture savings year-after-year.
leverage technology. As shown in This is not to say that implementing
Figure 7, the six technology-enabled y Bring more spend under leading-edge procurement technology
behaviors presented to survey management. is a “walk in the park” or that any
recipients are deployed by an average y Optimize supply base in order to company investing in procurement
of 70 percent of masters, but less than balance cost, performance and risk technology will become a procurement
5 percent of low performers. y Reduce maverick spending and drive master or high performance business
down contract risk. overnight. However, it’s reasonably
From the data presented in this Point certain that, without a firm handle on
of View, two broad conclusions are y Maintain auditable supply and today’s and tomorrow’s procurement
inescapable. The first is that high contract management processes. technologies, procurement mastery
performance—the characteristics y Identify procure-to-pay process and high performance will remain little
exhibited by companies that violations. more than aspirations.
consistently outperform their
peers—is more likely to be attained y Improve deal quality and optimize
by organizations that excel in renewals.
procurement. The second is that
procurement mastery is largely
synonymous with the ability to
Technology support 82%
leverage technology. Process
excellence is certainly key. An aligned, 8%
committed workforce is vital. Senior-
Common and automated 79%
level buy-in is essential. And the
importance of collaborative, win- R2P platform 3%
win relationships with suppliers and
other business partners is undeniable. 46%
Self-service e-invoicing
However, technology proficiency is 5%
what spans the entire procure-to-pay
Supplier integration 65%
cycle. No company can be a Supplier
Relationship Management (SRM) technology 5%
leader or a procurement strategy
leader or a sourcing leader without Procurement master data 76%
the tools to maximize each part’s harmonization 1%
contribution and ensure enterprise-
Reporting excellence 71%
wide synergy.
5%
Despite these “conditions,” there is
a clear upside: compared to many Master Low performer
systems, implementing leading-
edge procurement technology is not
unusually difficult nor does it take Figure 7: Percentage of survey
long to build out the infrastructure. In respondents (masters versus low
addition, value may be captured more performers) that leverage various
quickly than with other technology technology-based capabilities.
19

20. About Accenture About Accenture Supply Chain Management
Accenture is a global management The Accenture Supply Chain We collaborate with clients to
consulting, technology services Management service line works implement innovative consulting
and outsourcing company. with clients across a broad range of and outsourcing solutions that align
Combining unparalleled experience, industries to develop and execute operating models to support business
comprehensive capabilities across operational strategies that enable strategies, optimize global operations,
all industries and business functions, profitable growth in new and existing enable profitable product launches,
and extensive research on the world’s markets. Committed to helping clients and enhance the skills and capabilities
most successful companies, Accenture achieve high performance through of the supply chain workforce.
collaborates with clients to help them supply chain mastery, we combine For more information, visit
become high-performance businesses global industry expertise and skills in www.accenture.com/supplychain.
and governments. With 178,000 supply chain strategy, sourcing and
people in 49 countries, the company procurement, supply chain planning,
generated net revenues of US$19.70 manufacturing and design, fulfillment,
billion for the fiscal year ended Aug. and service management to help
31, 2007. Its home page is organizations transform their supply
www.accenture.com. chain capabilities.
Copyright © 2008 Accenture About the Authors About Emptoris
All rights reserved.
Rob Woodstock is a partner in the Emptoris is a world leader in
Accenture, its logo, and Accenture Supply Chain Management innovative supply and contract
High Performance Delivered service line. Rob has expertise with management software solutions
are trademarks of Accenture. helping clients across industries that empower enterprises to realize
to improve the performance of best value and accelerate profitable
their procurement operations growth. Emptoris solutions are used
through process improvement, by successful Global 2000 companies
organization development and system in every industry. Customers
implementation initiatives. Based in include American Express, Boeing,
London, he can be reached at rob. ConocoPhillips, GlaxoSmithKline, Kraft,
woodstock@accenture.com. Motorola, Owens Corning, Syngenta,
and Vodafone.
Kevin Potts is the Vice President
of Marketing at Emptoris. Kevin
works closely with customers,
industry leaders, and the business
and technology press to share
the company's vision for how its
innovation can accelerate profitable
growth. Kevin has over 9 years
of enterprise software marketing
experience, including 7 years
directly in the supply and contract
management arena.