Seven Secrets to Highly Effective Procurement: How Technology, Data and Business Networks Fuel Innovation and Transformation
Seven Secrets to Highly Effective Procurement: How
Technology, Data and Business Networks Fuel Innovation
Transcript of a discussion on how technology, data analytics and digital business networks are
transforming procurement and source-to-pay processes as we know them.
Listen to the podcast. Find it on iTunes. Get the mobile app. Download the
transcript. Sponsor: SAP Ariba
Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're
listening to BrieﬁngsDirect.
Our next innovation thought leadership discussion focuses on how technology, data analysis, and
digital networks are transforming procurement and the source-to-pay process as we know it.
We’ll also discuss what it takes to do procurement well in this new era of
Far beyond just automating tasks and transactions, procurement today is a
strategic function that demands an integrated, end-to-end approach built on
deep insights and intelligence to drive informed source-to-pay decisions and
actions that enable businesses to adopt a true business ecosystem-wide digital
And according to the ﬁndings of a benchmarking survey conducted by SAP Ariba, there are
seven essential traits of modern procurement organizations that are driving this innovation and
business transformation. To learn more about the survey results please join me in welcoming our
guest, Kay Ree Lee, Director of Value Realization at SAP. Welcome, Kay Ree.
Kay Ree Lee: Thank you, Dana.
Gardner: Procurement seems more complex than ever. Supply chains now stretch around the
globe, regulation is on the rise, and risk is heightened on many fronts in
terms of supply chain integrity.
Innovative companies, however, have ﬁgured out how to overcome these
challenges, and so, at the Value Realization Group you have uncovered some of these best
practices through your annual benchmarking survey. Tell us about this survey and what you
Lee: We have an annual benchmarking program that covers purchasing operations, payables,
sourcing, contract management, and working capital. What's unique about it, Dana, is that it
combines a traditional survey with data from our procurement applications and business
This past year, we looked at more than 200 customers who participated, covering more than $350
billion in spend. We analyzed their quantitative and qualitative responses and identiﬁed the
intersection between those responses for top performers compared to average performers. Then,
we drew correlations between which top performers did well and the practices that drove those
Gardner: By making that intersection, it’s an example of the power of business networks,
because you're able to gather intelligence from your business network environment or ecosystem
and then apply a survey back into that. It seems to me that there is a whole greater than the sum
of the parts between what the Ariba Network can do and what market intelligence is demanding.
Universe of insights
Lee: That’s right. The data from the applications in the Ariba Network contain a universe of
insights, intelligence, and transactional data that we've amassed over the last 20-
plus years. By looking at the data, we've found that there are speciﬁc patterns
and trends that can help a lot of companies improve their procurement
performance -- either by processing transactions with fewer errors or
processing them faster. They can source more effectively by collaborating with
more suppliers, having suppliers bid on more events, and working
collaboratively with suppliers.
Gardner: And across these 200 companies, you mentioned $350 billion of
spend. Do you have any sense of what kind of companies these are, or do they
cross a variety of different types of companies in different places doing different vertical industry
Lee: They're actually cross-industry. We have a lot of
companies in the services industry and in the
manufacturing industry as well.
Gardner: This sounds like a unique, powerful
dataset, indicative of what's going on not just in one
or two places, but across industries. Before we dig
into the detail, let’s look at the big picture, a 100,000-
foot view. What would you say are some the major
high-level takeaways that deﬁne best-in-class
procurement and organizations that can produce it these days based on your data?
Lee: There are four key takeaways that deﬁne what best-in-class procurement organizations do.
A lot of these best-in-class
organizations also have an
integrated platform from
which they manage all of their
The ﬁrst one is that a lot of these best-in-class organizations, when they look at source-to-pay or
procure-to-pay, manage it as an end-to-end process. They don't just look at a set of discrete tasks;
they look at it as a big, broad picture. More often than not, they have an assigned process expert
or a process owner that's accountable for the entire end-to-end process. That's key takeaway
Key takeaway number two is that a lot of these best-in-class organizations also have an
integrated platform from which they manage all of their spend. And through this platform,
procurement organizations provide their internal stakeholders with ﬂexibility, based on what
they're trying to purchase.
For example, if a company needs to keep track of items that are critical to manufacturing and
they need to have inventory visibility and tracking. That's one requirement.
Another requirement is if they have to purchase manufacturing or machine parts that are not
stocked, that can be purchased through supply catalogs with pre-negotiated part description and
Gardner: Are you saying that this same platform can be used in these companies across all the
different types of procurement and source-to-pay activities -- internal services, even indirect,
perhaps across different parts of a large company? That could be manufacturing or
transportation? Is it the common platform common for all types of purchasing?
Lee: That's right. One common platform for different permutations of what you're trying to buy.
This is important.
The third key takeaway was that best-in-class organizations leverage technology to fuel greater
collaboration. They don't just automate tasks. One
example of this is by providing self-service options.
Perhaps a lot of companies think that self-service
options are dangerous, because you're letting the
person who is requesting items select on their own,
and they could make mistakes. But the way to think
about a self-service option is that it's providing an
alternative for stakeholders to buy and to have a
guided buying experience that is both simple and
compliant and that's available 24/7.
You don't need someone there supervising them. They can go on the platform and they can pick
the items, because they know the items best -- and they can do this around the clock. That's
another way of offering ﬂexibility and fueling greater collaboration and ultimately, adoption.
Networks have become very
prevalent these days, but best-in-
class companies connect to
networks to assess intelligence,
not just transact.
Gardner: We have technologies like mobile these days that allow that democratization of
involvement. That sounds like a powerful approach.
Lee: It is. And it ties to the fourth key takeaway, which is that best-in-class organizations connect
to networks. Networks have become very prevalent these days, but best-in-class companies
connect to networks to assess intelligence, not just transact. They go out to the network, they
collaborate, and they get intelligence. A network really offers scale that organizations would
otherwise have to achieve by developing multiple point-to-point connections for transacting
across thousands of different suppliers.
You now go on a network and you have access to thousands of suppliers. Years ago, you would
have had to develop point-to-point connectivity, which costs money, takes a long time, and you
have to test all those connections, etc.
Gardner: I'm old enough to remember Metcalfe's Law, which roughly says that the more
participants in a network, the more valuable that network becomes, and I think that's probably
the case here. Is there any indication from your data
and research that the size and breadth and depth of
the business network value works in this same
Lee: Absolutely. Those three words are key. The
size -- you want a lot of suppliers transacting on
there. And then the breadth -- you want your
network to contain global suppliers, so some suppliers that can transact in remote parts of the
world, even Nigeria or Angola.
Then, the depth of the network -- the types of suppliers that transact on there. You want to have
suppliers that can transact across a plethora of different spend categories -- suppliers that offer
services, suppliers that offer parts, and suppliers that offer more mundane items.
But you hit the nail on the head with the size and breadth of the network.
Gardner: So for industry analysts like myself, these seem pretty straightforward. I see where
procurement and business networks are going, I can certainly agree that these are major and
But I wonder, because we're in such a dynamic world and because companies -- at least in many
of the procurement organizations -- are still catching up in technology, how are these ﬁndings
different than if you had done the survey four or ﬁve years ago? What's been a big shift in terms
of how this journey is progressing for these large and important companies?
They have fewer people operating
certain processes, and that means
that it costs organizations less to
operate those processes.
Lee: I don't think that there's a big shift. Over the last two to ﬁve years, perhaps priorities have
changed. So, there are some patterns that we see in the data for sure. For example, within
sourcing, while sourcing savings continue to go up, go down, sourcing continues to be very
important to a lot of organizations to deliver cost savings.
The data tells us organizations need to be agile and they need to continue to do more with less.
Networks have become very prevalent these days, but best-in-class companies connect to
networks to assess intelligence, not just transact.
One of the key takeaways from this is that the cost structure of procurement organizations have
come down. They have fewer people operating certain processes, and that means that it costs
organizations less to operate those processes, because now they're leveraging technology even
more. Then, they're able to also deliver higher savings, because they're including more and
different suppliers as they go to market for certain spend
That's where we're seeing difference. It's not really a
shift, but there are some patterns in the data.
Gardner: It seems to me, too, though, that because
we're adding through that technology more data and
insight, we can elevate procurement more prominently
into the category of spend management. That allows
companies to really make decisions at a large environment level across the entire industries,
maybe across the entire company based on these insights, based on best practices, and they can
save a lot more money.
But then, it seems to me that that elevates procurement to a strategic level, not just a way to save
money or to reduce costs, but to actually enable processes and agility, as you pointed out, that
haven't been done before.
Before we go the traits themselves, is there a sense that your ﬁndings illustrate this movement of
procurement to a more strategic role?
Front and center
Lee: Absolutely. That's another one of the key traits that we have found from the study. Top
performing organizations do not view procurement as a back-ofﬁce function. Procurement is
front and center. It plays a strategic role within the organization to manage the organization’s
When you talk about managing spend, you could talk about it at the surface level. But we have a
lot of organizations that manage spend to a depth that includes performing strategic supplier
Top performers play a strategic
role within the organization.
They manage more spend and
they manage that spend at a deep
relationship management, supplier risk management, and deep spend analysis. The ability to
manage at this depth distinguishes top performers from average performers.
Gardner: As we know, Kay Ree, many people most trust their cohorts, people in other
companies doing the same function they are, for business acumen. So this information is great,
because we're learning from the people that are doing it in the ﬁeld and doing it well. What are
some of the other traits that you uncovered in your research?
Lee: Let me go back to the ﬁrst trait. The ﬁrst one that we saw that drove top performing
organizations was that top performers play a strategic role within the organization. They manage
more spend and they manage that spend at a deep level.
One of the stats that I will share is that top performers see a 36 percent higher spend under
management, compared to the average organization. And they do this by playing a strategic role
in the organization. They're not just processing transactions. They have a seat at the leadership
table. They're a part of the business in making decisions. They're part of the planning, budgeting,
and ﬁnancial process.
They also ensure that they're working collaboratively
with their stakeholders to ensure that procurement is
viewed as a trusted business adviser, not an
administrator or a gatekeeper. That’s really the ﬁrst
trait that we saw that distinguishes top performers.
The second one is that top performers have an
integrated platform for all procurement spend, and
they conduct regular stakeholder spend reviews -- resulting in higher sourcing savings.
And this is key. They conduct quarterly – or even more frequent -- meetings with the businesses
to review their spend. These reviews serve different purposes. They provide a forum for
discussing various sourcing opportunities.
Imagine going to the business unit to talk to them about their spend from the previous year.
"Here is who you have spent money with. What is your plan for the upcoming year? What spend
categories can we help you source? What's your priority for the upcoming year? Are there any
capital projects that we can help out with?"
It's understanding the business and requirements from stakeholders that helps procurement to
identify additional sourcing opportunities. Then, collaborating with the businesses and making
sure that procurement is being responsive and agile to the stakeholder requirements.
Procurement, has to be proactive in collaborating with stakeholders and ensuring that they’re
Top performers leverage
technology and provide self-
service to enable around-the-
being responsive and agile to their requirements. That's the second ﬁnding that we saw from the
The third one is that top performers manage procure-to-pay as an end-to-end process with a
single point of accountability, and this really drives higher purchase order (PO) and invoicing
efﬁciency. This one is quite straightforward. Our quantitative and qualitative research tells us that
having a single point of accountability drives a higher transactional efﬁciency.
Gardner: I can speak to that personally. In too many instances, I work with companies where
one hand doesn’t know what the other is doing, and there is ﬁnger pointing. Any kind of
exception management becomes bogged down, because there isn’t that point of accountability. I
think that’s super important.
Lee: We see that as well. Top performers operationalize savings after they have sourced spend
categories and captured negotiated savings. The question then becomes how do they
operationalize negotiated savings so that it becomes actual savings? The way top performers
approach it is that they manage compliance for those sourced categories by creating ﬁt-for-
purpose strategies for purchase. So, they drive more spend toward contract and electronic
catalogs through a guided buying experience.
You do that by having available to your stakeholders contracts and catalogs that would guide
them to the negotiated pricing, so that they don't have to enter pricing, which would then dilute
your savings. Top performers also look at working capital, and they look at it closely, with the
ability to analyze historical payment trends and then optimize payment instruments resulting in
Sometimes, working capital is not as important to procurement because it's left to the accounts
payable (AP) function, but top performers or top performing procurement organizations look at it
holistically; as another lever that they manage within the sourcing and procure-to-pay process.
So, it's another negotiation point when they are sourcing, to take advantage of opportunities to
standardize payment terms, take discounts when they need to, and also look at historical data and
really have a strategy, and variations of the strategy, for how we're going to pay strategic
suppliers. What’s the payment term for standard suppliers, when do we pay on terms versus
discounts, and then when do we pay on a P-Card? They look at working capital holistically as
part of their entire procurement process.
Gardner: It really shows where being agile and intelligent can have major beneﬁts in terms of
your ability to time and enforce delivery of goods and services -- and also get the best price in
the market. That’s very cool.
Lee: And having all of that information and having the ability to transact efﬁciently is key. Let’s
say you have all the information, but you can't transact efﬁciently. You're slow to make invoice
payments, as an example. Then, while you have a strategy and approach, you can’t even make a
change there (related to working capital). So, it's important to be able to do both, so that you
have the options and the ﬂexibility to be able to operationalize that strategy.
Top performers leverage technology and provide self-service to enable around-the-clock
business. This really helps organizations drive down cycle time for PO processing.
Within the oil and gas sector, for example, it's critical for organizations to get the items out to the
ﬁeld, because if they don't, they may jeopardize operations on a large scale. Offering the ability
to perform self-service and to enable that 24x7 gives organizations ﬂexibility and offers the users
the ability to maneuver themselves around the system quite easily. Systems nowadays are quite
user-friendly. Let the users do their work, trust them in doing their work, so that they can
purchase the items they need to, when they want to.
Gardner: Kay Ree, this really points out the importance of the user experience, and not just
your end-user customers, but your internal employee users and how younger folks, millennials in
particular, expect that self-service capability.
Lee: That’s right. Purchasing shouldn't be any different. We should follow the lead of other
industries and other mobile apps and allow users to do self-service. If you want to buy
something, you go out there, you pick the item, the pricing is out there, it’s negotiated pricing, so
you pick the item, and then let’s go.
Gardner: That’s enabling a lot of productivity.
That’s great. Okay, last one.
Lee: The last one is that top performers leverage
technology to automate PO and invoice processing
to increase administrative efﬁciency. What we see is
best-in-class organizations leverage technology with
various features and functionalities within the
technology itself to increase administrative
An example of this could be the ability to collaborate with suppliers on the requisitioning
process. Perhaps you're doing three bids and a buy, and during that process it's not picking up the
phone anymore. You list out your requirements for what you're trying to buy and you send it out
automatically to three suppliers, and then they provide responses back, you pick your responses
and then the system converts the requirements to a PO.
So that ﬂexibility by leveraging technology is key.
Gardner: Of course, we expect to get even more technology involved with business processes.
We hear things about the Internet of Things (IoT), more data, more measurement, more scientiﬁc
data analysis being applied to what may have been more gut instinct types of business decision
Top performers are able to
achieve about 7.8 percent in
savings per year as a percent of
source spend. That’s a key
monetary beneﬁt that most
organizations look to.
making, now it’s more empirical. So I think we should expect to see even more technology being
brought to bear on many of these processes in the next several years. So that’s kind of important
to see elevated to a top trait.
All right, what I really like about this, Kay Ree, is this information is not just from an academic
or maybe a theory or prediction, but this is what organizations are actually doing. Do we have
any way of demonstrating what you get in return? If these are best practices as the marketplace
deﬁnes them, what is the marketplace seeing when they adopt these principles? What do they get
for this innovation? Brass tacks, money, productivity and beneﬁts -- what are the real paybacks?
Lee: I'll share stats for top performers. Top performers are able to achieve about 7.8 percent in
savings per year as a percent of source spend. That’s a key monetary beneﬁt that most
organizations look to. It’s 7.8 percent in savings.
Gardner: And 7.8 percent to someone who's not familiar with what we're talking about might
not seem large, but this is a huge amount of money for many companies.
Lee: That's right. Per billion dollars, that’s $78 million.
They also manage more than 80 percent of their spend and they manage this spend to a greater
depth by having the right tools to do it -- processing transactions efﬁciently, managing contracts,
and managing compliance.And they have data that lets them run deeper spend analysis. That’s a
key business beneﬁt for organizations that are looking to transact over the network, looking to
leverage more technology.
Top performers also transact and collaborate
electronically with suppliers to achieve a 99 percent-
plus electronic PO rate. Best-in-class organizations
don't even attach a PDF to an email anymore. They
create a requisition, it gets approved, it becomes a
PO, and it is automatically sent to a supplier. No one
is involved in it. So the entire process becomes
Gardner: These traits promote that automation that then leads to better data, which allows for
better process. And so on. It really is a virtuous cycle that you can get into when you do this.
Lee: That’s right. One leads to another.
Gardner: Are there other ways that we're seeing paybacks?
They create a requisition, it gets
approved, it becomes a PO, and it
is automatically sent to a
supplier. No one is involved in it.
So the entire process becomes
Lee: The proof of the pudding is in the eating. I'll share a couple of examples from my
experience looking at data for speciﬁc companies. One organization utilizes the availability of
collaboration and sourcing tools to source transportation lanes, to obtain better-negotiated rates,
and drive higher sourcing savings.
A lot of organizations use collaboration and sourcing tools, but the reason why this is interesting
is because when you think about transportation, there are different ways to source transportation,
but doing it to an eSourcing tool and having the ability to generate a high percentage in savings
through collaboration and sourcing tools, that was an eye-opener for me. That’s an example of an
organization really using technology to its beneﬁt of going out and sourcing an uncommon spend
For another example, I have a customer that was really struggling to get control of their
operational costs related to transaction processing, while trying to manage and drive a high
degree of compliance. What they were struggling with is that their cost structure was high. They
wanted to keep the cost structure lower, but still drive a high degree of compliance.
When we looked at their benchmark data, it helped open the eyes of the customer to understand
how to drive improvements by directing transactions to catalogs and contracts where applicable,
driving suppliers to create invoice-based contracts in the Ariba Network and then they were
enabling more suppliers to invoice electronically. This then helped increase administrative
efﬁciency and reduced invoice errors, which were resulting in a lot of rework for the AP team.
So, these two examples, in addition to the quantitative beneﬁts, show the tremendous opportunity
organizations have to adopt and leverage some of these technologies.
Gardner: So, we're seeing more technology become available, more data and analytics become
available with the business networks are being built out in terms of size, breadth and depth, and
we've identiﬁed that the paybacks can lead to a
virtuous cycle of improvement.
Where do you see things going now that you've had
a chance to really dig into this data and see these
best practices in actual daily occurrence? What
would you see happening in the future? How can we
extrapolate from what we've learned in the market to
what we should expect to see in the market?
Lee: We're still only just scratching the surface with
insights. We have a roadmap of advanced insights that we're planning for our customers that will
allow us to further leverage the insights and intelligence embedded in our network to help our
customers increase efﬁciency in operations and effectiveness of sourcing.
We have a roadmap of advanced
insights that we're planning for
our customers that will allow us
to further leverage the insights
and intelligence embedded in our
Gardner: It sounds very exciting, and I think we can also consider bringing artiﬁcial intelligence
and machine learning capabilities into this as we use cloud computing. And so the information
and insights are then shared through a sophisticated infrastructure and services delivery
approach. Who knows where we might start seeing the ability to analyze these processes and add
all sorts of new value-added beneﬁts and transactional efﬁciency? It's going to be really exciting
in the next several years.
I'm afraid we'll have to leave it there. You've been listing to a sponsored Brieﬁngs Direct
discussion focusing on how technology, data analytics and digital business networks are
transforming procurement and source-to-pay processes as we know them. And we've heard how
new survey results from SAP show seven essential traits of excellence for modern procurement
and digital business innovation.
We’ve also seen from this data how these best practices have been proven in the ﬁeld on how
they can deliver some signiﬁcant beneﬁts and further elevate procurement and into a strategic
role within organizations.
So, please join me in thanking our guest for sharing this great information and insight. We've
been here with Kay Ree Lee, Director of Value Realization at SAP. Thank you so much.
Lee: Thanks, Dana.
Gardner: And a big thank you as well to our audience for joining this SAP Ariba-sponsored
business innovation thought leadership discussion. I'm Dana Gardner, Principal Analyst at
Interarbor Solutions, your host and moderator. Thanks again for listing, and do come back next
Listen to the podcast. Find it on iTunes. Get the mobile app. Download the
transcript. Sponsor: SAP Ariba
Transcript of a discussion on how technology, data analytics and digital business networks are
transforming procurement and source-to-pay processes as we know them. Copyright Interarbor
Solutions, LLC, 2005-2016. All rights reserved.
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