• Procurement Strategy
• Procurement Management
• Procurement Transformation
• Strategic Procurement & Category Management
• Operational Procurement
• E-Procurement

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Training and Enablement in Procurement Consulting

• Integration of global procurement departments
• Improved procurement results with reduced resource time

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Florian Dederichs

Founder & Partner

M.+49 160 93882573​

E.florian.dederichs@ocmconsulting.de

W.www.ocmconsulting.de​

E-Procurement: Procedure, Pitfalls, and Solutions

Everybody is talking about the future of procurement: digital procurement processes, procurement analytics, and Procurement 4.0. Find out here how you can improve the performance of your procurement department through faster information flow, the automation of work steps, and access to technologies. We discuss questions such as:

• When does e-procurement make sense and when does it not?
• E-procurement - what is the right approach?
• Agile or classic - which is the best approach for digitalising procurement?
• What are the common pitfalls? How should they be avoided and what are the solutions?

After answering these questions, we discuss typical challenges and potential solutions and provide an outlook on how you can contribute to the future success of your company through digital procurement.

When does e-procurement make sense and when does it not?

A company should first be aware of exactly what it wants to achieve through digitalisation and which areas will be affected. Many companies claim to have digitalised entire corporate divisions - but what does that mean in concrete terms?

Digital procurement can be narrowed down to 3 essential objectives:

• Data and information enhancement
• Work process or procurement process optimisation
• Support of management processes

In order to achieve added value through digitalisation, you should ask yourself what goal you are pursuing, which areas are specifically affected, and which areas will benefit.

In digitalisation, even with the vision of holistic digitalisation, it is advisable to think in terms of tangible initiatives, to evaluate each initiative in terms of its effort and benefit, and to ensure collaboration and integration towards a holistic goal.

Example based on a reference project with the objective: Building an interactive business intelligence dashboard for strategic procurement

The dashboard, which is automatically updated on a daily basis, provides analysis support for negotiations and the category strategy and thus reduces the analysis time per buyer by approx. 40%. Meaningful procurement analytics improved negotiation results by 3% on average. The monitoring of the maverick buying rate resulted in channeling an additional expenditure of 400k Euro through framework agreements with the preferred supplier at an average saving of 11%. An investment of 20k Euro leads to expected savings of 80k Euro.

Alongside the added value of each initiative, it is essential to take into account the necessary prerequisites and investment costs. Practice shows that many companies purchase software solutions without taking into account the mandatory requirements for data availability, training, and connection to the internal technology landscape or suppliers. Even within software systems, the range of solutions often exceeds what is required for each individual case. Systems are also often purchased with the aim of improving procurement process efficiency and adapted to the company's own processes – if software is adapted, you should have thoroughly checked beforehand whether the company's own processes are optimal.

In the following situations, you should refrain from digitalisation as a first step:

• No digital procurement without a real strategy and value-add testing for your company

• No digitalisation of inefficient procurement processes without optimising them first

• No digitalisation of procurement processes when data requirements cannot be met by the digital solution

• No digital procurement as long as it poses a risk to critical day-to-day operations

So when does digitalisation in procurement make sense? When a specific initiative is positive in its cost-benefit analysis, when all mandatory requirements for the functioning of the digital solution have been evaluated and fulfilled, and when the solution is suitable and feasible in terms of systems and processes.

E-procurement: what is the right approach?

Step 1: Analysis of the as-is situation

First, collect and identify pain points that exist in the area under consideration. Identify possible solutions and alternative actions. Evaluate the extent of the pain points and the effectiveness of the digital solution. Check prerequisites, dependencies, and other risk factors of a possible implementation. Is it an already available software solution or is in-house development possible and reasonable? What resources are necessary: programming, specialist resources, IT resources?

Develop a realisation strategy for testing and implementing the digitalisation opportunities and present it for a go/no-go decision.

Step 2: Realisation of the digitalisation initiative

Check and evaluate the realisation possibilities. Regardless of whether there are existing software solutions or whether you want to program your own - first define the objective and the path to a solution .

To do this, consider the business requirements and the optimal process, data availability, and other user requirements. Use-cases are a good way to do this, describing in concrete terms how the business benefits that are ultimately at stake will be achieved.

In the case of in-house development, work with the required resources on a blueprint of the solution then evaluate and plan the realisation phase in milestones with concrete dates and the functional statuses to be achieved.

In the case of external software, find out what is on offer and compare it with your requirements and objectives. Demos and supplier presentations are a good way to drive the selection process.

In both cases we recommend a pragmatic implementation via one or more Proofs of Concept (PoC). Here, both in-house programming and external solutions can demonstrate their degree of suitability for achieving objectives. This check should be as fast, cost-effective, and risk-free as possible and enable you to make the decision on whether to roll out.

Step 3: Roll out the procurement digitalisation initiative

Once the decision has been made to roll out the solution, the first step is to draw up an implementation plan. Risks, such as the impact on day-to-day business or rejection of the change by the employees involved, must be identified early on and counteracted. Targeted information, the motivation and involvement of the affected users, as well as a step-by-step approach, will help you with the roll-out. A well-functioning project management process should regularly report on difficulties and successes and, if necessary, provide steps for mitigation. Training based on user-related exercises that demonstrate the benefits for the user help with integration into everyday processes.

Agile or classic - which is the best approach for introducing e-procurement?

The answer is: it depends. Both project management methods have their advantages and disadvantages and their raison d'être.

The fundamental difference is that in classical project management it is assumed that a final state can be described and the production process up to that point can be planned in detail and evaluated in terms of effort and costs. Unforeseen events consequently require an adjustment to effort and costs or, to a certain extent, a complete readjustment.

The agile project methodology is an iterative-incremental approach, which aims to deliver a usable component of the overall solution after each work phase. In short work phases, the team pursues a product vision and tries to consider product wishes in a prioritised backlog. This flexible approach enables continuous re-prioritisation and fast, cost-efficient adaptation.

Bearing this difference in mind, it can be said that in the case of complex integrations, unknown technologies, or a high risk of unforeseeable events, an agile project methodology is to be favored. Their disadvantage is that they produce less predictable results and costs and have an increased communication and coordination effort.

Classic project methods are significantly more efficient and successful in this respect if the complexity is low and the risk of unforeseeable events is low.

In both cases, we recommend a proof of concept, which can demonstrate the most crucial elements of added value in a small and quickly accessible environment.

Are we on the right track?

Use the following check-up questions to determine whether your strategy for e-procurement or your current initiative is on the right track:

• A clear strategy with concrete plans has been formulated by examining all prerequisites and is anchored in the objectives of the initiatives
• There is a clear roadmap with firm test dates at which certain aspects of functionality are presented in terms of their practical added value
• Resources with appropriate experience and overall vision were involved in the design of the implementation plan
• The selected project method and control are suitable for the digitalisation project

We would be happy to support you through dialog or discussion to evaluate your procurement digitalisation strategy or specific digitalisation project.

What are the common practical pitfalls and what are the solutions?

In order to provide insight into some avoidable mistakes or to identify adverse situations at an early stage, we describe below some typical examples in which a procurement digitalisation initiative faced failure. The approach in each of these cases can be used to prevent such problems reoccurring, and, where necessary, find solutions.