The Quest for Purchasing Fire
The Quest for Purchasing Fire:
Develop the Internal Strategies for Selling the Procurement Tools Internally
In today's globalized economy, business-as-usual is no longer good enough to ensure continuous, fast-paced, or steady growth. In fact, with rampant inflation, dwindling supply, and increasing competition becoming the norm regardless of the industry or geography a company is located in, it's no longer good enough to even ensure that a business can maintain the status quo! That's why an organization needs leading e-Sourcing and e-Procurement solutions and why you, dear reader, recognize the urgent need. But how to best convey that need to senior management?
The goal of this wiki is to give the reader a starting point on her quest to implement best-practice eSourcing and eProcurment processes and solutions in her organization and join the best-in-class companies that are saving an average of 10% to 12% on their managed external spend, 70% to 90% on their invoice processing, and 50% to 66% on their average sourcing cycle time. It is the authors' goal that the reader finds it useful and that, after the successful sale and implementation of an eSourcing or eProcurement project, the reader returns to share her insight by adding to the wiki.
The Twelve Steps
Unless an individual is one of the chosen few lucky enough to belong to an organization where the CEO or CFO has seen the light and mandated eSourcing or eProcurement, chances are the individual has a tough sell ahead of her. In most organizations, there are a large number of voices asking for a chunk of an ever-dwindling budget, and an executive team looking for any excuse to say no to any request for dollars. It can be hard to be heard above the din.
This section is designed to guide a professional down the path she needs to follow to get noticed, sell the solution, and get the go-ahead. It's not an easy road, and there will be many hazards to avoid along the way, but with patience and suitable precautions, one can complete the journey.
Define The Value Proposition
The first step is to clearly define and understand the value proposition, inside and out. This will require a lot of research on current processes and solutions and the state of the organization's current processes and solutions in order to qualify and quantify the expected benefits and the amount of work that will be required to get there.
The benefits of eSourcing and eProcurement often include, among others:
- Lower Costs and Higher Value
- Supply Security
- Improved Risk Control
- Buying Leverage
- Quality Improvements
- Process Efficiency
- Continuous Improvement
However, the major benefits to the organization, as well as the quantifiable value to the bottom line, will depend upon the current state of affairs, the solution(s) under consideration, and the manpower available to implement the project.
Start by understanding the organization's spend. How much? On what? To which suppliers?
Then move on to understanding the sourcing and contracting process. What is it? How long does it normally take? Where are the bottlenecks?
Look at the procurement cycle. What's involved? How long does an order typically take? What's the on-time delivery percentage? What are the quality metrics?
Conclude by looking at the payment cycle. How long does it take to process an invoice? Is three-way match being used? What percentage of invoices are not in compliance with quantities received or contracted rates?
At this point one should have a good understanding of where the opportunities for improvement are, the advances that could be made, and the quantifiable benefits the organization could receive. Then one can move on to the next step.
In order to sell a business plan to upper management, one will need lots of credentials, not only on paper, but in real-world experience. If no one on the team has successfully implemented a similar project before, it will be important to line up a top consultant, or two, for the project. It will also be important to propose a vendor with some name recognition and a lot of industry successes. Most importantly, whomever is chosen as the project sponsor or champion will need to be someone who carriers a lot of weight with, and preferably on, the senior management team.
Perfect the Elevator Pitch
It's hard to predict when someone on the team is going to get a short, impromptu chance to pitch the project to a senior executive or stakeholder who garners a lot of respect from the management team. It's important to nail down a kick-ass elevator pitch early and that everyone on the core team be prepared to pitch it at any time - in the elevator, in the lunch room, and standing in line at the theatre if that's where a key decision maker asks about how work is going.
Identify the Stakeholders
Identify all of the affected parties before building the business case - not after. The stakeholders are the indidivuals who ultimately determine the success of the project - not the implementation team, the vendor, or even management. One can implement the best solution possible, but if everyone refuses to use it, it will all be for naught.
It will be critical that the team identifies all of their needs and addresses them at a high level in the business case and in detail in the part of the project plan that affects them. Otherwise, there could be severe push-back.
Identify the Big NO!(s)
After the individuals whose blessing is needed for project approval and the key stakeholders whose lack of cooperation could bring the project to a grinding halt, it is critical to determine what their pain points are, what their sticking points are, and, most importantly, what could cause them to say "No".
If the CFO will not pay more than 500K for any piece of software, regardless of what it is, it's important to know that up front and find a vendor who can meet that target. If the CIO refuses to work with any software that doesn't work on the current XP - Oracle platform, then the team will need to find a solution that runs on this platform or go with an On-Demand solution. If the head of accounts payable really wants three-way matching, then, considering it's a good idea anyway, make sure that point is addressed.
Find the Big NO!s by starting with a critical issues analysis. Note all of the possible objectors and their objections and come up with a plan to address the issues. Then evaluate past behavior of the management team in their consideration of similar projects. Do they have any known "hot button" issues that will need to be avoided? Finally, casually ask key players about what their concerns about such a project might be before even indicating that there is intent to make a formal request or present a formal business case. Consider referencing a recent article or case study as a foundation for this casual conversation. After all, a proposal is sold on value and value is in the eye of the beholder.
Build the Business Case
Once the value proposition is well understood, the credential issue conquered, the stakeholders identified, and plans to address the Big NO!s devised, it's time to start building the business case. This step results in a formal project proposal document that is delivered to each decision maker before the big presentation. The content, and a possible layout, will be discussed in the next section.
Call for Backup
Hopefully the team identified who its supporters and friends are when it was identifying the key stakeholders and (casually) gathering their input regarding the project, or a project similar to the one that is being proposed. Now it's time to update them on the formal plan and gather their support before the big presentation. Chances are management will not only want to hear from one or two sponsors, but will even seek out and consult with affected stakeholders before making a decision. Those stakeholders who support the project should be primed and ready to discuss the benefits of such a project, how it will help them, and how it will help the company - and make the management team look good.
Sell the Solution
Now that the business case is prepared and the stakeholders are primed, it's time for the big presentation. This could be the team's one and only chance to sell the project, so it's critical to do it right. This will require being well prepared for any question that might arise and the time constraints that will be levied.
The presentation must be succinct, attention grabbing, and informative. Use the following tips to improve the presentation:
- Use to-the-point headlines and communicate early and often about the opportunity.
- When it comes to content, less is more. Unless Pierre Mitchell is on the team, there is a snowball's chance in hell that ten concepts crammed on a single slide will pass muster.
- Focus on success factors and outline what has to happen and how.
- Focus on the team's strength.
- Ask important questions that only the project will be able to
Try to choose questions that the decision makers will want to answer yes to.
- Sell not only the expected returns, but a vision of how great things will be.
- Sell the discipline and the team as a contributor to the culture of the business.
- Outline the positive impact on regulatory issues such as SarBox, the USA Patriot Act, on Basel II, for example.
- Make it personal for the decision makers.
With regards to the last point, be sure to let the CFO know that constant price increases for raw materials is boosting the organizational handicap. Let the CMO know that supply risks could not only decrease the value of the organization and its products, but negatively affect the social status of the organization if a disruption occurs. Let the CEO know that supply issues are constantly boosting the cost of luxury. For more information, please refer to Tim Minahan's great post on Supply Management to the C-Suite: Make it Personal on Supply Excellence.
For an example of some good questions to ask that can generally only be answered adequately if the organization has a good eSourcing and / or eProcurement solution, one can start with the question list in CIPS' CEO Checklist found in their Selling the Benefits of Purchasing article.
- How much is being spent externally?
- How mush is spent per category and with which supplier?
- What is the total cost of each purchase made?
- How much value are the current suppliers providing?
- Who are the key organizational suppliers?
- Does the organization have pro-active relationships with key suppliers?
- What are the risks in the organization's purchases? Are they managed?
- What should be outsourced ... and what shouldn't be?
- Are services outsourced successfully?
- Are suppliers of outsourced services managed successfully?
- What are the purchasing strategies? Are they aligned to the business?
- Is the purchasing team appropriately skilled? Do they have the proper tools?
- What portion of external spend is under management?
- Why is the remaining spend not under management?
- How should the purchasing staff be supported?
Start the Project
Now the real work begins ... and all aspects of the project have to be managed, without anyone on the team micromanaging the project. Remember, it's about the projected cost savings and avoidance, profit, productivity, and overall user satisfaction - not any one team member.
Temper urges to move too quickly. A steady and methodical approach will yield less hiccups to be cured and lead to the best results in the long run. The ultimate success of the project will depend on the ability of the team to correctly address the organizational context, implement the chosen solutions properly, and convince all affected parties to buy in sooner rather than later. This will take some time, and rushing things will not help anyone.
It's important to remember that it's not over until it's over and that the team is going to need the support of its sponsors every step of the way. Make sure to communicate project status regularly with all stakeholders, to sit down with them and get their feedback about what's going well and what isn't, and constantly be visible to all affect parties. The team will need the support of its sponsors and friends now more than ever.
Sell, Sell, Sell
Just because management approved the project and the budget does not mean that they can't change their mind three months in and kill it. If the project requires a considerable amount of work, as many first-time eSourcing and eProcurement initiatives will, it could be a while before the organization starts to realize (significant) ROI. During this time it is crucial that the team constantly sells the project to make sure it reaches the breakeven point, since it is only then that the organization will start to see the significant returns promised.
It's especially important to actively and regularly communicate any quick wins to keep support high and the project a priority. The enlightened realize that once an end-to-end eSourcing or eProcurment solution is properly implemented and regularly used, savings and cost avoidance will just happen naturally with little or no effort, but all the unenlightened see is the seemingly unconquerable mountain of effort required to get there, since considerable process re-engineering and streamlining will likely be required and most people irrationally fear change, even if clearly for the better.
Consider starting a regular newsletter that highlights overall and individual success. Regularly educate extended groups on the new processes and technology. Push to get award systems in place and recognize all outstanding contributors to the initiative.
Cure the Hiccups
Nothing ever goes perfectly, and it's important to be ready when little things go wrong. That's why a watchful eye has to be maintained and why the team members need to be prepared to step in quickly and get them resolved as soon as they surface - to make sure a hiccup doesn't grow into a stumbling block. Make sure there is a slush fund built up to account for these hiccups and extra (consulting) work that may be required. (It should be equal to twenty to twenty-five percent of the estimated project cost.)
The Business Case
Don't underestimate the importance of the business case. As per The Basics of Business Plans: Sell, Sell, Sell in Inc.com, an AT&T study found that the 42% who had written business plans were more successful than the 58% who did not. Not only does it sell the project, but it helps to guarantee success.
The BuyIT Network has a good starting template that one can use in their Building the Business Case for e-Procurement ROI white paper. The sections proposed by the author are the following.
This section should overview the opportunity, outline the decision that needs to be made, discuss the ramification, and outline the team's credentials and references. It should not be longer than two pages and should grab their attention in the first paragraph. Don't be afraid to use creative writing and sell the future.
Make the initiative part of a larger organizational initiative or element in a business wide process re-engineering program. Include any relevant information required to put the business case into context with respect to the initiatives and the company's financial plans.
If necessary, be sure to dispel any and all eSourcing myths that may be harbored by the organization. Tim Minahan summarized seven common myths of eSourcing in his post Why e-Sourcing is Good for Suppliers: Part I. The myths are:
- eSourcing is all about lower prices
- eSourcing is unfair to suppliers
- eSourcing is unfair to incumbants
- eSourcing makes it difficult to win new business
- eSourcing lengthens the sales cycle
- eSourcing burdens suppliers with new cost, technology, and resource requirements
- eSourcing eliminates buyer-supplier relationships
Describe how the proposal relates to the overall business strategy and appeal to any appropriate business models already in use within the organization. Although it is important to stay focussed throughout the business plan, it is critically so in this section. Make sure to focus on the recent past and immediate future. Now is much more relevant than the more distant past or future.
Include a comprehensive analysis of the sourcing and procurement marketplace, such as size, growth rates, and key trends, and include a hard-nosed comparison of the alternatives and competition to the proposed vendor. Also explain how partners and suppliers can add value to the organization.
This is the core of the business case. What is being asked for and why? Include a detailed description of the solution being offered by the preferred service provider(s) and include their best quotation(s). Make sure to take into account available skills, cover change management, and overview the new process that are being proposed as well as the new technology. The project should be divided into manageable phases, and the main objectives and deliverables of each phase clearly defined.
Make sure the chosen technology addresses, at a bare minimum:
- any lack of data integrity in organizational systems
- current lack of system integration
- typical slow rate of system adoption
- necessary training
Discuss the key drivers behind the business case and what the expected impact will be, not only on the supply chain function but other areas of the business. Be sure to discuss visibility, flexibility, scalability, and other core drivers essential to giving the organization a competitive edge.
Summarize Internal Rate of Return, Net Present Value, and undiscounted payback period calculations as well as an assessment of the proposal on Profit and Loss Account, monthly cash flow, and Return on Capital Employed. Be sure that the financial analysis includes the effect of the investment in eProcurement in isolation, the effect of spending the funds on the company overall, and the effect of doing nothing.
Also include a discussion of any legal or taxation implications. Include other relevant measures and key ratio analysis along with detailed Discounted Cash Flow calculations and other accounting controls expected by the Finance Department.
Risks and Sensitivities
Be sure to address any technology risks and business risks and include comments on such risks as well as the possible influence of both internal and external factors on project performance, delivery, or both in the short and long term.
Also include a short review of the risks the project is addressing to assist in the provision of a balanced presentation of the pros and cons of the project.
The effect of any alternatives should be outlined, as well as the 'do nothing' scenario. Discussion of the 'do-nothing' scenario is important because although there may be no up-front monetary outlay to 'do-nothing', there could be a considerable cost associated with doing nothing that results from lost savings and cost avoidance opportunities.
This should overview what will need to be done to realize the benefits of the proposal and include high-level milestone timeline and the resources that will be required on the implementation team.
Be sure to highlight the key success drivers. These might include:
- accessibility of data/information
- spend visibility
- customer focus
- globalization of processes and tools
- leverage of size & volume
- internal connectivity across business units;
external connectivity among supply network entities
Finally, the recommendation should clearly confirm the requirements, detail the funding required, what the timeline is, and the next steps that need to be taken. Conclude with a call for action.
Before forwarding the proposal to the management team, or finalizing the presentation, it is important to do a reality check and make sure all the basis are covered. The CIPS white paper Selling the Benefits of Purchasing has a good checklist of questions that should be asked, and answered, before continuing on.
- Does the plan convey understanding of the corporate strategy/plans/priorities?
- Does the team understand and address each stakeholder's key drivers and measures of success?
- What is going well and what are the major challenges to improving what is not?
- What are the particular problems and opportunities for management?
- Who, and what, are the powerful influencers on business success?
- What are the (business) interests of key influencers in the organization?
- How does the plan contribute to hot issues and major challenges?
- Does the plan communicate the message in the best way possible?
What gets the attention of each relevant decision maker?
- Does the plan demonstrate the team's credibility?
- How does one take priority in a busy agenda?
- Are critical issues such as globalization and supply chain connectivity addressed?
Be sure to be adequately prepared for the transition challenges that are sure to arise. These will likely include one or more of the following.
- a lack of robust processes
- limited resources allocated to process improvements
- inadequate metrics
- lack of internal & external system integration
- affordability of technology
- limited ability to influence employee & supplier participation
- time pressure
The CAPS research report Developing and Implementing E-Sourcing Strategy has a great list of suggestions for easing the buy-in process. The recommendations include:
- Demonstrate the benefits and make sure the audience understands
- Identify & align with early adopters/passionate owners
- Designate a champion
- Incorporate the client-use perspective
- Use metrics
- Have an executive, preferably the CEO, mandate the change and visibly support the change process
- Train super users and key users and have them help out
- Communicate what matters to the users
- Develop "just in time" training plans/packages for when users need them
- Identify opportunities for quick/impressive wins and implement them first
- Demonstrate ease of use early and often
- If possible, make the system the only mechanism available
Five Musts for Justifying IT Budgets Purchasing, March 2007
Selling the Afterlife of Spend Management Technology Spend Matters, March 2007
The Perfect Pitch A VC in Vacationland, March 2007
Selling the Value of Procurement to the Business Spend Matters, February 2007
Selling Technology to Management BizTech, 2006
Why e-Sourcing is Good for Suppliers: Part I ELP Blog, October 2006
Supply Management to the C-Suite: Make it Personal Supply Excellence, September 2006
Business Plans: Selling Your Story American Venture Magazine, 2005
Strategic Business Plan Development Selling Communications, 2004
Developing and Implementing E-Sourcing Strategy CAPS Research, September 2004
The Business Plan: Selling the Entrepreneurial Idea Marken Communications, 2003
Building the Business Case for e-Procurement ROI BuyIT, October 2002
Selling Value in a Proposal Summit Connects, 2001
The Basics of Business Plans: Sell, Sell, Sell Inc.com, 2000
Michael Lamoureux, PhD of Sourcing Innovation
David Bush, Pro To Know