Improving Procurement Efficiency - Building the Business Case for SRM (Part 2)
In this second installment of our series on developing the business case for supplier relationship management (SRM) capability investment, we are focusing on improving procurement efficiency, which can dramatically reduce non-value add (NVA) activities performed by procurement. Today, companies attempting to establish effective SRM face the difficult task of compiling data from a multitude of sources in order to create a static view of a supplier's performance, which can be both time-consuming and inefficient.
We spoke to a procurement exec at a major oil and gas company, who told us that it takes her business a week or more to manually compile a scorecard for a single strategic global supplier. Following a business review with one of these suppliers, the CPO asked for a scorecard refresh, but to do so within the week, the production of other work would be delayed, compromising delivery timelines.
And scorecard compilation isn’t the only example. At another large industrial company, auditors transcribe the results collected from supplier assessments into their legacy data repository. Unfortunately, the system doesn’t meet their own reporting requirements, so the data must then be exported for manual reporting and chart development in Excel.
SRM software eliminates many of these resource-draining manual tasks, promoting efficiency and enabling reallocation of scarce procurement resources. For those with a modern SRM platform, supplier reports and dashboards are just a click away. They can access supplier data — and a host of other capabilities — via smartphone or tablet through a mobile app, boosting efficiency and further enabling collaboration. This gives procurement more time to make strategic decisions and optimize supplier relationships.
Gauging the cost of inefficiency can best be accomplished with a DILO or “day in the life of” study, directly observing the performance of a given process. This must be done with some sensitivity and a clear explanation that the goal is to understand the activities, and not to evaluate an individual’s performance.
We implemented the DILO approach with the industrial organization referenced above, and the results showed the company was dedicating half of an FTE annually to transcribing and massaging supplier data. This single example of wasted effort was estimated to cost the company $80,000 per year.
This may seem like small potatoes, but uproot and quantify a few more NVA activities and the savings quickly add up, far exceeding the cost of investment in SRM that uncovered them.
In our next blog on enabling supplier innovation, we will discuss product and process enhancements that help to deliver additional business value.