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P2P – From Contracted Savings to Hard Cash

Procurement-in-the-lead-of-P2P

It’s about 15 years ago that e-Procurement hit the ground running. Exactly at that moment two disparate trends came together nicely. The procurement function was in the midst of a movement towards professionalism and internet technology enabled the support of the operational procurement process in a different, more advanced way. The latter related especially to indirect procurement, since the process for ordering direct materials and services had been improved significantly earlier, due to the introduction of ERP-systems, and within that MRP, in the 80s and 90s.

I remember my first encounter with e-Procurement very vividly. It was during an off-site meeting with colleagues and a few customers, on a Saturday morning in a distant location. As a former buyer I was impressed by the concept, because it contained several elements that did not even exist shortly before: it was based on the use of a web browser, content was being offered through an electronic catalogue and the process was guided by a system-supported workflow. The Powerpoint presentation left a smashing impression, the reality turned out to be a bit more unyielding. Technically the concept was still in its infancy. It took quite some effort to get it working and proved to have a considerable impact on the way of working. Although procurement was firm on its way towards professionalism, some elements that proved to be indispensable for successful P2P transformations, were less obvious at that time. Nonetheless the concept received a warm welcome in many organizations. Since those days, we have learned a lot from experience, and the shared efforts of many have resulted in robust, complete solutions, including best practices for the implementation and maintenance of this type of platforms.

Yet it remains a challenge to optimize P2P. Much has been said and written about the reasons: many stakeholders, conflicting interests, the process is a side issue for most of the people involved, etc. Until now, the trigger for P2P optimization often originated from the financial function: a need for more control over expenditures and simplifying invoice processing, which is often perceived as a cumbersome, inefficient process. These are very legitimate reasons for such an initiative, but an important prerequisite for success is close involvement of procurement. Exactly this was lacking big time in many cases, but times seem to be changing for the better.

Roughly speaking the procurement function can be divided into two areas: sourcing and P2P. The two should go together like a horse and carriage, but in reality the relationship is often less strong. Procurement professionals have a strong tendency to associate themselves with sourcing. Their targets are more often than not completely or for a large part based on the realization of savings. Many times, the final result of their efforts is a signed contract. After that the focus shifts to the next sourcing project. Very understandable, especially if the target has been phrased in terms of contracted savings. To my mind, with such an approach you run the risk to miss the essence: actual realized savings. To achieve this, the final result should be an implemented contract, rather than a signed contract. To be more specific, a contract that has been made available for the organization, enabling employees to identify it and place purchase orders based on it.

The good news is that this is acknowledged by an increasing number of procurement professionals. P2P is not something outside the realm of procurement. On the contrary, it is an essential prerequisite for procurement excellence. It’s an enabler. The responsibility of a buyer does not end with the filing of a signed contract, but with the implementation of that contract, to turn paper savings into hard cash. In my next blog post I will elaborate on how sourcing and P2P can collaborate in contract implementation.

 

Martin Putters

(This article was published earlier on Lakran.com on September 30th, 2014)