In my last blog post (see here) I mentioned an essential prerequisite for procurement excellence: integration of sourcing and P2P. In this post I will elaborate on the way sourcing and P2P can collaborate to ensure successful contract implementation.
Procurement theory tends to give the impression that a sourcing project and contract implementation are sequential processes. In all fairness, I must confess that I’m also guilty of doing that. It indeed seems to make much sense: a sourcing project results in a signed contract with a supplier and subsequently this contract is implemented to make it available for the organization to order from. In practice this is the most common way of working, despite the fact that these steps should not be conducted sequential, but in parallel and closely integrated. The figure below demonstrates this.
The figure shows, from left to right, the main steps that must be taken from the start of a sourcing project until the moment that a procurement contract is available for the organization. It also displays the responsibilities of both category management and procurement operations (the function responsible for managing the P2P platform, consisting of processes, systems and supporting services). The used metaphor is a zipper, the pinnacle of optimal integration. Further closing the zipper results in an intensified collaboration of the disciplines, and with that to a more effective contract implementation.
The approach that I see most in practice though, is an almost complete separation of category management and procurement operations. A category buyer reports to procurement operations that there is a new contract, and that’s the end of it for him. Subsequentially it is procurement operation’s task to implement the contract. This might involve adding the products or services of this supplier to an electronic catalog. Next to that the proper procedure for ordering and invoicing needs to be aligned with the supplier. Many times this is a cumbersome process that could have been much easier if the category buyer and procurement operations would have been in close contact at an earlier stage. A few examples:
- From an efficiency perspective, we prefer to submit purchase orders in an electronic format and receive invoices digitally. The supplier proves to be unable to do this and – now that the contract has been signed – might be disinclined to invest in the required technology. This would have come to light earlier if it had been a mandatory requirement in the request for quotation. At that stage the supplier might have been more willing to make an investment, or perhaps another supplier would have come out the winner.
- The order and invoicing process are configured in such a way that most of the process runs fully automated. It is important that the commercial conditions that are negotiated between buyer and supplier are supported by the system. If this is not the case, manual intervention might be required for ordering and invoicing. This situation can be avoided by alignment between buyer and procurement operations prior to signing the contract.
- To facilitate ordering based on a contract, it is recommended to add products or services to an electronic catalog. In most cases, this requires input from the supplier. It is wise to make this part of the contract negotiations. In that phase, the potential supplier is most inclined to agree with procedures stipulating his contribution to content management.
These examples illuminate that procurement excellence will prove to be an illusion without integration of sourcing and P2P. Negotiating and closing contracts, and implementation of them should not be disparate, sequential activities, but deeply integrated processes. This requires an intense, warm relationship between sourcing and P2P. The only thing that is needed to achieve just that is closing the zipper a bit further.
(This article was published earlier on Lakran.com on September 30th, 2014)