If you gave Jan Pinger a magic wand, she knows what she'd do with it. A vice-president of global procurement at diversified industrial products manufacturer Teleflex, based in Troy, Michigan, Pinger is frustrated at the practical problems of identifying and bringing on board new suppliers - particularly, but not solely, those from low-cost countries.
What she'd like, she says, is a sourcing "hit team". "Ideally outsourced, because I wouldn't want the overhead within the business, they'd go into a category, search out the relevant data, conduct the analysis, do the sourcing event and then move on to the next category," Pinger explains. "Today, the data sources to do that just aren't in place."
It's a wish that neatly captures some of the - sometimes uneasy - relationship between the procurement function and the technology, and technology providers, that these days underpins how much of the job of purchasing is actually done. In a few short years, technology developed by a clutch of companies such as Ariba (itself only 10 years old) has transformed the procurement landscape. But technology's mission is far from complete: for all that these powerful new tools have delivered, CPOs aren't short of suggestions as to where further help would be welcome.
This "wish list" isn't without a certain irony. There's ample evidence that CPOs and their functions are failing to make best use of the software they already possess. "Many companies haven't realised the promise of what's available today: only a tiny fraction have electronic invoicing from suppliers, for example, or have compliance built into their accounts payable processes, enabling them to ensure that what they're paying for is what they contracted to buy," says Craig Federighi, co-founder and chief technology officer of Ariba.
Research from Capgemini Consulting published in September highlighted the limited extent to which a sample of European companies from six countries made use of the supplier relationship management (SRM) technology that they had bought and implemented at great expense. Only 7 per cent of purchasers, for instance, made active use of the reporting functions contained in their application, with 35 per cent never having used this function at all. Fewer than 50 per cent used it to track orders, typically preferring to abstract the information from the system and run ad hoc reports, with a fifth of users stating that they always tracked orders outside the SRM system.
And although purchasers routinely use spend information to prepare contracts, fewer than 40 per cent could access the information on their SRM application.
"SRM can be complex to deploy and integrate, and many businesses don't spend enough time identifying the business processes and procurement channels that will be affected by it," observes Mario van Vliet, global head of supply chain management consulting at Capgemini.
"They then find that they get stuck half-way through the process, without being able to realise the cost savings that they had predicted."
Yet retrenchment is not an option. Tempting as it might be to hold back on implementing new approaches and concentrate on consolidating existing (and paid for) technology, standing still isn't a viable strategy, says van Vliet.
"Companies can't risk being left behind: the competitive pressures are too severe," he warns. "They have to consolidate as well as move forward - and that's the challenge."
The relationship problem
But move forward where, and in what direction? One particular low-hanging fruit must be to improve the usability of procurement applications. "Online marketplaces have been popular, but haven't really cracked the relationship problem: people buy from other people," says Terry Wilcox, commercial director of UK-based vendor Proactis.
One of the great strengths of eBay, for example, is that it combines ease of use with practices that emphasise the human at each end of the transaction: feedback, location and one-to-one communications.
Within the procurement world, the benefit of a similar transformation in usability would be twofold. First, improved usability would help eliminate the poor feature uptake highlighted in surveys such as Capgemini's. "Typically, technology implementations are great right up until rollout, then adoption fails," observes Pravin Kumar, vice-president of products at Ketera Technologies, which has recently released an Amazon.com-like "consumer" interface to its own on-demand procurement suite.
"You don't get business results unless you get adoption, and you don't get adoption without ease of use," he says. "Employees don't want to go through eight or 10 screens just to raise a requisition."
Ease of use would also boost compliance with procurement policies and negotiated deals, adds Dian Trosclair, vice-president of strategic sourcing and supply chain management at household cleaning franchiser ServiceMaster, based in Memphis.
"The single biggest challenge we face today is getting employees to comply with our purchasing processes. If we don't get full adoption of the system, we leave huge savings on the table because we can't extract the full value from our negotiated supplier contracts, or get complete visibility into our spend," she says.
Before contracts can be written, though, decisions must be made on sourcing. And as Teleflex's Pinger suggests, better data to inform those sourcing decisions is another important need for technology to fill. The rush to automate the transactional aspects of procurement, goes the logic, has left something of a void in terms of the intelligence that underpins purchasing decisions in the first place.
"Companies still get over 90 per cent of their data about suppliers from suppliers themselves, and not pre-digested or validated by a third party," says Chris Sawchuk, global practice leader for procurement at business process benchmarking company the Hackett Group.
"It's difficult to know in detail about a supplier's performance unless you're actually dealing with them. If the information was available as a data source, many sourcing decisions would be much simpler."
As Sawchuk observes, various initiatives - both commercial and co-operative - are under way to address this. And conceptually, if buyers pooled their perspectives on suppliers in the same way that eBay users share "feedback", it's certainly true that a more rounded picture of suppliers would likely emerge: due date reliability, price competitiveness, quality, customer service and so on.
Uneven benefits
Yet for some CPOs, especially those sourcing outside the "mainstream", such indicators of business performance are only one aspect of a problem that reaches beyond pure sourcing into the transactional element of the buyer-seller relationship itself. Despite the enormous advances that technology has wrought in terms of transactional and pricing efficiencies, the benefits are unevenly spread.
"One of the biggest challenges in low-cost country sourcing is the enormous variability in the technical sophistication of the supplier base - their ability to handle systems like EDI and RosettaNet," says John Caltabiano, senior director in charge of contract manufacturer Solectron's
$3 billion a year of OEM and mechanical spend. "As customers we're trying to inject these complex systems into our suppliers, and they're not always up to it."
As Caltabiano sees it, sourcing evaluations are, of necessity, including a dimension that really shouldn't be part of the decision process at all: suppliers' IT expertise. "They might be very good at their core competency - injection moulding, assembly or whatever - but simply lack the deep bench of IT expertise that we take for granted in the West."
What's needed, he says, is access to a very simple interface - a web-based portal, for example - that is easy for suppliers in developing countries to use. "In terms of assumed technology capability, the bar needs to be low," Caltabiano stresses. "If a supplier only has a basic spreadsheet, word-processing and e-mail capability, then that needs to be the benchmark: anything more complex and technology becomes a barrier, rather than an enabler."
Nor do such arguments solely apply in the context of developing countries, emphasises Elizabeth Lucas, head of procurement at Caerphilly County Borough Council in Wales. In some parts of Britain, she notes, local government procurement has changed significantly over the past five or so years, driven by an agenda of regeneration and the emerging "mixed economy" dimension, where social enterprises and the voluntary sector play a more commercial role in partnership with government at all levels.
Yet procurement practice, she observes, hasn't always kept pace with these changes: wanting to source from local suppliers and those located in regeneration areas isn't the same as actually doing so. "From a supplier's perspective, doing business with local government isn't always a straightforward process, especially for smaller, less developed suppliers," says Lucas. "Bigger organisations find tendering and e-procurement easier to work with than smaller organisations do."
There's a need, she adds, for simple, easy-to-use portals, which "would give us more access to potential suppliers, and give suppliers more access to us".
But if bigger organisations find e-procurement easier from a supplier's perspective, there's ample evidence that, from a buyer's perspective, technology still has further to go to meet their needs. For example, Greg Tennyson, vice-president of global strategic procurement and travel at Oracle in Redwood Shores, California, is a strong advocate of "touchless procurement'" - purchase transactions being made without the direct involvement of the procurement function itself.
It's a goal towards which Oracle has made considerable strides, he says: the share of purchase orders made from catalogues (thus sidestepping buyers completely) is now 70 per cent, with the balance being handled by Oracle employees working in a shared service centre in Bangalore, India.
The benefit is twofold, says Tennyson. First, and most obviously, there's the reduced transaction cost. But second, by automating the transaction, the spend data can automatically be captured, informing future sourcing decisions.
"When you can reduce your procurement transaction cost to the point where it competes with a credit card transaction of $15-20, then you can generate a lot of data that you can mine: who's buying what, from which suppliers, and at what cost - plus, you're minimising Ôleakage' by maximising your on-contract buys," he notes.
Yet the real challenge of touchless procurement isn't necessarily the obvious one of capturing the remainder of the purchases not yet taking the wholly automated route. At 30 per cent or so of purchase transactions, there's clearly scope for reducing this, but probably never to zero. Inevitably, some transactions will prove too problematic or essentially be one-offs. Instead, the challenge lies in making touchless not the transaction aspect of procurement, but the sourcing part - the touchless establishment of the contracts against which purchases take place.
To some observers, such as Clive Heal, senior director of global procurement at Californian biotechnology pioneer Genentech, the answer lies in intelligent "software agents" that are aware of a company's requirement in a particular spend category and scour the internet for suppliers capable of meeting them, automatically negotiating and contracting.
It's a bold vision, but one that some CPOs regard as too great a leap from where things stand at present. Giles Breault, CPO of the pharmaceutical division of Novartis, the Swiss healthcare giant, for example, prefers to contemplate a future - at least in the medium term - where "touchless" might mean "outsourced".
"Having automated the purchase order process in a specific category," he says, "it seems a logical next step to regard outsourcing as the overall active management of the spend category."
Resource advantage
As such, he stresses, outsourcing isn't about reducing headcount. Instead, it's about freeing up funds and resources for the organisation to deploy for its best advantage: fuelling growth through R&D or venturing into new markets, rather than simply processing purchase orders.
"I think CPOs need to be managers of relationships, making sure suppliers provide the right service, but not necessarily be involved in the detail of transacting purchase orders with those suppliers," he says.
But as with intelligent agents, what CPOs want isn't yet what vendors are providing, and may not be for some considerable time. Would-be outsourcers, for example, are still concentrating on bidding for the transactional part of companies' procurement needs rather than the strategic sourcing parts, notes Breault.
While Heal, for one, sees merit in CPOs collaboratively articulating their requirements - "pushing for what we want from the IT industry, rather than waiting as we did with e-auctions for somebody to come to us with a technology," as he puts it - there are, so far, few signs of CPOs banding together to do this.
And it's anyone's guess, of course, as to whether software providers, long accustomed to selling what they've dreamt up, rather than what users necessarily need, would find this comfortable. For all vendors' talk of "technology road maps", it's still far from clear that CPOs and technology providers are even looking at the same road atlas, never mind the same page.
Case study: Tarmac
A long road to travel
Aggregates manufacturer Tarmac, part of London-headquartered Anglo American, one of the world's largest mining and natural resource companies, employs over 12,000 people in more than 500 manufacturing sites across Europe. A strategic sourcing initiative, based around spend analysis and detailed supplier information from supplier information provider OneSource, has started to rationalise the company's 17,000-strong supply base.
The successful project highlighted an issue that Tarmac supply chain director Adrian Cook, with a £1.5 billion spend to manage, regards as an untapped technology opportunity. The task assigned to the cross-functional commodity groups that he's put together to evaluate sourcing options is clear: share insights, market intelligence and supplier performance data, and collectively reach a consensus about which suppliers to use, how to manage them, and how to measure them.
But in an organisation as geographically spread out as Tarmac, he points out, it's surprisingly difficult for diverse cross-functional teams to work together. "Outside a narrow transactional process, driven by workflow rules, getting people to communicate effectively can be very challenging," he says.
Existing tools don't hack it. "Present collaboration technology is all about exchanging documents, and collaborative sourcing calls for more than that," says Cook. "Web-based 'meeting rooms' are a start, but aren't compelling enough for people to actually want to use them. It's really all about bringing people together, overlaid with project management, decision-making and information sharing. So far I haven't seen a tool that even comes close."
Malcolm Wheatley (malcolm_wheatley@compuserve.com) is a freelance business and technology journalist who writes for a range of leading UK and US publications
