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August 28, 2015

Measuring Effectiveness of Procurement Solutions and Processes

"If you can't measure it, you can't manage it."
                                                                      - Peter Drucker

It takes lot of time and effort in implementing procurement solutions.But after doing all the hard work, how often we check if we are getting the bang for the buck invested in implementing all this. Often there is lack of clarity on measuring criteria for such solutions. Here is a proposed framework of metrics that can be used to measure effectiveness of procurement solutions.

Broadly speaking there are four categories for e-procurement solutions

1. Analysis and planning
2. Strategic Sourcing and ontracting
3. Requisition to Pay
4. Supplier life cycle management

Analysis and planning - This is where you carry out purchasing volumes and supplier analysis. Savings opportunities can be identified and a Sourcing strategy is created here.

Strategic Sourcing and Contracting - At this stage negotiation process happens based on defined sourcing strategy. Finally a contract is created for the negotiated price and terms.

Requisition to Pay - This is where rubber meets the road and negotiated price and contract terms are put into usage through day to day requisitioning and ordering process.

Supplier Life cycle management - This essentially touches all the above three processes. SLC is now a mature solution area encompassing entire spectrum of supplier lifecycle from on-boarding to phase out. It deals with monitoring various dimensions like performance, risk, sustainability etc. Suppliers are also put through development process in case performance is not as per target level.

In order to devise an approach to measure effectiveness for these different areas, we need to focus on two unique characteristics of these processes - Transaction volume and Strategic team involvement.

For high Strategic team involvement, focus should be on dollar savings, whereas for high transaction volume, focus should be on improving process efficiency.
















Based on above approach, following KPI framework can be used to measure the effectiveness of implemented solution.














Analysis and Planning:
Savings opportunity identification - % value of Savings opportunities identified out of total spend
Budgeted vs Actual Spend variance - % difference of budgeted spend and actual spend

Strategic Sourcing and Contracting:
Negotiation Performance - % Price reductions
Contract Performance - % Value from negotiated clauses like Payment terms, price escalation etc.

Requisition to Pay:
Touch less order rate - Percentage of Requisitions/orders created without intervention from purchasers
Contract compliance - Percentage of orders created with contract reference
Cycle time for PO - Average lead time for sending out PO to suppliers

Supplier Lifecycle Management:
Supplier Onboarding cycle time- Average lead time to onboard new supplier
Supplier base efficiency - % of suppliers covering 80% of spend (pareto principle)
Supplier Improvement - % of suppliers above benchmark performance

It might be initially challenging to measure these KPIs, however the vital part is getting started. Once started, these can be further refined to reflect the actual effectiveness of processes and solutions.







January 16, 2015

Why incorporating sustainability in purchasing is investing in "green equity"

Is sustainable purchasing all about meeting regulations and compliance or does it has any larger objectives as well? To put it simply, is it all about obligations or about genuine social responsibility, which encompasses care about environment and the people.
The answer to this question determines the long term rewards and returns for pursuing sustainability practices. Depending upon the viewpoint, companies adopt their approach to sustainability. A short sighted approach means it becomes only a cost controlling tool. It is looked upon as a mere overhead to meet regulations, rather than an enabler for securing future markets. However, companies which see this beyond meeting regulations are taking a more strategic view of sustainability and developing integrated plans to invest in this process.

Yes, it does cost more to incorporate a greener product or substitute in the supply chain, but it gets rewarded in long term through increased customer loyalty, reduced risk and overall increase in profitability. As per recent surveys, more and more consumers prefer products that are more environment friendly and reduce carbon footprint. In the new age, being viewed as a socially and environmentally responsible company is pivotal for market success.

Purchasing is a critical function influencing implementation of sustainability practices. The primary job of purchasing still remains to minimize cost, but it needs to optimize it with respect to impact on environment. This would entail devising a purchasing strategy to look for alternate suppliers, product substitutes and maintaining a track record of suppliers in sustainability performance.

When it comes to devising a purchasing strategy around sustainability, size does matter. It would really depend upon the size of the company and the type of product business. However a common approach would be to start slow instead of a big bang approach. Otherwise it risks becoming too lofty a vision to be realized. Aim for realistic improvement by identifying non-critical inputs like packaging materials, MRO items etc. as potential candidates for 'quick wins' . Develop new breed of 'green' suppliers by actively promoting and engaging them. This would entail a new supplier onboarding strategy driven by a strategic policy of encouraging 'green' suppliers. Monitor supplier performance by measuring KPI's related to sustainability. Build external intelligence network to capture indicators of various regions to identify risks proactively.

To support these changing purchasing processes, a solid supplier management tool is a must, which would help not only in managing the basic and operational metrics but also cover the strategic metrics concerning the sustainability parameters. It needs to track the performance of suppliers and help purchasers with informed decision on when to phase out and develop new suppliers.

For SAP customers, the recent SAP SLC product from SAP fits the bill by offering a comprehensive supplier management functionality. It features a dedicated scorecard functionality to create sustainability scorecards and ratings. Being integrated into SAP ECC and SRM environment, it provides easy adoption to operational procurement processes.

Overall a successful purchasing strategy incorporating sustainability practices would need commitment from top. Driven by a strategic plan combined with investment in right tools would reap dividends in long run.

August 5, 2013

Making services procurement yield savings through SAP SRM 7.0

Share of Services spend as percentage of total procurement spend has been growing steadily over the years and is expected to grow further. However many organizations are still  facing challenges when it comes to managing services procurement.

Major pain points related to services procurement:

Typically services spend account for roughly around twenty (20) percent of the total purchasing volume, however procurement organizations do not have as much negotiation power over services spend as they have for material buying. Most of the purchasing organizations still struggle when buying services. The typical problems involve lack of transparency, maverick buying and poor supplier collaboration in services spend.

Though the services spend constitute a sizable chunk and offers good opportunity for easy saving, managing services is not on the radar of most of the purchasing organizations. The problem is compounded by lack of visibility and creation of silos in various functions leading to cost leakages across entire processes.

How can SAP SRM help in managing services spend:

SAP SRM 7.0 provides following features to manage services:
• Strategic Sourcing of services through SRM bidding engine
• Supplier collaboration for service entry and invoice creation
• Support for multilevel hierarchical services allowing easy management of complex  services.

As SRM is tightly integrated with ERP (SAP ECC) system, it provides a seamless flow of business processes in services procurement scenario till the final payment to supplier.

Service specifications for complex work can be maintained in a tiered hierarchical structure in ERP system. This helps in easy ordering and data maintenance. Whenever a services requisition is created within ERP system, the requisition can be sent to SRM system for sourcing based on certain criteria.

After successful sourcing, requisition can be converted into Purchase Order and sent to supplier portal for supplier collaboration processes. Supplier users can create service entry and send to ERP system for acceptance by Requester. Upon acceptance, supplier can create invoice and send it to ERP system for payment processing. Depending upon configuration payment status check can be enabled for supplier through supplier portal.

The major benefits of this solution are:
• Reduced costs and cycle times through collaborative services procurement.
• Improved transparency and visibility across end to end processes
• Automation of service entry and invoicing process by bringing supplier in loop
• Easier tracking of services performed and available Purchase value
• Increased compliance to competitive pricing due to state-of-art bidding features of  SAP SRM
• User friendly UI of SAP SRM leading to easy adoption of system

The limitation with this solution is its restriction to SRM classic scenario implementation. However customers can adopt the solution in extended classic scenario through a small custom development.

Overall this solution offers good value proposition for customers who are having SRM 7.0 implemented and have considerable services spend to leverage cost savings.

December 18, 2012

Is RDS the answer for all SAP solution implementations?

Consumerization of business systems has been the latest trend that has impacted the next wave of technologies. SAP has been a trendsetter in this area by focusing on new trends like mobility and new UI technologies. This consumerization trend has also impacted on how businesses are looking at getting ROI from new solutions. In the new era, businesses are looking for faster time to value from their systems. The traditional waterfall methodology of implementing SAP solutions are being seen as roadblocks in terms of rapid adoption of solutions and deriving faster business benefits. Typically timelines for regular ASAP implementations run into months to sometimes several years. This means there is a huge investment on organization resources in terms of finance and human capital. Hence there has been a demand to disrupt the traditional methodology and bring forward an agile approach for implementing SAP solutions.
To meet this growing trend, SAP is offering a number of its applications as a package of preconfigured solution along with implementation services called RDS (Rapid deployment solution).

Continue reading " Is RDS the answer for all SAP solution implementations? " »

April 23, 2012

SAP Supplier Lifecycle Management: Filling a long pending gap in SAP SRM business suite - Part2

In part-1 of this blog post, I had given an overview of functionalities in SAP Supplier Lifecycle Management.
In Part-2 of this blog, I am going to write briefly about architecture and various deployment options, that comes with SAP SLM version 1.0.
At a high level architecture, SAP SLM is based on SAP NW 702 platform. It is basically composed of two components - Buy Side and Sell side. Buy Side is the component, which is accessed within buying company by purchasers, category managers and other internal stakeholders. Buy side is located within the firewall of company and is available on intranet.
Sell side is accessed by suppliers for various external processes and is located outside the firewall of the company. Sell side is available on open internet for registered and potential suppliers.

Continue reading " SAP Supplier Lifecycle Management: Filling a long pending gap in SAP SRM business suite - Part2 " »

April 16, 2012

SAP Supplier Lifecycle Management: Filling a long pending gap in SAP SRM business suite - Part 1

With the launch of SAP Supplier life cycle management, SAP has addressed a long pending business need for a full-fledged supplier management application. This has been on the wish list of most of the procurement executives working with SAP solutions, however SAP did not have very solid offer in this area earlier.  Customers using SAP SRM, had the option of using Supplier Registration functionality which is delivered as part of Supplier collaboration solution in SAP SRM. However, Supplier Registration functionality till SAP SRM 7.0 (EHP1) was offered at a very basic level with limited functionality. It lacked critical features such as approval workflow for potential suppliers, seamless integration with backend systems, upload of attachments etc.. Due to such obvious gaps, this functionality was not much used by customers or needed extensive customization and development to get the desired functionality.

Continue reading " SAP Supplier Lifecycle Management: Filling a long pending gap in SAP SRM business suite - Part 1 " »

February 23, 2012

Managing supplier information dynamically using SAP solutions to reduce risk and increase value

By Sanjeev Kumar Pandey

After remaining as passive data records in archives for long, management of supplier information/data is slowly catching the attention of procurement executives and gathering prominence for its vital role in establishing successful supplier relationships. New acronyms like SIM (Supplier Information Management), SLM (Supplier lifecycle management), SBM (Supply base Management) are becoming latest buzzwords in procurement solutions. These terms are used interchangeably and would often refer to the same processes. I would be using supplier management as generic term to refer to all such processes.

Continue reading " Managing supplier information dynamically using SAP solutions to reduce risk and increase value " »

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