Solving the Procurement Value Equation: Part 1


How do you achieve excellence in procurement? Do you measure your success in dollars or in the qualitative benefits your company receives? The answer is both. By using the procurement value equation you can discover monetary savings and new opportunities that maximize your procurement organization’s value.

Procurement's foundation is built on two processes: sourcing and buying, or "upstream" and "downstream." When we discuss these processes in terms of the value equation, "upstream" includes the creation of value for the organization whereas "downstream" provides a way to control or possess that value. We label these processes as "Value Creation" and "Value Capture," respectively.

A full source-to-settle (S2S) process combines the benefits of Value Creation and Value Capture, and extends savings far beyond a numerical value. In addition to seamlessly sharing information across all aspects of the source-to-settle process, a few additional benefits your business will receive include:

  • Reduced cycle time: Facilitate the supplier management process, accelerating turnaround while reducing operational costs
  • Strategic supplier relationships: Create strategic differentiators associated with product collaboration
  • Reduced risk: Safeguard against risks through greater visibility into your supply base
  • Increased cash flow: Reduce total spend with contract compliance, invoice matching and accounts payable by improving cash management for both cost savings and cost avoidance

These benefits sound great, but how does this help you? You will need to have a complete understanding of your business needs before you purchase a S2S suite. Here are a few guidelines to help you implement the right solution to automate your procurement process:

  • Industry analysts suggest having an integrated source-to-settle solution to create, capture, then optimize savings. Make sure you understand the type of solution (based on current ERP functionality, available point solutions, or your need for a full S2S suite) that will fit your business needs.
  • Measure your S2S solution's ROI against your business goals. Make sure you define short- and long-term goals as well as hard and soft metrics. This will ensure you meet your improvement targets.
  • Determine which questions you need to ask before investing in S2S. Do you need a point solution product to solve a pressing need or do you need to expand to a full source-to-settle solution?

There are many more ways to determine the value of a S2S suite for your business. Discover more shortcuts to solve your procurement value equation by reading our white paper, Rethinking the Procurement Value Equation.

Image: Alex Graves via Flickr