Shifting Gears: The Move to Contract- and Project- Based Platforms
In the past, companies operated on a traditional Purchase Order (PO)-focused procurement system. This is due primarily to the fact that ERP/financial systems and most eProcurement solutions were based on archaic paper-based processes (i.e. Blanket POs). When service providers created their solutions, they all opted to mimic these tedious paper-based processes instead of rethinking the way purchasing should be done.
JAGGAER was founded in 1995 on the premise that technology offered a platform that was able to “rethink procurement.” Today, many companies have started to abandon old procurement methods and move forward with more efficient contract- and project-based procurement systems. Our software platform addresses a much broader scope within the procurement process, which provides the ability to manage spend in a far more efficient and effective manner. These customers have described this transition as “enlightened” and “liberating”.
The Blanket PO is, in essence, a contract vehicle without all the terms and safeguards enumerated in its associated contract. Contract-Based-Procurement (CBP) tools offer an easy way to perform services procurement and eliminate Blanket POs. With CBP, when an invoice arrives against a contract, Accounts Payable (AP) no longer needs to determine its validity by conducting extensive research. CBP places all the information within easy reach, including automated compliance checks for labor rates, budgets, terms, etc., without having to research the contract itself or the parties associated with it.
Additional benefits of CBP include automated coding of invoices (account codes), proper payment terms, workflow-to-contract parties, and easy reporting of all procurement activities associated with a contract. Cycle times for these invoices are greatly reduced, offering the benefit of prompt-payment discounts where applicable. CBP also ensures contract compliance when requisitions and POs are created in the areas of minimum order quantities, price compliance, auto-assignment of contract number and terms.
Rethinking procurement should also consider the topic of procurement within special projects, or Project-Based-Procurement (PBP). This procurement process involves projects that may incorporate services, commodity, and capital expenditures. PBP is ubiquitous in that it can involve building a new plant, establishing an assembly line, implementing enterprise software, upgrading the company’s network, or any other project within an organization. Since processes such as these are often considered capital expenditures, a spend management solution should allow for PBP.
Traditionally, PBP was done via spreadsheet requiring manual data entry on a regular basis to ensure the project was on-time, on-budget, and within the terms of contracts. Even providers of specialized PBP tools have fallen woefully short of what PBP requires in that traditional processes are generally a complicated spreadsheet that are not fully linked to all the procurement activities surrounding a project. For example, many organizations create thick binders containing volumes of project information. However, with this system in place, those who require information about the project need to contact the holder of the binder, which can present ongoing efficiency challenges.
PBP tools create an envelope of all procurement activities associated with a project within a single technology platform. This includes sourcing events, contracts, Statements of Work (SOW), Procure-to-Pay (P2P) transactions, tasks, and milestones. Authorized personnel can view the status of a project and all pertinent transaction data in real-time at any point in the project management lifecycle.
Additional benefits of PBP tools include budget management on a global as well as component and departmental basis. These tools provide insight into areas such as services, commodities, capital purchases, and departmental spend tracking. As contracts are associated with projects, all CBP functions are also captured within PBP tools, including procurement transactions, requisitions, POs, invoices, and sourcing events. Additionally, both internal and vendor-based KPIs are also measured. In essence, PBP tools are the quintessential way to manage any project within an organization because of the extensive project scope and management capabilities they provide.