Spend Matters would like to welcome back Pierre Mitchell, in his second post in this series..

In Part 1 of this two-part post, I talked about the importance of separating the notion of procurement VALUE (how strategic is the value delivered to the enterprise by Procurement's services?) from procurement PERFORMANCE (how effective and efficient is the performance for each service?). In this part, I'll talk about how to better measure that performance … and I’ll also ask for your help.

Measuring procurement EFFICIENCY is relatively straightforward in terms of looking at procurement FTEs, process costs, cycle times, etc. (I humbly submit that nobody measures this as well as my firm.) That said, it can be more complex than many think. For example, dividing your procurement budget by your total number of POs is a REALLY stupid way to measure a "Cost per PO" metric! I won't tell you why (hint: think activity-based costing).

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I've had a fun time either selling to Sourcing and Procurement professionals the solutions I (fervently) believe in, or advising clients on buying and implementing those solutions, and a recurring theme has emerged. It is that, ironically, in diligently applying best practices in the sourcing of spend-management solutions (for them!) management professionals end up missing or significantly delaying the very benefits they were originally looking for.

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It's been too long since I last posted here at Spend Matters. I've been immersed in a new domain, that of identity theft. In my immersion, I've found that elements I've picked up from the Spend Management domain have a fair amount of resonance when applied to the shady dealings of identity thieves.

Take, for example, the "supply chain" that delivers your identity into the hands of a criminal capable of using that identity for material gain. It's not like the original thief is the ultimate user. Just like the supply chains we are familiar with, there are raw material extractors, middlemen adding value, aggregators, and OEMs too.

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When people talk about adoption in Procure-to-Pay they generally mean "user" adoption as measured by the proportion of requisitioners using the solution or possibly the percentage of total spend managed through the solution. I have two issues with this.

First, measuring the breadth of requisitioners and the amount of spend going through well managed P2P solutions is a very good measure of the success of the solution. In fact, it should be a major factor in evaluating prospective P2P solutions for your company. Problem is, measurable and comparable metrics are hard to come by. My sense is that P2P vendors don't have great things to show here and (for those who do) may worry that past successes would raise expectations and mess them up down the line (especially if they are SaaS vendors who need to continually beat expectations). Like the safe harbor statement on a mutual fund prospectus, "past performance is not a guarantee of the future" rings at least partially true when adoption is considered. Company cultures and senses of urgency can differ widely and affect relative rates of success. On the other hand, past failures may have spurred some interesting and ultimately successful new adoption strategies (especially, again, in the more nimble SaaS solutions).

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With apologies to the Bard, who famously commented on the name of a rose not affecting its attributes, I've been struck lately by the naming around an emerging area of interest to Spend Matters readers. That area is called ... well, that's the problem, isn't it? What is the name of that group of buyer-side processes that manage the information, risk factors, performance, certifications, etc. of their suppliers?

There are vendors with solutions in this area like CVM Solutions, Aravo, D&B, Hiperos, Ariba, Emptoris, etc. Players in the space claim they do "Supplier Management" when others with only slightly overlapping capabilities also claim they are doing "Supplier Management". So we have a problem of defining the wider borders of this thing as well as the salient components lying within those borders.

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Early cartographers used to mark unexplored areas of their maps with statements like, "here there be monsters". I sometimes think modern-day I.T. organizations tasked with mapping the requirements for Procure-to-Pay designate whole swaths of territory belonging to the needs of suppliers in similar ways.

Caveat first! The discussion below about I.T. is a gross stereotype based on direct experiences over 20 years with folks in that role at a number of companies large and small. Well, maybe it's a moderately informed stereotype. Anyway, the I.T. folks I know continue to evolve in their approach and the following is my way of encouraging the evolution underway.

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An emerging best-practice as solutions for Procurement have evolved is that transactional procurement (requisitioning, order management and receiving) should be tied closer to accounts payable processes (invoice reconciliation, remittance scheduling and payments). As a result, we've seen a number of solutions around the P2P (Procure-to-Pay) über-process come into being over the past few years. But despite the reality of very real capabilities (and case examples) out there in the market, promoting and explaining the concept to both groups collectively is not always as easy as it should be.

In a past life, I was tasked with trying to explain the need for companies to consider P2P as one process and not as several distinct, loosely integrated processes. It was a tall order, given that most companies have approached the space by using applications from ERP and/or niche vendors for each individual process noted above, and then stitching them together with substantial manual activities. To complicate things further, each constituency within the organization has grown to see the P2P space through their own set of subjective assumptions.

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Jason just concluded about 2 months of some great posts in the area of spend visibility (or analytics, if you like), exploring new offerings, etc. Whenever I read about spend visibility, I feel like an old man because of what seems like a lifetime of work I've put into the subject. Like an old man, I find myself repeating certain aphorisms that have served me well in the past. As with some of Ben Franklin's wise sayings in his Poor Richard's Almanack, however, some may or may not apply (I'm thinking of the one about the lady who was known for always smiling and laughing when in fact she was just showing off her nice teeth). Anyway, below are my simple truths when in the pursuit of spend visibility:

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Picking up from my last posting on Supply Risk and how best practice Spend Management can be a vital input, I thought I'd highlight a compelling case study that illustrates my point. What happened was that a large multinational recently published its remittance schedules to 100 key suppliers along with the implicit offer to pay early if the supplier proposed a discount. Whereas the company expected 20 or 30 offers from suppliers, they instead got back 80!

The part I like about this (beyond it being a win-win situation for buyer and supplier) is that those suppliers were signaling something to their customer that may not have come out through the normal survey route or via 3rd party supplier profilers. It's an example of actions speaking louder than words, yes, but it's also the way the information was gathered.

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Rahm Emmanuel, Obama's chief of staff, once remarked: "You don't ever want a crisis to go to waste..." This statement holds true for procurement as well.

A couple weeks back, I spoke on a panel to the ISM Silicon Valley chapter about Supply Risk. One of the more interesting points that came out of the conversations was that, in a majority of the company's represented, procurement people are being tasked (on top of everything else) with addressing supplier risk. Not finance, not operations; mostly procurement. Executives assume that asking Sourcing and Procurement folks about which suppliers are risky will yield cogent responses; after all, those are the folks who deal with suppliers daily, right?

The sourcing manager sees a drop-off in participation from a particular supplier or industry. Buyers notice increased activity in catalog item pricing and availability or, worse still, they see missed deliveries or declining quality. And AP or treasury sees an uptick in early-payment discount offers on published remittance schedules.

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