Modern procurement IT and processes could be saving manufacturers £12.06 per purchase order

Having the right IT in place is top of the list of enablers for reducing the cost of manufacturers’ ‘procure to pay’ processes for materials and services, according to a survey just released by Oracle, with KPMG, CIPS (Chartered Institute of Purchasing and Supply) and the University of West England. And for companies that have implemented best IT and sourcing and purchasing practices, those savings average at 59% which, with real total costs per line item before improvements averaging at £20.44 (not as high as the £40—100 often suggested), could mean savings of £12.06 per purchase order. Oracle’s I-SAVE (independent savings analysis verification and evaluation) Phase Two research is aimed at showing companies how, how much, with what and where to do better – as well as gauging realistic returns. It follows last year’s Phase One I-SAVE survey which resulted in Oracle developing an on-line opportunity analysis tool that saw tens of thousands of hits and some 1,000 full downloads by companies around the world. This latest project is also supported by a downloadable self-analysis and cost/benefit justification toolset – go to www.oracle.com/start and enter I-SAVE2. Oracle and co divide ‘procure to pay’ into five key processes – sourcing, internal requisitioning, getting the requirement to the chosen supplier, acknowledging receipt of goods and invoice matching. Its survey, among 127 organisations (of which some 30% were manufacturers or in project-related industries) reveals that businesses find greatest returns and fastest payback at the front end of these (up to 83%), falling to 12% for the back end processes. The research showed typical savings of between 75% and 83% at the front end (guiding users to preferred suppliers and appropriate sources of supply). In the second phase (requisition to purchase order creation), typical savings were 71—73%. Third phase (placing orders with suppliers) savings reached an average of 55%. For the fourth phase (goods receiving), savings were 33%. And in the final phase (invoice matching and payment), they were down to 12%. Looking at the key enablers, at the front end of sourcing they were supply base rationalisation, followed by developing stronger supplier relations and appropriate training. For all the rest, implementing appropriate IT was the top priority. The report notes that while “it was not too surprising to find ‘enabling software’ and ‘supplier relations’ at the top of the enabling list, the ‘training of people’ came in the top three of every ‘procure to pay’ element.” It concludes, “this was a very clear message that we did not expect, welcome though it is. It seems to suggest that there is a real partnership emerging between the software, the suppliers and the users. If any one of these three is ignored, organisations may be putting their improvement initiatives at risk.” Key barriers to adoption found were lack of finance, people and infrastructure resources, followed by other more pressing priorities and the usual lack of management commitment. Phil Wood of Oracle says the research and the tool will give manufacturers a sound foundation from which to reassess their opportunities, to construct projects and build and justify their businesses cases. “The real use of the toolset is to enable organisations to identify which elements they would get most benefit from if improved, and to then embark on an improvement process using the key enablers that we have identified.” For Mark Day of CIPS, it’s all about clarifying complexity: “If we break down the processes in this way, where are the pressure points for me?” And with substantial figures for savings revealed, he hopes that improving procurement through better processes and supporting IT can rise higher up the boardroom agenda. Bernard Brown for KPMG says, “With savings of 59% on average, there’s an opportunity to reduce head count if that’s what you want to do, or redirect resources to more value added roles in the business, like even more effective sourcing or continuous improvement elsewhere. So part of the benefit you get from all this is time.” “Most of purchasing is common sense,” says Andrew Douglas of the University of West England, “it’s only the people that do it that make it complicated. What we have here may be stating the bleeding obvious, but it’s backed now by statistically significant research.”