Procurement Technology Success Secrets

PurchTips - Edition #164 October 28, 2008

By Charles Dominick, SPSM

What Are Procurement Technology Best Practices?

Procurement technology helps accelerate business improvements. Still, many procurement professionals struggle to get a procurement technology initiative started due to senior management reluctance to invest in it.

The key to convincing senior management to invest in procurement technology is showing them a return on investment (ROI). ROI means that the money saved by using the technology will be greater than the money spent on paying for the technology and the internal and external resources to implement it.

Senior management may also ask "'What happens if we [implement procurement technology] versus what happens if we don't?'" according to Linda Peyton, Project Manager of eSourcing and Contract Management Systems for Wolters Kluwer. "You have to calculate the value and communicate the benefits." Being creative when communicating benefits can help. For example, if you estimate your savings attributable to eSourcing to be $1.5 million and your organization has a 10% profit margin, "then you calculate how many additional sales your sales department would have to generate to obtain that $1.5 million [in profit increase] and, I guarantee you, senior management will pay attention," Peyton claims. "If you can equate return on investment and cost savings to stock prices, that's even better."

Because eSourcing can produce a faster, more apparent ROI, it is often the first procurement technology tool implemented. However, that may not always be the most strategic approach.

"I believe that any procurement organization must have a spend analytics tool," says Peyton, who shares that a good spend analytics tool "will enlighten you with what you spend, where you spend it, and with whom you spend it." This information serves as the foundation on which a long-term procurement strategy - including the identification of optimal categories for eSourcing - can be built.

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Want to learn more about today’s topic? Then check out my podcast interview with Linda Peyton! Podcasts are audio files that you can listen to on your PC, download to your iPod/MP3 player, or burn to CD.

It’s absolutely FREE to download the audio. So why not add to your collection of great purchasing education material?