October means a lot of things to a lot of people. Leaves begin to change. Students are back at school. Pumpkin-spiced everything. For most businesses, it also marks the start of budget season.
For procurement, budget season brings several challenges:
Year-end. Procurement departments must balance the need to enforce compliance with the current budget against unexpected (and usually urgent) purchases in support of initiatives designed to make up for unanticipated revenue gaps and drive strong year-end financials.
Fiscal planning. Procurement should – in an ideal world – have a seat at the table at both company and department levels in order to support plans to drive incremental revenue through things like vendor rationalization, negotiated savings, and strategic purchasing.
Change management. Procurement has to quickly update and implement new processes and create documentation in order to enforce changing policies while ensuring compliance with the new budget.
In this blog post, I will briefly touch on each of these functions, highlighting common operational challenges, and describing ways in which procurement orchestration can help.
For procurement, year-end means traversing a narrow passage between the rock of spend controls and the hard place of ad hoc purchase requests.
A strong budget is a thing of beauty, especially when coupled with a set of well-defined initiatives designed to help the business achieve its annual revenue targets. That being said, we all know that saying about ‘best-laid plans.’
The last quarter of each year is usually met with a sense of panic, especially from sales and marketing: initiatives that were thoughtfully designed at the beginning of the year have not borne their expected fruit. Departments have over-spent on things that didn’t work, and so are scrambling to come up with new and innovative solutions to fill projected revenue gaps. Those new and innovative solutions are rarely free. They also need to be implemented RIGHT NOW!
During this high-pressure time of year, procurement needs to be vigilant in their enforcement of the current budget, while also making it as fast and easy as possible for departments to procure the things they need to hit their revenue targets (and to approve strategic and justified budget overruns). I’m obviously thinking about sales and marketing functions here, but the same logic may apply to other departments as well.
In this tricky situation, orchestration can be a procurement department’s saving grace. On the one hand, a well-orchestrated intake management process will integrate with the company’s budgeting and finance tools in order to check the requested spend against the available budget in a given category. It can also check against existing commitments in POs and contracts to ensure that sufficient funds are available even after pre-commitments are accounted for. A requestor will often not have visibility into the status of a given budget, and so will not know if resources are available. By providing the requester with this information in real-time, ORO can nudge them to rethink their request upfront before wasting time processing a request that is unlikely to be approved.
ERP integration can also significantly improve workflow efficiency. Additional steps are necessary to process a request involving a budget overrun. By establishing budget status upfront, an enterprise-ready orchestration platform like ORO can determine the correct buying channel, including steps necessary to garner approval for budget exceptions where necessary. This not only expedites the process (because the correct steps are identified from the start) but also helps to set timing expectations with the requestor from the beginning. With expected timing in hand, the requestor can build that into their larger project plan or, if the process will take too long as is, remove ‘nice-to-have’ steps like onboarding a new supplier or even cancel the request entirely and seek out an alternative approach.
The best budgets will be aligned with strategic plans, both at the company and department levels. Financial goals are provisionally established. The business works to create initiatives designed to achieve those goals. And then the budget is ratified upon approval of those initiatives. In this, procurement should ideally be involved in two respects.
On the one hand, procurement will be directly involved in initiatives designed to cut costs. Levers that procurement has at its disposal include vendor rationalization, contract non-renewal and renegotiation, and enforcing policies designed to control spend. On the other hand, procurement will be involved in facilitating spend through prudent advise on strategic investments.
Visibility is key when it comes to rationalizing the vendor landscape. Unfortunately, vendor records are often incredibly messy. Where there are duplicates, basic reporting may not reveal how much is actually being spent with a particular vendor because the full amount is split between records. The same issue arises when parent-child relationships are unclear. Furthermore, vendor information is often incomplete or possibly distributed in fragments across multiple systems. Without full visibility into vendors and vendor relationships, vendor segmentation – according to which resource allocations are focused on key vendors who are driving the most value – becomes a challenge.
ORO can help with this. With ORO, procurement can process massive numbers of vendor records stored in a company’s ERP or S2P solutions. One of our customers, for example, had more than 500,000 vendor records. In just a few hours, ORO can automatically enrich vendor data to ensure that records are complete. At the same time, it can also normalize those records by identifying duplicates and parent-child relationships. With clean and consolidated vendor data, procurement is now better able to run reports to assist with vendor segmentation and to identify opportunities for rationalization and additional negotiated savings.
Beyond issues of data hygiene, visibility is also hindered by access to spend and process data that is frequently scattered across several different applications in addition to ‘shadow systems’ like email and spreadsheets. The pain that procurement departments feel during budget-season is a great opportunity to understand and assess blind spots (where data is not available because of work happening outside of sanctioned systems), but also dim spots (where data is available but involves significant manual effort to pull, clean, aggregate, and analyze. Tracking these pain points is an excellent way to start assessing the need for, and impact of, orchestration. By unifying processes across previously unintegrated systems (something that ORO makes very easy thanks to its market-leading iPaaS), not only will procurement departments make reporting easier this time next year, but they’ll also make it easier to see what is going on during the year so adjustments can be made with increased regularity. The result is a far more agile and competitive organization
Lastly, more than cutting costs, procurement should also be involved in conversations about strategic investments. In order to avoid the ‘best-laid plans’ scenario above, procurement should be involved in defining budgets for specific initiatives from the get-go. For example, if Marketing is planning to launch a major demand-generation campaign that will involve a combination of new technology and contractors, marketing needs to have an accurate estimate of what its costs might be, and whether they may need to onboard new vendors in order to achieve their desired outcomes.
If processes and technologies are orchestrated using ORO, then Marketing can easily find out who the preferred suppliers might be for their specific ask. They can see the contracts that are currently in place for specific vendors in order to get an estimate of what their new project might cost. And they can determine up front if a new vendor might be required so they can initiate the request early, avoid delays, and take advantage of opportunities for negotiated savings.
The start of a new year usually brings, not just budget changes, but also changes in policies and priorities (for example, greater or lesser emphasis on ESG) as well as new regulations (national and international) that need to be complied with. What this typically means is that procurement needs to create and update existing documentation, train staff, and set up trackers (usually in Excel) to ensure compliance and serve as an audit trail. The process is time-consuming, error-prone, and frankly pretty irritating for all involved.
ORO’s goal is to help procurement departments create user experiences that are so intuitive that change management becomes unnecessary. Documentation is only necessary when complex processes involve steps that are confusing and that involve manual work across multiple systems by new or occasional users. In other words, documentation is often a symptom of poor user experiences. ORO makes it so that business users can submit all of their procurement-related requests through a single front door. They never need to leave ORO, no matter how many systems and underlying processes might be involved. And they are never asked for information that is irrelevant, unknown (like commodity code), or already known (like department and GL code).
Because ORO is a no-code platform, it is incredibly easy to update business rules and processes without the need to wait for IT or to incur the expense of working with a system integrator. And because processes are intuitive, process changes largely go unnoticed by end users who are simply guided by ORO down the correct path every time. No training or hand-holding required.
Budget season is actually one of my favorite times of the year. Full of promise, but it's easy for business users in particular to forget the operational implications of their ambitions. Organizations miss opportunities if procurement is not involved from the beginning. It can significantly affect timelines when it comes time to execute key initiatives. In all honestly, it's not surprising that procurement has traditionally been left out of these kinds of conversations, especially at the departmental level: It’s procurement’s job to say ‘no,’ right? Wrong. By orchestrating manual processes and providing business users with effortless – and often times self-service – experiences, procurement has the opportunity to earn its seat at the table as a strategic partner by decreasing cycle times, advising on how best to drive value through key initiatives, and automating compliance with budget and business rules through effortless experiences.
Has your organization budgeted for a procurement orchestration tool for 2024 or 2025? If you’re looking to solve any of the issues above, now is the time to consider it!