In yesterday’s post, I explained why it’s become a competitive imperative for companies to get smarter about sourcing contingent labor. Today I’ll explain how.
There hasn’t been a lot of transparency around pricing in the past, which has made applying sourcing rigor difficult. But, that is changing. There are ways to get this information, and companies need to then take that information and adapt some of their internal HR processes to be able to compare price and quality and make smarter, more strategic decisions about contingent labor.
Getting accurate pricing
One of the reasons we don’t have transparency is that up until now companies have mainly dealt with contingent labor through temp agencies and placement services, which have mostly dictated prices. The delta between agency bill rate and worker pay rate can be considerable, and it’s tough to know what the real going rate should be, how it is trending and how much above or below market you are paying.
The market for temporary and contingent labor is growing dramatically year-over-year -- roughly 7-10%, depending on what segments you look at. This is a trend that is likely to continue for the next five or six years. The Harvard Business Review in 2012 projected that eventually contingent labor will make up about 25% of the global workforce and we are well on our way to that. Companies that want to use contingent labor strategically and cost-effectively need to get a lot smarter about how they source and manage this category. In this two-part series I’ll explain why and offer my thoughts on a methodology for improvement.
This is a tough category to handle and historically procurement hasn’t paid much attention to it. They’ve engaged Managed Service Providers or implemented Vendor Management Systems to improve their performance and considered it handled. Or, they’ve ignored it completely, figuring it wasn’t that big and besides it’s “temporary”, so not worth the effort. Neither approach supports developing the institutional knowledge needed to manage the category effectively.
This needs to change. We will see more and longer “temporary” engagements, because there’s been a big shift in the temp and contingent labor market over last decade or so. For a long time, temp positions were mainly clerical or administrative. Then we saw a lot of expansion into the IT area for project-based work. Now globalization and the Internet have opened up temp and contingent opportunities for an even broader range of specialized workers.
New opportunity for companies and workers
It makes sense for companies to hire these people on a temp or contingent basis, because they get access to unique skills they don’t need all the time, and these are expensive people to have around if you can’t keep them active. But it’s not just companies that want this. The workforce does too.
Yep that’s right! It’s that time of the year - roundup
time. Time to reflect on the trends and topics in spend management of the past year, and what we learned.
We're listing your favorite posts from Coupa's bloggers from 2014, based on page views and social shares. This is what our readers found interesting, relevant and shareable over the last year.
1. Why using OCR for electronic invoice processing is like hitching a buggy to your horse by J.R. Robertson on Spend Matters
Although implementing OCR technology may seem like a time saving payments solution, it won't save you anywhere near as much time as full invoice automation, writes J.R. You'll still spend lots of time on manual processes, just different ones.
When was the last time you ran a sourcing event?
If the answer could be expressed in years, you should know about our Sourcing Quick Start program. Customers with Coupa Procurement can get a 30-day free trial of our sourcing module along with expert assistance to help you launch your first sourcing event.
I recently did this with a large media company, helping them conduct an RFQ followed by a thirty-minute reverse auction that saved them about $700,000 on IT hardware. I worked with the indirect procurement team there, who had been doing business with the same vendor in this category for over eight years. It was time for them to test the market, and test-drive Coupa Sourcing at the same time.
Prior to this, they did all of their sourcing manually using Excel to package and share
information. With the complexity of the IT category that hadn’t been sourced in nearly a decade,
it seemed like a perfect place to try bringing some new technology to bear.
How complex was the category? There were over 9,000 SKUs spread across numerous IT sub-
categories. You can’t put 9,000 items in a sourcing event;
The Cloud has greatly accelerated many activities associated with deploying
enterprise software: innovation, integration, and the implementation process. Along with this heightened speed also comes an accelerated time to value. There’s one activity, however, that hasn’t kept up with this pace of change: the software procurement process itself. What many fail to realise is that this lack of progress is needlessly hampering the time to value equation for cloud solutions.
The Cloud offers the opportunity for organisations to procure software differently than they have in the past. Comparing a one-year subscription agreement that comes out of an operating expense to a purchase made against a three-to-five-year capital budgeting cycle is a very different exercise indeed.
With the latter proposition, it is perfectly normal and even justifiable to spend eight to 12 months reviewing vendor RFPs before making a decision, followed by a year or more for an implementation project. This process has traditionally guaranteed a time to value horizon measured in years.
Fast implementation is commonplace
With the Cloud the time to value can be so much faster. Three to four-month implementations are not just possible, but commonplace. As it stands today, however, many organisations still aren’t achieving the fastest time to value possible, because they still rely on the same lengthy
The whole premise of SaaS, Software as a Service, is that organizationsno longer need technical infrastructure or capabilities in order to optimize a business process with software. But, there’s a lot of marketing being done under the SaaS label, with only loose standardization around the definition of SaaS. What I’m seeing and hearing is that with some SaaS solutions, although you don’t have to host the software on your servers anymore, you still need the vendor or a technical IT team to manage and maintain the system. To me, that’s not really Software as a Service, and it gives everyone in the category a bad name.
This is not to dispute the legitimacy of hybrid models; those have their use cases. But if what you have in mind is to have your SaaS vendor manage the whole solution for you, there are a couple of things you should ask to make sure this is really the case so you don’t encounter any unexpected difficulties or expensive surprises down the road.
Keep up with the changing finance and procurement landscape by reading the latest articles by thought leaders and subject matter experts on cloud, strategic procurement and finance.
Today’s fast five is all about procurement – present and future. Articles from Purchasing Insight and Procurement Leaders talk about how to squeeze the most out of your procurement efforts at present, while offerings from SupplyChain and Supply Management discuss what to expect in the future (spoiler alert: you can wear it!). Meanwhile, two heads of procurement weigh in on what they look for when assembling their teams.
Those looking to advance as procurement professionals would do well to cultivate expertise in other areas of business. Speaking at ProcureCon Indirect, Kellogg’s director of indirect procurement Paul Jones said he likes people who've worked outside procurement on his team. Nick Jenkinson, head of indirect procurement at Arytza, adds that these people can be hard to find. Skill up to stand out!
Are you pushing your suppliers for innovative ideas? Procurement pros should take an active role in promoting supplier innovation, writes Procurement Leaders’ Paul Teague. Innovation is a team sport--companies that do best at it are the ones that encourage innovation through open collaboration between the procurement team and company stakeholders.
Contract managers are the eyes and ears of the source-to-settle process, writes Andrew Bartolini on CPORising.com. What facets of the source-to-settle process do contract managers need to have “eyes on” for the enterprise? SLAs, existing contracts and maverick spend top the list. Modern contract management solutions can provide visibility into this process and allow all parties to stay clear of dangerous contractual waters.
How do you respond to employees reluctant to use procurement systems because they think they can get a better price on their own? For Pete Loughlin, it’s a matter of distinguishing price from cost. They may be able to find a better travel rate online than through the proprietary system, without realizing that this price is non-refundable and doesn’t include certain amenities that they’ll end up paying out-of-pocket. Lower price doesn’t always translate to lower cost.
Will wearables become a procurement fashion statement? If you’re in procurement, you may want to find out sooner rather than later. Wearable technology lends itself well to the demands of today’s purchaser, who increasingly needs to be able to review and approve orders on the fly. One obvious obstacle is walking the line of manners and social acceptability. Still, it could be a great holiday gift idea for those who don't mind being the first person in the office wearing Google Glass and talking to their watch. Peter Kinder explores the possibilities.
Every buyer knows the cost of doing business with a supplier is much more than simply the unit price of the goods or services delivered. But how much more? There are costs for implementing the contract, training, changes to internal business processes, contingent services, support, maintenance and many other elements that add to the total cost of acquisition and ownership for anything you buy.
In many cases these costs are hidden, yet we all have the sense that they add up to something substantial. In some cases these costs are pure administrative overhead that adds no value for anyone. Being able to systematically identify and address these could deliver huge benefits to both buyers and suppliers. The biggest obstacle is getting visibility into these transactions and knowing what steps to take to address them. Coupa supplier analytics can help you do that.
We know that invoice processing is one of the main areas where the costs of trading hide. Up until now, the only ways to understand which suppliers were more expensive to do business with were either to gather anecdotal evidence from the accounts payable team, or export data from the AP system and then try to analyze and interpret it. The latter requires a lot of manual work and the results—if ever
The name Albert Einstein is synonymous with more than 300 scientific papers along with over 150 non-scientific works during his lifetime and was known for his intellectual achievements and originality.genius. The German born theoretical physicist and philosopher of science published
Einstein is a constant companion in our office. We have a colorful abstract portrait of him on our wall that was created by Erik Wahl in his keynote on creativity at Coupa Inspire in San Francisco last year. With the image of the great man watching over us, I got to thinking one day, if Einstein were alive now, what would he think about enterprise software and all the technology we enjoy today?
Based on some of his famous quotations, I think he would be a big fan of the cloud, Software-as-a-Service and the user-centricity movement. Don’t believe me? Read on.
“If you can't explain it to a six year old, you don't understand it yourself.”
If a child were to sit down and use your software, could they do it without even being able to read, just based on visual cues such as buttons, navigation and colors? Clearly Einstein would have grasped that user interfaces need to be so intuitive that just about anyone would know what to do. I think he would have appreciated that designing for non-geniuses takes genius.
“Life is like riding a bicycle. To keep your balance, you must keep moving.”
The only constant is change. For software to remain relevant and effective, it has to continue to evolve as your business evolves. One of the promises of SaaS is that business users can have full ownership and control over the solution so they can change their business processes to respond to conditions, by themselves, with no technical skills needed. I think he would have been a SaaS fan.
“A clever person solves a problem. A wise person avoids it.”
SaaS providers are redefining customer support as Customer Success. Customer support sits back and waits
So you’ve decided it’s time to launch a purchase-to-paysystem, or upgrade your existing one. Congratulations! This will be a big step forward for your organization in many ways. It’s also a big change, and we all know how much everyone hates change.
As hard as it is to manage change internally, at least with employees you can manage, (or mandate) a change in behavior. When it comes to driving compliance and adoption of your new system by your supplier base, you really don’t have any control at all. Suppliers are usually overlooked in this process, but the supplier represents half the transaction, and can easily say no to your new system.
If that happens then you will only achieve partial automation and everything that goes along with that--incomplete data, impaired visibility, and continued process inefficiency. Your project will not get the ROI that you set out to achieve and may even fail. On the other hand, if your P2P system actually makes it easier and less expensive to do business with you, you’ll enjoy better supplier relationships and probably better pricing.
Remember suppliers rights
I’m not suggesting you directly involve your suppliersin the decision process. Driving consensus in your own organization is probably hard enough. But you do have to remember that suppliers are people too and consider the impact your changes will have on them. They hate change too, and there are a lot more of them than there are of you. For most companies, there are ten times as many suppliers as internal people that will be interacting with your system. For example, if you are a company of 100, you probably have about 1,000 suppliers, each of whom has the right to say “no.”
Make it easy for them to say “yes” by choosing a system that provides a variety of options for transacting with you depending on their size, what type of supplier they are and the sophistication of their technology and processes. For example, if you work with a large supplier with a lot of transaction volume and automated systems, asking them to start transacting with you via EDI is probably not going to be a big change for them. But, for your smaller mom and pop suppliers, complying with that request is going to be impossible.
Being able to offer these smaller suppliers something like supplier actionable emails, where they can create and submit invoices right from emailed POs, doesn’t require them to significantly change their business process but still provides you the metadata you need to drive automation in your process.
These are just a couple of examples of different ways suppliers can transact with you. The key is to provide as many options as you can, so suppliers can pick the one that works best for them. Nobody likes to be forced to change or to be forced into someone else’s way of doing things.
Will fees deliver value or create an obstacle?
You also need to think long and hard about supplier network fees, as these represent a significant hurdle for suppliers to say “yes” to your new system. If your company is like most, smaller suppliers make up about 90% of your supplier base. Charging them a fee for transacting with you through your system is going to be a non-starter, and you’ll never get the levels of adoption you need to be successful.
The best solution is one that reduces friction rather than adding it, ideally making both your process and the supplier’s process more efficient. There’s benefit for you in making your suppliers’ lives easier.
Achieving a win-win
Here’s a perfect example. We have a customer that did 80% of their transaction volume with one supplier. There were multiple ways different people in the organization ordered from this supplier—by phone, through a sales rep, and online through the supplier’s website.
It took a lot of resources for the supplier to service this customer in all these ways. Each way had a different invoicing process, and someone had to consolidate the invoices, print them out and mail them to the customer. The customer also had to devote a significant amount of AP resources to managing all this.
Through one integration, this customer automated 80% of their transactions, greatly streamlining their own purchasing process. By becoming easier to deal with, they also gained negotiating leverage with the supplier.
In this example, a disproportionate volume of transactions went through one supplier, so the benefit of streamlining their mutual process was glaringly obvious. But, it’s possible to get the same benefits with suppliers across the board.
The problem is, it’s hard to quantify the cost of transacting so there’s a tendency to discount it. I think that’s the wrong attitude.
There are all these little pieces of transactions that no one keeps track of--printing out a PO, emailing it, following up, finding out things are backordered—you know the drill. These interactions are so small and fragmented that neither buyer or supplier understands the cost impact, but the impact is real and the net effect of reducing transactional friction across the board can be substantial.
That’s why it’s critical to think beyond your four walls when considering a P2P solution. Consider your suppliers and how can you better partner with them. Avoid introducing friction that costs them time and money, because ultimately that will cost you time and money too.
Try instead to make the supplier’s process more efficient along with your own. Think about what that would do for your supplier relationships, and your ability to negotiate price. And think about what it would do for the adoption of your solution, the ROI of your overall project and its impact on your company’s bottom line.
J.R. Robertson is North America, Director of Sales for Coupa. This article previously appeared on Procurement Leaders.