Part 1: 4 Out of Date Purchasing Models to Kill with SaaS Technology
New technology is helping us break new ground in purchasing and procurement. To make the most of it, we face a new challenge: Breaking through some of the mental models around the function that have formed over the last 20-30 years.
What I mean by mental models is people self-limiting themselves on what they can do throughout the source-to-pay process because of the way they’ve always done things in the past.
Killing off old mental models when the situations change is very hard. We are wired to want to stay in the status quo. It’s part of our DNA that’s designed to help us survive. But eventually there comes a time when survival depends on being able to change. There are four mental models that must change in order to move purchasing and procurement into the broader, more strategic, technology-enabled function of spend management. Today, we’ll discuss models one and two.
Old Model 1: Power Users and Mavericks
At a corporate level, people like to use the term “maverick buying." That has an unfortunate connotation that employees are deliberately trying to do wrong by buying things outside of official channels and systems. That’s led to a mental model where companies don’t trust people to buy things themselves.
This model came about because the previous generation of ERP-based buying tools were so cumbersome that they could only be used by a fraction of employees. They required specialized training, and even if you received the training, if you didn’t use the tool every day, it wouldn’t stick.
Think about your experience with Microsoft Word. If you want to do complex tasks such as columns and newsletters, you need special training. And if it’s something you don’t do every day, you’ll probably have to re-learn it next time you want to do it.
It was the same thing with older e-procurement tools. They were very hard to use so employees would come to the power users and say, "Would you buy this, because I can't figure out how to use the procurement system." Or they would just buy it themselves and expense it, and be labeled as mavericks or rogues. That led to people thinking that only certain people should have access to the tool, but really, that’s blaming the people for the system’s failure.
You can't influence and steer non-power users to preferred suppliers if they don’t use the procurement tool, because they're not aware of the preferred suppliers. And if they ask a power user to buy for them, the person placing the order just buys what they’re asked to buy, even if it is with a non-preferred supplier, either because they think the person making the request has a reason for naming a different supplier, or because they just do what they are told to do.
New Model 1: Everyone Buys
The new mental model is to give all employees access to tools that make it easy for them to buy on contract from preferred suppliers, without even realizing all the rules they’re following. Procurement people have had this vision for decades but they never had the tools to do it.
Some of the new generation of non-ERP-based spend management tools are as easy to use as consumer shopping tools. Procurement teams who have implemented them are finally realizing that there are very few actual mavericks. Employees actually want to do the right thing, and they will if they have systems and processes that make it easy.
Now we just have to convince the rest of the company to let go of the old mental model. When I was deploying a new tool at Juniper, I actually got a call from the CFO, who said, "Hey, I just heard you're going to deploy the procurement system to all 9,000 employees. Why would you do that? If every employee can touch the system, they're going to spend more."
I had to convince her that the mental model was outdated, and that if we could steer 9,000 people to preferred suppliers, for things they'd buy one way or the other, it would actually save the company money because we have discounts with all preferred suppliers. If employees go around the system, which is what they were used to doing, they don't get any of those discounts.
I also had data showing that 67 percent of the dollars spent through procurement went through preferred suppliers, which meant 33 percent of spend did not. That's a horrible number. If you're aiming to be best-in-class procurement, you want 90 percent or more to go through preferred suppliers.
To achieve that, procurement people have to be ready to help break the old mental model, whether it's in the mind of a project manager, business leader or CFO.
Old Model 2: No Access for Suppliers
The old procurement model says you can't give all suppliers access to your system because they will either mess it up or take advantage of it. They'll go in and put in the wrong data for themselves. Well, that's just silly.
Why would you mistrust someone to put in their own information, especially information the buyer will use to pay them? The buyer company is a lot more likely to screw that up, especially if they’re collecting data over the phone—or fax. Then someone has to key in that information, so errors are introduced at a high rate. In fact, there's data that shows that when companies outsource this data entry, 30% of the time it’s done wrong.
This mental model has its roots in a time when software tools did not allow the segregation of supplier data from company data. Therefore, if you opened your system to a supplier, they could see everything. People worried they could place purchase orders for themselves, which obviously would be fraudulent and not a segregation of duties.
New Model 2: Access for All
New tools do two things that change this model. They are designed so that suppliers can't have access to information they shouldn't, and they make it easy for suppliers to update their own data from email and a web browser. Large companies can do more sophisticated connections such as EDI or cXML. They can control all the information in the system about themselves, so now they are accountable for their own data.
Remember when we went through travel agents to book travel, and how frustrating it was when a travel agent made a mistake on your itinerary? Now, we all type in our own information into our favorite travel sites. We’re responsible for buying the flights and entering our credit card information correctly, which makes us accountable for getting it right. We broke that mental model, and we can break this one too.
Part 2: Outdated model three, and why updating outdated model four could have the biggest impact.