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eProcurement & Procure-to-Pay Resources

Building the Case: Driving Spend Under Management in Disparate Environments

Posted by Ed Berger on December 12, 2017 at 10:00 AM

Many businesses leverage  a franchise model with independent owner/operators of various brands.  According to an article by Entrepeneur, franchising is popular across sectors.  From quick service restaurants to hotels and business services, the franchise model offers many benefits.  But how can a procurement organization manage spend  across these disparate franchises and take advantage of the scale of the business to deliver lower costs to the franchises?  In order for these businesses' indirect sourcing groups to provide benefits to its operator community, they need to be able to:

  • Capture spend across categories and locations
  • Negotiate favorable terms only available to franchisees
  • Nationalize contracts across suppliers

Because franchises operate independently, capturing and aggregating spend across locations is nearly impossible without a shared purchasing solution that the owners elect to use. But, how can the franchisor influence the owner's use?

To make a purchasing solution desirable to franchisees, it must be:

  • Easy to use - the technology should be simple, so that the franchisee sees it as the easiest way to buy.
  • The solution should provide discounts and/or products that would be time consuming to find on their own. If the solution has the best deals and is easy to use, the franchisee will be much more likely to use it.
  • Be expansive enough to allow one stop shopping. The more purchases supported under the solution, the less likely the franchisee will go elsewhere.

So, how do you build a business case for this type of solution? One method, shown below, divides the components of the case into 3 areas,  "Identify and get the Money", "Keep the Money", "Maximize Resources" and "Improve User Experience".  For each of these areas, a quantifiable value can be assigned to each point, generating a compelling business case for eProcurement. 

Step 1: Identify & Get the Money through Negotiated Savings

  • Increased spend under control - Improve categorization of spend and keep more spend under PO as opposed to via pcard or expenses
  • Categorized Demand Aggregation - Categorize indirect and analyze spend across locations and geographies
  • Supplier Rationalization: Across Geo’s & Cat’s - Analyze spend to identify to rationalize suppliers to provide additional leverage.
  • Strategic Category Aggregation & Management – leverage location spending to work together to standardize and analyze spend to find synergies across the most strategic direct and indirect categories
  • Supplier Collaboration on Savings Programs - Work with suppliers to develop the best value programs, volume discounts, rebates, etc

Step 2: Keep the Money through Mitigation of Risk to Negotiated Savings

  • Reduce tail spend - Enable spot buying/quick RFx. Broaden buying capabilities of end user while reducing complexity.
  • Price stewardship - Multiple similar products/services with user able to choose the preferred/lower cost provider
  • Early payment discounts -Quicker PO processing means better terms
  • Savings leakage - Savings leakage (actual vs. contract) is typically 40-50% of goods and services (Gartner-Build a Compelling Business Case for P2P)

Step 3: Get the Most Out of People & Resources through Productivity Improvements

  • Time to Requisition - Time spent finding goods and services, adding to a shopping cart and checking out
  • Req to PO - Time spent going from a submitted requisition to the PO sent to a supplier (PO management time)
  • Approvals - Time spent having to approve (approver's time)

Step 4: Improve User Experience

  • Net Promotor Score – Viewpoint of end users measured on 10 pt scale with “9” or “10” being considered Net Promotors

Starting a business case for eProcurement using these steps as a starting point can result in quantifiable savings calculations to convince management that a move to a technology that best manages disparate environments will benefit the bottom line. 

To learn more about calculating a return on investment for BuyerQuest, visit our ROI calculator.

Topics: Spend Management, Business Case, ROI

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