How to Introduce Successful Initiative Management in Procurement (Part 2)
In many companies, initiative management and controlling still only play a minor role. Orpheus set out to understand the reasons and “stumbling blocks” and has illustrated essential “design criteria” in this article that play a large role in the success and failure of initiative controlling and initiative management...
What makes it work…?
In this article, we address the 10 most important lessons learned, which the employees at Orpheus have encountered during the development of the in-house initiative management software, “InitiativeTracker” in numerous projects.
10 Lessons Learned during the Establishment of Initiative Controlling
1. Avoid: Excel-based Information Anarchy
The need for professional initiative controlling most often becomes acute when the controllers or purchasers dealing with the topic become overburdened consolidating an increasing number of initiative papers (most often in various versions) floating throughout the company and arduously aggregating the data by hand. The effort for this routine work is then quickly no longer in relation to the targeted use.
In this case, the solution is comparably simple -> instead of Excel, a web frontend should be used, which also has the benefit of being accessible anywhere in the world and greatly expediting the availability of new figures. The costly and error-prone manual consolidation of initiative data becomes completely obsolete.
2. Define: Standardized Initiative Types or Scenarios
The second problem – frequently encountered in Excel – is the lack of standardized initiative templates or too many template versions. In an extreme case, there is a “somewhat” different template for each initiative with slightly modified entry fields.
It is better to define 10 to no more than 15 different types of initiatives or scenarios. For every scenario, we subsequently define which key figures/KPIs should be used for planning and performance measurement and to which object types (impersonal accounts, categories, etc.) the effects have to be aggregated in order to be able to identify success or failure as well.Example for initiative controlling with the InitiativeTracker software from Orpheus
3. “Nip It in the Bud”: Record Planning, Forecasting and Actual Values
If simple budgetary planning still functions well with Excel, rolling forecasts can be no longer satisfactorily implemented. However, precisely this functionality is particularly valuable and helpful in initiative controlling.
Solution -> The software used has to support a historicization of input values. In practice, it is interesting to see those employees who plan accurately and are less likely to modify the budgets, and those who continually modify values/key figures and thus repeatedly “cancel”, for example, increased target savings in January, such that in the end only a fraction thereof is achieved. These developments have to be recognized at an early stage.
4. “Be Flexible 1”: Flexible Planning Horizons and Temporal Division
Functionalities for planning horizons are likewise essential for initiative controlling. We frequently cannot manage with a single planning horizon; rather we opt to plan and manage the first year on a detailed monthly level, the second on a quarterly basis, and the third on a broad annual basis.
It is also necessary to flexibly define the starting point, the duration, and the conclusion of effects, e.g. savings, into the initiative. Ideally, the system should automatically divide an overall value (e.g. an annual value for targeted savings) for multiple periods of the planning horizon. Excel quickly reaches its natural limits here as well, unless the users are able and willing to program themselves.
5. “Be Flexible 2”: Collaboration Makes It Easier for Everyone
Creating, planning, and perpetuating initiatives also means having to know a lot about the numbers and effects. Collaborative functions, such as sharing initiatives with colleagues, or notifying functions help in being able to work faster and more productively in a group with more accurate figures.
6. From Top to Bottom and Back: Top-Down Planning and Bottom-Up Initiatives
Many companies use their initiative controlling for operationalizing their corporate goals or scorecards. They attempt to prevent that their goals from remaining “only on paper”, and instead to “reinforce” them through specific activities of the employees. Thus, top-down planning, which is defined by management and is aligned with the corporate goals (potentially even broken down into primary initiatives), and bottom-up ideas and planning of corporate organizations and their employees who are supposed to “meet or fulfill” the demands, are required for this concept.
In this context, continual deviation analyses, which monitor the gaps between the demand and bottom-up initiatives promptly and clearly (see also the savings pipeline as control instrument), are fully central and absolutely indispensable.
7. Consultant Tools are not enough: Integrate Initiative Controlling with ERP Data
Many initiative tools, even based on Excel, work only with the data that was entered manually. On the one hand, this leads to the fact that it is very arduous for the user to even draft and perpetuate initiatives because he has to enter all the data himself. On the other hand, these initiatives allow a sufficiently high level of detail fall short so that the significance of the results is limited.
A good example for this is the “consultant tools” from the consulting agency, Berger and McKinsey. They are widely popular among managers because they offer a high level of broad planning and propositions – they suggest simple solutions to difficult questions! However, if we ask employees and middle management about their reliability or capacity as well as the demonstrability of the data maintained their, we quickly reach the conclusion that they actually not suited for modern initiative controlling.
What they are lacking – in addition to many other functionalities – is the integration with ERP and financial objects, such that we can clearly understand for which suppliers and materials the savings were achieved or which cost centers and purchasers are affected. Logically, the manual input of this data is eliminated completely in the case of integration, which heavily fosters user acceptance.
The “consultant tools” focus on the quick and easy input/gathering of initiatives, although less on the operative implementation and validity of the figures contained within the initiatives.
8. Be Systematic and Comprehensive: Clear Measurement Concept for Procurement Savings
Particularly efficient controlling concepts place equal emphasis on planning, forecasting, and – if possible automated – measurement / input of actual values. We are faced with a high level of sophistication, precisely if our goal is to establish initiative controlling for procurement. The following figure shows that numerous savings types can be differentiated in procurement. Ideally, all of them should be systematically depicted through scenarios or suitable initiative types if they are relevant for the business model of the company. Only then is the concept “water tight” and does it cover all reportable success potential.Diagram: Key figures model for procurement savings
9. Automated Measurement of Procurement Savings Based on ERP Data
Initiative management and controlling systems are often limited to the point that the affected employees update the target values periodically, e.g. monthly, and perpetuate them within the context of a forecast. This still does not provide management with any certainty as to how heavily these values deviate from the real actual data. We rely on the fact that our own employees are careful and honest enough. Moreover, they should also still be extremely diligent if thousands of material prices or negotiation success is to be documented.
All of this lacks professionalism! It is professional to allow employees to plan and forecast, but calculating the real actual data with regard to procurement success (cost reduction and cost avoidance) should be automated to the extent possible. Only in this manner are employees relieved of unnecessary and expensive routine tasks, manipulations prevented, and the reliability of the figures and thus the confidence in initiative controlling as a whole increased.
10. The Savings Pipeline as a Control Instrument – Even in Procurement
For decades, sales departments have naturally been working with a CRM system, the central control instrument of which is designated as a “funnel” or “sales pipeline”. Every sale employee documents his business opportunities in the pipeline and allocates a status to them that rates the assumed revenue according to the probability for a successful sales outcome.
That which is absolutely self-evident in sales is still rarely found in procurement or is still not fully recognized as beneficial by the employees and management in procurement.
However, precisely the same concept can and should be utilized in this case – each purchaser should/must document his savings and efficiency initiatives (potentially for each supplier and lever) within the scope of initiative management and plan with monetary or non-monetary target values (savings, compliance, payment duration, etc.). As a result, the savings pipeline can be calculated and depicted at least for the monetary success factors.
Management and the purchasers obtain substantially improved transparency regarding the questions: who is working on which topics at any given moment; which savings and efficiency success can be expected? Are the most qualified purchasers working on the most essential topics? How heavily utilized is the procurement organization, etc.?Example for a savings pipeline as a central control instrument
We offer you a holistic solution for increased transparency, potential analyses and measuring your procurement success regarding indirect purchasing with our DataCategorizer, SpendControl and InitiativeTracker modules.
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In this blog you will find expert knowledge about initiative management and project management in strategic procurement. InitiativeTracker is a software for planning and monitoring your sourcing initiatives, controlling your procurement organization and measuring your procurement performance.
14. - 16. November 2018
53. BME-Symposium Procurement & Logistics
InterContinental Berlin, Germany
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