Procurement and Finance leaders are increasingly under pressure to enhance operational efficiency and cut back on functional costs. The emergence of digital tools has heralded a new era for streamlined and automated Source-To-Pay processes. Leaders, therefore, must respond to ensure they retain their competitive edge and avoid talent attrition. Digital Transformation has transformed everything, presenting significant opportunities for large-scale automation. This implies a shift in the role of the procurement and finance professional, with broader implications for the procurement and finance operating models.
Whilst there is opportunity, the challenge lies in improving efficiency in a way that is sustainable.
Shifting buyer and procurement manager time to the things that matter
Ultimately, the objective for Procurement and Finance Leaders remains to free up time so that the transactional element of procurement is automated, allowing Procurement staff to concentrate on business partnering activity, relationship management, and strategic sourcing. To realise this, it is important to adopt a comprehensive and pragmatic approach to enhance operational efficiency and optimise operational costs.
The Hudson&Hayes Elevate | Procurement & Finance Accelerator offers a systematic and pragmatic approach to cost optimisation for procurement and finance leaders. It streamlines and automates processes, embraces digital innovation, and builds the foundations for sustainable change through improved operational management. This approach is adaptable to a single Source-To-Pay, Order-To-Cash or Record-To-Report process or an end-to-end approach, drawing on years of experience delivering procurement and finance transformation. A blend of Lean, Intelligent Automation, and Domain expertise enables an approach that helps to get the basics right and future-proof the delivery of services, all while ensuring deep knowledge of the intricacies and language of procurement and finance.
In this article we will explore the approach in detail and provide you with a step-by-step guide on how the approach is delivered.
The Elevate Procurement & Finance Accelerator is delivered across four phases: Initiation, Iterative Discovery & Design, and Iterative Delivery, with a consistent focus on capability building. It aims to drive operational improvements across multiple improvement levers.
Holistic: Time savings are achieved through multiple improvement levers that span multiple components of the Procurement & Finance Operating Model.
Iterative: Design and delivery work are delivered in iterations to realise value early and frequently.
Scalable: The approach is adaptable, suitable for the end-to-end Source-To-Pay process, or for addressing single processes or pain points.
Tailored: It's customised to suit the Source-To-Pay, Record-To-Report and Order-To-Cash process and the procurement and finance function.
Sustainable: It fosters enduring change through consistent capability building.
Figure 1: Elevate | Procurement & Finance Accelerator Approach
Understanding the specific problem to address is a crucial initial step. All efforts can then be channelled towards resolving it. A simplistic directive like 'cut costs' is inadequate. There needs to be a clear articulation of the problem and goal.
A viable problem statement requires an understanding of who is affected by the problem, what the problem is, where it occurs, and crucially, why it's worth solving. It might look something like this:
"Decrease operational procurement costs by 10% by the end of 2024 without compromising the customer experience."
Seeking the input of a chosen group of internal customers, as well as key customer and budget holder perspectives across all categories, enables us to understand the desires and requirements of the people who will be impacted by the initiative. This, in turn, facilitates the creation of a feasible problem and goal statement that addresses crucial stakeholder concerns.
Benchmarking performance using industry-recognised benchmarks is indeed a sensible approach. When it comes to Procurement & Finance efficiency, one commonly used metric is the Cost of Procurement / Finance as a percentage of revenue. For Procurement, Direct and indirect procurement costs as a percentage of revenue can fluctuate significantly, depending on the industry and the specific company. Here's a broad overview of how direct and indirect procurement costs may differ across various sectors:
Understanding procurement and finance costs as a percentage of revenue can be beneficial for companies to benchmark their performance against competitors, identify potential cost savings, and formulate strategies to enhance efficiency. Additionally, it can assist companies in understanding how their procurement processes measure up against industry norms, enabling informed decisions about resource allocation and investment.
| Industry | Procurement Function Cost as % of Revenue | Finance Function Cost as % of Revenue |
|---|---|---|
| Manufacturing | 1.5-3% | 1-2% |
| Retail | 0.8-1.7% | 1-2.5% |
| Healthcare | 1-2% | 2-3% |
| Technology | 0.7-1.5% | 1-2.5% |
| Energy | 1.2-2.5% | 1.5-3% |
| Construction | 1-3% | 2-3.5% |
| Services | 0.7-1.7% | 1.5-2.5% |
Example | Calculating Procurement as a % of revenue
Procurement costs as a percentage of revenue are typically calculated by dividing total procurement costs (direct and indirect) by the company's total revenue and then multiplying the result by 100 to obtain a percentage value.
Total Procurement Costs = Direct Procurement Costs + Indirect Procurement Costs
Procurement Costs as % of Revenue = (Total Procurement Costs / Total Revenue) * 100
Please note that these percentages are rough estimates and can vary depending on the size of the company, region, and market conditions.
The Elevate approach combines a varied set of skills to drive improvement. A squad is composed of individuals with a mix of Lean, Procurement Domain, Emerging Technology (including RPA and Artificial Intelligence), and S2P, R2R or O2C Technology Platform expertise. These teams manifest as the Elevate Squad. Each squad is self-organising, cross-functional, and consists of people from both your organisation and Hudson&Hayes. The squad's diverse nature ensures that you arrive at a design that lays the proper foundations for sustainable improvement while future-proofing with best-in-class technology.
Figure 2: Elevate | Procurement & Finance Accelerator Squad
To begin, we'll tailor the S2P, R2R and/or O2C process model to fit your organisation, using it as a foundation to assign costs and time to. This model also helps bring a shared taxonomy, structure, and language to processes when discussing them with individuals across your business.
Figure 3: Elevate | Procurement & Finance Accelerator | S2P Process Framework
Figure 4: Elevate | Procurement & Finance Accelerator | R2R Process Framework
Figure 5: Elevate | Procurement & Finance Accelerator | O2C Process Framework
Once the initiative is mobilised and performance baselined, it's time to progress into iterative discovery and design. This phase is carried out across 12-week cycles, divided into four-week design sprints.
Selecting an Area of Focus
Instead of trying to tackle everything at once, you should concentrate on selecting a range of processes a value stream. The question of where to focus and where to start can be as much an art as it is a science, and may include any of the following decision criteria:
Benefit: Current Performance, Efficiency Opportunity, Cost Saving Opportunity
Ease of Implementation: Appetite for Change, Level of Technology Change required, Stakeholder Impact.
In some instances, where end-to-end transformation is the goal, you may decide to tackle the process from start to finish.
Figure 6: Elevate | Procurement & Finance Accelerator | Wave Scope Example
Baseline Operational Measures and success criteria
After benchmarking using holistic efficiency measures, a set of relevant baseline measures can be calculated. This provides a mix of lagging and leading performance measures to act upon. The diagram below presents an example list of measures across the source-to-pay process.
Figure 7: Elevate | Procurement & Finance Accelerator | S2P Measurement Framework
Human vs Data-Led Analysis
Discovery can be either human-led or data-led. To obtain real-time and real-world insights, the team can utilise process mining and task mining technologies. The combination of these approaches ensures appropriate engagement while using data to validate the viewpoints of those working on the processes daily. The choice of technology to be used will hinge on time constraints, the business's appetite for change, and whether existing technology is already in place. In the absence of process mining technology, a comprehensive assessment can still be completed, but it will be based on historical data
The Discovery & Design phase is conducted across multiple lenses to ensure a comprehensive design. A holistic assessment of the operating model will reveal numerous opportunities for operational efficiency. Approaches to capitalise on these opportunities should be considered with a view to resolving the problem statement established at the outset. To uncover opportunities to optimise source-to-pay, you should use multiple improvement levers. Combining traditional lean process improvement techniques to eliminate waste and re-work with various digital and automation capabilities can yield transformational results. Unearthing opportunities doesn't need to be complex - it merely involves asking the right questions.
Overview & Outcome: Addressing the customer lens involves adopting an outside-in perspective to understand the experience of budget holders and internal procurement customers when they engage with the procurement service.
Deliverables
Improvement Levers
Shifting customers to lower-cost channels
For customer-facing processes, we will explore ways to guide customers and suppliers towards lower-cost channels such as self-serve platforms and ChatBots. The average Cost to Serve (CTS) for human channels can be significantly higher, and transitioning to digital channels can yield substantial operational efficiencies. By the end of this analysis, the distribution of volumes across each channel will be clear, and opportunities will be identified to guide customers towards lower-cost channels through a combination of short-term and longer-term interventions.
Overview & Outcome:
The cost and value of the processes in scope can be determined by mapping each one end-to-end and capturing key process metrics such as process time, lead time, value-add time, re-work, and waste. This will provide a breakdown of where most of the work is currently allocated and a clear categorisation of each process. This analysis can be carried out at various levels. End-to-end process analysis at a macro level can be followed by analysis at a lower level. There may be processes that add value at high levels, yet non-value-add activities become apparent when the sub-processes are assessed.
Deliverables
Improvement Levers
Standarding processes | Is there one best way of carrying out this process today?
In many cases, the same procurement and finance processes are carried out differently across multiple business units, geographies, and categories. There are often opportunities to harmonise processes to reduce variation. We work with you to standardise processes and ensure there is a foundation for continuous improvement.
Simplification | How might we remove non-value-add activity and reduce waste and rework?
While this question will be familiar for any organisations that have embraced lean, it remains as relevant as ever. We worked with a large telecommunication company and found that the average time from the submission of an existing supplier work package to purchase order approval was 46 days. One of the key drivers was duplication of approvals and excessive approval cycle times. As a result, 95% of suppliers ended up working at risk without an approved purchase order. To address this, process simplification improvements were suggested and delivered which eliminated duplicate approvals.
Outsourcing or transition work to a low-cost location | Are there non-core / transactional S2P, R2R and O2C tasks which can be transitioned to a low-cost location
We will work with you to identify opportunities to transition work to a low-cost location. It is important for your organisation to question whether proximity to a centralised location is necessary. This approach typically works better for transactional procurement and Accounts Payable (AP) processes, rather than customer-facing processes or those with high complexity. Typical procurement and AP processes that may be suitable candidates for transition include invoice processing, purchase order management, vendor onboarding, and routine procurement activities. By assessing the nature of these processes, we can determine the feasibility and potential benefits of transitioning them to a low-cost location.
Robotic Process Automation | Is the organisation carrying out rules-based, repetitive activities?
We work with you to identify areas where Robotic Process Automation (RPA) may be relevant within your procurement and source-to-pay processes. By conducting a thorough analysis of your processes, we can pinpoint specific tasks and activities that are rules-based and transactional, making them suitable candidates for RPA implementation. You can leverage Robotic Process Automation (RPA) for activities that are rules-based and transactional in nature. RPA is well-suited for source-to-pay activities where there is no room for interpretation. Many companies still manually match invoices, purchase orders, and goods/services receipts, which often leads to time-consuming manual issue resolution, such as addressing mismatches between prices and quantities on purchase orders and invoices.
Document Extraction / Intelligent Document Processing | Are people manually entering data from unstructured documents?
We work with you to identify areas where Intelligent Document Processing (IDP) and document extraction technologies may be relevant within your procurement and source-to-pay processes. By conducting a thorough analysis of your document-intensive tasks, such as invoice processing and purchase order management, we can pinpoint specific areas where IDP can streamline operations.
Intelligent Document Processing (IDP) technologies leverage advanced techniques like optical character recognition (OCR) and machine learning to automate the extraction of key data from documents. This includes extracting relevant information from invoices, purchase orders, receipts, and other procurement-related documents. By automating the data extraction process, IDP eliminates manual data entry and reduces the risk of errors, resulting in improved accuracy and faster processing times.
Overview: Operational efficiencies can be delivered through the optimisation, simplification and enhancement of the application portfolio. For large complex organisations it is not uncommon for there to be duplicate technologies that serve the same business capability. During this sprint the team assess the technology landscape using a variety of tools.
Example Deliverables
Figure 8: Elevate | Procurement & Finance Accelerator | S2P Technology Landscape
Improvement Levers
Technology Rationalisation | Is there redundant or duplicative technology being used to deliver the S2P, R2R and O2C process?
As part of our analysis, we will assess the technology landscape to identify any redundant or duplicative technologies that are currently employed to support the process. This involves evaluating the various systems, platforms, and tools used across different stages of the S2P, R2R and O2C journey.
By identifying redundancies and duplications, we can determine areas where consolidation or elimination of technologies is feasible. This process aims to streamline the technology stack, reduce complexity, and optimize resource allocation. By eliminating redundant or duplicative technologies, you can simplify your IT infrastructure, improve system integration, and reduce maintenance costs.
Figure 9: Elevate | Procurement & Finance Accelerator | Process to Application Matrix | R2R Example
Enhance existing technology | How might we improve efficiency through increased functionality or capability in existing systems?
During our analysis, we often find untapped potential in existing platforms such as Coupa, SAP Ariba, SAP, and Workday. These platforms often offer a range of powerful features and capabilities that organisations may not fully utilise.
Our team will closely examine your existing platforms and identify areas where additional functionality or capability can be leveraged to drive efficiency gains. This may involve exploring advanced features, modules, or integrations that can enhance automation, streamline processes, and provide better insights into your procurement and finance operations.
Overview: Recognising the ever-changing landscape, we know that the future requires diverse and adaptive operating models. Through the Elevate methodology, we also help you create efficiencies and agility from improved organisational structure and people capability. We will work with you to focus on the potential brought about by technological disruptors that enable automation of low-value tasks, moving the workforce to higher-value activities like category innovation. For Procurement, the conventional category management model with managers tied to one category may soon become obsolete in some industries. Instead, flexible models that allow for the ramping up and down of specialist resources based on current needs, fostering a culture of adaptability and efficiency.
Potential Deliverables
Improvement Levers
Organisational Structure | How can we adapt the structure to enable efficiency and agility?
We will assist you in designing a lean and appropriately sized procurement organization that is focused on delivering higher-value services. Our aim is to guide you towards optimal automation and establish an effective delivery model that aligns with your specific needs and objectives. By streamlining the organisational structure, you can achieve greater efficiency and agility in your procurement operations.
Simplifying Decision-making | How can we remove barriers to innovation and improvement?
We will provide support in simplifying governance and decision-making frameworks, ensuring that they are streamlined and aligned cross-functionally. By removing unnecessary complexities and empowering decision-makers, we enable a more agile and innovative approach to procurement. Our goal is to create an environment that encourages continuous improvement, fosters innovation, and facilitates the implementation of new ideas and best practices. Through this simplification process, you can overcome barriers that hinder progress and drive positive change within your procurement function.
Overview
Recognising the need for visibility and purposeful measures in procurement, we understand that many organisations lack adequate measurement frameworks and often focus on lagging indicators. In Design Sprint 4, our focus is to address this challenge by working with you to develop a comprehensive set of measures and key performance indicators (KPIs) that provide real-time analytics and visibility into your procurement processes. Our goal is to bring clarity and purpose to your measurement approach, enabling data-driven decision-making and continuous improvement.
Deliverables
Improvement Levers
Measurement Framework | How can we ensure measures and KPIs are aligned to strategy and drive continuous improvement
We will utilise our existing measurement framework as a starting point and customise it to your specific requirements. This framework will provide a structured approach to measure and monitor procurement performance, emphasising both leading and lagging indicators.
Underpinning the approach is consistent capability building. This includes ensuring there are Process Owners and Sub-Process Owners for all areas of the process and developing skills and capabilities in Lean and Intelligent Automation. Ultimately the goal is to create an enduring model that can be delivered and managed by you. To achieve this we leverage our learning and development offering. Each wave will include a cohort of people to train and coach and create self sufficiency.
During the design phase, we will consistently transfer the identified optimiSation opportunities into the delivery process. Our focus is on unlocking value early and regularly, ensuring that initiatives are delivered in an iterative manner over the short, medium, or long term.
To effectively manage these initiatives, organizations may consider using an initiative "hopper" and Kanban approach. This enables leaders to make priority decisions and limits the number of initiatives in progress at any given time. By adopting this method, you can maintain focus, efficiently allocate resources, and ensure timely delivery of initiatives.
Throughout the design and delivery process, we will collaborate with you to determine the best approach for each initiative. Some initiatives may be led by our team, while others may receive our support or be driven directly by your business. Our goal is to ensure that the delivery of initiatives aligns with your priorities, capabilities, and desired outcomes.
By adopting an iterative and agile approach, we can unlock value early and frequently, delivering tangible results and driving continuous improvement. This allows you to realise the benefits of optimisation initiatives while maintaining flexibility and adaptability to changing circumstances.
An explicit business case should be developed for each initiative with its benefits, costs and measures for ease of implementation all specified.
We help you establish processes to ensure that cost-saving benefits are realised. This is especially true when the sought-after benefits pertain to productivity savings rather than direct cost savings.
For instance, decommissioning application licences can deliver immediate and evident cost benefits. However, when it comes to productivity savings, there are various options to consider and compare, ensuring that the improvements effectively impact the bottom line. Outsourcing, for example, can potentially increase overall costs unless accompanied by efficient redeployment of the resources originally used. Similarly, the automation of activities can only optimise costs if the freed-up resources are effectively utilised elsewhere.
We will set up regular cadence and iterations for delivery to establish commitment and regularity over time. Quarterly wave delivery is often a sensible cadence with fortnightly sprints used to maintain momentum.
Wave delivery also provides a structured approach for the change management activities needed to land each solution or change, e.g. training or communication.
In conclusion, Procurement and Finance leaders are facing increasing pressure to enhance operational efficiency and reduce functional costs. The emergence of digital tools has opened doors to streamlined and automated procurement and finance processes, requiring leaders to respond proactively to maintain a competitive edge and retain top talent. At Hudson&Hayes, we understand the challenges and offer the Elevate | Source-To-Pay Procurement & Finance Accelerator, a pragmatic and comprehensive approach to optimise procurement and finance operations.
With the Elevate | Source-To-Pay Procurement & Finance Accelerator, you can drive operational improvements, streamline processes, and future-proof their procurement and finance functions.
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