Today, we live in a digital world. Think Amazon. There are infinite choices for procuring any item and its price changes several times in a day. All consumers are looking for the best deal with a same day delivery in their personal lives. So why should expectations from buyers be any different in the corporate world?
Organizations will rightfully expect to procure faster, better, and cheaper through any channel by leveraging the abundance of options in the market. Procurement organizations are therefore exploring innovative ways like setting up curated marketplaces to make it convenient for people to find the right suppliers and transact with them quickly at an operational level. But how do you ensure that this increase in convenience does not come at the cost of increased leakage and non-compliance?
Traditionally, organizations have relied on a combination of internal and external checks to discover cases of leakage or non-compliance from time-to-time. There are two fundamental problems with this approach:
- Most findings are post-facto since the analysis itself is done after the fact and so any damage detected cannot be reversed
- The checks themselves are siloed in nature and often done on a sampling basis through audits, so there is a lot of damage that goes undetected
It is therefore important to reimagine the way procurement is monitored and the role of intelligence within it.
The picture above plots intelligence along two dimensions. The X Axis shows the currency of intelligence ranging from stale to live. The Y Axis shows the granularity of intelligence ranging from coarse to fine. Traditionally organizations do a ‘Periodic Analysis’ of procurement which focuses on analyzing historical transactions to understand spend distribution at a coarse level. This analysis yields post-facto insights from information siloes like sourcing, procurement, invoicing, contracts etc. which are then used to guide the optimization of policies and contracts. As mentioned earlier, the damage uncovered through this approach is often irreversible and the analysis itself is restricted to a sample set due to the high cost of labor. It also fails to detect emergent patterns because the analysis is done using a set of established rules within siloes. While this works well for a tightly regulated procurement function and delivers some efficiency, it fails to cater to the dynamism of a digital world.
It is therefore important to bring in a ‘Continuous Monitoring’ capability into procurement that focuses on analyzing live transactions to detect and intercept sub-optimal procurement behavior at a transaction level. The sub-optimal behavior could be due to spend leakage, non-compliance or even a missed opportunity to cash in. Detecting or predicting anomalies in live transactions provides a crucial window of opportunity to intercept the transactions and take corrective or preventive actions. This approach also brings in the ability to screen all transactions instead of just sample sets using a combination of rules and patterns learned from past transactions. Such an ability will allow organizations to smartly monitor growing volumes of purchase transactions from a distance and intervene only on a need basis thereby increasing the effectiveness of the overall process.
The key idea should be to empower people and let them take decisions at the edge to keep things agile but put a surveillance mechanism in place to detect any unusual behavior, intentional or unintentional, and intervene only on a need basis.
A Continuous Monitoring mechanism can be made possible by embracing the notion of a “Command Center” for procurement. A Command Center is – a consolidated view of the various activities or actions that are ongoing, in parallel at various different locations and can be tracked in a centralized place which allows a user to monitor operations continuously in real time and lets the user take remedial measures if required.
There are several controls worth monitoring continuously through a Procurement Command Center. For example, in the Procure-to-Pay process one could monitor controls specific to stages like:
- Purchase Requests (PRs) that could be procured through RFQs
- PRs that could be clubbed into single Purchase Orders (POs)
- POs that are likely to run into fulfilment delays
- POs that are non-compliant to policies / contracts
- POs that are suspected to be split requests
- Invoices that are likely to run into payment delays
- Invoices with early payment discounts
- Invoices that are duplicates
Each of the controls listed above are worth monitoring continuously because an early detection of the anomaly or opportunity allows an organization to take appropriate actions in a timely manner to save money or make money. Also, it presents a unique opportunity to act on holistic insights mined from interconnected data sets across sourcing, procurement, invoicing, and contracts.
While the concept of a Command Center may be new to Procurement, it has proven its value in several other domains like:
- Monitoring network equipment and activity through a Network Operations Center (NOC)
- Monitoring security operations through a Security Operations Center (SOC)
- Monitoring data centers, computer systems and incident responses through an Integrated Command Center (ICC)
In each of these cases, a Command Center helped put in place a truly proactive mode of operations where technology is leveraged to detect and predict anomalies as early as possible. This allowed corrective or preventive actions to be taken in a timely manner ensuring better customer experience and more effective operations. Today, business expectations from the procurement function go beyond just spend optimization. Chief Procurement Officers are expected to sustain business performance and quality, protect businesses from supplier risk and accelerate product innovation in a dynamic business environment. To address such priorities, it is important to embrace proven concepts that can help the procurement function better handle this dynamism. It is time to conceive a Procurement Operations Center.