Managing RFPs with email and spreadsheets is risky, expensive, and counterproductive.
What is the value of technology? One key benefit is the automation of boring, less valuable activities to free up time for more productive uses. One day, we will have safe, self-driving cars freeing us to do more with our commuting time. Before automatic washing machines, people wasted a terrible amount of time cleaning their clothes.
The more actions we can automate, the more we are free to focus on things that have greater impact. Counter-intuitively, when implemented properly, automation can give your employees more meaning by liberating them from routine tasks so that they can focus on the truly strategic parts of their jobs.
In addition to automation, there is tremendous value in promoting collaboration across the enterprise. Historically, procurement has been segregated as a quasi-clerical function despite its significance to the firm’s outcomes in terms of product differentiation, total costs, and firmwide risk management.
The common foundation for automation and collaboration, when it’s done well, is structured, standardized, shareable data.
Get your data right and you can realize exponential benefits in terms of automation and/or collaboration. Data about vendor risk management, pricing, contract performance, etc.
People rely too much on emails and spreadsheets in procurement departments in corporations of every size. Everyone uses email and spreadsheets for something. Roughly half of organizations use Excel or some other type of spreadsheet for data storage and analysis.
There is a logic to this. It’s easy to use Excel to use and it keeps the individual in control of the data. For organizations with different systems, spreadsheets are the common glue used to patch them together when it comes to sharing data. It’s much easier to work with data in a spreadsheet than it can be to try to customize it within a software platform or, God forbid, across multiple software platforms. These platforms might have functional gaps, for example. Many of them are difficult to use, for buyers and/or suppliers. And when you start to have problems working with data on a platform, Excel is that much more comforting.
When everyone is looking to cut costs and procurement departments are looking over their shoulders for the next round of restructuring, it’s all about running-in-place. Innovation is a dream. Particularly when there is a history of platforms that companies implemented at tremendous cost only to fail to get sustainable, sticky traction with end-users. This can happen if, for example, to start using a particular technology, you ask your procurement staff to change the way they do things.
But, all of this spreadsheet dependency comes with a cost. And that cost is risk, hidden iceberg-like beneath the general consciousness of enterprise operational risk.
When spreadsheets are dominant in the management of procurement, it makes it much more difficult to remove functional silos; Bob in sourcing has tremendous power over data that is the property of the company if he is the only one with access to and control over certain types of data.
When spreadsheets are dominant in the management of procurement, it’s tough to do analysis in real-time; you need to take it offline. It’s difficult to collaborate with partners, either inside or outside the firm, because the data you need to share may not be in a structured, commonly understood format.
When spreadsheets are dominant in the management of procurement, the enterprise (and the leaders especially) likely do not know even what data they possess.
When spreadsheets are dominant in the management of procurement, there is tremendous risk of inaccurate data that comes from multiple sources, some of which have not been validated. There is also the problem of version control. How do you know you’re dealing with the most recent version of the spreadsheet? “In fact, both PriceWaterhouseCoopers and KPMG report that more than 90% of sophisticated corporate spreadsheets have material errors in them, with an average cost to the corporation of $165,000 per incident. How much larger is this amount in the case of a failed launch or a supply chain disruption?”
When spreadsheets are dominant in the management of procurement, the firm is exposed to the significant risk that the employee responsible for some critical dataset leaves the organization, forcing the rest of the team to try to interpret the highly personalized and almost certainly undocumented collection of information. It might have made sense to structure the sheet the way Judy did, but when she’s gone, good luck figuring out what she did.
All of this is complicated further by the sheer speed of business today. We’re all moving so quickly that it’s easy to get sloppy. For example, a survey by Dow Jones Risk & Compliance into the third-party risk management practices of UK companies found that 31% were considered high-risk and 50% cut corners on vetting suppliers because they didn’t want to slow down the business. This is only going to get worse as the volume of business increases; spreadsheets can’t cope with the volume, as it is.
Arguably the biggest tax on the enterprise from a persistent use of spreadsheets in the management of procurement projects is the friction to change that it creates. How do you automate your processes without clean, structured, high-quality data to train the machine? Spreadsheets keep enterprise procurement staff mired in the busywork when they should be focused on monitoring contract performance, developing category knowledge, expanding supplier lists, and, most importantly, collaborating with the business to ensure that the firm obtains the best value-for-money defined broadly in terms of strategic issues like product design and engineering and marketing, not just in tactical cost savings.
And who would want the advice, especially when it comes to technology, from a department that relies so heavily on spreadsheets to manage its operations? It doesn’t exactly convey sophistication, does it?
Email is just as risky. Why is it reasonable to expect suppliers to discuss sensitive IP over email? How many suppliers has your organization discouraged from replying to an RFP by using email as the principal mechanism for communication? And when you put their data into a spreadsheet, why should they trust that you can keep that information out of the hands of their competitors? What is to stop someone from your procurement organization from sharing it, either inadvertently or malevolently?
The ugly truth is that the use of email and spreadsheets reduces and restricts procurement to the purely tactical province of lowest price. On the face of it, what’s wrong with that? At least, one can measure cost savings. But savings are not strategic. Strategic sourcing means helping the firm design the best possible product by being mindful of the input markets. It means helping finance understand completely the risks the firm faces enterprise wide. It means assessing the performance of suppliers after the contract is signed, particularly when it comes to complex, long-lived contracts with complicated deliverables. You need data and collaboration tools to really make this happen.
It’s not enough even to have this data residing in an ERP system. The C-suite and others in the organization need to access this data in a format that helps them with their ability to make decisions. Are they really going to access that data from the ERP system? Is it in a usable format? Can the ERP system cope with the volume?
So, what’s the solution?
The ideal fix to this mess would be a platform that contained a common repository (with security, enabling a partitioning of public and private data), collaboration tools, and centralized functionality for supplier risk management and administration. Data would exist in a structured format, ideally one that adhered to a standard used by multiple organizations. Collaboration tools would facilitate sharing of procurement data across the firm and communication regarding sourcing actions, all within a secure framework. Duplication across firms in things like vendor risk management would be minimized (if not eliminated) for members of the platform and suppliers could showcase their wares to buyers, including real-time dynamically updated information about their capacity and capabilities to ensure they were included in potential RFP distributions.
That’s what we built at EdgeworthBox. We have taken key features from financial markets and laid them on top of a marketplace engine for executing RFPs. These features include a central clearinghouse for administration, a partitioned central clearinghouse for data, and social networking tools. All of it offered for a fraction of the price of the incumbent solutions in the marketplace. Come give us a spin with a free trial, or better yet, reach out for a chat and we’ll share some of what we’ve learned with you about sourcing and how we can think you can do it better.