Defining Scope in an e-procurement Project

Posted by Pete Loughlin in e-Procurement, e-Procurement Software, Purchase to Pay, Purchase to Pay Process 03 Feb 2017

There is a wide variety of factors to be considered when defining what is and what isn’t within the scope of an e-procurement project. Who are the users? Which parts of the business will be included? Which business process will be embraced and in particular, which categories of spend will be addressed.

In simple terms, e-procurement addresses indirect spend or, in some industries, indirect and MRO spend (maintenance, repair and operations or overhaul). That gives a flavour of where e-procurement should point but it’s not a very helpful definition of scope. There are areas of indirect spend that give us distinct challenges – marketing and legal spend for example. And under the heading of MRO comes some critical purchases with special attributes in terms of urgency of requirement and predictability of demand that they are akin to direct goods. The more you look into the detail, the more the lines blur between what is and isn’t appropriate for an e-procurement system and this gives a project manager a particular challenge when managing stakeholders. Many see their area of spend as special and uniquely complex. They either demand that their category is taken out of scope or they request changes and customisations to the system to accommodate their special idiosyncrasies.

Consider two ends of the complexity spectrum. A requirement for a pencil and a requirement for a wheel nut for a motor car. In the case of stationery, a requirement is identified – I need a pencil – and it is a simple matter to raise a P.O. for a box of pencils and sending it to one of many suppliers who can fulfil the requirement. It is similar with the wheel nut however, in a manufacturing environment, it is not a single wheel nut that is required, it is perhaps hundreds of wheel nuts per day for a period of several years. And they can’t come from anywhere. It’s likely that there is just one supplier that can deliver that requirement because they need to be geared up to fulfil that demand over that time period. And it’s is not just the wheel nut. The motor car consists of thousands of components that all need to be delivered according to a highly complex schedule. A failure in the supply chain of even one component can mean that the production line grinds to a halt. This in very simple terms illustrates the difference between direct and indirect goods. Direct goods are those mission critical categories the supply of which is linked to core business processes like materials resource and demand planning whereas indirect goods lend themselves to more simple business process. The requirement for direct goods tend to come out of production processes and systems whereas indirect goods and services requirement are often ad hoc.

But what about that middle ground – categories of spend that are not core to the business but are nevertheless essential and require complex business processes to support them. A very good example of this is facilities management – the management and maintenance of an estate and its infrastructure.

Facilities management procurement can be complex. If a building requires refurbishment, the requirement is a project from which potentially many individual requests for goods and services will be generated. It’s not just the ordering process that is complex, so are the receipting and payment processes. An individual contractor may be paid in stages against the delivery and formal sign-off of key milestones in the refurbishment. At their most complex, FM projects require robust project management intimately linked to the purchasing, receipting and payment process. They are way more complex than buying stationery. But does that mean FM or professional services generally should be out of scope of an e-procurement project?

It is easy to be distracted by the complications of the broad purchasing and receipting process. Special categories require special treatment but there are a few core processes that simply never change: there is a need for a properly defined requisition; the requisition needs to be approved and the goods or services need to be receipted. This is all an e-procurement system does. It may have really useful bells and whistles that make all of these processes easier such as catalogues and mobile friendly user interfaces and perhaps a bit of gamification to make users feel good when they are compliant but at their core, they are simply approval workflow tools. E-procurement systems are not project management or design tools. They are not demand planning tools or supply chain management systems. Other tools do this.

Buying legal advice is more complex than buying stationery. The tools and processes that support this sort of complex and exceptional spend are still important but we shouldn’t try to adapt the procurement tools to embrace these necessarily. And complexity doesn’t negate the need for a P.O. and a receipt. Just because a complex building refurbishment project requires detailed project management doesn’t mean goods and services can’t be receipted against an order.

Pete Loughlin can be found on twitter @peteloughlin

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