In-house software add-ons as a hindrance to efficient purchasing

In-house software add-ons as a hindrance to efficient purchasing

In this article we will take a detailed look at the issue of domestic software add-ons, which are found in many companies and which, despite all efforts, usually represent a major hindrance to effective and professional purchasing. First, we will show that software add-ons have arisen for pragmatic reasons and in many companies partially replace the function of sophisticated purchasing software. We then use a practical example to show a simple audit of purchasing add-ons. Similarly, we will show how the allowance system (doesn't) work using a practical example. In the last section, we will look at five barriers that prevent change for the better and that can be applied to virtually all improvements in the purchasing process.

The glitz and glamour of software add-ons

Sometimes the impression is given that a company that doesn't use quality purchasing software is purchasing inefficiently and "leaving money on the table" unnecessarily. As a lifelong user of purchasing software, I would have to agree with this statement if there was an equation between the absence of purchasing software and the absence of digital purchasing. However, my experience in the field has shown that many businesses have progressively implemented a whole range of purchasing software and "home-grown" tools, enabling them to achieve a very high quality and advanced level of digital purchasing in some areas.

On the other hand, all the analyses I have had the opportunity to perform in companies so far show that "home" add-ons suffer from several fundamental flaws:

(1) they are not linked, so the buyer switches between many databases and fills in the same information several times,

(2) they are outdated, i.e.

(3) they do not force the buyer to carry out activities that are currently considered good practice of effective purchasing, e.g. standardization/automation of the process,

(4) they are difficult to use for performance measurement and purchasing reporting,

(5) the supplier cannot enter them, e.g. to submit bids, insert and update documents, formulate corrective actions, obtain report

Interestingly, we see "home-grown" solutions mostly in medium-sized companies (by turnover or company culture), which I think is due to the "solve problems when they happen" approach. Unfortunately, this pragmatic approach over the years has led to the creation of a number of non-cooperative and sub-optimally functioning purchasing processes, while causing these companies to fall behind in terms of purchasing process efficiency and savings generation. (For a practical example, see ERP Add-on System: A Practical Example).

The increasing demands for efficiency and professionalisation of purchasing will bring the company to a point where it has to ask itself whether it is worth staying with the current "home-grown" solution or whether it should consider switching to purchasing software: Audit of software purchasing add-ons).

In a joint analysis, purchasing staff tend to defend these "home-grown" systems by stoutly pointing out that the system works great, meets all the needs of the purchasing department, that they are improving it over time, and that it doesn't cost any money. I attribute this to five natural human reactions:

(a) a natural distrust of change and a reluctance to learn something new "unnecessarily",

(b) an emotional attachment to a system that I have created and improved myself,

(c) a feeling that I would just be spending money unnecessarily on something that now works for free,

(d) ignorance of the best practices of complex purchasing processes and what the benefits of alternatives are,

(e) what am I going to do with my free time? (See section for guidance on how to overcome each barrier: How to overcome resistance to chang

Audit of software purchase allowances

How do you know if your software add-on system is working and switching to shopping software would just lead to spending unnecessarily on something that works for free today? Just do a simple audit of your current solution and compare it to any quality purchasing software.

1. Have any quality purchasing software (e.g. www.promitea.cz) that offers at least the following functionalities: tendering, document management, supplier registration/qualification, supplier evaluation, reporting, e-catalogues. Have them explain to you specifically what each function can bring to you in terms of process, elimination of ops, tangible financial savings and how much it would cost.

2. Next, map all the "home" tools of your ERP and add-ons that you use in the purchasing process. Describe what functions the current add-ons do. Identify any white spaces compared to the purchasing software.

3. Compare external and internal solutions in terms of functionality, processes, user-friendliness, possibility to delegate activities to the supplier, sharing of good practice through the software supplier, maintenance requirements of both systems in terms of internal capacity and know-how, real costs of system maintenance.

4. If purchasing software is better, calculate the specific benefits and try to quantify them in real money.** Consider whether it's worth it.

A practical example: from add-ons to an integrated solution

A medium-sized engineering company with a turnover of approximately CZK 1 billion and four employees in the purchasing department purchases mainly metallurgical materials, special components, spare parts and services for the entire factory.

The company's standard use of enterprise software was for order requests, request approvals and order creation. In addition, it gradually developed a SharePoint-based add-on system for contract archiving, supplier evaluation and supplier quality management. However, a system for tendering was lacking, so the purchasing manager approached several purchasing software providers and had them demonstrate each solution.

He liked one solution more than the others and conducted a real-world test on one of the key buying categories. The first observation was how simple and intuitive the software was. The second pleasant surprise was the interesting price reductions due to the combination of an RFP and a quick final e-auction that all 10 suppliers contacted participated in. Here we should add that the reduction was in the order of one percent, but the purchasing manager commented, "We have been buying this material for years and we know how much it should cost. Yet we were surprised that in 20 minutes of auctioning we still got savings that we would not have got by conventional telephone negotiation."

According to the owner and managing director in one person, "he earned the purchase on software by saving money, not to mention saving time." The implementation of the software is done in several steps so that the small purchasing team can manage it as part of their daily activities. They will start with tenders, followed by catalogues and finally document management, supplier evaluation and reporting will be put in place. The purchasing manager adds: "In terms of ISO and other certifications we have, we have to do a lot of new purchasing activities that we have only done on paper up until now. It's extra work, no question about it. But it has to be done. We will have everything in one place and with an optimal process."

How the ERP add-on system (doesn't) work in practice

Let's illustrate how such a system of additions to ERP works in practice with a concrete example from practice. The system works effectively if nothing special happens. However, in case of problems, everything has to be traced back in a complicated way.

1. Tender is done electronically by a combination of ERP system, email, excel and forms, i.e. the order request either comes in ERP or by email. The buyer then creates a requisition, where they insert the general terms and conditions, drawing, product information, terms and conditions and send everything via email. He keeps track of the dates for quotations in a calendar, summarizes the quotations received by email/phone into excel, negotiates the final price, formulates a recommendation, which he uploads into the ERP for approval along with the suppliers' quotations and a comparison table. Some buyers have a complex system of folders and links on their computers and in their email and are able to find the required information with some effort. Others hope that no one will ask them about a tender that has already taken place, because tracking down all the emails and spreadsheets can take all afternoon. For price updates, multiple jobs and other changes, the correspondence for the tender needs to be found, discussed, approved in a similar way to the tender and a purchase order created.

2. Documents (technical specifications, contracts, requests for quotations, supplier documents) are stored using share-point, which sometimes has a validity check programmed into it. The system is most often used as an archive and its up-to-dateness depends largely on the discipline of individual staff. Well-intentioned efforts to improve the system gradually turn it into an opaque labyrinth of repositories, and purchasing staff typically use it to store documents but no longer to retrieve them.

3. The Supplier Evaluation is usually done via excel, email or online questionnaires and then transcribed to sharepoint where the responsible staff member then creates a final supplier evaluation which is then copied into an internal report to determine the supplier's qualification level and a public document for the supplier requesting corrective action. The corrective actions are then addressed in another set of documents that must be transcribed into evaluation documents upon completion.

4. Purchase Plan (Investment Plan), takes the form of a detailed shared excel document summarizing key upcoming investments, which is revised and published quarterly on the procuring entity's website and is also sent to selected suppliers. The original idea was to get the information from internal customers automatically by a certain date; realistically, internal customers need to be reminded several times in order to eventually produce a more or less telling document.

5. The Purchasing Templates and Procedures (such as the Negotiation Planner, Meeting Minutes, Action Plan) have been created in the past as part of the Purchasing Guidelines, are stored somewhere, and are not used. Several completed copies are kept by Purchasing as an eye in the head in case of a sudden audit. The purchasing manager thinks it would be a good idea to use them systematically, but because they are not linked to the purchasing process, they are not handy, and purchasing staff have not been trained in their use, the idea never takes off in practice.

6. Communication and supplier development is an area that is provided by emails. The actual process of communicating with suppliers is not standardized anywhere, so when a buyer leaves a company, his successor has to navigate the predecessor's emails, or draw a line and start from scratch. If the buyers have a performance indicator of "supplier development" or "continuous improvement," they are probably tracking actions in an Excel spreadsheet. In practice, then, the way it works is that the buyer, under the weight of operational and more urgent tasks, puts supplier development on the back burner and doesn't activate until a few days before the manager interview, when they call the supplier to see "how far along they are" and ideally report a few completed development program.

The buyer, who is paid to be a technology enthusiast in the company and is therefore naturally responsible for digital purchasing, has a fairly strong opinion of the current system:

1. The system does not work well because the buyer has to constantly switch between different systems: "We have a bunch of share-points and different databases and you have to bookmark them so you know where to find what. And then you've got to know which table holds what, exactly what to type in. Often you're filling in the same information into four systems. Filling out and maintaining databases is not automatic or intuitive, you have to think about it. It's a pain in the ass for everyone, so every once in a while we get an email to the boss to fill out X, check Y, add Z information. ... I've wondered why bosses don't do anything about it, and my opinion is that they don't have to fill out these spreadsheets, so they don't care. ... We spend a lot of wasted time on this. Nobody can quit because they're training a newbie. ... And the worst thing is that most are used to it by now and have resigned themselves to some kind of protest."

2. The system does meet the needs of the purchasing department but not good practice because the add-on is programmed for the current process but does not take into account the development of good practice: "Our contract management system is set up like a database, so you can easily search for a contract by supplier. Later we added metadata so we know when a contract expires. You can easily look up amendments as well. But when I compare it to the document management systems that are standard in the market, we're a hundred years behind the monkeys. We don't have all the supplier documents in one place, like certificates, annual reports. We don't handle different types of documents differently. We lack automatic supplier alerts and the ability for a supplier to upload a document that the buyer just approves. Instead, the notification comes to us and we have to approach the supplier, watch for a response and upload the document into the system.

Unfortunately, digital purchasing is done centrally. In practice, this means that they have stuck to a solution, but they cannot put it into practice, so they say it will take four years at the earliest. And we will still be implementing the system for at least a year, customising it, and in the end nobody will be happy because the system simply does not work.

How to overcome resistance to change

If you decide to phase out all allowances and switch to purchasing software, you can expect resistance to change, which stems from four natural human reactions:

(a) a natural distrust of change and a reluctance to "unnecessarily" learn something new,

(b) an emotional attachment to a system that I have created and improved myself,

(c) a feeling that I would just be spending money unnecessarily on something that now works for free,

(d) ignorance of the best practices of complex purchasing processes and what the benefits of alternatives are,

(e) what will I do with my free time? Let's think about ways to overcome these barriers.

Natural distrust of change and reluctance to learn something new "unnecessarily"

Many buyers are of the opinion that any change is for the worse and that it is just extra work for them with no tangible benefits for them personally. For these workers, there is no need to explain the benefits in a complicated way (as long as you know they are there), it is usually enough to be consistent, show them the new system in practice, give them time to feel and learn everything gradually, and in a few weeks they won't even know there was a "before." The important thing is that managers set an example, use the new system, and don't admit "I'm going to do it outside the system now."

When it comes to actually learning to use the new software, an experienced manager in a large purchasing department summed it up nicely:

"If you are one of the 99% of the population, you never read the manual. And it's the same with shopping software implementation. Don't waste your time with some video tutorials, manuals, long training sessions. The only thing that works is a simple two-page description of the process steps that you wrap in foil and put on the desk for the buyers, trial and error on the job ideally with vendor support for the first two or three uses, and the ability to discuss issues with the super-users on the job."

Emotional relationship to a system that I created and improved myself

Although purchasing managers should be the biggest allies of new software implementation, because it will speed up processes, remove operational and administrative overhead, and lead to savings, they are often the most stubborn frog on the spring. I encounter this rejection especially from purchasing managers, who created the current allowance system and know how to use it best of the entire company. They see any discussion of change as a personal attack on "their baby." Very often, they argue that the current system "does everything, that they're making incremental improvements, and that we can easily reprogram each improvement." And if you add to all this the "skeptic syndrome," i.e., the proposals are divided into two groups, the ones I came up with and the other, absolutely wrong ones. Here, it basically doesn't matter what arguments you come up with, what references and evidence you present, because "I can now quote you off the top of my head at least 25 reasons why it won't work, because ..." Moreover, the skeptics excel at making general reservations that you have no chance of dispelling, because "I'm convinced there is SOME risk anyway, ... we'll discuss that internally afterwards ... I'm not saying it will make relations with suppliers worse, but ..."

The answer to the question of whether anything can be done about it is yes, but it will hurt. Ideally, the problem will be chopped up by a director or owner who says that the current system needs to be reworked and that it would be more practical to move to an off-the-shelf solution and delegates the successful implementation to the purchasing manager, knowing that no one else could do it. The other option is to wait patiently for the purchasing manager, a skeptic, to take the idea on board and recommend the software implementation because "I'm sick of having everything in ten databases and no one knows how to do it properly." Very often this happens on the recommendation of the purchasing manager, whom the sceptic takes as a reference. The third option is to wait for a change of environment, when requirements emerge that the current system cannot handle, and the purchasing manager will have to move to a more powerful, integrated system.

The feeling that I would just be wasting money on something that works for free today

Companies often feel that benefits work automatically and completely free. Therefore, switching to purchasing software, which usually works in the form of an annual subscription, seems like a waste of money. Moreover, "if we need to adjust something, IT will program it for us," i.e. the internal costs of running and maintaining the add-ons are not taken into account.

Of course, this is where purchasing software providers play a crucial role, because they have to convince the company management and the purchasing manager that the investment will pay off quickly. The following methods have proven successful:

• Require the supplier to show you that the software will save you money (specific, measurable amounts); consider the savings in time and effort a bonus, because for most purchasing managers, they are "not cokeable."
• Make sure you need the software from a professional purchasing or compliance perspective and let the vendor convince you that your solution is cheaper than programming everything yourself.
• Think about whether the software brings you high added value that may not be measurable in monetary terms but is of strategic importance to you, for example: control over purchasing activities and communication with suppliers, meeting the requirements of certification or demanding customers, doing "more with less."
• Look for a way to pay for the software with the supplier. At the same time, remember that suppliers are businesses that must generate a profit and that every customer must be profitable in the medium term.

Ignorance of the good practice of complex purchasing processes and what benefits alternatives bring

One of the biggest advantages of purchasing software is access to the best practices of the best companies. This is because software vendors work extensively with customers to improve software, introduce new features, and optimize the process. The purchasing process must constantly evolve, but midsize companies usually don't have the capacity and know-how to follow the "latest cry of purchasing fashion."

The best way to overcome this resistance is education, the opportunity to confront our processes and tools with the best, to consider the deployment of purchasing software as an opportunity to implement, optimize or standardize purchasing processes. Indeed, one of the big arguments for purchasing software is precisely the confrontation of the current process with the good practice represented by purchasing software. If large, successful companies have digitised the entire tender process, why do we still conduct some activities via Excel and email? If the companies we hold up as models have this process, why do we do it differently?

What will I do with my free time?

It may seem like a bad joke, but in practice I have encountered an unspoken but very acutely perceived problem related to uncertainty about one's own knowledge and skills when software removes some of the administrative and operational activities that buyers currently spend a lot of time on.

Practical example: what to do with free time?

A manufacturing company with a purchasing manager and two buyers who currently spend most of their time over:

• Do tender procedures (email, excel),
• Issue orders (dozens per day),
• Monitor deadlines, resolve complaints,
• Everything else related to the purchase.

Purchasing software could significantly speed up or eliminate many of these activities, e.g. the introduction of catalogues would shift the ordering of standard parts to the requester and purchasing would "only" manage and control prices and solve any problems. Similarly, for tenders, suppliers could fill in their bids directly in the system, which would also collate them, saving about 20 minutes per tender. And so we could go on.

However, during the introduction of the instrument, the buyers were quite reserved. In fact, it turned out that today, "for capacity reasons," they negotiate only minimally with suppliers, they can't develop a purchasing strategy, they "don't have time" to evaluate suppliers because they have to deal with all the supply and quality and payment issues."

In other words, purchasing software was a problem because it would take away the work they know and where they can show how hard they work, and free up their time for activities they don't know how to do, don't see the value in, or don't fit their character.

How to phase in practice

For some company owners and executives, the introduction of purchasing software is an "eye-opener" because they find that their purchasing is not doing what we expect modern corporate purchasing to do, i.e., create a purchasing strategy that saves time, money, leads to higher quality, stimulates supplier innovation and optimizes processes. At the same time, it should be noted that purchasing improvements will not happen overnight and that the initial leapfrog improvement will be followed by a phase of slow but tangible improvement.

In the first phase, I recommend that owners attack individual barriers as hard as possible and focus on the "low hanging fruit" of optimizing the current procurement process-usually leveraging the potential of computerizing the tender process to achieve savings and speed up the process. It's also good to tidy up contracts and evaluate whether suppliers are actually delivering what they have committed to and whether there are easy savings to be made by improving quality, logistics, internal flows.

In the second phase, I recommend, if only temporarily, to strengthen the team with one strategic buyer who will teach the rest of the team about "modern buying" and its tangible benefits. Slowly and patiently remove additions and improve processes, which usually only requires putting purchasing software into practice. To be specific: when you implement electronic catalogs, you immediately gain control over what is being purchased, from whom and for how much, you can monitor if you're running out of money somewhere, and you save time in order creation that can be spent on strategy and negotiation.

Finally, in the third phase, I recommend some realism in that smaller and medium-sized companies cannot afford a top-notch procurement team. Therefore, we need to work with the team we have and upskill them in key buying skills, optimize processes, help buyers implement processes and tools they are currently unfamiliar with, professionalize buying. A good way to do this is to also enlist the expert support of a vendor in purchasing optimization as part of the software implementation.