Procurement can negotiate the best deal on the planet, however, the benefits will never be realized if users intentionally or unintentionally bypass preferred vendors. Coordination across the entire Procure-to-Pay (“P2P”) process is essential to avoid the savings being an impressive PowerPoint slide but never seeing the bottom line.

A recent Peeriosity Peercast^TM in the Accounts Payable research area featured a company that has significantly increased its preferred vendor compliance measures through a concerted effort led by its Shared Services Global P2P Process Owner team.

Peercast^TM attendees participated in a poll to indicate how they would describe their success in preferred vendor compliance:

The poll results revealed that most organizations are not realizing the full benefits that they have negotiated with vendors. In fact, 29% acknowledge that they are leaving money on the table through poor compliance or, worse, not measuring compliance at all. It is not that unusual for components of the P2P process to be functional silos and never really connect to ensure the benefits of the agreement are realized. Global Process Owners can be the ones who connect the dots, measure compliance, tally the savings, or identify where and why savings were lost.

As with so many things, the 80/20 rule is alive and well as it relates to preferred vendors. Their goal is to have 80% of their spending come from 20% of their suppliers. Those suppliers are “preferred vendors” and have negotiated pricing and terms. There can be multiple preferred vendors per spend category. Other vendors can be “approved” vendors or “one-time” vendors. Analysis has indicated that the use of preferred vendors can result in 5-7% cost reductions versus the alternatives so compliance is critical. The message is clear:

Drive the volume of spending through preferred suppliers to realize the benefits of negotiated prices and terms and increase our leverage on future negotiations.

To drive compliance, the featured company uses a few different approaches categorized as people, process, and technology. A few of the items discussed are noted below.

People

• Global Process Owner for P2P with accountability for overall process efficiency
• Expert category spend leaders who understand price and TCO
• Professional centralized management of the supplier master data, preferably in Shared Services
• Empowered order processing and requisition review in Shared Services – can reject and redirect
• Strong collaboration between all users of P2P

Process

• Procurement can approve or reject preferred suppliers with an eye on 80/20, but give users options
• Supplier master data owned by Shared Services
• Users select from a choice of preferred vendors
• Shared Services cleans vendor files monthly of inactive vendors (~ 14 months inactive)
• Visible SLAs and KPIs throughout the process

Technology

• Catalog to make the path of least resistance a compliant path
• Suppliers categorized within ERP and tied to master records
• Workflow capability maximized to make the process automated, easy to use, and informative
• Reporting capability on suppliers, master data trends, category information, etc.
• Transparency into compliance

What are you doing to increase preferred vendor compliance?

Who are your peers and how are you collaborating with them?

¹ “Peercasts^TM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion.  Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content.  Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member.  Using Peeriosity’s integrated email system, Peer Mail^TM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees.

Peeriosity members are invited to log in to www.Peeriosity.com to join the discussion and connect with Peers.   Membership is for practitioners only, with no consultants or vendors permitted.  To learn more about Peeriosity and the Senior Executive offering included in the membership Click here