PA Consulting: 5 tips for CPOs to tackle maverick spend

08 October 2014

As we enter the final quarter of the year, CPOs will be budgeting new cost savings to be realised during 2015. But rather than focusing on strategic sourcing, they must turn their attention to taking control of their organisation’s maverick buying as a powerful source of new savings.

Although the contemporary procurement agenda targets a wide range of procurement-driven benefits, cost savings are still at the top of the agenda, with strategic sourcing, category management, volume leveraging, standardisation and renegotiation tactics being the main instruments for generating them.

However, most sourcing initiatives have an inherent weakness because they assume somebody else in the organisation will ensure new or re-sourced contracts are implemented and used. Just look at the classic sourcing process and its final stage entitled ‘implement contract’ or something similar. This stage is most often poorly executed; in reality this often means putting the new contract in a drawer.

Procurement Management

1. Eighty per cent maverick buying is not uncommon.
In other words, very few companies have a purchase-to-pay (P2P) regime that captures the benefits of a sourcing initiative, for example contract usage and compliance. The result is maverick buying – uncontrolled spending, poor contract compliance and, as a result, low benefit realisation. In our experience, it is not uncommon to find that up to 80 per cent of all invoices are generated from uncontrolled buying, even in large organisations with professional procurement functions. Ineffective P2P also comes with a range of other problems with payments, supplier management, master data management, enforcing terms of business and fraud.

Many would recommend installing an e-procurement system, but while this is good for catalogue buying of consumable items, it does not change behaviours and can still be bypassed. Many organisations also find it challenging and costly to keep an e-procurement system’s product and pricing data up to date across a huge range of articles. E-procurement is great when it is rolled out in controlled stages, P2P processes and procedures work already, and the organisation is mature.

From our recent experience advising on procurement initiatives, we have found a few practical business changes, which don’t require investment in a new IT system, have proven effective in controlling maverick buying. Normally, these can be implemented using the business’ enterprise resource planning system as it is (simply for purchase order management and invoice payment), without having to employ additional personnel.

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2. Roles must be clearly separated.
Most employees love to contact suppliers, negotiate prices and buy – and it’s this behaviour which is the root cause of uncontrolled spending. This needs to change. Employees (requisitioners) should only raise a requisition when they have a need to purchase, while ‘operational purchasers’ – those with a ’license to buy’ and the authority to raise a purchase order – should then carry out the purchase on behalf of the requisitioner using the correct P2P processes, purchase order management and available contracts that ‘strategic purchasers’ have arranged. Operational purchasers can easily serve many requisitioners within or across business units, locally or centrally, depending on how this is set up. Normally, this can be implemented without having to employ additional personnel.

3. P2P processes should be tailored.
One size does not fit all when it comes to P2P. Processes must be designed to cover all possible purchase types and take into account different roles. For example, buying direct material for inventory will not follow the same process as buying an indirect service based on time and material. Normally, 20-25 variants of a generic P2P process will cover all the bases.

4. Purchase orders have to be used for every purchase.
This may sound overambitious, but without a purchase order, the commitment of spend will not be in the ERP system and therefore unknown to management. Terms of business and payment terms will also not be communicated to the supplier, and, as a result, cannot be enforced. Moreover, there is nothing to match goods receipts and invoices to when goods and services are delivered. In our experience, around 90 per cent of all purchases should be raised on a purchase order, with the remaining 10 per cent covering purchases that will normally not require one, for example subscriptions, utilities and personal travelling expenses.

5. A P2P policy needs to be clear and communicated.
I refer to P2P as a ‘regime’ because it needs to be strict in order for it to work. The truth is the easiest way to buy something is simply to grab the phone and call a supplier – bypassing the purchasing policy and process (if there is any). At the same time, no one really dares to take responsibility for changing this behaviour. Therefore, eliminating maverick buying, gaining control of an organisation’s buying behaviour and realising cost savings will depend on how much the executives really want it. Their direction must be clear and well communicated in one common P2P policy, with compliance being monitored monthly and individual cases of uncontrolled buying addressed directly.

Organisations that fail to address these points can expect continued loss of compliance and benefits. Since a strong P2P strategy realises savings, reduces risk and streamlines invoice payment, the CPO should find it easy to team up with the CFO when establishing a P2P regime.

An article from Jes Batting, a sourcing and procurement expert at PA Consulting Group.


Maine Pointe: How 3D printing will impact the global supply chain

21 March 2019

3D printing is touted as one of the most disruptive developments in manufacturing and beyond. UK-based Simon Knowles, Chief Marketing Officer at Maine Pointe, reflects on the impact the innovative technology can have on supply chain management. He outlines potential benefits of the technology and five ways it will impact the supply chain. 

Also known as additive manufacturing, 3D printing is a process which uses a three-dimensional digital model to create a physical object by adding many thin layers of material in succession, subsequently lowering cost by cutting out waste. This is radically different from current, subtractive production methods where up to 90% of the original block of material can be wasted. Although we tend to think of it as a new technology, the first 3D printer was introduced nearly 30 years ago. 

So far, issues such as durability, speed and protection of intellectual property rights have prevented 3D printing from entering mainstream manufacturing. However, the industry is making rapid advancements and it’s only a matter of time before we see it significantly impacting global supply chains and operations. According to the Global Supply Chain Institute (GSCI), "some supply chain professionals predict 3D printing will eventually rival the impact of Henry Ford’s assembly line.” This technology has the power to help companies significantly reduce costs, overcome geopolitical risks / tariffs, improve customer service, reduce their carbon footprint and drive innovation for competitive advantage.

How 3D printing will impact the global supply chain

Impacting the supply chain

Five ways 3D printing will have a massive impact on the supply chain and drive competitive advantage:

1. Decentralise production – The ‘portable’ nature of the technology will enable businesses to take production to local markets or customers faster. As a result, we will see a shift away from mass production in low-cost countries in favour of more local assembly hubs. Companies will have the capability to produce components closer to home rather than rely on imports. This is especially important during times of geopolitical tension, for example during a trade war, when the cost of purchasing components globally can increase rapidly.

2. Drive product customisation – As a tool-less process, 3D printing technology gives manufacturers unprecedented freedom to tailor offerings to clients’ specific requirements and enhance the customer experience. This will result in more agile supply chains which can rapidly adapt to changes in the market. Eventually, we could see design, production and distribution merge into one supply chain function with greater client involvement in the entire design and production process.

3. Reduce complexity and improve time-to-market – 3D printing technology consolidates the number of components and processes required for manufacturing. This will have a significant impact on global supply chains, decreasing complexities, saving on production costs, enhancing lead times and improving time-to-market.

4. Improve resource efficiency – 3D printing is a ‘greener,’ more energy-efficient and cost-efficient production method. It creates almost zero waste, lowers the risk of overproduction and excess inventory and reduces the carbon footprint. It takes ‘Just-in-Time’ manufacturing to a new level.

5. Rationalise inventory and logistics – As ‘on demand’ production becomes the norm, the need to transport physical goods across countries and continents will reduce. Combined with the lower number of SKUs required for production, this will have a major impact on warehousing and logistics and will have the potential to overcome tariffs. 

Tomorrow's technology, today

While 3D printing technology may sound like science fiction, it is actually science fact and it’s making its presence felt right now. Here are a few more real-world applications already a reality or just around the corner: 

Aerospace – It may surprise you to learn some non-critical 3D printed parts are already in use on aircraft. GE already have more than 300 3D printers and GE Aviation wants to produce 100,000 additive parts by 2020. The US Air Force has installed seventeen 3D printed parts on the C5 Super Galaxy, which could save tens of thousands of dollars. Other high-profile users of the technology include Airbus / EADS, Rolls-Royce and BAE Systems. Airbus is already talking about constructing entire airplanes with large scale 3D printers.

US Air Force has installed 17 3D printed parts on the C5 Super GalaxyMedical – The technology is already being applied to manufacture stock items, such as hip and knee implants, and bespoke patient-specific products, such as hearing aids, orthotic insoles for shoes, personalised prosthetics. Success stories include Open Bionics, a UK-based producer of 3D prosthetic arms which, in February 2019, secured a £4.6 million investment to take its business to the international market.

Automotive – Many automotive companies are already making use of 3D printing to help with prototyping. Ford has been using 3D printing technology since the 1980s. According to Ford's website, traditional methods would take four months and $500,000, but with 3D printing, the same process takes four days and $3,000. Future possibilities are almost limitless. In January 2019, 3D printer company BigRep unveiled the first 3D printed motorbike. The bike, which is not available on the market, took three days to print and cost just £2,000.

Construction – Although the technology is still in its infancy, significant advances have been made with the use of 3D printers in the construction industry as construction giants begin to see the potential of the technology. 3D concrete printing is developing rapidly, and the market is expected to reach $56.4M by 2021. More and more companies are starting up in the sector to create new, innovative projects. For example, Russian 3D printing manufacturer, Apis Cor printed an entire house in just 24 hours.§ 

Chemicals – There is an incredible opportunity for the chemical industry to innovate and drive new revenue streams using 3D printing technology. The industry could find itself at the heart of the manufacturing process as it works closely with 3D printer manufacturers to develop new materials specifically designed for additive manufacturing. Major chemical companies are already working directly with 3D printer manufacturers to invent new resins, polymers and powdered metals to take manufacturing into a new era. Chemical giant BASF is one of the companies leading the way with a dedicated 3D printing division and partnerships with a string of hardware OEMs, software vendors, and materials specialists.

Food – We could be seeing 3D printed food in restaurants or in our kitchen in the near future. Initiatives that mix 3D technologies and food are more and more numerous; this new manufacturing method would make it possible to create and mass produce food with more complex and original shapes and innovative recipes. It would also offer personalised meals to better adapt to the diversity of diets. Hershey's has already entered into partnership with 3D Systems to make a 3D printer for chocolate and other edible products though there is no word when the chocolate-making machine may be available.

Oil & Gas – Although adoption of additive manufacturing technology in the oil & gas industry is behind other industries, the technology has enormous potential in this industry. For example, 3D printing could allow organisations to access a bank of digital designs for on-site printing in the field. This will have a major impact on the speed and efficiency of equipment repairs and maintenance, reducing the necessity to either maintain physical inventories of spare parts on site or wait for them to be manufactured and transported to a facility. 

The market for additive manufacturing is predicted to reach $11,223 billion in 2019 and $41,587 billion by 2027. It’s an opportunity executives can’t afford to overlook.