eSourcing Lessons Learned
eSourcing Lessons Learned-Avoiding Implementation Pitfalls
The Growing Adoption of eSourcing
During the past decade over 85 percent of the Fortune 1000 companies have implemented some version of eSourcing. Within the next few years it is anticipated that a majority of the remaining Fortune 1000 and a large number of Middle Market companies will implement eSourcing as well. Most sourcing professionals believe eSourcing should deliver cost savings, process efficiencies and improved supplier relationship management. However, many companies that have completed implementations have not realized these benefits and several have had their eSourcing application fail altogether. On the other hand, a number of companies have documented significant achievements in all of these areas. Anyone who has had personal experience with the complexities of sourcing in large organizations knows that there are substantial inefficiencies just waiting to be driven out through an effective eSourcing tool. What factors determine whether eSourcing will be a success or failure? Our experience indicates that there are three typical eSourcing implementation pitfalls to avoid in order to ensure that your company realizes value.
A Lot More than HTML
First, it is important to understand why companies have fallen short. eSourcing technology itself is often made a scapegoat, as few people in the organization understand it, it never seems to work right, and it can be cumbersome in supporting the company’s sourcing process. One root cause for these symptoms is that the implementation team is often under pressure to conduct a rapid “HTML software implementation” which has become standard practice. In reality, however, eSourcing is more akin to traditional enterprise software applications and poses similar technical challenges. The reason for this misunderstanding is that eSourcing is falsely associated with other static web-based applications such as e-commerce websites or content and community portals. This association with static HTML implementations has fueled the requisite timelines and practices of “To-Be” process mapping, software development, interfaces, testing, and de-bugging to be short-changed. eSourcing implementations create a one-time opportunity to implement sweeping process improvements enabled by the technology. However, to achieve these benefits, expectations and timelines must be adjusted accordingly. eSourcing implementations, while less rigorous and complex than ERP, still require the same amount of planning and discipline to be successful. The phases of an eSourcing implementation should include those of a typical enterprise planning implementation: Visioning,” To-Be” Process Mapping, Detailed Design, Testing, Pilot, and Go-Live.
Pitfall #1- Short Circuiting the Sourcing “To-Be” Process Mapping
eSourcing is not a pure technology, but a business practice enabled by technology. The first pitfall made by many companies, whether trying to meet a 90 day implementation window or not, is to skip the “To-Be” process mapping session after selecting the eSourcing application. In the past, vendors of eSourcing software have often perpetuated this problem by agreeing that their eSourcing tools can be used without full process integration in order to speed implementation. This should be avoided for two reasons. First, the typical result of skipping this step is that legacy sourcing processes are forced into the eSourcing application, usually via cumbersome work-arounds. Second, without being embedded into the sourcing process, eSourcing tools will not yield their full benefits. Sourcing process improvements and consistency, Spend Analysis, Contract Management, Sarbanes Oxley compliance, etc. will not be realized unless the eSourcing tool is used by the entire sourcing group forall projects and include required system interfaces. Of the companies that have abandoned their eSourcing application, the majority seem to have this pitfall in common. The recommended approach is to conduct a two-step “To-Be” process mapping session during a Visioning phase. Step one is to conduct a high level review of the sourcing process, as enabled by the selected eSourcing system, with the CPO and direct reports, focusing on the following: 1) process steps, 2) required approvals and control points, 3) system interfaces, and 4) data transfers. The objectives of this session are to establish control points and approvals, develop guidelines and set the boundaries for the eSourcing implementation. Step Two is the Detailed Design with the core team (described in Pitfall #2). During this step, each element of the “To-Be” design is reviewed in detail, specifically evaluating the pros and cons of each approach within the eSourcing application. At the end of Step Two, the deliverable should include a detailed sourcing process map, including specific configurations of the eSourcing application. This detailed sourcing process should be reviewed and approved by the Steering Committee/CPO before the full-fledged implementation work begins to prevent the project from moving in an undesired direction. The old saying of “an ounce of prevention is worth a pound of cure” is quite fitting to describe the importance of this step.
Pitfall #2- Failing to Build a Cross-Functional “Core Team”
eSourcing implementations actually require much of the same discipline, cross functional involvement and planning as ERP implementations, just on a smaller scale. The second implementation pitfall relates to the failure of companies to build a cross-functional core team to guide implementation efforts. This pitfall is backed with good intentions, including not wanting to impact the Business Units, lowering implementation costs by utilizing less FTEs, speeding the implementation along, etc. The typical result of this pitfall is that right after “Go-Live”, the new user groups bombard the Implementation Team and Helpdesk with issues, complaints, and questions. There are three primary reasons that this backlash occurs. First, without core team involvement, it is impossible to foresee and address all of the critical issues before Go-Live. Second, it is extremely difficult, if not impossible to foresee how the end users will interact with the tool in their day to day job, what is important, and what creates heartburn. Finally, the simple psychology of having something “done to you” instead of “done with you” comes into play. User groups are less likely to resent and oppose the eSourcing application if they feel a sense of ownership than if they do not. In the past, companies have tried to substitute core teams by conducting walk-through demonstrations. This approach is not a substitute for hands-on work, as the devil is always in the details. For example, let’s explore the schedules functionality. Explaining to someone during a walk-through that a schedule template can be imported into a project will most likely not lead to any questions of whether that approach is the best or most efficient. Now contrast that to a member of the core team going through all of the steps to import the schedule, update the actual dates and define dependencies for 6 milestones for all 6 of their projects – this will definitely prompt questions.
The recommended approach is to have an empowered, collaborative core team. This core team should be comprised of the following team members:
1) Client Business Unit members: Representatives from each area that will be impacted by the eSourcing implementation, including Strategic Sourcing (multiple members as required for different types of commodities and/or categories), Risk, Accounts Payable, Operational Business Unit Interfaces, etc. The involvement of these individuals will vary between full time during critical portions of the implementation and ¼ time.
2) eSourcing IT consultant(s): Technology and system specialists that will develop the system configuration, interfaces, and customizations required during the implementation. The typical involvement of these individuals will vary between full time during critical portions of the implementation and “on call”.
3) Strategic Sourcing consultant(s): Strategic Souring Consultants responsible for successful project management of the implementation, including change management, training development, pilot event execution, requirements gathering and infusion of Sourcing Best Practices during the implementation. Where the eSourcing application and Vendor IT consultants provide the technical infrastructure, the Strategic Sourcing Consultants provide the content within the eSourcing application including the development of templates, contract modules, forms, checklists, schedules, etc.
The formation and empowerment of the core team will significantly increase the implementation success. The role of the core team members is to identify shortcomings and recommend solutions of the eSourcing process as early as possible. In addition, the core team can reach out to other individuals in their business unit to gather input, conduct reviews, and provide updates as required. The benefits of a core team include the ability to address issues before Go-Live, a wider user community feeling a sense of ownership, the implementation approach being more robust for the enterprise as a whole, and the transition period being less painful. These factors will significantly reduce rework and the associated delays throughout the implementation and during Go-Live.
Pitfall #3- Ignoring Long Lead Time Items
Durng any implementation unforeseen issues arise that must be dealt with. The typical approach is that the largest fires are put out first. Unfortunately, this leads to the third pitfall, ignoring “long lead time items”. Three of the critical long lead time items are training development, reporting and the vendor management process. These items should start being addressed during Detailed Design, and fully developed during Testing. However, a number of seemingly larger fires are typically being dealt with by the implementation team at that point of the project, so it is easy to forget the three mentioned here. Unfortunately, after Testing, once the project is approaching Pilot and Go-Live is around the corner, these three items become “critical” and often it is too late to complete them adequately with the remaining time at hand. Companies usually underestimate the amount of time it will take to complete these three items.
Let’s start with training first, which will take at least one month to completely develop, with the luxury of one FTE focusing 50% of their attention on this task. Training consists of both end-user and vendor training. End-user training requires three levels: 1) Advanced training- for Buyers and power users; 2) Regular Training- for Buying Assistants and regular users; and 3) Collaborator training: for individuals that will only use limited functionality of the application or “view” certain aspects (e.g.: contracts). Each module of training must be customized as the sourcing process and all of the customizations of the application must be included. Vendor training is more straight-forward as this portion of the eSourcing application is rarely customized; however, the Vendor Communication Plan, training plan and roll-out must be formulated, developed and executed.
Reporting typically takes between 1 ½ to 2 months to complete. First, all reports that are currently used to manage or monitor the Sourcing process must be identified and their requirements must be gathered. Next, the requirements must be gathered for each report that will query the eSourcing application. After the requirements are gathered, they must be validated. Finally, a fit-gap analysis must be run against the validated requirements to identify any customized queries. Each report must then be tested and validated.
Last, but not least, is the Vendor Management Process, which will take between 1 to 2 months to complete. While most eSourcing applications support vendor management in the form of registration, information updates (addresses, account numbers, etc.), score carding, etc., the technology typically does not come with a business process built-in. For example, Vendor Self Registration typically allows vendors to sign-on to an HTML based page hosted by the eSourcing application, enter their information and submit. But this is where the technology ends and business rules must be developed that answer questions including: “Do current vendors need to re-register?”; “Will all new vendors be accepted and added to the Vendor Master file in the eSourcing application, or only those that are most promising?”; “How will the duplicate entries be avoided?”; “Will the Vendor Master in the eSourcing application synchronize with the Vendor Master File in SAP or MDM?”. As you can see, the implications of what seems straight forward on the surface are far reaching and are not easily addressed.
All three of these issues can have an enormous effect on the implementation’s success if not addressed appropriately. The best-developed eSourcing system will appear to be a failure if the end users are not properly trained. Management will have difficulty understanding the system’s value if they cannot run reports to manage their business or to show during an audit. Vendors, Buyers and Vendor Managers will be confused if the registration process is not clearly articulated and functioning within the eSourcing application as well as within the related systems.
The recommended approach for these three long lead time items is to begin working on the issues outlined above as soon as Detailed Design begins and not loose focus of their criticality. Training: the types of training (classroom, Web-meeting; on demand) and their associated deliverables (training manuals, quick-tip sheets) can be identified. Reporting: the requirement gathering process can begin for both current and future reports. Vendor Management Process: many of the questions raised above can be answered and configured within the system. Once the implementation has reached Testing, the training deliverables can be created, reporting requirements can be finalized and the vendor registration process can be expanded beyond eSourcing to the supporting systems, with the related external communications being drafted. By keeping these three items in focus, the implementation has a much higher probability of being a success.
Value of eSourcing
If you have realized that you are on a path into one or more of these pitfalls, then there are two options for mitigating the risk. The first is to significantly reduce the scope of the eSourcing implementation and proceed as normal. Limit the roll-out to only Strategic Sourcing, or one group within Strategic Sourcing, and treat this group as your “Pilot”. While not necessarily planned, this has become the de facto strategy for many companies currently implementing eSourcing. After the initial adverse reaction, subsequent roll-outs have been delayed or halted completely. The second is to address each of the pitfalls. Review the “To-Be” Strategic Sourcing Process in the context of the eSourcing tool, develop and empower a cross-functional core team; and stay focused on the long lead time items.
There are several other implementation lessons learned and the associated benefits of avoiding those pitfalls that we have not covered here. Strategic Sourcing has always made good business sense; eSourcing can be an effective investment and lead to even greater results than Strategic Sourcing alone, if implemented correctly.