10 Steps to Lower Product Acquisition Costs with ServiceNow
A common observation throughout my 25 years of helping organizations lower product acquisition costs, is that even large procurement teams dedicate considerable time to purchasing low-value items. This is the exact opposite of what is wanted. Your valuable time should be spent on high value tasks.
So how do you reclaim time to work on high value tasks and get support and recognition for that effort?
Three steps you can follow to lower product acquisition costs are:
- Identify the low-value low-complexity products/services your plan to target.
- Optimize the entire process from request through payment. Eliminate as many steps as possible and automate the rest. ODS calls the fully optimized process Touchless Ordering™.
- Measure the savings and receive credit for your work.
I. Identify the low-value low-complexity products/services
Categorize your products into tiers by the value they deliver to your organization and the complexity of acquiring the products.
Strategic Sourcing tiers include:
- Strategic products/services are high complexity and high value. These products/services are often deeply integrated into an organization’s operations and strategy. The acquisition process typically involves negotiation of long-term contracts.
- Preferred products/services are low complexity and high value. Products/services are purchased through preferred suppliers who are trusted partners that provide high-quality products or services at competitive prices. Product/services in this tier may require obtaining a quote from the supplier.
- Niche products/services are high complexity and low value. Such products/services require sourcing to find one or more vendors capable of providing the product/service. Often the request will include a specific vendor from which to purchase the item.
- Tactical products/services are low complexity low value items. Such products are readily available from multiple sources.
Once you have products categorized into tiers, you will want to minimize the effort spent acquiring Tactical (high volume low value) products and services.
The acquisition overhead on low value products/services can make up a significant portion of the total cost of the product/service.
II. Implement a fully optimized request-to-pay process
The ten steps below will guide you through setting up an optimized process ODS calls Touchless Ordering™.
- Set up a self-service product catalog
- Streamline approvals for tactical products
- Automate budget approvals
- Auto-generate Purchase Orders (POs)
- Eliminate double approvals
- Automate order submission
- Implement end-user receipt acknowledgement
- Utilize electronic invoice submission
- Automate invoice approvals through three-way matching
- Auto-generate payment approvals
10 Steps for Lowering your Product Acquisition Costs
- Set up a self-service product catalog:
- Develop an online platform or portal where employees can access a curated list of approved products and services.
- The product catalog should include frequently ordered items with prices displayed and suppliers pre-selected.
- The user experience for requesting a product through the catalog should be an “Amazon-like” experience.
- Implement user-friendly search and filtering options to facilitate easy navigation.
- Users shop for products and services, add them to a shopping cart and upon checkout, enter all the required information such as Name, delivery address, cost center for billing.
Benefits of a self-service product catalog include:
- Empowers employees by providing easy access to approved products and services.
- Reduces dependency on procurement or IT departments for routine purchases.
- Enhances transparency and compliance by ensuring that employees choose from pre-approved options.
- Streamline approvals for tactical products:
- Have tactical products pre-approved by the Technology department for compliance with standards and security requirements.
- Remove the need for manager approval.
Benefits of streamlined request approvals include:
- Accelerates the procurement process and reduces time-to-delivery.
- Frees up managerial time by removing the need for manual approvals.
- Improves agility and responsiveness to operational needs.
- Automate budget approvals:
- Implement a system that automatically verifies whether the requester has sufficient budget for the requested items.
- If the budget is available, enable users to proceed with the purchase without additional approval steps.
Benefits of automated budget approvals include:
- Prevents overspending by automatically validating budget availability before purchases are made.
- Enhances financial control and accountability within the organization.
- Reduces the administrative burden on finance and procurement teams.
- Auto-generate Purchase Orders (POs):
- Implement an automated process that generates Purchase Orders directly from user requests.
- Include relevant details such as product description, quantity, price, GL coding, cost center and vendor information.
Benefits of auto-generated Purchase Orders include:
- Minimizes errors by automatically populating Purchase Orders with accurate information.
- Speeds up the ordering process, leading to faster fulfillment and delivery.
- Improves visibility into purchasing activities and ensures compliance with procurement policies.
- Eliminate double approvals:
- Once a request is approved, bypass the need for additional approval for the corresponding purchase order.
Benefits of eliminating double approvals include:
- Enhances productivity by eliminating redundant approval steps.
- Removes a potential source of delays and bottlenecks in the procurement workflow.
- Frees up time for skilled and more highly paid managers.
- Automate order submission:
- Integrate with suppliers’ systems to automatically submit orders once Purchase Orders are generated.
- For suppliers with lower order volume, have the system generate a PDF of the Purchase Order and email it to the supplier.
- Have suppliers acknowledge the order via email and update Purchase Order Status to “Acknowledged.”
Benefits of automated order submission include:
- Eliminates manual intervention in the order submission process, reducing errors and delays.
- Facilitates real-time communication with suppliers, enhancing collaboration and coordination.
- Ensures orders are placed promptly, improving supply chain efficiency, and reducing lead times.
- Implement end-user receipt acknowledgement:
- Establish a simple process for end-users to acknowledge receipt of purchased items.
- For a consistent experience, end-users should acknowledge receipt of their items in the online portal used to place the order.
- Send email reminders if users do not acknowledge receipt within 7 days of the order shipping.
Benefits of end-user receipt acknowledgement include:
- Enhances accountability by confirming receipt of purchased items by end-users.
- Enables automated invoice approvals via three-way match.
- Improves accuracy in inventory management and eliminates a potential source of shrinkage.
- Utilize electronic invoice submission:
- Set-up a process for suppliers to submit invoices electronically to eliminate manual data entry.
- Enable supplier invoice submission through a supplier-facing portal.
- Alternatively, accept supplier invoices as PDFs emailed to an invoice inbox.
- Have the system OCR the PDFs and populate fields in your invoice table.
- Send an acknowledgement to the supplier that their invoice has been accepted.
Benefits of end-user receipt acknowledgement include:
- Reduces manual data entry, saving time and resources.
- Minimizes errors associated with manual invoice processing.
- Improves invoice processing speed and accuracy.
- Provides clear communication to suppliers that their invoices have been received and are being processed.
- Automate invoice approvals through three-way matching:
- Implement a system that automatically matches invoices to corresponding Purchase Orders and receipts.
- Once matched, bypass the need for manual invoice approvals and proceed to payment processing.
Benefits of automated invoice approvals include:
- Ensures accuracy in invoice processing by verifying invoice costs and quantities against Purchase Orders and receipts.
- Reduces the risk of overpayment or duplicate payments.
- Accelerates invoice approval and payment cycles, enhancing vendor relationships.
- Saves time and eliminates the manual effort for end-users and Procurement members to review and approve invoices
- Auto-generate payment approvals:
- Automatically generate an approval to pay for invoices that pass the three-way matching process.
- Integrate with the Accounts Payable system to facilitate timely and accurate payments to vendors.
Benefits of automated invoice approvals include:
- Streamlines the payment approval process, reducing manual intervention and paperwork.
- Improves compliance with payment terms and contractual obligations.
- End-to-end visibility to the requestor, enhancing that “Amazon-like” experience
- Reduces indirect efforts for the procurement team responding
- Brings light to bottlenecks in the process
- Enables processing standards (SLAs) enabling performance management
- Provides and end-to-end audit trail from request to payment
Are there any pre-built solutions that can help connect and automate this process? You may already own a platform that is great at process automation and connected workflows – ServiceNow.
ServiceNow Source-to-Pay Operations is a workflow automation solution that brings together everyone involved in sourcing, procuring, and paying for goods and services into a single work experience. ServiceNow Source-to-Pay Operations does not replace your e-procurement or accounts payable systems. It’s the glue that connects it all.
III. Measure the savings and receive credit for your work
There’s no better way to be recognized for your work than to define a goal and be able to measure and report on progress toward that goal.
How do you measure performance? Use objective data directly from the optimized process.
The widget below, built by Outcome Driven Solutions and Northcraft Analytics, measures performance in real-time towards a goal specific to your order volume and other characteristics.
The widget to the right, built by Outcome Driven Solutions and Northcraft Analytics, measures performance in real-time towards a goal specific to your order volume and other characteristics.
Order Processing Efficiency is just one of the eight areas we currently measure and target for efficiency optimization and hard dollar savings.
The Outcome Driven Solutions and Northcraft Analytics teams can help you set up ServiceNow Source-to-Pay and the ODS S2P Dashboard to help you unlock a new level of value from ServiceNow.
Want to learn more?