Proven Techniques for Procurement to Increase Stakeholder Engagement

Proven Techniques for Procurement to Increase Stakeholder Engagement

Stakeholder engagement is Achilles heels for procurement professionals. I hope you would agree with me that stakeholder management is an important skill for any procurement professional.

All of us have struggled with this issue at one or other time in our career and if you are struggling this with now, don’t worry.

By the end of this, you would have learned techniques which successful procurement managers leverage to build a strong relationship with their internal customers.

Even if you start using one of the techniques mentioned here, you would see significant improvements in internal customer satisfaction.

Better stakeholder management leads to proactive engagement for sourcing and that leads to more overall savings. Just to be clear, I am using the word procurement but that covers strategic sourcing and purchasing.

It is a known fact among procurement professionals that proactive engagement leads to better saving results. So needless to say, for a procurement department to be effective, there needs to better engagement and stakeholder management.

But this is easier said than done and there are different reasons for that

  • Some departments don’t want to engage sourcing/procurement because they feel that it makes the vendor evaluation process slow and more bureaucratic.
  • Some don’t see the value at all.


Whatever the reason, procurement professionals need to find a way to engage the stakeholders in order to increase the purchasing efficiencies and reduce overall cost.

Need for engaging  procurement stakeholders

Procurement is mainly measured on savings delivered, There are other performance measurement yardsticks for procurement but the main drive still remains cost savings.

Need factual data?

As per a CPO(Chief procurement officer) survey done by Deloitte, 76% of the CPO’s mentioned cost savings as the primary driver for performance measurement, following by 57% at risk management.

Source: Deloitte

For procurement to deliver savings, there are three main prerequisites

  1. Have a well-defined process which leads to an objective evaluation of suppliers.
  2. Engage key stakeholders and ensure that you increase spend under management.
  3. Consistently deliver value to your stakeholders.

And all three need a dedicated focus on engaging stakeholders.

Stakeholders in the procurement process

Before we get further into how to be effective in managing your stakeholders, let’s define who these stakeholders are

Procurement stakeholders can be divided into two major categories


Internal stakeholders include the following

Department/Budget owners: Budget owners engagement is the most important and hence they are the most important stakeholders.

Finance: Engagement with finance is required to understand budgets as well close coordination to ensure that negotiated savings are reflected in your income statement (Reduction in expenses leading to increased EBITDA).

Legal: Ensure that all contracts adhere to corporate legal policies and contract risk is mitigated through proactive review of all key legal terms across various contracts.

Senior Management: Management is always looking for visibility, procurement job is not just negotiating the savings but it is CPO’s (Chief Procurement Officer) job to ensure that the management understands value delivered by procurement. More important, the value needs to be presented in financial terms – for example how savings negotiated leads to better EBITDA margins.


External stakeholders include

  • Suppliers
  • Other parties

Since the focus of this article is internal stakeholders, we will keep vendor management for another blog post.

How Procurement organizations measure stakeholder engagement

As you all know, you can only improve what you measure and same is true with stakeholder engagement.  If you ask a CPO, they would always mention that engaging stakeholders is a challenge but then some of them don’t even have a formal way to measure engagement and internal customer satisfaction. This is pretty evident from a recent survey

As per Deloitte survey, only 44% of procurement organizations are measuring internal customer satisfaction – which is a yardstick for stakeholder engagement. In another word, 56% of organizations are not measuring satisfaction with internal customers.

Procurement departments need to baseline procurement performance and engagement before they take steps to improve it. Following are some of the ways to measure stakeholder engagement. If you want a more comprehensive view, you might want to create a balanced scorecard for some of these measures

a) Surveys: One way to measure stakeholder engagement is a quick survey. The challenge with surveys is that the quality of feedback depends on how well or how badly the survey is created.

When conducting surveys, you would want feedback both from supporters and critics, so ensure that you are picking a diverse base of internal customers for your survey.

The other aspect of surveys is that it needs to be done frequently so that one can track the trend. A quarterly survey might be an appropriate measure but it depends from organization to organization.

b) Informal feedback: Another way to gauge stakeholder engagement, is through informal feedback. You can do this over coffee, drinks or lunch.

The challenge with this approach though is that takes time to gather feedback and it could be expensive over a period of time.

c) Spend under management and savings delivered: In my view, this is the most objective way of measuring stakeholder engagement.

First of all, the more engaged your stakeholders, the more spend under management, so this a direct measure of procurement influence as well engagement.

Second, some departments might be more engaged than others.Look at savings delivered in the last few months and see where the savings are coming from. That should give you a clear idea of how engaged procurement is across all departments.

Wherever possible, use more than one measure to get a complete assessment of how engaged procurement is with stakeholders.

How to Improve Procurement Stakeholders Engagement

Now let’s look at some of the ways to improve engagement with internal stakeholders

1) Start with Relationship, Savings come later

It is very clear that procurement role in the organization is to reduce cost and deliver savings, but is this the only thing you want your internal customers to remember? It is a sure shot way to create a purely transactional engagement.

Most of the new procurement professionals focus a lot on savings and that makes the relationship very transactional. Rather, focus on building the relationship first with your internal customers.

Before you meet with your stakeholders, Do your homework on what the department’s function is, how it sits in the overall hierarchy etc.

You should do this irrespective of whether you are starting with a new category or starting a new job.

Focus on understanding their function and how they impact the business. Some questions to ask.

Note that your questions might change based on whom you are meeting but following is a basic guideline

  • How is the department organized, essentially who is who in the department?
  • What are 2-3 achievements which the department is most proud of (assuming you are meeting the head of the department)?
  • What are their operational paint points and how are they addressing it today?
  • What is one or two area where you can be of more help? Hint: Savings is not always on top of mind of your stakeholders.

Once you have established the relationship and your stakeholders see value in what you do, they will start engaging you and savings follow.

2) Be an Enabler vs Policy Enforcer

Procurement policy or corporate spend policy is an important aspect of the corporate procurement function. However, policy enforcement should not be the core function of the department.

Don’t get me wrong, ensuring purchasing compliance is important but procurement shouldn’t  lead with policy enforcement.

In other words, don’t start a conversation with “as per our procurement policy you should…”

Rather start with asking probing questions about the current business challenges and how procurement can help enable better decision making.

Let’s take an example: Your policy requires that every purchase order must be reviewed and approved by purchasing before it can be sent to the supplier. Your stakeholder complains is that it takes too long to process orders.

If you focus is strictly on being a policy enforcer, then you would focus on how to get the approvals done faster.

If you have an enabler mindset, then you would think about why the need for frequent orders and what can be done to consolidate that or if it is the case that you need frequent orders, find a way to avoid approvals while keeping purchasing compliance intact.

3) Understand Business First

This is the most obvious way to build trust with your stakeholders. If you don’t understand the business you are supporting, there is little hope that your stakeholders would consider you a trusted advisor.

Procurement professionals who understand business very well are great at understanding their stakeholder needs as well as adding value to the conversation.

But if you don’t fully yet understand the business, here are some tips

Engage Sales: Talk to your sales colleagues, they can provide you details about company’s products, competition as well how your customers view your company.

Engage Marketing: Marketing should be able to give you an overview of the competition, brand, and positioning of the company. The work they do is primarily dependent upon the positioning of the company.

Engage Operations: Once you are done talking to sales and marketing, talk to different operation teams. These are different departments which support the operations. For example, if you are a software company, then the various operations departments are engineering, customer support, infrastructure management etc.

Take them out for coffee or lunch and let them help you better understand the business.

Once the procurement teams understand the business, there are different approaches a CPO(Chief procurement officer) can take to ensure that procurement is working closely with business to gather requirements.

As per survey conducted by Deloitte, the following are some of the techniques  

  • 76% of procurement teams are embedded in cross-functional teams to better understand the requirements. There are pros and cons for this approach, we will cover this in a separate blog post.
  • It is interesting finding that 62% of teams jointly own the savings targets with the departments they support.

Both of these are very good approaches for procurement to better understand business.

Approaches to increase stakeholder engagement

Approaches to increase stakeholder engagement


4) Add value to the conversation

Procurement always complains that they don’t have a seat on the table and things would be so much better if they did. I don’t disagree but procurement needs to earn that seat.

If procurement can find a way to add value to the conversation, it would significantly elevate the role procurement plays in supporting the business.

There are multiple ways you can do this in your day to day interaction

Tell them something valuable: Not every budget owner is reviewing their spend every day to understand whether they are over their budget or are there are anomalies in the spend.

You might say, that is the role of finance and you are absolutely correct.

I am not saying that you go out of your way to review budgets and spend every day on this, but this could be an observation. For example, you are conducting spend analysis and you realize that vendor monthly spend is trending up, this could be that the vendor is overcharging or the department is doing more business with that vendor. Your stakeholders would appreciate the heads up.

Educate them about the market: Procurement teams could be structured very differently, some are category based and some are department based.

If your team is structured around categories, then procurement managers are in a better position to educate their stakeholders about the category.

Let say you are about to run an RFP for marketing automation software, so rather than asking your stakeholders if they have identified the vendors, add value by providing the following information

  • What other marketing organizations are doing in your space.
  • Who are some innovative players in the market?
  • Probably some case studies around market automation and learnings from them.

5) Understand personalities


Understand that people are wired differently


All of us are wired very differently and same is true for procurement stakeholders. So to be effective, procurement needs to learn how to work with different personalities and adapt based on different situations. Following are some examples of how your stakeholder personalities may be different

a) Introvert vs Extrovert – Some stakeholders are introverts and some are extroverts, and understanding individuals can help a lot in day to day conversations. I am not asking you to be a psychologist, but when you meet your stakeholders for the first time, spend time in knowing them. Your first question should not be “What Can I help you with”! But get you know them first.

Understanding this trait itself can help build a strong relationship with your stakeholders.

Now you must be saying, all this makes sense but I am an introvert myself, so then how do I approach this?

It is pretty simple, ask a very open-ended question. For example – “Are you born and brought up in “City Name” “? Once you ask this question, observe how your stakeholders respond to that question

Here is a simple traits comparison between introverts and extroverts

Introvert vs. extrovert

Introvert vs. extrovert


b) Understanding stakeholders Learning style: “Learning style is an individual’s unique approach to learning based on strengths, weaknesses, and preferences.”

Why should you care about learning styles?

A lot of the work involved in a sourcing event is either gathering data or presenting information obtained from suppliers. If you are working with a stakeholder and they have one primary learning style (say listening) then it doesn’t help if you go prepared with an elaborate slide deck.

I am not saying you customize your presentation style based on each stakeholder but be aware of the learning preferences and try to accommodate wherever possible.

A good framework to understand individual learning preferences is VARK. As per VARK framework, an individual learning style can be categorized in one or more of the following models


V– Visual

A – Auditory

R – Read/Write

K – Kinesthetics

VARK Framework

VARK Framework

If you are interested to know your own learning style, you can take a quick test here.

6) Empathy – Put yourself in their shoes

I am sure you are not hearing this for the first time!

Having empathy towards your internal and external stakeholders is key to procurement success. But how do you go about having Empathy towards your stakeholders?

Following is a good map which will guide you to be more empathetic towards your internal customers. This map is designed mostly for understanding your customer’s user persons for product development, but I feel this can be used by procurement teams too


Source: their job

The reason I like this map is that it is self-explanatory, but here are some the way this empathy map can be used by procurement professionals

a)Understanding what your customers say and do would help you understand the business better.

b) Gain: What they can gain by leveraging procurement.

If you think about what they are going to gain, then you are in a better position to quantify and present procurement value proposition to your stakeholders.

c) Pain: What are their pain points

I am not sure what other pains procurement can alleviate but you can certainly understand stakeholder challenges in terms of dealing with vendors.

Procurement involvement generally ends with vendor selection. Procurement should help stakeholders manage the vendor relationship through the vendor life cycle.

d) Hear: This is more from the head of the department perspective.

What they hear about procurement engagement from their teams and co-workers.  If you have a strong relationship with your internal customers, that would help elevate procurement value add in the eyes of senior management.

7) Align procurement goals with your stakeholder department

Procurement always looks at cost savings as their primary goal and that is true. As per Deloitte survey, 79% of CPO’s consider this as their top priority.

However, cost reduction is not the only goal for your internal customers. For example, procurement can reduce the cost of a widget by sourcing it from a low-cost country. But, your stakeholder has no experience with the international supply chain and how to mitigate the risks with logistics and planning. This is an example of clear misalignment of goals.

Another example,  assume that you have a supplier deeply integrated into the business, so even though you can RFP it and get better pricing from other vendors, it is a high-risk item. So if your approach is that we are going to RFP this, then your stakeholder might be apprehensive about it and might not be willing to take the risk.

The first and foremost goal of a  department is to deliver on their key metrics and not cost savings! Cost savings may help them to get this done in the allocated budget and that’s where procurement helps.

So obviously you have misalignment on what you want to achieve. Hence, for procurement to be successful, there has to be a goal alignment between procurement and stakeholders.

Your procurement/sourcing strategy should align with the goals of your internal customers. So how do you go about aligning it?

The key aspect of goal alignment is to understand that not every vendor relationship is equal and hence you need a different strategy for each category or vendor you are supporting for your stakeholders.

Following is a good framework to think about procurement strategy alignment with your stakeholders.




You divide your suppliers into 4 buckets and each bucket has a different sourcing strategy.

How to use this framework?

a) Create a slide deck with analysis of key vendors for a department, which includes total spend, categories purchased, vendor capability, contracts, and vendor performance information if available.

b) Discuss this information with your internal customers and preferably along with senior management for that department. The goal is to identify supplier criticality into the following buckets

  • Strategic: Highly critical to your business but there are limited sources of supply. For example, a supplier of the critical component of the final product.
  • Non-Critical: Important for day to day operations but there is a high availability of alternate suppliers.
  • Bottleneck: Not critical to business but there are very limited sources of supply
  • Leverage: Highly critical but the higher availability of alternate suppliers.

The focus of this exercise to ensure that your stakeholders are aligned with the vendor classification.

The next step is to discuss sourcing strategy for each of the buckets and align it with your internal customers/stakeholders.

You should do this exercise at least once a year to get better alignment with your stakeholders. Do this preferably towards the end of the year or beginning of the new fiscal year when operations activity is low.

8) Listen first, prescribe later

Let’s say you are meeting a marketing manager, and she is describing the issues with the current supplier and looking for recommendations on how to solve this.

If the first response in your mind is let’s put it out for bid – then you might be failing to listen effectively. When a supplier doesn’t work, it is not always the supplier’s fault and this could be happening due to different reasons. For example, the contract is not structured properly or the stakeholders are not fully engaged.

There could be multiple reasons why the engagement is not working and effective listening can help you identify this.

As per Julian Treasure, We spent 60% of the time listening but we only retain 25 % of the information.

Here are a couple of ways, procurement can listen better and better engage with stakeholders

a) Suspend Judgement: It’s hard not to immediately jump to conclusions, so try to suspend judgment on the correct strategy or decision until your stakeholders are done explaining the situation.

b) Keep an open mind: You might have a preconceived solution to a problem but develop the attitude to understand others point of view too. I am not saying you drop the solution you have a mind, but you need to temporarily put in the memory cache so that you can fully evaluate an alternate solution proposed by your stakeholder.

c) Ask questions at right time: When you are listening to someone, ask questions when they take a natural pause. That way you are not interrupting them while they are speaking.

If you can’t keep your questions in your mind, write them down as they come up.

Just let the speaker know that you are taking notes.


Successful procurement teams understand the need for stakeholder engagement and they are continuously finding ways to better engage the stakeholders.

The more engaged the stakeholders, the easier it is for procurement to meet its organizational objectives.

We have covered a lot of content in the above sections, don’t get overwhelmed – at the least find a way to measure the current stakeholder engagement level. Once you have done that, you can pick one of these techniques and start incorporating in your interactions and start measuring if there is an improvement.

We would love to hear your favorite techniques for building stakeholder engagement, so feel free to drop a line in the comments section.

Spend Analysis – The Complete Guide

Spend Analysis – The Complete Guide

Spend analysis is the process of collecting spend data, cleansing, categorizing the data and analyzing it to understand spending trends and identifying saving opportunities.

Procurement/ strategic sourcing professionals are generally responsible for conducting spend analysis in the organization. The information is useful not for sourcing professionals but also for management and budget owners.

If you have ever performed spend analysis, you would agree that this could be a daunting task, if you don’t have the right tools and technologies in place.

Most of the spend analysis tools have basic features which can help with your spend analysis effort. If you don’t have these tools in place, don’t worry we will cover how to conduct spend analysis without those tools too.

1.Benefits of Spend Analysis

Before we get into how to conduct spend analysis, let’s look at some of the benefits of spend analysis and its common use cases.

There are many benefits of spend analysis, As per APQC (American Productivity & Quality Center) – Best in class companies who have to implement spend analysis programs have lowered their cost of procurement because of cycle time reduction.

Benefits of Spend Analysis APQC

Source: APQC

It is important that you define the use cases upfront within your team and with senior management so that a clear data and information structure can be defined upfront.

Download – Procurement Guide to Strategic Savings

A) Spend Visibility

Whether it is the CFO of the company or whether it is a department budget owner, they are seeking better visibility into the company or their department spend. The goal is, of course, understand how much they are spending but also to understand where they are spending money.

Spend analysis done right can help answer common questions asked by senior management.

Generally, the reporting is focussed on spend by GL (General Ledger) chart of accounts. But good luck with getting a better handle on your spend leveraging GL based accounting.

I am not saying that it can’t work but it doesn’t work in most cases because the GL chart of accounts is not granular enough to provide commodity level visibility.

B) Savings Opportunity Identification

The next most common use case is identifying opportunities for savings/cost reduction. Procurement professionals are charged with cost reduction and they need data to better understand spend at line item level to come up with savings pipeline.

Spend analysis done right can help procurement professionals not only achieve saving goals but also helps in better forecasting the savings for the future quarters, months or years.

C) Spend Forecasting

Ability to forecast spend is an important benefit of spend analysis. There are multiple teams in the organization who can use the spend data to forecast future spending.
For example, finance and planning can use the spend data to understand recurring vendor spend along with long-term contracts to forecast next few years expenditure budget.

Similarly, the same information can be used by sourcing teams to work with department owners to help them forecast the spend for their key vendors and categories.

D) Diversity Reporting

One of the key metrics organization track is spending with diversity vendors. That need is driven is either by being a good corporate citizen or a need driven by their key customers. Many customers required their vendors to have a certain amount of spend with diverse vendors.

Having data at one single place helps to better understand spend with diversity vendors but also help uncover opportunities to engage more with diverse vendors in certain categories.

Moreover, this diversity reporting is required by the sales team to respond to RFPs, so having this data handy leads to faster turnaround of RFP responses by your sales teams.

2. How to Get Started with Spend Analysis

So far we have talked about the benefits of spend analysis, now let’s get into how to conduct spend analysis.
If you are new to spend analysis, don’t worry, by the time you are finished reading this, you would be very familiar with how to conduct spend analysis. So with further ado let’s get going

A) Objective

The first step is to define the objectives of the spend analysis exercise. It is important to define the objectives clearly because that will drive your data gathering and analysis efforts. Following are some common objectives of spend analysis

  • Understand spend at a granular level so that sourcing team can identify saving opportunities.
  • Understand key vendors so that procurement can define and execute a strategy for strategic vendors.
  • Provide visibility to senior management on key spend areas impacting EBITDA margins. For example COGS(Cost of goods sold) spend, SG&A (Sales, General and Administration) spend.

B) Source Systems

The next step is to create an inventory list of all source systems where your spend data reside. The goal is to ensure that the entire spend is captured for analysis. If your company have multiple business units, it is likely that you have multiple systems. So the scope of analysis will determine what systems you need to capture. A simple inventory table should capture all data points

C) Schema For Data Capture

Since you are pulling data from multiple systems, they are bound to have a different set of fields.

The first and foremost task is to identify what data you want to be captured and put it through a common data schema. A data schema is a simple definition of what fields you want to be captured and what they mean.

Since different systems have different nomenclatures for same fields, it is handy to have a common definition of the information you are trying to gather. It would be much easier to gather data from disparate systems if you have a common data schema/structure.

D) Data Availability

Now you have the data schema, the next step is to reach out to your IT team and have them check the effort required to pull the data from different spend systems. Few things to keep in mind

Define the frequency of data refresh

Spend analysis done right is not a one-time activity. You would get better value for your efforts if you refresh the data frequently. The frequency of data extraction depends upon the purpose of spend analysis. For example, if you are using spend analysis primarily to identify saving opportunities than a quarterly refresh should be sufficient.

That way you can also track how the negotiated savings are being realized.

Data extraction format

The other thing to keep in mind is how data will be provided.

If possible have the data in the same file format (Excel, CSV) so that it is easy to consolidate the data from multiple systems. If you don’t have multiple systems then this should not be of any concern to you.

You can always ask your IT team if it is possible for them to import this data into an enterprise data warehouse (if you use one) and have the data consolidated for you.

If that is not possible, it is not the end of the world. It should not take more than few minutes to consolidate the data manually.

E) Classification Schema

Most of the ERP systems have some way or fashion to categorize the spend transaction into unique buckets. The most common approach is to use General Ledger chart of accounts to categorize data.

In some cases, you might see homegrown or industry-specific nomenclature for classification. If that serves your purpose, use that, if not, there are multiple options available for classification schema. Data needs to be categorized in unique buckets so that analysis is easy.

Here are some Industry standards in order of their popularity

1.UNSPSC stands for United Nations Standard Product and Services Code. It is an open and global standard for efficient and accurate classification of products and services.

It is free to browse and download in PDF format. If you need an alternate format, you can download for $100 from UNSPSC website.

2.NAICS stands for North American Industry Classification schema. It is used by federal agencies to classify businesses.

It is the primary classification schema used by federal agencies for reporting statistics.

F) Data classification

You might have existing GL based spend classification from your ERP system. But it is highly recommended that you reclassify the data into the new classification schema. There are multiple reasons for that

  1. The same spend might be misclassified and hence needs correction.
  2. If the category structure is not same, you might have the same item identified differently across different systems.
  3. Most of the credit cards companies provide a classification for each transaction. It is generally in grouped into MCC (Merchant category codes).

That is good enough for T&E (Travel and entertainment) spend, however, if your employees are using credit cards for other material purchases, then you need to make sure that spend data is categorized in the same way as the spend from other systems.

Having said that, data classification is the most time-consuming part of the whole exercise. Few things to consider while classification

Granularity – How granular you go with data classification?

I hate to say this but the answer is that it depends. You might need granular categorization for certain categories like MRO and direct materials but for products like office supplies, you don’t need to classify it at each individual commodity level.

So unless you are planning to present different types of pens your company purchases, it is useless to categorize the data at that level.


Even with fully automated classification systems, it is hard to achieve 100% accuracy so focus on high ticket items. If you do a simple Pareto on your spend data, you would realize that 80% of your spend is captured by 20% of your transactions.

So focus on important items and ensure they are correctly classified

When it comes to classification of spend data, there are primarily two approaches

  1. Use a third party tool for analysis. Just google “Spend Analysis Tools” and you can see different vendors who can offer such services. It is always a good practice to do a quick proof of concept to ensure that vendor has the capability to classify data in your domain.
  2. If you can’t secure funding for such systems then hire an intern and get started with data classification! We will cover some tricks on how to conduct spend analysis using excel

G) Data analysis

This is probably the most important step in the whole spend analysis exercise – Slice and dices the data to identify saving opportunities. There are two approaches to doing this analysis

  1. Use a Business intelligence or reporting tool: If your organization has such tool, then load the classified data into the system. If you don’t have access to such tool, check with your marketing department or data analytics group if they have one. Between these two groups, I am sure you can find a tool which can help with analysis.
  2. If data analysis tool is not available, then use your old friend Microsoft Excel to run the analysis. You can download a sample template here

The focus of data analysis is to identify trends based on your objectives. If the objective was enhanced visibility, then this exercise should be focussed on identifying spend trend over time. If the focus is on identifying saving opportunities, then the analysis should be on understanding price variance, supplier proliferation etc. We will cover some common spend analysis reports in the later sections.

H) Opportunities presentation

The last step in the spend analysis process is presenting the results to senior management or your stakeholders. Here are some common scenarios on how the output of spend analysis is used

Helping stakeholders understand the spend trends

The scope of this analysis is generally tied to a department. The opportunities presentation would be focused on spend by the vendor, spend by category, individual category trends and price trends for high ticket items. For example, IT director might be interested in understanding the trends in contingent labor or annual software maintenance trends.

Providing visibility

This is generally requested by senior management. Some of the trends which are helpful are

  1. Overall spend trend year or year.
  2. Spend trend broken down by direct/ COGS(Cost of goods sold) vs indirect spend /SG&A (Sales and general administration) spend.
  3. Cost reduction year over year

3. Spend Analysis Using Excel

If you don’t have automated tools for spend analysis, then this section is for you, otherwise feel free to skip to the next section. In this section, we will cover two areas

How to categorize data using excel

If you don’t have a third party tool or your purchasing system doesn’t have good categorization, then you are left with the option of categorizing data manually.

It is very time consuming but if the dataset is small, you can classify data in few hours. Get some coffee and let’s get started

Steps to categorize data manually

1. Sort items by a common unique identified – in terms of priority

  1. GL code
  2. Item description

2. Then create a pivot with item description in rows and then add the count to it. This will only list unique items.

3. Sort items by count.

4. Then copy that data in a separate tab.

5. Start classifying the data line by line. At this time, you are only classifying unique line items. You can speed up the process by searching by keywords and grouping spend together for classification.

6. Perform a Vlookup using the description as lookup field and then add category information to the main file.

Once you are done with classification, you are ready to move to the data analysis step.

How to analyze data using excel

When it comes to analyzing data in excel, the pivot table is your best friend. If you are not familiar with pivot tables, this blog post is a good start.

Also, make yourself familiar with creating simple charts using excel. If you are not familiar with that, this article covers the basics of how to create charts using excel.

To get you started, you can download this excel template. It is not exhaustive but good enough for you to run different reports.

Common Spend analysis reports

The focus of these reports is on identifying saving opportunities and provide visibility. This is not an exhaustive list but a good start

Spend by vendor

Spend Analysis: Spend By Vendor

This report can provide visibility into following areas

Who are you top suppliers and what is the spending pattern with those suppliers

How consolidated or fragmented your spend is. This can be answered by identifying the number of vendors contributing to 80% of spend.

If you have a long tail of vendors contributing to the remaining 20% of the spend, this might be an opportunity to consolidate tail spend.

How you compare with your vendors in terms of spend trends.

Vendors per category

Spend Analysis: Spend By Category

This report helps you to understand how many vendors you have in a given category.

Having many vendors for a category is not necessarily a bad thing. It all depends on the category and your business.

For example, it might be Ok to have multiple vendors for geographically spread operations or in case your company prefers to do business with local suppliers.

The idea is to analyze whether you can leverage volume discounts by consolidating spend across different suppliers.

Price part variance:

It is not uncommon that different locations/departments are buying same part from different vendors or from the same vendor but at different rates.

This could be lack of part standardization or due to decentralized sourcing strategy.

A report like this will quickly identify saving opportunities by consolidating multiple pricing structures and in some case part standardization across the organization.

Payment term analysis

This report present total company spend grouped across different payment terms for vendors. The obvious goal of this report is to identify if there are any opportunities to extend payment terms with your high spend vendors. The way to calculate potential savings is the [total amount * potential days extension* WAC ( Weighted average cost of capital). ]

I am sure treasurer of your company would be very happy to see any progress on this metrics.
Before you present numbers, do a quick benchmark check on standard payment terms in your industry.

Spend by business unit

Spend Analysis: Spend by business unit

If you have multiple business units, this report helps in understanding how different business units are spending. Most common things to present here

  1. Year on Year spending trend.
  2. Categories spend broken down into business units.
  3. Monthly spend trend.


Spend analysis done right can lead to higher savings and better visibility into company spend. Procurement professionals can use this tool to engage with stakeholders in a fact, data-based fashion.

Not only it increase procurement professionals productivity, it helps elevate the value of procurement in the organizations and it is a great step towards transforming procurement into a strategic, value-adding function.

Procurement Strategy for Mid-Market Companies

Procurement Strategy for Mid-Market Companies
Procurement strategy definition

Procurement strategy is an essential component of effective procurement for all companies irrespective of their size. Procurement team’s at large companies rely on effective procurement strategy to deliver continuous savings which increase company’s EBITDA (Earnings before Interest, Tax, Depreciation, and Amortization). It is not uncommon for companies to see cost savings of up to 10% of the annual addressable spend because of an effective procurement strategy.

Executing a well-defined procurement strategy needs discipline and resources and that might deter some mid-market companies to have a procurement strategy at first place. Mid-market companies should not ignore the value a well-defined procurement strategy. This article is focused on helping mid-market companies getting started towards a path of procurement excellence through effective procurement strategy.

Defining procurement

Procurement strategy is about procurement, so let’s first define procurement. As per CIPS (Chartered Institute of Procurement & Supply)

“Procurement is the business management function that ensures identification, sourcing, access, and management of the external resources that an organization needs or may need to fulfill its strategic objectives.”

Simply defined, it is a process of acquiring product or services a business need, to deliver value to its customers. Value is defined in terms of physical products or services delivered to customers.

Steps in procurement process

There are multiple steps in procurement process, the basic steps are listed below

1. Need Determination: The first step in procurement is determining what needs to be purchased. The need could be new or recurring. For example, raw materials required to build the products sold by an organization.

The need could be determined by an activity which is non-routine. For example – purchase of a new procurement software.

2. Specification definition: This step is generally required for new purchases – products which are not purchased earlier. For example, the company has decided to add a new product to the product line.

This drives detailed discussion and collaboration between different departments to come up with the optimum specification. If you over-engineer the specifications, that limits the source of supply and increase cost.

If you keep the specifications simple, the results are reduced cost and increased availability from different suppliers.

3.Sources of Supply: The next step in procurement is to do an assessment of sources of supply.

Do you need a new supplier for this purchase or an existing supplier can fulfill the requirement?

Depending upon the type of product, this could be a simple google search or this could be elaborate research leading to RFP. If you are adopting a low-cost country sourcing strategy, then step needs a detailed assessment.

4.Supplier selection: Supplier selection includes selecting the vendor and contract negotiations if required. This step generally involves an RFP (Request for Proposal) process which is followed by contract negotiations and execution.

5.Purchasing activity: This involves the activities required for purchasing the material. The process generally involves purchase approval, issuing a purchase order to the supplier and any follow up with the vendor.

6.Receipt: The purpose of receipting is to inspect whether the vendor shipped per the purchase order. It is also a proof of delivery while approving the invoice.

7.Payments: The payment process is the issuance of payment to the vendor. There are multiple payment vehicles available to companies. For example, ACH process, Checks or purchasing cards.

8.Supplier management: This is the most important and often ignored part of the procurement process. This is especially critical for strategic vendors, managing supplier performance and relationship can lead to smooth operations and cost savings for both buyers and suppliers.

What is procurement strategy?

 As per Wikipedia “ Strategy (from Greek στρατηγία stratēgia, “art of troop leader; office of general, command, generalship”) is a high-level plan to achieve one or more goals under conditions of uncertainty.

Procurement is defined as the process of finding right sources of supply, agreeing on terms and acquiring product or services an organization needs to deliver value to its customers.

Procurement strategy hence can be defined as a high-level plan to meet the purchasing needs of the organization through a mix of people, process, and technology. The purchasing needs of the organization are not just about acquiring the product or services but maximizing the value through an effective and fair selection of vendors.

Benefits of a procurement strategy?

The obvious question is why define a procurement strategy. Most of the mid-market companies don’t have even dedicated procurement departments so why define a procurement strategy. Let’s look at some of the benefits of having a procurement strategy

Corporate strategy and procurement strategy alignment

The biggest benefit of having a procurement strategy is to have alignment between the corporate goals and how procurement helps in achieving those goals.

Let’s assume that your organization competitive advantage is to offer custom products in the shortest lead time across the industry. Aligning your procurement strategy with organization competitive advantage will help determine the right partners who can help you deliver products faster and at the desired quality levels.

Let’s take another example, you are probably the Walmart of your industry. In that case, your procurement strategy should be aligned with the corporate goal of being a low-cost solution provider. A well-defined procurement strategy would help in identifying partners who are aligned with this goal.

Measurable outcome – Define clear goals and what to expect

A well-defined procurement strategy provides a mechanism to measure the impact of effective procurement on meeting organizational goals.

For example – assume that the goal of the company is to reduce cost and improve EBITDA (Earnings before Interest, Tax, Depreciation, and Amortization). The procurement strategy is then focused on reducing overall cost and the outcome is measured in terms of the dollars saved and impact on the bottom-line.

Since the outcome is measurable, it helps bridge the expectations gap between procurement and senior management of the company.

Standard operations procedures

Procurement strategy brings clarity and provides guidelines on how purchasing should work in any company.

For example – if the outcome of your procurement strategy is that you are adopting a low-cost country sourcing, then the approach for vendor selection doesn’t need to be discussed for every sourcing event.

It also provides guidelines for other employees on how to engage procurement, which in turns help achieve overall procurement goals.

Components of a procurement strategy  

Having defined procurement strategy and its potential benefits, let’s look at the how to define the procurement strategy and the key components of an effective strategy.

Procurement strategy like any other strategy starts with a goal in mind. Generally, most procurement organizations are tasked to with one or more of the following goals

First and foremost, design a procurement strategy to support the needs of the business. For example – a credit card company wants to have local call centers to support the customers. The goal itself will drive the locations of the call centers. The procurement strategy is very different in this case as compared to outsourcing call centers to low-cost countries.

Procurement should be done in an effective manner: Hence the second goal is to reduce operations cost for direct and indirect materials. Direct material being raw materials which are used in products and Indirect materials are product & services required to support the operations.

Increase compliance with corporate policies: This is especially critical for public companies because well-defined procurement processes would simplify SOX (Sarbanes Oxley) reporting requirements.

Reduce supply chain risk: Depending upon the size and type of the business, this might or might not be a priority for business. For example, a manufacturing company wants to ensure that raw materials are available at the right time with right quality. This means that procurement strategy should be designed with the intent to reduce supply chain risk. There are different types of supply chain risk. Some of them are – risk of delivery, risk of quality, risk of reputation, natural disasters risk.

So, before you move any further, define the key goals which you want to achieve and then start working on defining the procurement strategy. For example, reducing annual purchasing cost by 10% is a good example of a goal. Your goal should be SMART (Specific, Measurable, Actionable, Relevant and Time-Bound)

Once you have defined goal/s for procurement strategy, it times to start working on the design of the procurement strategy. The process can be broken down into following steps

Assessment of current process

This is a no-brainer that you need to evaluate your current processes and how they currently support the goals of the procurement strategy. You should at least evaluate the following

a) Procurement policy

This step covers how you currently source the product and services and where your critical suppliers are located. The goal is to figure out whether your supplier base is local, national or International. This will help you identify levers you can use in the procurement policy. For example – if most of your purchasing is done locally, then does it make sense to expand to national or even adopt a low-cost country sourcing.

b) Bidding policy

Bidding policy defines the supplier selection process which includes competitive bidding. The assessment of the bid policy helps uncover opportunities for further improvement. Key questions to ask during this assessment

  • What do we bid today? For example – some companies have policies that they don’t bid anything under $50,000.
  • How do you bid? Is the process working?
  • Is the process fair and set up in a way that it avoids any conflict of interest?

c) Engagement with stakeholders

The goal of this assessment is to understand how stakeholders view the procurement function, what they consider as a value add from such function. It is important that you have buy-in from key stakeholders on the expected value-add of the procurement function. If you don’t have an existing procurement function, it is still a good idea to assess if having such a function would add value and help meet company goals.

d) Tools assessment

Procurement toolkit might not be the first thing which comes to mind while designing procurement strategy but it should be an important component of your strategy. Things to assess

  • What systems do we use today to purchase products or services?
  • Can all employees use that tool to enter purchase orders or they must send paper requisitions to a single person?
  • Do you have a way to ensure that spend is consolidated with your preferred vendors?
  • Do you have tools to execute sourcing events like RFP (Request for Proposal) or e-auctions.

e) Skill assessment

The last step in the assessment process is to assess whether your existing procurement team has the skill sets to execute the procurement strategy. For example, if you decided that to achieve your goal of savings, you plan to adopt a low-cost country sourcing strategy. So, do you have any team member who has experience in low-cost country sourcing?

 Procurement strategy design and execution

The next step towards defining the procurement strategy is the design of the procurement strategy and ensuring that you have the right resources to execute the strategies. Let’s assume that one of the goals of your procurement strategy is to reduce the purchasing cost by 10%. So, some of the common outcomes of this step are as follows

a)Supplier strategy

 The supplier strategy would provide guidelines on what kind of partners you would work with to reduce cost. This might include the following scenarios

1.Single source supplier strategy, where you decide to purchase product and services from only one supplier. This not only helps in cost reduction but also helps with keeping a close eye on their performance. The single source supplier strategy has its drawbacks too; it increases supply chain risk. To mitigate that, you would need to put processes in place to track such risk.

2.We need to consolidate vendors so that we can route spend to top 2 vendors. This means that you need to buy in from all stakeholders and locations, in case you are a multi-location company.

3.We need to source from low-cost countries because the vendor consolidation efforts will not be able to drive the cost down enough to meet the savings goals.

 b) Bidding strategy

 Bidding strategy will provide guidelines on how would you use competitive bidding to meet the goals of your procurement strategy. Some of the common outcomes of this strategy is

  • The bidding would be done for all purchases greater than $50,000. Anything under that can be purchased without a formal bidding process.
  • A formal bidding process would include a 3 bid and buy process. All bids greater than the defined threshold would require proposals from three different vendors.

c) Procurement Tools strategy

The key component of execution of procurement strategy is the tool sets which would help in execution. Some expected outcomes from this step are as follows

  • Tools for automating the purchase order process and ensuring that negotiated product/services rates are used across the company.
  • Tools to ensure that the bidding process can be automated and scaled up as required.

Best practices of a procurement strategy

We close this topic with some best practices you should follow while implementing a procurement strategy.

a) Involve key stakeholders

 Procurement strategy can’t and shouldn’t be defined in isolation. The key to success is to have a strategy which is well adopted and have the buy-in from key stakeholders.

It is no good to design a strategy where there is no consensus and hence no adoption. For example, you might conclude that vendor consolidation is the right procurement strategy but operations head might not agree with it because that increases the supply chain risk. So, an effective strategy is first to get feedback on the proposed strategy and address any concerns they might have. In the end, the strategy should be quantified into cost savings so that you can evaluate the true effect of the strategy.

If you don’t have a procurement team today, then start with getting feedback from different stakeholders. Then converge the feedback to a coherent procurement strategy which works for most of the executive team. It is difficult to get 100% buy-in.

b) Keep the bidding process simple

An integral part of procurement strategy is the bidding process. In other words, vendor selection process. Having a bidding policy is critical but ensure that it is practical.

The common advice is to have five step or seven-step strategic sourcing process. That is a good practice to follow but might not work for all categories and product or services purchases. The common feedback from stakeholders about bidding process is that it takes too long to run a sourcing event. Though that is not true in all cases, sometimes the RFP process can drag on and extend the vendor selection process.

The key is to hear out feedback from your stakeholders and optimize the bidding process so that it can adapt to the unique needs of your stakeholders.

c) Transparency and reporting

Ensure that you provide complete transparency into the results of the procurement strategy. It is critical to support the claims of successful implementation of strategy with detailed reporting at each department level.

For example, if the key goal of the strategy is to reduce cost – then you should report overall achievement to senior management on a quarterly basis. For individual department owner, the reporting should be on monthly basis on how they are doing against their allocated budget and how procurement is helping them to reduce the overall cost.

Though savings is an important part of the equation, the focus solely should not be on just savings. You should evaluate the reporting needs of your stakeholders and accordingly support the reporting requirements. For example, procurement can help stakeholders with the forecast of expenses and avoid any surprises.

d) Continuous improvement

No plans survive the reality test, no matter how well planned. Procurement strategy is no different. Plan for revising procurement strategy based on the feedback from stakeholders.

Try to get regular feedback. The best way to get feedback is to have a quarterly review meeting with each key stakeholder. Ask interrogative questions, for example – What you think about the effectiveness of the procurement strategy and how we can further improve it.

Don’t ask how we are doing because you will not negative feedback.


An effective procurement strategy can deliver significant benefits for your company including cost savings. Whether you are a Fortune 500 company or a growing mid-market company, it is critical to review your purchasing policies.  Document the desired goals and then design a procurement strategy to meet those goals.

Hope you found this article helpful. Read more on procurement in mid-market

Purchase order system – Best practices and considerations

Purchase order system – Best practices and considerations

Introduction and benefits of using a purchase order system

I am sure you would agree with me that any automation initiatives done right delivers productivity improvements and cost savings. Purchase order system is no different and done right can deliver significant improvement in productivity and provide better visibility into company spend.

Purchase order system might not be a top of mind issue for many mid-market executives. It could be because that it is a back-office function or the purchasing volume is not high enough to demand automation. But if you are like any other executive or manager looking to reduce waste and increase efficiencies then you should count this automation initiative in low hanging fruits bucket. Implementing purchase order system would increase the efficiency of your staff and simplify the experience for the end users.

In this article, we will cover, what are the benefits of a purchase order system, how you should evaluate different solutions available in the market and what are the implementation best practices. So, if you are in the market for a purchase order system, this article is for you.

Definition of a purchase order 

Let’s define what a purchase order is and what are the different components of purchase order system If you are familiar with what is a purchase order, please feel free to skip this section.

The official Wikipedia definition of purchase order is as follows

“A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from external suppliers”

Like any other legal contract, PO has an offer and acceptance. Buyer sending the purchase order is just an offer to purchase from the supplier. The PO becomes a legal binding when the vendor accepts the offer by acknowledging the purchase order. Vendor can accept the order as is or ask for a change order. Having a purchase order simplifies this back and forth between buyer and supplier.

A sample purchase order is below

Purchase order example


Download free PO template in Microsoft word 

 A purchase order has following components

a) Purchase order header

A purchase order header consists of following components

  • Buyer details: This covers the basic information like company name, address, logo etc.
  • Shipping information: This section covers the order location for the supplier, where the order should be shipped to and the Purchase order number.

b) Key terms: This section lists key terms including shipping method, trading terms and agreed or standard payment terms for your suppliers.


c) Purchase order line items

Order Line item details: this section contains line items which you are purchasing from the vendor. The key fields are description of the item purchases, quantity, unit of measurement, unit price and total.

c) Taxes and other information

This section lists the taxes related to the purchase and other charges like Freight etc.

Free Purchase Order System

Process flow purchase order process  

Having covered what is a purchase order, let’s look at the basic process of creation of a purchase order. The basic purchase order process is depicted below

a) Requisition process

The requisition process generally involves, identification of the need or what needs to be purchased. If you have a procurement department, then this step would generally include sourcing and price negotiations (in case of new purchase). In case of existing items, this simply means purchasing items from existing suppliers with pre-negotiated pricing.

b) Requisition approval

The second step of the process includes authorization approval of the purchase. Depending upon the level of automation, this could be either manual or semi-manual or fully automated. It is not uncommon for companies to have paper based authorization process for purchase approval. Though it works but the process is highly inefficient. Your purchasing policy should clearly define who should be approving the purchasing request.

c) Purchase order processing

The third step includes creating the purchase order and sending to the supplier. If your system is completely manually, you are creating purchase order using an existing template and then sending to the supplier via email or through fax. Automated systems create the purchase orders automatically and send it to the supplier based on their preferred transmission process

d) Supplier acknowledgement

The fourth step is the acknowledgement of the order by the supplier. This generally means that supplier accepts the order including the terms printed on the purchase order. In case the supplier doesn’t acknowledge the order as is, then it must go through a change order process.

e) Change order process

The purchase order change process can be initiated by the buyer or supplier due to different reasons. Common causes for suppliers initiated changes include, incorrect price, discontinued items or disagreement regarding purchase order terms.

On the buyer side, the change order is commonly initiated due to change in quantity of incorrect unit of measure (UOM) for the item or list of items.


Benefits of a purchase order system

Having covered the basic purchase order process, let’s cover what benefits you can expect by implementing a purchase order system

a) Cost savings

When it comes to cost of processing a purchase order, there is no simple answer. There are different benchmarks available from different research house. For example – a study done by CAPS research provides purchase order processing cost benchmark for different industries. For example, manufacturing industry has an average cost of $59 and petroleum industry has an average cost of $741. The reason for such a broad range is due to process complexity and number of people who are involved in reviewing the purchase order before it is sent to the supplier.

One should also consider the cost of processing change orders in case they are not issued correctly.

A simpler solution is to look at the total yearly cost and divide by number of purchase order processed

Cost to process PO = Total yearly cost / number of purchase orders issued

So even if you have single employee with an average annual loaded cost of $75,000 and total PO processed is 60 a month or 720 a year. Then the average cost per PO is $104. By implementing a automated purchase order system you can eliminate the cost of processing the PO by 80-90%.

b) Productivity Improvement

A purchase order system not only saves cost but also saves time required to process a purchase order. If you are manually processing the purchase orders, then every step takes more time, for example approvals etc. By automating these activities, you should be able to save time and increase productivity of your employees. Automation of purchasing process is a very simple way to eliminate waste from your operations and increase the efficiency of your business processes.

c) Better relationship with your suppliers

 A side benefit of automating the purchasing process is improved relationship with suppliers. Automated purchasing process leads to 

  • Reduced errors in the purchase orders, hence suppliers spend less time correcting errors and processing the purchase orders.
  • It provides better visibility to the supplier. Since the process is automated, suppliers know how much time it takes to process orders.

d) Visibility into spend at granular level

 If you have a manual purchase order process, chances are you have limited visibility into company spend. Most of the companies relies on reports like spend by supplier or spend by GL accounts. Beyond that, you must dig up the purchase order documents to find additional information.

With an automated purchase order system, you can get granular visibility at line item level which helps you better plan your budgets, understand cost trends. The granular visibility provides better spend data which you can use for negotiations with your suppliers. It is not uncommon for companies to find out that they are paying different rates for the same product across different departments.

For more on cost savings – Download our free guide on how to implement a strategic cost reduction program

e) Fraud prevention

 One of the benefit of a purchase order system is that you can implement automated workflows. Hence, ensuring that all purchases requires proper authorization before it can be sent to the supplier. Most purchase order systems maintain an audit trail and you can review the purchase approval history at any time.

With automation, you can build approval workflows so that employee don’t need to evaluate who should be approving the purchase. The purchase system automatically does that for you and helps in preventing procurement fraud.

f) Legality

 Though it is ideal to have negotiated contracts for all the purchases but that is not always the case. In those cases, terms on the purchase orders is a good substitute. Every purchase order should list the standard buyer terms for purchase and that provides the general agreement on how both parties will conduct business. A purchase order generally includes commercially terms like payment terms, product warranty’s etc. It also includes legal terms like limitation of liability, indemnification etc.

In case there is a dispute, these terms can help resolve that dispute rather than leaving it open ended. If a case ever goes to court of law, the standard terms can provide the general agreement framework rather than relying on standard commercial terms.

Selection considerations for purchase order system

 I think by now you would agree that purchase order system is a must for any organization including yours, with that said, let’s look at some of the considerations for selecting a purchase order system

 a) Using your current ERP

Almost all ERP (Enterprise Resource Planning) tools have a purchasing module especially the enterprise grade applications like SAP and Oracle. Before you decide – ask following questions

  • How much it will cost to configure the module?
  • Is it user friendly and can be easily made accessible to all users?
  • Do you need to purchase additional licenses to enable this capability?
  • Do you have configurable workflows so that employee’s orders can be approved before they are processed?

If you current ERP like Microsoft Dynamics offer this capability at a reasonable cost, use your current ERP purchasing module. If not, keep reading!

b) Ease of use

 There are multiple purchase order system provider and on paper all provides have similar feature. However, the easier the system is to use, the better the adoption across the company. If the tool is cumbersome, you will never get the desired adoption and hence the benefits which comes along with it. Look for system which has an interface similar to common used web applications, for example if your purchase order system has a user interface similar to, you really don’t need to train users.

c) Installation and Maintenance

 Another aspect to consider is the delivery model. Whether the solution is a cloud based solution or the purchase order systems need to be installed and maintained by your IT team. Internally deployed and managed system might seem cheaper in the beginning but if you do a Total Cost of Ownership (TCO) analysis over 5-6 years, cloud based solution is always a better deal. There are multiple reasons for that

  • You don’t need internal IT resources to manage the system. Maintenance is always a headache because you need expertise and downtime to upgrade.
  • You get better availability and reliability assuming the solution provider uses state of the art infrastructure.
  • Most of the cloud solution providers keep on enhancing the system on quarterly basis so you are always getting the latest and greatest features.

d) Flexible approval workflows:

When you are implementing a purchase order system, the goal is not just to automate the paper based process but also to ensure that the system can help with your compliance needs. The selected system should support

  • Business rules around purchase authorization before placing the order. For example, based on the total purchase amount, the purchase needs to be routed for approval at the correct organization level.
  • Specific category rules – for example, all IT hardware purchases should be first routed to IT so that they can ensure that corporate standards are met.

The easier the tool, the better experience for employees because you can customize the workflow based on the requirements of the business and different business departments.

e) Easy to configure

When it comes to purchase order system, one system doesn’t fit the requirements of different business. The purchase order system should be easy to configure so that you can easily set it up to meet your unique business requirements. It could be a specific business processes or special field structures which needs to be setup.

A word of caution, don’t overly customized the system to meet your business processes. There is value in choosing out of the box functionality because usually that means it is the best practice. Ideally, do minor tweaking to adjust the system to your requirements. If required, review your processes to see if process re-engineering is required.

f) Integration requirements

Once the purchase order is generated, it should also be sent your ERP system for further processing. That includes posting it to correct general ledgers, receiving the goods, inventory management, invoicing and payment.

Make sure that the selected system can easily integrate with your current system/s. Ideally the selected vendor should have pre-built and configured adapters for you ERP system so that your IT team can easily configure the system and it is a plug and play integration.

g) Modular system

The benefits of purchase order system are not limited to just purchase orders, you can extend the capabilities to automated invoicing too. This makes it easy for suppliers to submit the orders electronically. You can expect similar benefits around productivity and cost improvement as in the case of purchase order system.

Our suggestion is that you select a system which is modular, which means it has end to end modules for the entire P2P (Purchase to Pay) process including e-invoicing. This way you can start small and later expand into other modules.

I hope that the above-mentioned criteria would help in selecting the purchase order system.

How to get a purchasing order system for free


Implementation best practices

 So, you have identified the benefits, selected the system and started implementing the solution. But before you start implementation, consider the following points. This would increase the chances of a successful implementation.

a) Support from stakeholders

 Like any other initiative executive support is very critical for successful rollout of a purchase order system. Make sure that key stakeholders are aligned with the objectives of the rollout of the program. Most of the times these solutions are sold by purchasing department to internal stakeholders as an initiative to improve productivity of the back office. That is not the most appropriate approach. You should highlight the key benefits stakeholders will get, once the system is implemented. For example – better visibility into their budgets.

b) Effective change management

If you are implementing a purchase order system for the first time, make sure that change management is well handled. Specifically, make sure that users of the systems are communicated in advance regarding the benefits of the system. Make sure that you update the users on a continuous basis before you Go live and they have a channel to voice their opinion and feedback.

When managing change, focus on the bright spots – what is working and then accelerate your efforts towards that.

c) Single ownership

Implementing a purchase order system includes technology implementation and process enhancements. It is helpful to have single point of ownership so that the individual responsible for implementation can get feedback from different stakeholders. The selected individual should be single point of contact for your internal and external stakeholders. 

Ideally a person familiar with technical solutions and process knowledge would be best suited for this role.

d) Minimize customization

 I have mentioned earlier and will mention again, Minimize the customization to the chosen solution. There is always a strong temptation to customize the solution to meet your specific business processes. This might be Ok if the solution is developed only for you but if you are selecting a cloud vendor, chances are that they have the exact same build for all customers.

Rather than customizing, focus on create strong requirements and make sure you choose a solution which fits well with your current processes.

f) Process reengineering

This is often ignored step especially when you have limited resources. The general tendency is to implement the system and then improvise the processes once the system is up and running. That is a wrong approach.

Take time to do a current state process analysis and then come with would-be process. Get buy in from all the stakeholders regarding the would-be process. Once that is done, the requirements should become part of your selection process.



Purchasing automation done right by implementing a purchase order system provides many benefits. Key benefits include improved productivity, increased visibility into company spend and increased compliance to the corporate policies. Mid-market companies can gain significant competitive advantage by understanding their buying patterns and strategic cost reduction opportunities.

I hope you find this guide helpful. If you would like to discuss further, setup a free consultation with one of our purchasing experts.

The Ultimate Guide to Corporate Travel and Expense (T&E) Policy.

by ProcureDesk 0 Comments
The Ultimate Guide to Corporate Travel and Expense (T&E) Policy.

I think that you would agree with me that although Travel and expense (T&E) spend is not a major contributor to the total spend, it needs lot of attention and resources to process the expense reports for employees. This includes defining a Travel & Expense (T&E) policy, processing receipts, ensuring that receipts match the expense, auditing, reimbursing employees for out of pocket expenses.

The percentage of T&E expense as of total spend may vary from company to company, but this is always a top of the mind issue for most executives because well controlled T&E expenses can not only save company money but also prevents any fraud by employees and misuse of company assets. As per research done by Aberdeen group, 43% of best in class companies consider T&E expense management as critical strategy and 48% of best in class companies cite “need to reduce expense processing costs” as a top pressure.

Companies whether large or small realize the potential benefits of well managed T&E spend and invest in tools and technologies to better manage the process. However, policy generally comes after implementing the tool and that causes lot of headaches for employees as well accounts payables who is processing those expense reports.

Following Travel and expense policy best practices, companies should first define and implement a policy, ensure that employee feedback is incorporated in the policy and then look at implementing a tool to automate the expense management process. This will not just lead to process efficiencies but also leads to a friction free T&E expense reimbursement process. Let’s look at some of the key components of the T&E policy

Objective of the T&E policy

It is important to have a well-defined T&E expense policy but equally important is to clearly articulate the objective of the policy both for the management as well employees. Some of the key objectives for the T&E policy are as follows

a) Define an expense reimbursement process for both employees and non-employees. The process includes how to report expense, what to include and how employees be reimbursed for expenses.

b) Ensure that employees understand the legal requirements from IRS regarding expenses, for example the need for business reason. Companies who explain the need for policies have a better compliance rate as compared to companies who just implement policies without first explaining the need. You can find guidelines on IRS website.

c) Ensure that employees and their managers understand their duties and responsibilities regarding expenses.

The goal of defining the objective of the policy is not just to define the rules for T&E expenses but to also ensure that employees clearly understand how to behave responsibly while spending company money. A well-defined and communicated policy leads to lower fraud rate and overall reduced spend.

Benefits of Travel and Expense (T&E) Policy








Having a well-defined Travel and Expense (T&E) Policy can have many benefits. Organizations across the board are looking for way to improve their T&E process and having a solid foundation in the form of a policy is the first step. As per Aberdeen research group, the top benefit companies are looking for is reduce expense processing cost.Apart from the obvious benefits of reducing the cost for processing, other benefits of a well-defined policy include 

a) Improved Productivity

Having a standardized T&E policy provides employees clarity on what they should or shouldn’t do, which means the policy administrators are handling less calls from employees on how to do something. It is important to define the policy as early as possible, even if you are a small company. That way, you can tweak the policy as per employee’s feedback and when your company is in growth mode, it is easy to scale the policy across new employees and different locations.

b) Fraud prevention

Having just a policy doesn’t lead to fraud prevention but the visibility backed by a strong process does. What I mean by this is, since you have defined a process to report spend, it will be easier for you to understand the trends and identify if an employee is misusing company assets. For example, if an employee is traveling to the same location again and again, you might want to audit that to check if this is a valid business need for that or the employees have relatives at that location! 

c) Cost savings

Though cost savings is not the only reason for which you should define a T&E policy, having a well-defined Travel and Expense policy does lead to cost savings. Specifically,

  • It helps you to understand key trends by way of gathering spend data (assuming you have an electronic system to capture T&E spend including vendor details). Once you have data about key vendors, you can go back and negotiate the cost with these vendors. On an average, you can reduce your T&E cost by 8-10% across airlines and hotels once you have a decent volume.
  • Standardization leads to reduced exceptions and hence overall reduced cost to process an expense report. As per research from The Aberdeen Group, the average cost to process a single expense report is $20.65 and for organizations with visibility, the average cost is $12.51, or 39% lower. So, if you are a mid-market company processing 1,000 expense reports per month, that’s an approximate annual savings of $97,680.

Component of Travel and Expense (T&E) Policy









This section is more an overview then detailed explanation of each component of the T&E policy, use this as a template to create a T&E policy which is customized to your organization needs

1. Expense categories

The first step is to define what spend categories are covered under the corporate Travel and Expense policy and what special rules you might have for these categories. Common expense categories are

  1. Travel – Air, Road, Lodging, car rentals.
  2. Business meals
  3. Client entertainment expenses
  4. Office expenses – for example office supplies which employees can purchase using corporate card or their own card.
  5. Other vendor expenses – expenses you allow

2. Cards vs cash

It should be clearly defined whether employees should exclusively use corporate issued credit cards or whether an employee can use their personal credit card and cash for employee expenses. There are pros and cons of each approach, so you should clearly evaluate the alternatives and decide what works best for you. For example, if you are exclusively using cards, then that gives you better visibility into T&E spend but then you are liable for paying late fees if employees don’t file expenses on time.

3. Reimbursable vs non-reimbursable expense

Not all expenses are reimbursable, IRS guidelines drive some of that and as a company you might decide not to reimburse such expenses. Some common non-reimbursable categories include

  1. Child care
  2. Personal grooming
  3. Dry cleaning services – some companies do reimburse this expense and some don’t and this is dependent on the average number of travel days for your employees.
  4. Parking tickets
  5. Traffic violations tickets
  6. Airline upgrades.

It is recommended that you review your overall T&E spend and identify categories which are not reimbursable. The list of categories generally evolves over time so you don’t need to capture everything on day one.

4. Expense reporting and reimbursement

 The T&E policy should have a clearly defined process for reporting the expense and the pre-requisites for submitting the expenses. Some of the common examples are

  1. Reporting of the expense reports: if you are using an expense management tool then this process is straight forward but if not, then clearly define how and to whom expenses should be submitted after they are approved.
  2. All expenses should be approved at the right authorization level before submitting for processing. The right level depends on the autonomy available to employees at each level of the organization hierarchy.
  3. It is a good practice to have receipts for everything but that also requires additional effort to validate those receipts and match it against receipts. You might want to start with a lower amount, for example anything greater than $20 needs a receipt.
  4. All T&E expense reports should be reported within a certain timeframe. If your company has a corporate credit card program, then you might require all expense to be filed within 30 days so that you can pay the bank in time and avoid any late fees charges.
  5. How soon employees expense will be reimbursed, for example 30 days after the expense is reported.
5. Travel policy

This is the most important piece of the T&E policy. As per financial dictionary, “travel expenses are defined as Expenses incurred when a person conducts business away from home. For example, if one must travel to another location to conduct a meeting with an important client, any lodging, meals, or transportation costs usually count as travel expenses”.

Following should be covered in the travel policy

a) Travel booking:  How the travel should be booked by employees. There are multiple options available including external or internal help desk, travel booking tools or other travel websites like Expedia, individual airlines sites etc. There are pros and cons of each of these approaches but you rather have a defined approach. If you are a medium sized business, it is ok for employees to use any website for booking, however in that case, make sure that you have a good expense reporting tool so that you can get visibility into spend.

b) Preferred airlines:  If you have a preferred contract with any airlines then make sure that you communicate that to employees. If your annual spend is under $500,000 chances are that you might not be able to get any preferred pricing from airlines but you can always enroll in the corporate miles program whereby company accumulates miles for every travel. These miles can then later be redeemed for travel, not huge savings but you can save $50,000 – $100,000 / year depending upon how they are redeemed.

You should also specify if travelers need to book travel in advance or they can book anytime. As per research done by travel booking site the best time to book a domestic flight is 49 days in advance. Now that might not be possible all the time, as per the research, the worst day to book a ticket is one day before the flight, followed by 2 days, 3 days until you get to 11 days out. So, if you can’t do 49 days/ 7 weeks, aim for at least 2 weeks.

c) Business Class vs Economy: The policy should clearly specify when business class travel is allowed. There are multiple ways to structure this, you can implement policy based on job titles, for example – VP and above can travel by business class. The other way to handle this is to structure by travel time, for example – if the travel time is more than 8 hours then business class is allowed. You can decide to keep it simple by not allowing business class travel at all!

d) Lodging: There are couple of things to cover here, first what type of rooms can be booked by travelers, for example standard vs. suite etc. Second, if you have a preferred contract with a hotel, then make sure employees use only that hotel. The problem with hotel bookings is that employees prefer to book hotels with those hotel chains where they already have lot of reward points. This can easily be mitigated by asking your preferred hotel to do a reward/points match. Some hotel chains might not negotiate a national contract so this could be a little bit of work depending upon the number of locations travelled by your employees.

e) Booking cost and exceptions: The goal of this section should be to provide guidelines to employees on acceptable booking cost for airlines, lodging and car rentals. If the booking cost is over the guidelines, then a process should be in place to approve those exceptions.

BTN (Business travel news) publish a yearly BTN corporate travel index  which is a good start to get a handle on the overall travel cost. For example – as per the 2017 index “the average 2016 cost of a hotel room, including all taxes and surcharges, was $177.36, up 2.6 percent from 2015 levels. New York was the most expensive at $385.08, and San Francisco, Boston and Washington, D.C., also exceeded $300.”

Best practices –  Travel and Expense (T&E) Policy

Defining a policy is one thing, implementing it in a user-friendly manner is a completely different ball game, we will conclude this guide by mentioning some best practices which you can use to successfully implement a Travel and Expense policy in your company

1.Ownership of the policy

For the T&E policy to be successfully implemented, there must be a clear defined ownership of the policy. Ideally this should be owned by a finance function or a procurement function. There are two main reason for defining a clear ownership, first – your policy is not going to be perfect on day one so having a clear ownership ensures that someone is tracking the policy adoption and accordingly making changes. Second – when you rollout the policy, there are always questions from employees, so you need someone to handle employee questions and feedback.

2. Executive support

 T&E policy implementation is no different from any other change initiative and if you have key executives backing up the policy, there is a higher chance of adoption. In our experience, the T&E policy is well adopted in cases where a senior executive like CFO (Chief Financial Executive) is supporting the policy. It is good practice for the initial communication to go from CFO on why the need for T&E policy and how employees can provide feedback.

3. Focus on Adoption

 It is not uncommon to see employees going out of the policy and booking travel which is not authorized or travel which is outside the guidelines. The most common reaction to such employee behavior is to act against such employees and set a precedence. Our recommendation is to resist this temptation and focus on rather accommodating the needs of the employees. Understand why the exception handled and if it is a genuine request then figure out a way to accommodate that in the policy. Focus on adoption and not enforcement only, once you have policy fully adopted, you don’t need to enforce it!

4. Keep it Simple

 While writing the policy, use simple language and avoid corporate jargons. There are two benefits of that, first – all employees can easily understand what is expected out of them and second – there will less exceptions because the expectations from employees are clearly define. Policies in general are not well read by employees, I mean who wants to read a 20+ pager document to understand how they should travel. For higher adoption, keep it simple and brief and define as less rules as possible. Again, focus on adoption first.

5. Reporting

 Make sure you have a mechanism to report on the total spend at department level and at company level. There are multiple benefits to having good reporting around T&E spend

  1. It helps budget owners to better understand how their T&E budget is consumed.
  2. It helps understand spend patterns and any transactions which might be fraudulent in nature.
  3. It makes people accountable because their spending is now reported and available to senior management for review.


When it comes to defining Travel and Expense policy, define clear objectives and goals you want to achieve, keep it simple and focus on adoption over enforcement. Hope you find this guide helpful, you can check more topics around procurement in mid –market companies on ProcureDesk blog.