Stakeholder compliance — be it compulsory or voluntary — bridges the rather large gap between the cost savings that get encoded into strategic supply contracts and spending processes and the cost savings that actually materialize on a company's profit line. As I noted in my previous blog, “For procurement leaders involved in areas such as profit and loss, supplier, and/or budget management, winning genuine adoption and support from purchasing stakeholders is far and away the greatest challenge.” (See: Boosting ROI in Procurement Technology Initiatives.)
Compliance, whether it's adherence to contract stipulations such as buying from preferred suppliers or adherence to procedures such as adopting and using the preferred, lowest-cost buying and payment processes, can result in significant cost savings from procurement activities. It can also drive streamlined, repeatable processes that free up procurement professionals to focus on more strategic activities.
According to the study I referenced in my previous blog, doubling contract compliance may result in a six-fold increase over time in percentage cost savings from an organization's spending management activities. Despite the value compliance can bring to the procurement process, the challenge is to understand what tactics work to enforce it. Three out of five (60 percent) of the best in class companies — those with compliance rates at 70 percent or above — felt that monitoring and reporting was the most effective tactic to foster a culture of compliance.
However, simply favoring this tactic is no guarantee that it will deliver the intended results. The ability to monitor and report on compliance is heavily tied to technology adoption, as it enables metrics such as off-contract spending, contract utilization, and contract performance related to terms to be tracked easily, consistently, and accurately right down to a specific department and/or individual spender.
In fact, the study found that for all of the companies that favored the “monitor and report” tactic for contract compliance, there was a dramatic 44-point difference in reported contract compliance rates between companies with high adoption and use of contract management technology and those with low adoption and use. Interestingly, this does not restrict itself to contract management. Nearly half (49 percent) of the companies with high contract compliance reported high adoption and use of spending analysis technology, as well.
Another important tactic that can be utilized to drive compliance is creating a business case and communicating the benefits in a tangible, verifiable manner. This can include mentioning that you have seen an X-percent increase in savings in a particular category where contract compliance rates increased by Y-percent. However, this requires the procurement professional to be able to market the benefits and value of any process change or technology introduction.
Creating a business case and combining it with high adoption of supporting procurement technology and monitoring can make a powerful formula for obtaining compliance to spending management contracts and preferred processes. However, they are not the end game when it comes to achieving a corporate culture that truly embraces and buys into enterprise spending management. Few procurement leaders will tell you they wish to spend the rest of their careers policing people's behavior. On the contrary, what they really want is to embed best spending management processes and practices into their enterprises and move on to more important, value-adding, and performance-enhancing work, such as supporting innovation and new product introduction.
The key to getting there is encouraging active stakeholder participation in strategic sourcing and spending management processes and stakeholder ownership of spending management decision-making.