Brought in as part of a team tasked with turning around the Japanese technology giant’s fortunes in Europe (after its unsuccessful forays into the PC and mobile handset markets), a core part of Johnston’s remit was to enforce control over spending across the company’s 20-plus country operations.
NEC Europe’s procurement system, largely based on a semi-manual SAP process with requisition backed up by paper documents, was not just complex and cumbersome but it lacked the necessary controls and adequate transparency, he says. Indeed, processes were so onerous that managers in many countries and business units simply found ways round them. “I could not believe how complicated it was to raise a purchase order. I had to ask myself why anyone would actually do that,” says the VP of finance and procurement of his arrival at the company in September 2011. “We just didn’t know how we were spending money and what we were spending [it] on.”
He was not alone in that perception. A KPMG benchmarking of NEC Europe’s procurement activities in early 2012 against peer companies put it firmly in the bottom quartile.
Johnston’s immediate conclusion: “We need to invest in a new procurement system” — one that was so intuitive to end users that they had no excuse not to use it and which would therefore provided the finance organization with the data it needed to exert suitable levels of governance. “Our basic need was to make it easy for people to provide us with that information,” he explains.
Tweaking the SAP system was only a fleeting consideration. The company’s SAP manager was initially convinced that the ERP system was best suited for supporting the refined processes and workload. But that sense was short-lived, according to Johnston: “The epiphany for her was when she realized how much incremental work we would have to do and how complex and clunky SAP was [going to be in this case]. We managed to convince her to move the procurement function out of the platform.”
Instead, NEC started evaluating several of the new breed of cloud-based spend management tools, ultimately settling on Coupa, from the eponymous seven-year old Silicon Valley start-up, largely for its simplicity and the visibility it provided, as well as an ability to tie directly into the core SAP system.
“One of the key criteria was that the system would effectively be an ‘Amazon.com for business.’ We wanted procurement to be as simple as placing an order on the Internet,” says Johnston. And in true consumerization-of-IT mode, the finance team were only too happy to restrict the decision-making to their own ranks. “The internal evaluation process involved finance, accounts payable and procurement — the people really struggling in terms of getting the information [they needed],” he says. “It didn’t go wider in the business because as consumers, we felt we could judge that [Amazon-like functionality] as well as anyone else.”
There was input from the IT colleagues, but only to ensure they understood the workload and integration implications and that the project was consistent with their strategy, says Johnston. Which it was.
“Our VP of IT wants to put as much as possible out into the cloud and into managed services, and so an as-a-service model was what we were looking for from the start.” It wasn’t the first experiment with SaaS at NEC Europe. The company had already bought into a cloud-based corporate performance management sevice, as well as making extensive use of Salesforce.com. “Moving purchase-to-payment to the cloud was an obvious thing to do.” It was also something done rapidly.
Go-live in 90 days
NEC started looking at options for the procurement service in October 2012, brought its shortlist down to two within a month, spent December in final negotiations, before signing with Coupa on Christmas Eve. It then began implementation on January 15 and went live on March 28. “That includes implementing our processes, building interfaces to SAP and developing a training program,” says Johnston proudly.
User adoption has been strong, even in countries with a track record of weak adherence to the previous procurement processes. Within six months, 250 users were on Coupa across Europe, with levels of take-up in the UK such that the finance group has been able to instigate a ‘No PO, no pay’ policy. “We could never have done that before because no one ever sent in blooming POs,” Johnston says, only half-jokingly.
Aside from easy-of-use, another aspect has spurred that user engagement — user visibility into the system, with users for the first time able to view where their spend approval sits within the process.
One aspect has not been applauded so loudly, though. “Perhaps unsurprisingly no one liked the authorization matrix, which is quite bizarre given we hadn’t actually changed it — it’s just that before users were never following it.”
Paying for itself
Now that they are following it, the targeted savings are beginning to emerge. Having moved away from the manual SAP purchase order process for procurement the company was able to reduce the headcount serving those requirements. That alone, claims Johnston, “pays for the annual cost of the Coupa system for us.”
But the real value, he says, lies in the underlying information generated and the ability to take action on such insight. “We now have powerful dashboards for analyzing spend patterns and compliance — and seeing who the awkward guys are in the organization who’re never approved requisitions.” In fact, the NEC dashboard is set up to generate a top 10 list of the ‘worst approvers.’ “When they appear on that list (and no-one wants to be on the bottom consistently) they can now do something about it,” he highlights.
The company has also been able to drill into the fragmentation of spend: “It was astonishing to see the number of one-off purchases that we had,” says Johnston. “Now we can understand what was purchased and how, and then try to consolidate that spend so we can get better rates.”
Related to that, NEC in EMEA has also used Coupa’s e-sourcing capability on a small number of online auctions, but Johnston’s next focus is on less ad hoc spend.
“We’re looking to put contracts onto the system so we can get good analysis of on-contract spend but also enable the invoice processing to be much more efficient.” At this stage Coupa is not actually controlling the full procure-to-pay process; it’s use covers requisition through to the generation of a purchase order which in turn gets fed into the SAP system and matched with invoices captured using scanning and OCR technologies from Concur and Brainware. But Johnston says NEC is evaluating whether to extend the cloud model further and use some of the other modules of Coupa.
“One of the themes [we like] is having a single user experience. Just like in Amazon when you buy anything, from computers to groceries, all through one look-and-feel portal, it makes a lot of sense for us to try and layer in behind that things like travel and expenses and invoices.”
Gavin Johnston was speaking at Coupa One Vision London
Disclosure: SAP and Coupa are diginomica partners at the time of writing
Image credit: iStockphoto