To get spend under management, make everyone a buyer
- Procurement veteran David Hearn believes the key to getting spend under management is to make everyone a buyer. Coupa CMO Tara Ryan outlines his thinking.
Instead of restricting purchasing access to a privileged few, Hearn recommends opening up the procurement system to all, to allow employees to make their own purchases of low-risk, non-critical items below a certain cost threshold.
This seems counter-intuitive, and ever since he first tried to introduce such a system at Sun Microsystems in the late 1990s, he’s encountered resistance from those who fear a loss of control. Writing about the experience last year, he recalls what the then-CFO at Sun’s German operations told him:
Mr Hearn, we control our costs very closely because we are measured on profit and loss. We don't need someone from headquarters telling us to give authority to everybody in Germany to buy things they may not need, without professional procurement people, and no controls.
Trusting people saves money
But over the years, Hearn’s experience has shown him that trusting people to take responsibility for their own spending actually saves money:
Not because people bought less – they still bought what they needed to buy. What happened was they felt empowered to negotiate a little bit themselves, whereas before they felt they had no control. When you give people accountability, they feel accountability, and so they take it ...
We had created mini procurement people, thousands of them, saving money on purchases no purchasing team would have had the time to go after.
Resistance comes not only from CFOs but also from within the procurement function, where, he says, colleagues are often reluctant to risk change:
The biggest fear is that it won’t work, that costs won’t be lower, that it will get out of control and procurement will be seen as having done a ridiculous thing and failed.
Hearn believes this is often because people in procurement sense the dissatisfaction the existing systems cause their colleagues throughout the business:
Every procurement person already has a little bit of a chip on their shoulder because frankly, at just about every company, employees loathe procurement. I don’t mean they loathe the people … What I think they really hate are the tools in procurement because they can't figure out how to use them. And they don't like the process because it feels like bureaucracy constantly getting in their way.
Modern spend management
By introducing modern spend management tools that are much more approachable and simple to use, procurement can take away that dissatisfaction while doing a better job of managing spend, he believes:
Decades ago, we had to get our arms around spending because it was out of control, and we didn't have any user-based tools that were easy for employees to use, so we had to centralize all buying in the procurement team.
Now, it’s time to decentralize, and democratize who can procure. Let everybody do purchasing below a certain dollar threshold. You will get more cost savings by focusing your procurement team on the large dollar spend, your employees will be happier, and the process will be more efficient.