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Case Study: How Businesses Are Using Cloud Commerce

Ariba cloud-based procurement brings savings and visibility to buying process at scale

This case study podcast discussion explains how businesses are using cloud commerce to dramatically improve how they procure by better managing the overall buying process.

Cloud-based procurement services are improving cash management, and helping to gain an analytical edge over spend management while constantly improving company-wide buying efficiency and repeatability.

One company, California-based First American Financial, has successfully moved its procurement activities to the cloud to save on operational expenses, even while dramatically increasing the purchases managed.

To learn more about how First American is conducting its businesses better through collaborative cloud commerce, Dana Gardner, Principal Analyst at Interarbor Solutions, interviewed Jeff Nolen, Procurement Solutions Manager at First American Financial Corp.

Here are some excerpts:

Nolen: First American has existed for a long, long time. We've been in business since 1889. We're financial services company and we sell a lot of financial products related to residential and commercial real estate transaction, title insurance mainly, other things of that nature -- home warranty insurance and specialty insurance that covers the real estate transaction. It’s a very relationship-driven business.

One of the things we've been trying to do is standardize and centralize a lot of our administrative functions -- IT, accounting, etc., and procurement falls under that. We started centralizing procurement in 2006. So we managed to survive for 117 years without organized procurement as part of the company.

Because there was no centralized procurement, people had come up with local solutions. So when we came along in the picture and said, "We're here to save you," they were kind of nonplussed. They said, "We've already solved these problems locally."

Regional areas

So we had an issue where we had a lot of regional areas that had solved these problems locally and we needed to help them understand that the way they had solved them wasn’t perhaps the optimal solution, but without doing that in an ego-bruising way. Change management is a huge piece of it.

In the fall of 2006, we rolled out Ariba Buyer and Ariba Spend Visibility to get control and visibility into what we were spending as a company. And, not only what are we spending, but how can we move it to a smaller number of suppliers, become standardized on items, things of that nature. You can't do without having a tool.

We were undergoing a lot of standardization and centralization of various functions at our company at the same time. They were going from a distributed accounts payable (AP) processes to a centralized AP model, and that really helped us, because obviously, procurement and AP work hand-in-hand.

Standardizing the AP process really helped us from a procurement perspective, because then we had one group that we had to work with.



Once we had a single AP group that we were working with, it was a lot easier for us to standardize our process, because we rolled out Ariba prior to having an ERP system. We would get purchase orders, and they would go to the vendor, but they didn’t go to any accounting system, because there was no one central accounting system to push to.

Standardizing the AP process really helped us from a procurement perspective, because then we had one group that we had to work with in terms of invoicing issues and things of that nature.

Generally, we took the low-hanging fruit where it was. Any time that there was a centralized buying group like IT, where everybody bought their hardware through one IT group, it was easy to win those folks over.

Things that people were already used to buying online, like office supplies, were real quick hits that we could do. Once we had some early gains in those areas and built relationships internally within our company, they started to trust us with more and more areas.

Now, we see a lot of internal process issues that are much, much better. We have a lot more electronic invoicing. We had virtually no electronic invoicing before. Even in cases when a supplier could give us an electronic invoice, we didn’t have any sort of pre-approval going on. We had paper invoices that came in after the good or service was already consumed. We routed that for approval, but the horse was already out of the barn.

Now, we have the ability to approve expenses before we have committed anything to a supplier, which is a huge deal. We have the ability to deny. We have the ability to maximize our visibility, so we can find areas where we are not optimizing how we buy a particular good or service.

This [cloud approach] now allows our procurement group to focus on the things that we're best at, which is dealing with the processes internal to our company, managing the internal politics, and communicating with the vendors. It keeps us out of the application management business, which I have no desire to be in.

In terms of the internal politics and change management piece, it helps us to some degree, because there is more of a focus on cutting costs in the business.



In terms of the internal politics and change management piece, it helps us to some degree, because there is more of a focus on cutting costs in the business. So, we get a little more mindshare when it comes to dealing with folks out in the field. Previously, it was about getting new customers and expanding market share.

There certainly still is that desire to expand market share, but when there is a drastically reduced number of transactions per month, we can't sell our product until somebody buys a piece of property. When fewer people are buying property, we have to find other ways to increase our margins.

Savings and hard dollars

Like everybody else, we track savings and hard dollars -- old cost minus new cost times volume equals savings -- fairly simple stuff. We look at cost avoidance figures as well, but that’s a much softer, squishier area. The area that we get credit for is in hard savings dollars.

We've been doing fairly well. We have had, on average, about $8 million to $9 million of savings credited to our organization for the last five years. We've been very pleased with that, but obviously we want to go further.

Some of the key metrics we look at -- obviously the percentage compliance, both on a dollar volume basis and on a transaction basis; how many invoices we had; how many of those were on PO, because obviously when you are looking at processing issues, you care about the number of documents more than the number of dollars. From a savings standpoint, you want to get those dollars through the tool, so you can get pre-approval on those.

There are other areas that we look at in terms of degree of supplier aggregation, like how well are we doing in a given commodity space in getting most of our spend with the smaller number of suppliers, so that we can manage them easier. In some areas this is very easy, because there are only a few players. In overnight shipping, for example, there are only a couple nationwide players in that category. There are other areas like print and promotional, where that’s a much tougher nut to crack.

[In terms of bargaining] this helps a lot. It increases our ability to increase our share of wallet with the suppliers that are performing well for us. There are some suppliers who grouse about it initially and see this as the enemy, because it’s just going to drive prices down. Well, also, if you are a good partner for us, it helps us communicate better with you. It’s not just about increasing efficiency within the four walls of our company, but it’s also about increasing efficiency between organizations.

We can do everything right in house, but there’s still a lot of stuff between our company and the companies that we do business with that, if that’s inefficient, then we're not really gaining as much as we should.

This electronic invoicing initiative that we have. In office supplies, we would receive one paper invoice per purchase order, and that’s thousands of purchase orders for a year. We've reduced that now, where we have summary invoicing and we receive an electronic invoice, basically one electronic invoice for the month. We match that way, and it’s just a lot more efficient than it had been previously.

[For those beginning such a cloud procurement journey], I would say focus on process first, because the technologies are great. But you can’t think, "We'll just buy the software and that will solve all of our problems," because it won’t. The softwares are malleable and they're flexible. They can do a lot of different things. The question is, what do you want that software to do? And if you have a bad process and you apply technology to it, then you are just accelerating the wrong process.

The first software anybody should buy is [workflow authoring solution] Visio, and figure out exactly how they want orders and invoices to flow through their organizations.

Impose clarity

Another area is to make sure that you're telling your business clearly what you want out of purchase orders, what do you want to go on purchase orders, what do you want to go on a P-Card or credit card. Anywhere where you can impose clarity, it will help you be more successful.

Also, you can’t ignore the internal change management dynamics, because that’s often the more challenging thing. Traditionally, outside of manufacturing environments, where it probably rides higher than the saddle, procurement is not the sexiest, most respected group in any organization ... but I don’t think we would have lasted another 117 years without some form of centralized standardized procurement.

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At Interarbor Solutions, we create the analysis and in-depth podcasts on enterprise software and cloud trends that help fuel the social media revolution. As a veteran IT analyst, Dana Gardner moderates discussions and interviews get to the meat of the hottest technology topics. We define and forecast the business productivity effects of enterprise infrastructure, SOA and cloud advances. Our social media vehicles become conversational platforms, powerfully distributed via the BriefingsDirect Network of online media partners like ZDNet and IT-Director.com. As founder and principal analyst at Interarbor Solutions, Dana Gardner created BriefingsDirect to give online readers and listeners in-depth and direct access to the brightest thought leaders on IT. Our twice-monthly BriefingsDirect Analyst Insights Edition podcasts examine the latest IT news with a panel of analysts and guests. Our sponsored discussions provide a unique, deep-dive focus on specific industry problems and the latest solutions. This podcast equivalent of an analyst briefing session -- made available as a podcast/transcript/blog to any interested viewer and search engine seeker -- breaks the mold on closed knowledge. These informational podcasts jump-start conversational evangelism, drive traffic to lead generation campaigns, and produce strong SEO returns. Interarbor Solutions provides fresh and creative thinking on IT, SOA, cloud and social media strategies based on the power of thoughtful content, made freely and easily available to proactive seekers of insights and information. As a result, marketers and branding professionals can communicate inexpensively with self-qualifiying readers/listeners in discreet market segments. BriefingsDirect podcasts hosted by Dana Gardner: Full turnkey planning, moderatiing, producing, hosting, and distribution via blogs and IT media partners of essential IT knowledge and understanding.