What can organizations learn from a successful procurement transformation?
As organizations grow their operations can be a victim of success. Manual processes that were once manageable require more resources, or the technology in place cannot handle the workload.
Continuous improvement is necessary for businesses to thrive, but that can only happen as a result of fundamental change. Forward-thinking organizations initiate transformation with the right approach to ensure the changes they make endure.
Aava Medical Center transformed their P2P processes
That was something the Aava Medical Center did when they transformed their purchase to pay processes. The Finnish company has been promoting health and well-being for over 50 years with more than 1,000 professionals working at 14 locations in 10 cities. In 2019 Aava intiated a broad transformation that was designed to make lasting improvements to the organization’s operating culture.
Aava wanted to make purchases visible and to facilitate that change the company implemented Palette’s purchase-to-pay system. Although this was a system project the most significant aspects of the transformation happened in the interactions between employees and stakeholder organizations.
Aava approached the project with the right mindset and the implementation was a resounding success. So what can other organizations learn?
Purchasing is an important part of business operations and, depending on the industry, procurement can account for up to 75% of net sales. If purchases are not monitored and controlled, companies cannot be cost-effective.
As an example, purchases might be made from overlapping suppliers and there may be a lack of compliance – or the awareness of purchasing policies. That prevents the organization benefiting from supplier contracts or taking advantage of purchasing volumes. Each vendor may also have its own purchasing portal, which means a company’s spend data is distributed to different vendor systems.
When companies have their own procurement system they control the purchase process, ensure that terms and conditions are met and that their purchasing data is readily available.
“A purchasing system can be used to monitor and control what has been acquired, from where and at what price,” says Matti Junttonen, a Senior Account Manager with Palette.
“In addition, complete spend-data enables efficient competitive tendering and procurement optimization. Effective procurement is virtually impossible without a solution for it.”
Procurement becomes an important part of the operating culture
Aava uses Palette’s Purchase-to-Pay solution to control and monitor purchases as well as to automate their invoice processing workload.
Virpi Hentunen, Aava CFO, says the new solution is part of a bigger change. “Acquisition is a very concrete part of our service chain, so we aim to make awareness and understanding of procurement a wider and more important part of our operating culture. Palette will support our new way of working”, she says.
A technical solution is not enough
Palette Consultant Miikka Suikki says that Aava approached this change from a good perspective. A technical solution is not enough to improve purchase-to-pay processes alone, as a new solution is an opportunity to renew business processes as well:
“Instead of sticking to old business processes, a new system opens the door to more efficient processes overall.”
Currently Aava acquires nursing supplies, drugs and office supplies through Palette’s system. As the value of Aava’s purchases is about €45 million per year, the impact of the new system is quite substantial. Aava has set concrete goals around cost savings and transparent processes. The system implementation was successful and Hentunen is positive that their goals will be realized. “The system was set up on schedule as expected. We were able to order products from the new system from the first day of use,” Hentunen said.
With Palette’s Purchase-to-Pay solution, Aava’s organization now makes purchases from its own purchasing system. In the past orders have been handled by suppliers’ order portals. “The change does not only apply to Aava, but also to our supplier network. Although the product catalog implementation was new to many suppliers, the system worked smoothly from the date of implementation. The change does require collaboration, however,” Hentunen comments.
3 cornerstones for successful implementation
Aava used three cornerstones to represent the most important factors of a successful system change: people, communication, and controlled change phases.
“We decided there must be one close-knit team charged with implementing change. In a tight working group, it is easier to guarantee that everyone is given enough responsibility and that it is easier for everyone to commit to the project,” Hentunen says. Aava’s working group was based on category-level and technical expertise. The people responsible for categories also served as an important link to the rest of the organization. They trained staff and informed them about the changes.
Katja Primetta oversees categories at Aava. She believes that information should be delivered in digestible amounts to targeted audiences. Aava made a website for the acquisition project in the company’s intranet, where all of the information is available in one place.
Controlled Change Phases
The new system will be introduced gradually. When you proceed one step at a time, it’s easier to communicate internal changes and make implementation more manageable. “We summed this up as making real changes through real challenges, without making too many big changes at one time,” Hentunen said.
This is a translation of the Finnish article published in the online news portal Kauppalehti. Read the Finnish version here