The Seven Deadly Sins of ERP Selection and How to Avoid Them

The Seven Deadly Sins have been used as guidelines to caution humanity against its inclination to do wrong. Unfortunately, the same guidelines seem non-existent when organizations experience the stress of selecting and implementing a new ERP solution.

How can an organization avoid ‘committing ERP sins’? Companies can utilize these guidelines to avoid common pitfalls and to ensure success:

  • Lust & Envy – desiring what other companies have. A common question company executives ask when selecting an ERP is, “What are leading companies using?” While this information can be used to help short-list alternatives, it should not drive the final answer. Many E&P companies jumped on the SAP R3 (now ECC) band-wagon, following what the major integrated oil and gas companies implemented. Eight of ten mid-sized E&P companies surveyed regretted the decision. SAP ECC is designed for large, complex organizations. Other cost effective fit-for-purpose solutions could have been selected and implemented to support critical requirements. These organizations paid the price for falling under the spell of Lust & Envy.
  • Gluttony & Greed – wanting the ERP to do too much. ERP systems have been developed to provide functionality supporting a broad range of processes. Companies can get distracted with non-business critical functionality during the evaluation process. ERP vendors often demonstrate intricate dashboards with flashy bar charts of non-relevant KPI’s. The time used to display colorful charts should have been invested demonstrating how the system supports business critical needs. Companies should spend more time focusing on what is important as opposed to the ‘glitz and glamor’ of the ERP solution. Companies lose site of the critical objectives because of Gluttony & Greed.
  • Sloth – lacking participation. Invariably following selection, someone declares, “Wait, what about my requirements?!” Successful organizations ensure participation by communicating project objectives and expectations upfront. Surveys show that ERP teams who communicate beyond the ‘what’ and share ‘why’ the company is going through ERP selection garner 80% more engagement from stakeholders. By empowering the organization’s staff to define the company’s future state, the company encourages stakeholders to view the ERP as an opportunity for improvement as opposed to a burden. Involvement and engagement take the place of Sloth.
  • Wrath & Pride – resisting change. Companies are often eager to share a laundry list of pain points with the current system, yet cling to the same system to avoid change. Over the years, employees invent complex manual work-around processes, and often become stubborn and prideful when asked to change behaviors and consider alternatives. Successful ERP project teams understand the importance of change management in achieving project objectives. They bridge the gap between current and future state and effectively drive change to ensure ERP success.

Trenegy helps companies successfully select the right ERP by avoiding the common pitfalls of ERP selection. For more information on how to prepare for ERP implementation read “Preparing for ERP Implementation…. Reducing the Pain!”

Hosted Solutions: Looking to the Cloud

“There is an app for that!” is heard countless times on television, radio and in everyday conversation. The cell phone has evolved from a communication device to a personal assistant revolutionizing the way we perform our day-to-day tasks in the past decade. The same can be said about cloud-based or hosted solutions for business. Similar to mobile applications, cloud-based solutions allow for more streamlined and highly efficient business processes such as budgeting and forecasting, AP, JIB procession, and CRM. Organizations can use hosted solutions to increase efficiency and decrease TCO in comparison to an installed software.

Cloud-based hosted solutions allow organizations to give their employees instantaneous access via a secure internet connection and a user-friendly interface rather than confining data to a hard drive or an internal network. A hosted solution also requires a significant workload shift. Installation of software updates, backups, and hardware maintenance responsibilities are taken on by a 3rd party service provider rather than an in-house IT Department. This allows the IT department to shift their focus to supporting a company’s day-to-day revenue generating activities.

Smart phones revolutionized the way humans operate on a day-to-day basis and hosted solutions are revolutionizing the way organizations approach their day-to-day business processes. Yet there are still misperceptions about application security, cost and ability to customize in a hosted environment. Hosting companies have addressed each of these.

Security

The number one fear that organizations face when contemplating switching to a cloud-based hosted solution is security. Unless an organization has a full time IT staff dedicated to maintaining and backing up their data a hosted solution can provide more security than an installed software. This is because vendors have more resources to invest in highly secure servers, facilities, and a full-time staff dedicated to ensuring all data is encrypted. It is also important to note that risk decreases significantly when servers are not housed on-site because critical data can be accessed anywhere with a secure internet connection despite server damage or data loss. Whereas data may take up to months to recover when using an installed software.

Not all 3rd party cloud providers have the same security policies so it is critical to ask questions in order to understand the policy:

  1. How much access do you have to my data?
  2. What risk do I assume in choosing you as my service provider?
  3. How well is my data protected?

It is important to remember that vendors handle data with extra precaution because their reputation is on the line once a contract is signed.

Cost

Purchasing a hosted solution requires an upfront fee and a monthly (or annual) fee. The fee is often a factor of the number of users an organization has and the amount of data they are storing in the system. The initial start-up fee is significantly lower than an installed software.

Cloud-based hosted solutions do not require a substantial initial investment because organizations are no longer required to integrate additional hardware to support software deployment, or purchase additional storage space to house their servers. Maintenance is virtually eliminated as all is taken care of on an external network through a 3rd party provider, allowing the IT staff to focus on revenue generating projects within the organization.

Using a hosted solution does not require organizations to purchase hardware, hire a dedicated experienced IT staff for support, or purchase and configure software onto individual computers. Therefore, hosted solution integrations require weeks compared to years that organizations require for installed software implementations. This yields a greater ROI over the lifetime of the application.

Customization

There is not a single application in which smartphone users can manage finances, access social media, check e-mail, and listen to music. Similarly, organizations aren’t restricted to a single application to meet all of their business needs. The possibilities are endless and hosted solutions are able to integrate with virtually any software with API tools.

Although cloud-based hosted solutions may not be customized to an organization’s every specification, one of the primary concerns for hosted solution vendors is ensuring their client is comfortable with the application interface with training, help boards, and 24/7 support. Clients import and export data using a common data interface, lending to familiarity with the solution.

Another benefit to choosing a hosted solution is that they are flexible enough to meet an organization’s changing business demands. For example, adding and removing users is as simple as a click of a button.

To Host or Not to Host?

Cloud-based hosted solutions provide several benefits including decreased TCO when compared to an installed software, increased accessibility, and scalability to meet business demands. Organizations still need to examine critical success factors like integration and alignment with current software to determine whether it will meet their current and future state needs. It is also important to conduct a rigorous package selection to determine what vendor most closely aligns with their needs.

Trenegy helps companies determine how to properly leverage the cloud to reduce complexity within IT. We help our clients get value out of their investments quickly and painlessly. For more information about IT solutions see Dispelling IT Outsourcing Myths… Do You Love IT?

My Mother Was Right: ERP Implementation Dos and Don’ts Learned From Childhood Fables Part 7

This is the seventh installment of the My Mother Was Right: ERP Dos and Don’ts Learned from Childhood Fables ten-part series. In the sixth part of this series, the importance of project resources giving the project and its tasks their best effort was covered. In this seventh edition of the series, we will examine the best approaches for resolving issues that arise during a project. Every implementation will encounter critical issues and how those issues are dealt will either help or hurt the cause.

Story Time

Don’t Plug a Gap Without a Permanent Fix

The Boy Who Saved Holland is a story of a boy who happened upon a hole in a dyke. The dyke protected his country and the hole could cause the dyke to give way. The boy plugged the hole in the dyke using his finger and stayed put all night, despite the cold. The boy stayed in place until he is discovered by adults who repair the hole, effectively saving the entire country. The story also goes by many other titles in popular culture, such as The Legend of Hans Brinker and The Little Dutch Boy.

There’s an age-old adage that states “anything worth doing is worth doing right.” The sentiment of this adage is applicable to many situations in life and that even includes ERP implementations. Project sponsors and management should take note of this sentiment and ensure it is applied throughout the engagement. Much like the lesson that one should do with all their might, they should also make sure the tasks are done the “right” way. One critical way this sentiment can be applied is with how issues are addressed and resolved. Superficially or temporarily fixing an issue is not the best or “right” approach to solving problems. Project managers should ensure that all problems that arise throughout the course of the project are properly resolved and have a permanent solution in place.

In the story The Boy Who Saved Holland, readers learn the power of quick thinking and selflessness. However, readers also take away the importance of stopping a small problem now before it because a major disaster later. Combining this lesson with the adage “anything worth doing is worth doing right” should create a mindset that problems or gaps shouldn’t just be patched with a quick fix, but rather that a permanent solution should be put in place. While temporary remedies are sometimes necessary, it should never become the permanent answer.

Clients make this mistake far more often than one would think. With that said, often times companies have the best of intentions and put in temporary solutions with a plan to put in a better, permanent fix at a later date. Unfortunately, those permanent fixes aren’t always realized. In a recent client engagement, the client’s project team designed and deployed an inefficient process not assessed by impacted stakeholders. Once the project management realized the new process was unattainable, an army of consultants were brought in to act as data entry clerks. One year after the implementation, that data entry army was still filling the gap left by the ineffective process.

From this example and this fable, project managers must realize that problems shouldn’t simply be plugged with an easy solution, like a consulting team. If the temporary answer stays in place for too long, that short-term fix, no matter how inefficient or costly, will become the permanent process because it has become the standard. However, if that temporary band-aid is eventually ripped off without the underlying problem being rectified, companies will face other serious issues because when that solution goes away without a real fix, they will be left with the same original problem or a new set of issues as a result of the fall out. The key is to address all issues head-on and develop lasting, solid fixes for problems as soon as possible.

Tune In Next Time

This article is the seventh installment in a ten-part series. The next edition available on May 1, 2014 will cover lessons to be learned from the childhood fable The Scorpion and the Frog.

Annie Powell is a Senior Consultant with Trenegy. For more information about how we can help your organization, please contact the professionals at Trenegy at info@trenegy.com.

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The Secret Sauce for ERP Selection

Selecting the main dish is an important initial decision made when entertaining guests for a dinner party. A carefully chosen entrée prepared to perfection determines the ambience of the evening and permeates conversations for days. More important than the selection of the dish, are the careful selection of the ingredients, recipe and dinner guests. A proven recipe, fresh ingredients and enjoyable dinner guests ultimately turn spaghetti night into an impressive soiree.

Companies undergoing ERP selections must also focus on selecting the right ingredients to prepare for implementation. Selecting the optimal ERP are table stakes. The selection process should really focus on equipping the organization for the change that accompanies implementation. Sufficient implementation preparation during ERP selection increases the chances of a successful ERP roll out.

In addition to selecting the ERP software, the ERP selection process must include a recipe for the future, the right ingredients and inviting the best people:

  • Follow a Recipe. A system selection serves as an opportunity to receive input from employees to formulate a recipe for the future. Encouraging feedback during selection prepares employees for the future state organization and gives them a stake in the decision making process. Collectively developing an overall process improvement vision gives people visibility into the future process. Agreed upon future business processes can be a framework for scripted case demonstrations. The scripted use cases allow the key people in the organization to visualize the future. As processes are documented during selection, they can then be followed during implementation as test scenarios.
  • Pick the Ingredients. Outlining a robust plan for the ERP project during selection allows the organization to develop a realistic Total Cost of Ownership (TCO) budget and a timeline for the ERP system implementation. The potential system integrators (consultants) should be included in the budgeting discussions to produce an accurate implementation budget. Open discussion ensures that all ingredients are accounted for in every area of the organization including travel, team space, training, internal resources, change management, hardware and software.
  • Invite the Best People. System integration requires a team of internal employees to help design the system to fit the company’s needs. The selection process gives insight to those most excited about the new solution. This helps leadership identify the best internal people to steer the implementation. Asking for employee involvement in producing the future state vision and selecting the ERP solution will result in greater acceptance throughout the organization.

A productive selection process is less about choosing the right system and more about preparing for implementation. Trenegy helps our clients get the value they deserve from their ERP systems. Read how to properly manage selection process in: Preparing for an ERP Implementation…Reducing the Pain!

My Mother Was Right: ERP Implementation Dos and Don’ts Learned From Childhood Fables Part 6

This is the sixth installment of the My Mother Was Right: ERP Dos and Don’ts Learned from Childhood Fables ten-part series. In the fifth part of this series, we examined the importance of setting a steady pace for an ERP implementation’s progress. In this sixth edition of the series, the lesson of putting forth a strong effort when completing all tasks is covered. Often times the level of effort project resources put into the implementation is directly correlated to the level of success the project achieves.

Story Time

Whatever You Do, Do With All Your Might

To some, the idea of “whatever you do, do with all your might” may seem like the obvious and only way to approach a challenge. Essentially, this moral tells us we should strive to do the very best when completing a task and should try to make the right decision for every challenge we meet. Those that hold this perception are driven to put their best foot forward, do the best they can with any task and make the right decisions. Unfortunately, not everyone lives by this motto. Those that don’t have this belief usually put more emphasis on other factors, like getting the tasks done quicker or easier, rather than getting them done right. Project managers, and even project team members, that fall into the latter category are probably in the wrong position.

The fable The Boy and the Nettles is about a boy who is stung after touching a Nettle. Once stung, he runs home to his mother and tell her that he only gently touched the Nettle but was still stung. His mother responds by telling him that he was stung because he only touched it gently. The boy’s mother told him that next time, he should grasp the Nettle with all his might and it will be soft to his touch and not sting him again.

The fable The Boy and the Nettles teaches children that every challenge should be approached in the best and fiercest way possible. In the context of ERP implementations, the lesson applies to the completion of every activity in a project’s scope, from assigning resources to a project team to testing system functionality. Project managers and team members are responsible for a great deal of tasks throughout a project and each should complete their assignments the best they can, rather than just going through the motions. When assigned a task, a project resource accepts the responsibility of completing the activityand should strive to hit it out of the park. However, often times project managers and team members get more caught up in getting the task is done and do not pay attention to if the tasks were completed correctly.

Unfortunately, we have observed several clients making the costly mistake of not “doing with all their might.” When a recent client was implementing a large ERP system that affected a global audience, it seemed as if they were making these mistakes at every turn. A department’s best resources were left off the project team because they were considered too valuable to the department’s functions. Rather than placing these knowledgeable resources on the project where they could contribute to the design of new processes and provide real expertise, new employees were placed on the project team instead. Then, the client’s project management team decided to rely on local resources rather than incur the cost of bringing in remotely-based stakeholders with more subject matter expertise. While this approach meant no excessive travel costs hit the project’s budget, it also meant that individuals who performed the tasks everyday had no part in the design of the company’s future state processes and systems. As a result, ineffective and unrealistic processes were put in place and were not followed by the impacted stakeholders. Instead, the workload was pushed onto an unrelated department post-implementation.

It is critical that project managers and team members understand the importance of “doing with all their might.” This mantra should be considered whether it’s completing a small project task or in regards to approaching the entire project. The importance of this lesson should be instilled in all project teams and supported by project leadership. Choosing the right people, regardless of opportunity cost or expenses, will ensure the project is completed to its full potential. Tackling all tasks the right, best way will always lead to more valuable results for the project.

Tune In Next Time

This article is the sixth part in a ten-part series. The next edition available on April 15, 2014 will cover lessons to be learned from the story The Boy Who Saved Holland.

Annie Powell is a Senior Consultant with Trenegy. For more information about how we can help your organization, please contact the professionals at Trenegy at info@trenegy.com.

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Finding Your Porcelain…….Where Industry Leaders Get a Competitive Edge

Drive on any of the major interstates in Texas and you will see a billboard with a cartooned Beaver stating “Fabulous Restrooms! – BUC-EE’s 150 Miles.” This message guarantees interstate travelers will pass all gas stations and wait 150 miles before the next restroom break. Travelers are rewarded for their patience with signs every few miles: “Got Porcelain? – 100 Miles” “Almost There, You can Hold It! – 50 Miles” “Get a Gift… Leave a Gift – 25 Miles”. Finally, “BUC-EE’s, Next Exit – breathe a sigh of relief!”

The carload of passengers arrive to 50 gasoline pumps, immaculate restrooms and unlimited snacks. The smiling beaver guarantees a minimum $150 in spending and thanks the departing traveler via a “Thanks for visiting! Next stop 200 Miles” billboard. Conversation immediately starts about how to make it to the next BUC-EE’s without stopping.

How do organizations attract new customers and gain the same loyalty as the travelers leaving BUC-EE’s? The most successful companies use the following techniques:

  • Finding Your Porcelain: It is unusual for a company to deliver the best products in a market across all of its product offerings. However, successful companies must excel in at least one area to draw in customers the way BUC-EE’s does. These companies then focus on expanding the customers’ footprint by making it easy and cost effective to buy other items and services. After ‘finding their porcelain’ the companies are able to focus on delivering superior service.
  • Delivering Superior Service: Providing the lowest price or highest quality product is not enough to create the same level of loyalty as BUC-EE’s. Bad customer service will lead to low customer retention and the best companies focus on providing better service than the competition. Better customer service not only guarantees more loyalty but studies have shown that people will often spend more if they receive higher levels of customer service.
  • Managing Add-On Products and Services: BUC-EE’s is great at getting travelers to part with their money as they walk out of the bathroom. Travelers invariably purchase more than needed and work hard to add to the items strapped to the roof of their vehicles. Managing add-on products and services is a bit more difficult for most companies. Sales teams are not properly informed and mismanage the opportunities for add-on services. To successfully sell add-on products an organization’s salesforce must be knowledgeable and continuously updated about add-on products.
  • Following up After the Sale: BUC-EE’S provides first-class service from the time customers walk in the door and thanks customers after leaving with billboards saying: “Aren’t you glad you stopped…….see y’all soon.” In addition to attracting new customers and providing great service, an industry leader must retain existing customers to keep its competitive edge. Most companies do a poor job of training the sales force to follow up after products or services are delivered. A simple e-mail or hand written note will often result in loyalty and another sale.

Increasing sales by just five percent will have an immediate impact on a company’s bottom line and must start with aligning the organization to focus on its core competencies. ‘Getting in the door’ with core products, providing the best customer service, effectively selling add-on products, and following up after the sale are all keys to success. Trenegy helps companies align their organization to find their porcelain and gain a competitive edge. Read how to become an industry leader in our blog: Bringing people Together: Competitive Advantage in the Oil and Gas Industry

My Mother Was Right: ERP Implementation Dos and Don’ts Learned From Childhood Fables Part 5

This is the fifth installment of the My Mother Was Right: ERP Dos and Don’ts Learned from Childhood Fables ten-part series. In the fourth part of this series, the pitfalls of not adequately allocating resources for project initiatives. In this fifth edition of the series, the familiar lesson of “slow and steady wins the race” is examined in the context of an ERP implementation. This lesson has several applications when regarding ERP projects and should be taken under advisement by every project team member involved in any implementation.

Story Time

Slow and Steady Wins the Race

The story The Tortoise and the Hare features a boastful Hare claiming he can run faster than any challenger. A Tortoise sets out to prove the Hare wrong and accepts the challenge of a race. As the race begins, the Hare charges out in front while the Tortoise starts off slowly. The Hare, thinking he has gained such a lead, decides to take a nap and then delight in breakfast and another nap. While the Hare has been relaxing, the Tortoise has continued traversing the race course at a steady pace. The Hare wakes up in time to see the Tortoise approaching the finish line and despite his last efforts to catch up, the Tortoise wins the race.

ERP implementations are hectic endeavors requiring many parallel and related tasks be completed in a short amount of time. While a project manager’s focus is to make sure the team is always making progress and moving forward, they should also be careful to not establish a pace that will overwhelm the project resources. Essentially, a project manager needs to craft a project culture that is a perfect balance of forward progress, accomplishment and steady pace.

Many people are familiar with the old fable The Tortoise and the Hare, which taught us that “slow and steady wins the race.” Readers also learn that a consistent tempo will always win out over a charging pace which can cause people to lose focus, make mistakes or burn out halfway through the challenge. These lessons can be applied to ERP implementations to ensure a project is not rushed at the expense of quality or to the detriment of team members. Project managers and the project team should not hurry a project just to meet deadlines and a projected go live date. Making a deadline or a go live date is great – but if you meet the deadline without completing the important tasks, did you really achieve anything? Driving a project’s pace based on a date, rather than achieving the project’s goals, will often times mean you move forward into the next phase, or even go live, without making important decisions or fully designing a process. When this happens, the fallout is catastrophic.

Additionally, project managers should also not work the team to the bone. While keeping a project team burning the midnight oil may mean all the tasks are accomplished, but did they complete the implementation correctly? Overworked team members are likely to cut corners or make costly mistakes. Overworking resources also creates a bad project culture and can often negatively affect team members in their professional and social lives. These are all important impacts a project manager should consider.

These lessons were not taken into account by two different project managers on recent ERP projects. In each instance, the project managers would allow the project to advance into the next phase without ensuring that all tasks identified for the previous phase were completed. The results were chaotic. Important discussions were halted so the project could move forward to the next phase, but the discussions weren’t revisited until too late in the project. Revisiting the issue later in the project meant decisions were made far too late in the game, resulting in either a system redesign or the client not getting what they actually needed. Project team members’ responsibilities grew exponentially. Tasks were added to team members’ load each time the project moved into a new phase but they could never complete their tasks from previous phases due to outstanding decisions or time constraints.

A project manager needs to ensure the project is moving forward, but not at the expense of completing necessary tasks or by rushing through them without paying attention to the results. Project managers also need to ensure the project is moving at a pace that won’t cause the team members to burn out. While it is difficult to create a pace with such a delicate balance, it is essential to the success of any project.

Tune In Next Time

This article is the fifth installment in a ten-part series. The next edition available on April 1, 2014 will cover lessons to be learned from the childhood fable The Boy and the Nettles.

Annie Powell is a Senior Consultant with Trenegy. For more information about how we can help your organization, please contact the professionals at Trenegy at info@trenegy.com.

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Like a Kid in a Candy Store…. Selecting the Right ERP!

Letting a five year old child loose in a candy store produces surprising results. The five year old quickly becomes overwhelmed by the choices. After wandering through the store the child will randomly choose candy on the way out. This candy will not be completely eaten and will most likely be described as “yucky”.

It is common for companies to select their ERP in a similar manner. Without control, the initial excitement of identifying a large number of options quickly turns into an overwhelming chore. After countless meetings and vendor demonstrations the vendor who presented last is selected. The implementation starts off a little rocky and gets worse later in the project when the team is surprised with critical requirements that were over looked during the selection. The wrong ERP solution was selected. Yucky!

How can an organization select the right ERP? It is all about quickly short listing options, focusing on critical functionality, involving the right people in demonstrations and using a simple scoring method:

    • Quickly Short list the Options. There are a large number of ERP and ERP-like systems available in the market. For most organizations, the safest strategy is to limit the selection to solutions provided by known vendors including Microsoft, Oracle and SAP. At time, industry specific ERP solutions may be considered. Trenegy has developed an online survey tool to identify a short list of ERP solutions for any organization. Click here to access the tool.
    • Request Use Case-based Demonstrations. Most established ERP solutions provide similar functionality; therefore, it is important to focus on how the alternatives support critical business process requirements. Detailed use cases with supporting documents need to be developed and given to the software vendors. The demonstrations should focus on ease of use, support for critical business needs and reporting. “Add-ons” or “bolt-ons” should not be discounted and will often be required to support specialized requirements. ERP solutions rarely do it all. The level of integration required for these solutions needs to be carefully considered.
    • Involve the Right People. Hearing “I was not involved in the ERP selection….you should have picked the other solution…” from a key stakeholder in an implementation project meeting is deflating. The ERP selection process should be considered as the starting point for critical change management activities. Getting the right people involved early and often creates demand for the new system and increases support for the project as a whole. Expanded team involvement can often help plug holes in the use cases and can validate whether the new system will support the business requirements.
    • Use a Simple Scoring Method. A new ERP is a significant investment typically requiring approval by senior management and the board. A simple scoring approach consisting of total cost of ownership, support for critical functionality, technical fit and a subjective ranking can be four simple criteria used to select the right option. Many companies use complicated scoring methods. However, the final selection usually boils down to how the team “felt” about the ERP options.

    Trenegy helps companies successfully select the right ERP using a simple approach supported by proprietary tools. We help our clients get value of out their new system quickly and relatively painlessly. Read how to properly prepare for implementing the ERP in: Preparing for an ERP Implementation… Reducing the Pain!

The Slap Game… Working Capital Management

The “slap game” is a popular tradition for middle school kids looking for ways to fill the monotony between classes. Opponents face each other and attempt to slap the other’s hands as quickly as possible. It is a great test of reflexes; however, both opponents eventually end up with red welts on their hands. Nobody wins this totally pointless game.

Companies are playing the “slap game” with each other when managing working capital. Procurement departments slap vendors into 60 or 90 day payment contracts. Meanwhile the same company’s sales organization is getting slapped by their customer’s procurement departments. Not too long ago, 30 days was the standard terms for a vendor contract. Today, procurement and supplier contract organizations are pushing the envelope to 60 and even 90 days. This is completely ridiculous!

Companies extending each other’s payment terms is unadulterated working capital gamesmanship. There is no winner and most organizations are actually slapping themselves with additional headcount costs, poor pricing and quality issues.

Slap #1 Headcount – To perpetuate the working capital gamesmanship, organizations create and staff contracts and sourcing functions to pressure vendors into submission. These functions delay contract agreements while adding administrative overhead. According to surveys, an average $1 billion organization has double the necessary contract and sourcing staff. This staff costs an average of $2 million per year while only saving $1 million per year in working capital gains for 30 days DPO. What is the point?

Slap #2 Pricing – Savvy sales organizations have become less lenient with pricing concessions on slower paying customers. A recent survey of pricing scenarios is eye opening. Pricing concessions on 30 day payment term customers was 2% more favorable than 60 day payment customers. This translates into $6MM per year in excess spending for a $1 Billion company. In other words organizations are spending more to spend more. Red welts are showing!

Slap #3 Quality – Organizations have a greater incentive to keep the faster paying customers happy. In a survey completed by Trenegy in 2013, faster paying customers tended to get priority for shipping, service response time and overall quality. Poor vendor quality can cost more than the savings in working capital. The red welts are now hurting!

Working capital management is typically the window dressing on the balance sheet and should be properly managed. Unfortunately, organizations tend to take the path of least resistance. It is easier to beat up a vendor than to push back on customer payment terms for fear of a lost sale. Losing a sale over payment terms does not happen. Organizations should spend less time fighting the vendor contract terms and more time focused on getting the customer contracts right. This is where the true value is and the slaps end.

Trenegy helps companies develop processes to manage working capital without succumbing to the ‘slap game’. For more information about how to interact with customers correctly early in the process and help a company better manage working capital read “Demystifying the Oil Field Services Bid to Bill Process…. Back to Basics”.