Best Practices in ecatalog Management

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What You Need to Know about eCatalog Management

At the heart of every procurement system is a catalog. Even in an environment lacking automation, requisitioners consult a hard copy or customer service reps use a catalog at the other end of a phone line. So it stands to reason that getting everyone to use the correct catalog from a preferred vendor at the contracted price will ensure that negotiated savings from sourcing and contracting activities are actually realized. This paper will explore benefits and best practices around these core elements:

• Process Compliance (Adoption of the eCatalog and procurement system) • Price Compliance

• Supplier Compliance

This includes specifics around unlocking the value of existing eProcurement systems through improved eCatalog management. At the conclusion, there is a buyer’s checklist to aid you in selecting an eCatalog vendor should you choose to take this path.

Why is eCatalog Management Important?

The average enterprise has more than 3,000 indirect suppliers, but only 224 catalogs available online through their procurement application. This translates to only 27 percent of their spend being actively managed. Many companies have much less than 224 catalogs online and are not taking full advantage of this powerful tool. By enabling 80 percent or more of your catalog spend, your organization can increase leverage in the following:

1. Compliance – Consolidating purchases to preferred suppliers not only saves

money, but increases negotiating power.

2. Increased operating efficiencies – Adds additional cost savings as well as

reduces the order cycle time, producing happier users thereby giving purchasing more internal influence.

But these benefits will never happen unless you have the catalogs available and casual user-friendly shopping carts to leverage the content and promote adoption. A casual user is different than someone who is frequently in the system—for instance, an accounts payable clerk using the ERP system. You have to expect that anyone—from the mailroom to the CEO—be able to walk up to the application for the first time and intuitively navigate the eCatalog and eProcurement systems. Obviously, most ERP applications do not fall into this category.

So who should consider enabling eCatalogs? Well, as obvious as it sounds, everyone.

“By facilitating the purchasing of indirect material, catalog-based buying presents an admirable ROI and eliminates manual procurement process.”1 _{If you do not have an} eprocurement system with best-in-class eCatalogs, up to 50 percent of your negotiated savings can be leaked through non-compliance, penalties and missed opportunities around invoice reconciliation (figure one).2

“By facilitating the purchasing of indirect material, catalog-based buying presents an admirable ROI and eliminates manual procurement process.” - Aberdeen Group

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(Figure 1)

How Are eProcurement Systems, Catalogs and Networks Linked?

Catalogs are pretty much useless without the ability to leverage their content in an eProcurement system. Many companies already have eProcurement in place. If it is a best-of-breed solution, the catalog is usually an integral component of the system. If, however, it is Oracle, SAP, or another ERP system that is trying to bolt on

eProcurement and then bolt on eCatalogs, you probably have already experienced significant pain around:

• Clunky user interface that is frustrating and time-consuming to use;

• Lack of powerful search capabilities to allow successful keyword searches and multi-supplier searches—without requiring the user to know the particulars of suppliers and their content;

• Multiple ERP, purchasing, and other business systems, all with different user interfaces and processes. It's hard to know which system to access for what information, and how to find it once there;

• Ineffective or nonexistent category capture, which allows access to both goods and services, such as in requisitions requiring supplier collaboration (i.e. hiring

temporary labor);3

• The slow, resource-intensive process of enabling and maintaining catalogs. Fear not! Choosing the right eCatalog to supplement your existing ERP eProcurement can unlock the value of your ERP investment. For those that do not have an

eProcurement application, consider a best-of-breed procure-to-pay solution that can be implemented quickly and delivers a positive ROI within six months.

Negotiated Savings From Sourcing (ex. 20-25%) Realized Savings Without eProcurement (ex. 11-12%)

Time

Lost Savings via Leakage (ex. 9-13%) 1 2 Invoice Reconciliation & Discounts Lost Contract Compliance 5-7% 4-6% Operating Efficiencies (ex 3-5%) Value of eProcurement Value of Sourcing

Half of Negotiated Savings is lost without Best Practice

eProcurement

Choosing the right eCatalog to supplement your existing ERP eProcurement system can unlock the value of your ERP investment.

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Enabling and maintaining a catalog is much easier in a business network. Aberdeen’s research concluded that best-in-class organizations are 36 percent more likely to leverage a supplier network to manage their catalogs than other companies. This many-to-many connectivity beyond the catalog through the business network provides the ability to:

• Quickly load and access supplier catalogs. This works from both the supplier and buyer perspective.

• Discover new suppliers

• Collaborate on spot buys and services procurement proposals • Receive and reconcile invoices

• Conduct electronic payments

How Many and Which Catalogs Should Be Online?

According to the Aberdeen Group, best-in-class performers have enabled 64 percent of their suppliers, which places 80 percent of their spend under management.4 _{This is in} contrast to the industry average of only 29 percent of suppliers enabled and 15 percent for the bottom 30 percent performers. While catalogs are not the only element of supplier enablement, they are an initial component to connecting supplier information to their systems.

The Aberdeen Group has found that best-in-class organizations do at least 74 percent of their buying through an eCatalog.5 _{All purchases that have a “part number” to “price”} relationship are candidates for an eCatalog. With the proper set-up and technology, services such as temp labor, consulting, marketing and print can also be ordered from a type of eCatalog—further increasing the percentage of eCatalog-based purchasing. A better way to address this question, however, is not necessarily done by setting a number or percentage target, but to ensure that at a minimum the following two conditions are met:

1. All contracted items are contained in the eCatalog

2. All suppliers who are sent 150 orders or more per year and can provide an eCatalog By having all contracted items as a catalog item, an organization can ensure that the savings identified during the sourcing process are being realized in the procurement process as outlined earlier. eCatalogs from frequently used suppliers will save the organization time and money by reducing the time needed for the requisitioner to create an order, the time for a buyer to place an order, and the process required for accounts payable to reconcile the invoices. (You’re also keeping your suppliers’ costs down by increasing their efficiency.) Doing a keyword search to find and select the item is much faster than using a traditional paper catalog or parts list and filling out the required information in a requisition. The risk of ordering an incorrect item is also reduced as information about the item is readily available and displayed to the end user in the eCatalog.

Best-in-class

organizations do at least 74 percent of their buying through an eCatalog. - Aberdeen Group

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Organizations that are new to eCatalogs usually excel at identifying the top suppliers to enable first in their system. The top three categories that most organizations do well with are:

1. Office Suppliers 2. IT Equipment 3. MRO

However, taking the initiative one step further to identify the next tier of candidates for eCatalog enablement is done by less than 20 percent of buying organizations.6 _Some additional categories that warrant consideration are:

1. Books/Publications

2. Office Furniture and Equipment 3. Laboratory and Safety Devices 4. Wireless Devices and Accessories

Organizations should also consider what they buy specific to their industry. Chemicals, apparel, and promotional items are also categories where the benefit of buying from an eCatalog is realized.

Depending on your industry, services can be one of the largest spend categories and is often overlooked. Categories that can comprise up to 80 percent of indirect spend and should be investigated include:

1. Temp Labor 2. Consulting 3. Print

4. Marketing Services

Types of eCatalogs

There are three primary choices of eCatalogs in use and each has their own pros and cons which are described below as well as highlighted in Table 1.

CIF (Catalog Interchange Format) – This is a catalog hosted and maintained by the

customer or eCatalog vendor. The primary benefit is control, preferred product

guidance, and pricing. The downside is it is more resource-intensive and may not be as current as other methods.

PunchOut – Users punch out from their procurement solution to a supplier-hosted

catalog home page, where they search, compare, and select. The user then has to return to the procurement vendor in order to complete the requisition.

Depending on your industry, services can be one of the largest spend categories and is often overlooked.

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Level 2 PunchOut – This has some of the best of both worlds. Level 2 PunchOut will

bring the user directly to the “aisle”, “shelf” or product (depending on configuration) of a supplier-hosted catalog that surfaced in their catalog search. An aisle>shelf>product example is Printer Ink>Epson Printer Ink> Epson Ink #12345. This provides maximum control to the enterprise while offloading the burden of maintenance to the supplier with the added benefit of being more up-to-date. The downside is that it is more time-consuming to establish and because it requires more effort on the part of the supplier, not all are open to this method.

eCatalog Types

Table 1

There is also an older technology, web scraping, that has bots or spiders go out and “scrape” the suppliers’ website for content. This technology was initially embraced by consumer price tracking websites such as NexTag, but has since been abandoned due to lack of accuracy.

One major issue around this type of catalog has been the lack of proactive pricing compliance, particularly as it pertains to volume or tiered pricing. Plus, there is no capability for data enrichment or cleansing as well as no support for services procurement. The ultimate negative may be that it is a buyer-intensive solution—the burden rests with buying organizations to manage and maintain: commodity code classification, monitoring fields for filtering, managing bots, etc.

One additional type of catalog that is becoming more widely used, CDF (Catalog Data Format), is specifically for Services Procurement. This may combine rate cards and other specific parameters that are required to procure services such as contingent labor, consulting, marketing services, facilities, and print.

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Who Should Manage the Catalogs?

There are several criteria to consider when determining whether eCatalogs should be managed internally or by a 3rd party service provider.

1. Are there enough resources in house to support an aggressive rollout and support all of the eventually required catalogs?

2. Is it worth the cost of developing the skills required?

3. Does the organization have or is it willing to invest in tools for catalog cleansing and content enrichment?

4. Will an investment be made to develop quality processes and best practices? The initial rollout of an eCatalog program is resource-intensive due to the amount of coordination required between the technical lead doing the eCatalog enablement, the suppliers, and the supplier managers at the buying organization. The technical lead will also need to take the time to educate suppliers who may be new to providing eCatalogs, while the supplier managers will need to work with suppliers to get agreement on what content should be included and ensuring that the correct pricing is being applied. A successful catalog technical lead will need to have the skills required to understand content requirements, educate suppliers on these requirements, cleanse and manipulate large amounts of catalog data, and troubleshoot technical errors that may occur during the enablement. Also, if supplier-hosted content (punchout catalog) is being used; this person will also need to be strong with HTML, cXML, OCI, or any other communication protocol that is being used by the system.

Tools for catalog cleansing and content enrichment are beneficial to provide a better end user experience, finding and fixing potential errors, adding and/or extracting

supplemental attributes, assigning commodity codes, and ensuring correct content. Developing and maintaining these tools can be costly and are not practical for smaller organizations. Off-the-shelf software designed specifically for this purpose is not available and will require IT resources to develop in house.

Quality processes and defined procedures for collecting, processing, and refreshing eCatalogs are critical for ensuring a high-quality end user experience and updated accurate data in the system. The method by which a supplier submits their eCatalog data needs to be not only user-friendly, but also secure and reliable. Many times email is seen as the best way of submitting catalog data, however large file sizes, no visibility to the supplier if transmission was successful, and the lack of a systematic way to track the most-current version makes this method undesirable. An FTP site is a somewhat-better solution and will allow for the transfer of large files and also give each file its own time and date stamp. Ideally suppliers should submit their eCatalog data through a supplier portal where the supplier can see if the transfer has been successful. A more-sophisticated tool should also offer the option of doing some initial data validation on the eCatalog to let the supplier know of potential errors prior to or at the point of

A successful catalog technical lead will need to have the skills required to understand content requirements, educate suppliers on these requirements, cleanse and manipulate large amounts of catalog data, and troubleshoot technical errors that may occur during the enablement.

Tools for catalog cleansing and content enrichment are beneficial to provide a better end user experience, finding and fixing potential errors, adding and/or extracting supplemental attributes, assigning commodity codes, and ensuring correct content.

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How to Keep Pricing Current

Keeping internally hosted eCatalog data and pricing current is essential to maximizing user adoption and driving compliance, and minimizing the number of exceptions that Accounts Payable manages. Contracted items should have a set time period where the price is valid. Many procurement applications can attach an expiration date to each item so that when this date is reached and the price is no longer valid, the item is hidden from view. Once agreement is reached for a new contracted price, the updated eCatalog can be loaded to refresh the items.

Non-contract items may have a specific or completely random refresh schedule. Expect that suppliers will provide an updated eCatalog on a quarterly basis. For certain

commodities, it may be necessary to update on a monthly basis. For anything more frequent than monthly, we recommend that the catalog not be internally hosted, but rather supplier-hosted in a PunchOut catalog. This minimizes the amount of file handling, validation, and cleansing that needs to be done, as well as ensures the price is always current without the delay that occurs when content is transferred from the supplier and then loaded at the customer. Even a best-in-class organization can take up to three days to collect and process catalog changes.1_{Through the use of PunchOut} technologies, it is possible for end users to be directed to the supplier-hosted catalog and select items to add to the requisition. The benefit is that supplier updates to pricing and items are visible immediately. Some organizations are hesitant to use supplier-hosted content because they feel that they lose control over price changes. Ideally control can be maintained through a level 2 PunchOut that will take the user directly to preferred approved items. A well-set-up requisition approval flow, as well as catalog manager random audits of frequently purchased items, can help minimize this issue and in almost all cases the benefits of the supplier-hosted content for items that have volatile pricing outweigh the risks.

Don’t expect suppliers to be diligent about providing updated content on a quarterly basis. It is important that the supplier manager establishes a specific refresh schedule and follows up with suppliers as the date nears. The catalog manager may also assist in this effort by developing a system to track time to the next expected refresh.

Criteria for Catalog Management Vendors

Catalog management vendors should be evaluated on four main criteria: 1. Consumer-like shopping experience through advanced technologies 2. Quality of supplier self-help tools that are available for catalog creation

and maintenance

3. Security, service levels, and quality processes used by the vendor 4. Cleansing and content enrichment capabilities

Don’t expect suppliers to be diligent about providing updated content on a quarterly basis.

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Consumer-Like Shopping Experience

Many procurement platforms support advanced content technologies that greatly improve the end user experience if they are configured correctly. These technologies make the difference between a current state-of-the-art, consumer-like shopping experience (think Amazon.com) and “old-school”, client-server shopping agony. A minimal list of shopping cart technologies that should be enabled include:

1. Intelligent Fuzzy Search - returns word variations including misspellings

2. Parametric Search Filtering - search filter based on price, supplier, color, etc.

3. Side-by-Side compare - allows easy comparisons of similar items

Technologies make the difference between a current state-of-the-art, consumer-like shopping experience (think Amazon.com) and “old-school”, client-server shopping agony.

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Compliance/Control

In addition to easy-to-maintain control over spend, the eCatalog solution should provide:

1. Relevance Ranking - sorting search based on pre-configured requirements, e.g.

preferred suppliers or products

2. Icons - green, recycled, Woman or Minority-Owned Business, etc.

4. Configurable catalog view – depending on roles or business units, views into

catalogs may be limited based on requirements

3. Contract compliance – ensuring that during the requisition process pricing is

verified against the contract, including volume discounts and tiered pricing A catalog management vendor needs to have an understanding of these features and how they can best be used. Relevance ranking and icons direct buyers to preferred suppliers or products to help organizations achieve purchasing goals. Similarly the configurable catalog view will direct buyers to the proper supplier or product based on your business rules. Proactive contract compliance as discussed earlier, is essential to realizing your previously negotiated savings.

Supplier Tools

Supplier catalog creation is the longest and most-critical part of the catalog enablement process. A vendor must have eCatalog tools that suppliers can use to aid in the catalog creation. The tool set should assist the supplier in getting the data into the proper format as well perform initial validation to ensure that the content used will not cause an error when loaded into the procurement system. This “point of creation” validation will minimize the back-and-forth communication between the vendor and supplier that can cause the enablement time frame to lengthen considerably. More-advanced rules-based validation should occur during the submission process and automatically alert the supplier to any issues.

Tools should be easy to use, scalable, and based on commonly installed software. The catalog management vendor must also have clear and helpful education documentation and tutorials that suppliers can access at any time. Availability of support channels such as Webform, email, or phone support and the respective service levels around response should also be considered when evaluating a catalog management vendor.

Security, Service

Due to the sensitive nature of contract pricing with vendors, it is important that the security and quality procedures of the vendor are reviewed. Provisions should be made to keep customer data separate and secured. It should not be possible for suppliers to see the content of other suppliers, or for buyers to see content from suppliers other than their own. Directories where suppliers upload catalog data need to be password-protected and partitioned from other supplier directories. Additional security is demonstrated by vendors who are WebTrust Certified (www.webtrust.org). WebTrust is a stringent certification developed jointly by the American Institute of Certified Public Accountants (AICPA) and the Canadian Institute of Chartered

A vendor must have eCatalog tools that suppliers can use to aid in the catalog creation.

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Service levels of the vendor are also an important consideration. The time from catalog upload to availability in production is less than three days at a best-in-class

organization.7 _{Super performers update catalogs in only one day! Delays in catalog} processing will result in out-of-date pricing and the risk of end users ordering discontinued items or not being able to find new products.

Cleansing and Content Enrichment

The final criterion to consider is the ability of the vendor to perform catalog cleansing and enrichment. At a minimum, the catalog should be cleansed for proper formatting of the description—verifying that images are present and confirming that url addresses do not contain dead links. Data rationalization of words in the short and long description can aid in keyword searches. For example, the adjective “black” could be written by suppliers as “blk” or “blck”. Rationalizing the adjectives to the full word in the

description will ensure that all results are returned when the end user searches using the full adjective “black”.

Content enrichment such as commodity code assignment and attribute extraction is also valuable. Commodity code assignment is important if critical business processes, accounting, and approval rules are driven off of the commodity code assigned to the item as well as for the purpose of spend visibility. If left up to the supplier to provide the commodity code, the accuracy rate will be 60 percent or lower. A leading catalog vendor will be able to enrich the content with commodity codes and achieve at least a 99 percent accuracy rate.

Attribute extraction can greatly reduce the time the end user needs to find a particular item. This is especially helpful in direct material purchases. A good example would be searching for a “bolt”. Simply doing a keyword. Using attribute extraction, the end user can be presented with item parametric filtering where the size, head type, and material of the bolt can instantly be selected thereby reducing the time required to find the exact item. Attribute extraction can be labor-intensive, however when the time savings to find items in the catalog is considered across a large user base, the return on investment can be realized shortly after the initial set-up.

One Fortune 100 Company’s Experience

Table 2 shows the dramatic improvement in the management of catalogs for an ERP eProcurement system after implementing an eCatalog solution to complement their existing SAP eProcurement system. In addition to these measurable differences, user satisfaction also increased significantly.

Table 2

After eCatalog management solution SAP

The time from catalog upload to availability in production is less than three days at a best-in-class organization. - Aberdeen Group

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Guidance to Suppliers for Best Content Creation

Suppliers should be guided on the best way to use the standard fields of the catalog template as well as any additional required attributes depending on the commodity area. The most-important fields that affect the quality of the catalog are commodity code, description, and image.

Commodity Codes

The supplier needs to be provided a list of allowable commodity codes based on how the commodity code structure is set up in the procurement system. By providing a subset of the full code to the supplier, the chance for errors is greatly reduced. Also, suppliers should be instructed to go to at least the third and preferably the fourth level when coding items. Commodity codes can drive critical business processes such as approval flows and accounting codes and therefore accuracy is critical.

Description

Descriptions should be in sentence case (not all caps) for easy reading. Depending on the application, there may be two description fields. The short description will appear on the summary page of returned search results. If a short description is not entered, the application may truncate the longer description. As a consequence, descriptions should be structured in the following manner: proper name (the noun) and a list of key

attributes (characteristics and their values). An example of this would be, “Printer, Laser, A4, Epson Stylus color 740.” This format gives the end user the most information possible without having to read a full description.

Images

The final area of importance is images. Images will speed searching and give a greater level of confidence to the end user that they have found the correct item and also reduce the chance of ordering an incorrect item. Images can be provided either as an image file, or as a url link. The use of images greatly enhances the “search and compare” functionality if available. It is recommended that the image is of a high quality but not extremely large, 500x500 pixels are ideal.

Suppliers should be guided on the best way to use the standard fields of the catalog template as well as any additional required attributes depending on the commodity area.

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eCatalog Buyer’s Checklist

Next Steps/Summary

1. Does your company have an eProcurement system?

• If not, thoroughly investigate the significant savings that such a system can deliver. Most vendors are happy to provide you with an ROI analysis of your spend free of charge. This should be of particular interest if you have already invested heavily in strategic sourcing so you can capture all of the negotiated savings and avoid leakage.

Yes No

Consumer-Like Shopping

Easy-to-use interface Intelligent Fuzzy Search Parametric Filtering Side-by-side comparisons Level 2 PunchOut Catalogs

Control/Compliance

Advanced Contract Compliance Relevance Ranking

Icons Configurable catalog views

Supplier Tools

Supplier Portal

Automatic Data Validation Multiple Support Channels

Security / Service

WebTrust Certified

Password protected and partitioned data storage

Data Cleansing & Enrichment Capabilities

Data rationalization

Commodity code assignment Attribute extraction

Flexible Systems and Integration

Services Procurement support including supplier collaboration Interface with any eProcurement system including Oracle or SAP SaaS deployment for fast implementation and currency

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2. Do you have an eProcurement system where the eCatalogs are time-consuming to enable, resource-intensive to manage, along with being not casual user-friendly? Anyone with SAP SRM, Oracle iProcurement, or other ERP eProcurement routinely faces these challenges.

• Decide whether it continues to make sense to dedicate resources to a function that may be better executed by outsourcing.

• Seriously explore the options around eCatalog management solutions. With a small investment (especially compared to your ERP investment) and in only weeks you can unlock the value of your ERP eProcurement.

• Read the white paper, Improving User Adoption and Contract Compliance with Your Existing Procurement Platform. Available at:

http://www.ariba.com/resourcelibrary/collection_list.cfm?collection_id=16

3. You have an eProcurement system and you are happy with its capabilities and performance.

• Enable more catalogs work towards at least 80 percent of your spend. (Don’t forget services.)

• Work with suppliers to execute on the suggestions outlined in this paper to improve the quality of the content.

• For large catalogs, encourage suppliers to support Level 2 PunchOut.

Resources and Information

To learn more about Ariba’s solutions and how they can benefit your organization, go to:

http://www.ariba.com/solutions/

• Improving User Adoption and Contract Compliance with Your Existing Procurement Platform, Ariba 2008

http://www.ariba.com/resourcelibrary/collection_list.cfm?collection_id=16 • Procurement in the New Normal, Ariba 2010

• Myths, Pitfalls and Realities around Services Procurement, Ariba 2009

http://www.ariba.com/resourcelibrary/views/resource_library_asset_brief.cfm?asset_id=564

Dan Ashton

Sr. Solutions Marketing Manager [email protected]

1 _{The E-Procurement Benchmark Report, Aberdeen Group, August 2008} 2 _{Procurement in the New Normal, Ariba, 2010}

3 _{Improving User Adoption and Contract Compliance with Your Existing Procurement Platform, Ariba 2008} 4 _{Supplier Enablement: Converging Procurement and Accounts Payable, Aberdeen Group, April, 2008} 5 _{Aberdeen Group, August 2008}