How to Build a Procurement Knowledge Database
Sourcing events are widely used by sourcing managers for negotiation strategy and ironing out contract terms. During these events, there is a great deal of learning going on with information that can be beneficial for the future. With all of this information being shared, it leaves you wondering - how am I ever going to remember all of this? Whether it be best or worst practices, most of these learnings end up being forgotten simply because there is no easy method of sharing it with colleagues. This information is integral to a sourcing manager’s strategy, as it allows them to have a better understanding of how to conduct future deals.
Many companies will find themselves outsourcing information from procurement intelligence firms in order to obtain a better understanding of the sourcing landscape for a spend category, but they do not leverage on internal learnings from other sourcing managers. Instead of searching for a procurement intelligence firm, this is where building a Procurement Knowledge Database (PKD) can come into play.
Building a Procurement Knowledge Database (PKD)
A Procurement Knowledge Database (PKD) is an effective tool that can provide further insight into relevant information needed to strengthen your procurement strategy. Building this database is simple and only requires a few key fields:
Spend Category (Can Be Left Blank If Too Many Generic Categories)
Submitter Name
Date
Best/Worst Practice Explanation
Process Category (Negotiation / Contract / etc.)
Let’s take a look at an example. Let’s say that a Sourcing Manager is doing a three-year deal with a SAAS software vendor with a current license need of 500 licenses and an estimated growth of 10% a year. Doing the three-year deal with a license commitment of 500 in year one, 550 in year two, and 605 in year three, you obtain a licensed discount of 70% off of list at $200 per year with price escalation at 2% per year.
Halfway into year three, there are major productivity gains with a shrinking of the market, resulting in a need for only 400 licenses. Now the issue is that you have committed to 605 licenses in year three and the supplier won’t budge on the agreement, meaning you end up paying for 205 additional licenses. This is a situation that should be shared in the Procurement Knowledge Database (PKD) as it provides key data and factors that would be beneficial to software sourcing managers down the road. While there is no perfect answer pertaining to future multi-year SAAS license deals, it is a learning experience that can aid someone else if/when the situation arises again later.
How To Implement a Procurement Knowledge Database (PKD)
Once you have the database built, you will need to implement it and get others on board with using it. You will first need to define all of the fields that you are seeking to track. This is primarily up to you and your team as you know what is relevant and important to you when developing this tool. Once this is complete, you will then need to reach out to all sourcing managers and ask them to load any previous (best and worst) practices into the Procurement Knowledge Database (PKD). Now you will be able to make the database live for future use allowing sourcing managers to utilize it when needed and upload future sourcing deals.
Instead of spending a fortune searching for a procurement intelligence firm, why not try to gather the experience and location all into one database and gain visibility into various different deals? The Procurement Knowledge Database (PKD) provides the key data needed to learn from our own procurement practices to ensure we move the procurement organization forward to better optimize spend.
Developing Your Strategy With a Procurement Knowledge Database (PKD)
Overall, developing your strategy with a Procurement Knowledge Database (PKD) will enable your operation to further optimize spend and provide key visibility into your overall sourcing environment. However, you may be wondering - where I do even begin? Fortunately, there are tools and resources available outside of the company that can aid in the development of your strategy.
Mike Glass runs GPC (Glass Procurement Consulting), a procurement consulting firm focused on optimizing a company's spend. Mike has worked in senior procurement management positions at NVIDIA, Google, Meta, Fitbit, and Flextronics. Mike would enjoy getting your insight on any procurement topic, feel free to contact Mike at mike@glassprocurementconsulting.com.
