Over the past 4 months I have developed a research project to unpack supplier innovation. With no previous experience in the world of procurement, I decided to reach out to some of the most knowledgeable and experienced procurement professionals as part of my research.
The aim of these conversations was to discuss the findings of my research and learn more about different areas related to supplier innovation: IP management, discovery of suppliers, customer of choice, trust, customer financial assistance, etc.
The combination of research and insights from experts turned out to be the best recipe to learn about the past, present and future of procurement. I was able to validate my own ideas, and discover new ones to explore.
So, what have I learned?
1. Procurement teams are not well-recognised within companies
A department that spends anywhere from 50% to 80% of a company’s entire annual spend would be well-recognised for the work that they do. But from the leaders I spoke to, this isn’t the case. At all.
Kelly Barner (Procurement & Supply Chain Writer and Influencer) said that some companies see their procurement teams as just a tactical buying section and not as partners to the business. Also, Karina Larsen O’Halloran (Sr. Director Johnson & Johnson SC) mentions that part of her success leading a supplier innovation programme was based on changing the question they asked other departments from “How can we help you?” to “This is how we can help you!”.
This lack of recognition could be due to the “cost cutting”, bottom-line-focused mindset that many procurement teams struggle to move away from. This is something all interviewees agreed on. “It is easier and more rewarding in the short term to focus on cost-cutting rather than innovation but it clearly has a negative impact in the long term” Andrea Montreuil (Founding Partner and Strat Sourcing Expert) suggests.
“It is simpler for procurement to stick to and deliver on the metrics they know and trust, than to move into uncharted waters of top line growth.”– Chris Holmes
As Chris Holmes (Global Head Procurement Strategy & Innovation at Novartis) outline, “It is clear that Procurement functions and C-suite are aware of the need for a shift in mindset but there is a disconnect between awareness and action. It is simpler for procurement to stick to and deliver on the metrics they know and trust, than to move into uncharted waters of top line growth.”
In a world where sustainability has become one of the most worrying social concerns, procurement could become enablers to help solve this global issue, in other words, shifting from traditional procurement to “Procurement with Purpose”.
2. Supplier Innovation stories do not have happy endings
Reports, whitepapers and articles are a fantastic way to learn about a new topic. However, real stories, real examples and case studies are key to really understand it. All programmes and initiatives sound feasible and promising on paper but sometimes challenges arise when actually implementing them.
It is becoming more common for procurement teams to play a role in company projects that require external input. Supplier collaboration is a good example of this. Procurement sit at the interface of a relationship between business functions and external parties and are well positioned to facilitate the development of productive long term partnerships.
Through case studies I realised that supplier collaboration initiatives all had a positive impact, well recognised by both business units and suppliers. The best indicator of this success is on the time it takes to develop an idea internally: for procurement teams it takes on average 18 months; for a supplier partnership, it takes just 6 weeks.
Despite the great success of these initiatives, it is also common to see that none of these programmes are still running after their initial success. It seems obvious that successful initiatives should be brought forward and implemented, but this it is not the case when it involves a change in mindset.
According to some of the leaders, the failure of not maintaining Supplier Innovation programs could be due to three reasons:
- Lack of passion and vision from leadership team
- A focus on short term goals (cost saving) over long term change – no immediate results mean programmes are dropped
- Small projects that lack impact and do not demonstrate value to the rest of the company
3. Suppliers and Partners are not the same
“Suppliers” is one of the words I have come across the most for the past 4 months: supplier relationship management, supplier collaboration, supplier innovation, etc. Since I used it on a regular basis, I assumed that I knew what it meant. It was not until I had a conversation with Anoop Nathwani (Director of Strategic Alliances at Consortio Consulting) that I realised I had not asked myself the following question “What is the difference between Suppliers and Partners?”.
“What is the difference between Suppliers and Partners?”– Anoop Nathwani
At this point I realised that suppliers and partners are two different types of relationships. Anoop suggested that companies talk about partnering but they don’t understand what it means. They say “we collaborate with suppliers therefore we are partners” when actually, they are not.
In essence, the difference between a supplier and a partner is the type of relationship they have:
- A supplier relationship is based on a traditional binding process where goods and services are being provided. When these transactions end, the business relationship ends.
- A partner relationship is a business relationship between two or more organisations with the aim to achieve a result that one of the parties cannot achieve on their own. This needs to be based on trust, openness, shared risk and requires honesty and integrity from both parties.
4. Trust is key to developing successful Supplier Collaboration initiatives
Trust is fundamental in any type of human relationship. Friendship, family and love are based on this concept and without it, there would not be any true or meaningful relationships in our lives.
According to Jonathan Webb (Head of Content & Advisory, APAC at Procurement Leaders), “Trust is putting yourself in a position of vulnerability”. However, we all know it’s not that simple. As Michael Eknoian (Global Vice President R&D at Church & Dwight) says “There is no formula or process to build trust”. Or is there?
I had the pleasure to learn about the “Trust Formula” in a conversation with Anoop Nathwani. Even though, as Michael suggests, there is no clear process, this could provide a framework for developing trust.
The variables within this formula are:
- Credibility: the words we speak
- Reliability: the actions we do
- Intimacy: safety or security that we feel when entrusting someone with something
- Self-orientation: personal focus (on me or the other person)
When dealing with suppliers in a business relationship, it sometimes seems like a few companies forget that, at the end of the day, a business relationship is no different to any other type of human relationship. Although business relationships often focus on growing the business or closing a deal, it is always built on human connection. Honesty and openness are essential.
Most experts and thought leaders I talked to agreed that the best way to assess the trust in a relationship is by examining what happens when things go wrong. “When projects go wrong and there are mistakes, do conversations flow?” Andrea says.
Jonathan Webb believes that “Customer financial assistance” can be an effective way of building trust. In other words, “putting your money where your mouth is.” This demonstrates a company’s willingness to share risk and increase the strength of the partnership.
5 Technology is fundamental to Procurement’s future
As a technology fanatic, understanding how experts view the potential of technology in the procurement space was very interesting to me. In a world where technology is at the heart of everything we do, it was obvious that procurement teams would also need it.
Procurement teams have been using software tools and platforms for years to help them in a variety of ways: contract management, SRM, dealing with payments, saving costs, etc. My main interest was focused on understanding how technology could help in the transformation of procurement in the coming years. And more specifically how the fourth revolution (AI, Machine Learning, Blockchain..) would impact this space.
In the case of Blockchain, Tom Raftery (Global VP, Futurist, and Innovation Evangelist at SAP) and Mark van Rijmenam (Speaker on AI, Blockchain and Big Data) both agreed on its potential to improve trust in the supplier-customer relationship by gaining more transparency, traceability and security. Even though, the personal aspect will still be the most important, technology can help improve the element of trust, especially if it is built within the technology like in the case of Blockchain.
Most supplier collaboration initiatives work fantastically at the beginning but they are always hard to scale. Technology platforms and digital tools can help procurement teams scale their programs across different company departments and with different suppliers. This will definitely be fundamental in the future of procurement.
But what will this future look like?
A number of Procurement leaders are aware of the need to transform their function. It is certainly not clear what this will look like in the future, but there are a number of important areas CPOs must focus on in 2020 in order to guarantee long term success. It is certainly not clear how procurement will look in the future… Will it even be called “Procurement”?
I personally believe that sustainability and technology will sit at the heart of the function, giving Procurement a new, more meaningful purpose.
To Andrea, Anoop, Chris, Jonathan, Karina, Kelly, Mark, Michael and Tom, thanks for your time and insights!