One of the great pleasures that my role at Old St Labs allows me is the opportunity to hold strategic discussions with some of the world’s most preeminent procurement thinkers. Our recent roundtable at Nokia Bell Labs in New Jersey was a great example of this.
Similar to events we’ve held over the past 12 months in San Francisco, London and Munich, our New Jersey roundtable brought together leading business executives from across industry with the sole purpose of discussing supplier collaboration and its impact on the future of business.
The event was structured with two keynote speakers, Nuria Ramirez (Senior Director, Supplier Excellence – Supply Chain Procurement at Johnson & Johnson) and Goran Cangl (Head of Ecosystems Steering, Innovation Partner & Venture Management at Nokia) followed by a facilitated roundtable discussion. If you would like to hear more detail around Goran’s presentation on Nokia’s open innovation ecosystem, head over to the resources of our website and listen to a recent webinar we recorded together.
The Setting: 8 Nobel Prizes and countless innovations.
I don’t think we could have dreamt of a more fitting location to discuss supplier collaboration and innovation than the Nokia Bell Labs facility in New Jersey.
For those of you that have not heard of Bell Labs, the facility is often referred to as the Birthplace of American Innovation. It was established by Alexander Graham Bell (inventor of the telephone) and has been credited with the invention of the transistor, cellular phones, solar cells, and the laser.
The collaborative work that has come out of this laboratory has earned it 8 Nobel prizes and arguably changed the course of human history.
Takeaway 1: I introduce my procurement hypothesis
To kick off the roundtable session, I wanted to introduce attendees to an abridged version of my hypothesis on procurement and the vital role that supplier collaboration and innovation play in define organisational success.
It has become increasingly clear to me in recent years that the inability of large organisations to collaborate and innovate with suppliers is leaving them exposed to disruptive forces that are very detrimental to their operations. Instead of working together with suppliers to identify market shifts and innovations at an early stage and incorporating them into their strategy, most firms act too late and find themselves competing against the innovative ideas rather than benefiting from them.
With 60-80% of total organisational spend now lying with suppliers, the need for alignment, collaboration and joint problem solving has never been more critical.
Organisations that fail to deliver on supplier collaboration and innovation programmes are less competitive, less agile and miss huge revenue generation opportunities.
When talking about these matters, I am always reminded of the slide below from Zuora highlighting the huge disruption that is impacting large enterprises. I firmly believe that supplier collaboration and innovation is the path that large organisations must take to avoid the fate of so many that have gone before them.
Takeaway 2: Supplier Collaboration and Innovation is procurement’s next big break
One of my big takeaways from this event and in fact from all roundtables to date is that supplier collaboration and innovation is very much the future for large enterprises. If we look at procurement’s evolution over the decades from back office function to where we are today, we’ve always had one big tenant or promise that we‘ve hung our collective hats on.
When the business needed to ensure compliance and drive efficiency, procurement was able to deliver this through the adoption of Procure-to-Pay systems. The advances we made in this area allowed our organisations to grow and as a result, procurement’s reputation grew.
The next big challenge that faced our businesses was the 2008 financial crisis. As revenues dried up, cost became king. Once again, procurement was able to respond to the needs of the business and position itself as commercial experts that delivered cost savings. This era, the ‘strategic sourcing’ era, once again helped our businesses navigate through a difficult time and further improved procurement’s standing within the wider business.
That brings us to today and the current fast-moving, tech-driven business environment we find ourselves in. The challenge facing many businesses today is the ability to adapt and to act at speed to avoid the numerous disruptive forces that are at play in our respective markets. You don’t need to be a rocket scientist to recognise that the face of business is changing fast.
Procurement’s role in this new environment is (and has always been) to position our organisations for success. To be successful into today’s marketplace, delivering innovation at speed is critical. If you are not able to deliver these things, a competitor or new market entrant will do so and will beat you as a result.
So, where do suppliers fit into all of this? Well, with the vast majority of organisational spend now attributed to just a few critical suppliers and armed with the knowledge that individual suppliers understand the supply market in far greater detail than category managers might be able to, it stands to reason that to discover and act on the next generation of ideas that will shape our industries, we will need to be working very closely with our suppliers.
We’ve already delivered on the efficiencies, compliance and cost savings that our businesses needed. The next step is to deliver on the innovations that will drive the next level of growth.
Takeaway 3: Supplier Collaboration & Innovation is more than SRM
Another area that jumped out at me during discussions with the roundtable attendees is the need to draw a distinct line between ‘supplier collaboration and innovation’ and the more traditional practice of Supplier Relationship Management (SRM).
So often, I see organisations trying to shoehorn collaboration around existing SRM activities with very mixed results. The following chart is from our governance white paper, which you can download here, I think it’s a great tool for delineating what procurement teams have traditionally tried to achieve with SRM against the full potential that is available to them through leveraging collaborative supplier relationships. So I implore any of you looking to implement collaborative supplier relationships, to come up with a firm definition of what supplier collaboration means within the unique context of your organisation and to outline the outcomes you hope to achieve from it. This may involve innovation sourcing and innovation pipeline management, it may include opening up new communication channels with suppliers and involving them in projects earlier, that part is up to you. But, it must entail more than the traditional KPI checklists we associate with SRM.
Takeaway 4: Unique Outcomes Require a Unique Approach
My thoughts in this space were provoked by the brilliant presentation given by Nuria Ramirez of Johnson & Johnson. It plays very much into the development of procurement’s role in the organisation I discussed above.
Nuria pointed out that procurement has built a great track record in delivering on commoditised requirements. When our businesses needed a widget or service provided, we were able to source and deliver that on the requirement to the closest spec and at the best price.
But the challenge that our organisations now face is that the threats and opportunities that lie before us are no longer commoditised. They are vast, complex and more often than not, difficult to define.
It’s an overused analogy, but when the only tool you have is a hammer, everything starts to look like a nail. The challenge that leading procurement teams are now helping their organisations solve is how to find solutions to problems that you don’t already know the answer to. It is no longer enough to apply strategic sourcing processes to solve complex business problems that require a collaborative approach from people across functions and across businesses.
To solve the new generation of problems facing our businesses, we need to partner with suppliers and internal business colleagues to bring forth each other’s strengths and empower people to think and act creatively. For procurement teams this means, pulling back the curtain on our operations and sharing information with our partners earlier in the process.
Our traditional ‘commoditised’ approach has seen procurement teams determine what problems need to be solved in a vacuum and then create a strict list of specification that we believe will lead to a solution. In the new business environment, we must adapt and share our business objectives and challenges with our suppliers and empower them to contribute and be proactive in coming up with a joint solution to these problems.
By looking at suppliers in this manner we move beyond traditional transactional engagements and can start to open up conversations around how to impact top-line growth, not just how to log more savings. To use the often-quoted term, taking this new approach is how we drive more ‘value beyond savings.’
Takeaway 5: Businesses are not very good at managing their top suppliers post-contract
This is not the first time this topic has come up in our roundtable sessions. We covered it in some depth at the San Francisco event (read about that here). But as a recurring theme I think it’s worth mentioning it again.
Whether due to resource allocation or a lack of processes & technology we are missing a beat when it comes to getting the greatest value out of our supplier relationships. The chart below goes some way to describing this.
Traditionally, we’ve done a great job of aligning and agreeing on commercials and performance objectives in the pre-contract phase, shown on the left of this graph. This relates directly to the commoditisation of procurement discussion I mentioned earlier. We’ve created a robust procedure that gets us to the point of a contract being signed. However, after this point, things tend to go awry.
This is due largely to that fact that what happens once a contract is signed is somewhat unpredictable. We open ourselves up to market forces, supply disruptions and other events that are hard to plan for. In short, we need to be nimble and responsive and we need to communicate constantly. As scopes change, so too does our approach need to change. There is no single, set and forget, cookie-cutter approach the will ensure a good result.
Optimising post-contract activity is critical for the successful functioning of our organisations. There is no point in signing a great deal if you don’t have the post-contract mechanisms in place to ensure what you agree will eventuate.
Businesses have become increasingly reliant on suppliers not only as sources of innovation, but as the core building blocks of their business. The way engage post contract will continue to have a marked and direct effect on the growth and profitability of our organisations.