Over the last several months, I have spent considerable time talking to a whole range of people including procurement executives in large enterprises; strategic suppliers to these enterprises; industry consultants; industry analysts and multiple technology companies ranging from global players to industry specific start-ups.
One thing I heard on a recurring basis was that suppliers are overwhelmed by the technology options being deployed by the enterprises that they supply. Life would be easy for them if there is one technology solution that they had to use – but they are facing massive overheads as the individual buying companies they transact with, deploy technology solutions that the supplier needs to interact with. The general perspective was that this was impairing suppliers by pushing more cost into the supply chain – irrespective of the view that these technologies would help them by making them easier to do business with. The common theme was that the technology being deployed focused on cost reduction (Strategic Sourcing) for the buyer and compliance (Contract Management; P2P) to the buyer.
I started to think about this and really believe that the technologies supporting these key business processes should be focused on three things
- Cost Containment – Benefits for both the buyer and the seller – how do we support processes that enable buyers to reduce their costs while ensuring that any resultant reduction in fees to the supplier can be made good by reducing the cost of the suppliers doing business with those buyers and increasing the market share of sales for that supplier.
- Compliance – Solutions need to be in place that ensures buying companies buy the right things at the right price from the right suppliers – similarly, the very tools that help drive this compliance need to be able to help the supplier sell the right volumes by making them easier to do business with. Thinking about creating sell-side tools that make it easier for suppliers to position new capabilities for both simple and complex categories is an important element of this discussion
- Collaboration and Innovation – Driving corporate initiatives to increase profitability and gain market share can be further developed by closer collaboration with strategic partners.
Total Cost of Ownership
Once the first step of procurement’s digital evolution was complete, the functions collective focus shifted from transactions towards creating an understanding of the total cost of ownership of our key supplier relationships. We analysed spend to ensure our business was in the best position to negotiate with suppliers. The results we achieved in (mostly cost savings) hugely improved procurement’s reputation within the business and as a result, we pulled ourselves out of the back office.
Again, processes and supporting technology accompanied this next step in our evolution. Gartner grouped the business practices procurement undertook at this time and collectively named them ‘strategic sourcing’. The bulk of my career has been spent supporting these early stages of procurement’s growth. I’ve worked with SAP Ariba helping companies leverage a full flow spend management solution that incorporated both P2P and strategic sourcing.
P2P and strategic sourcing are obviously all critical operations that enterprise procurement teams must get right. But as time moves on and procurement’s opportunities within the business continue to grow, I believe there are now greater challenges, and, with that, greater rewards, that the function has access to.
The outcomes we are achieving in the cost savings arena will, over time, reduce. There is only a finite amount of work and value that organisations can leverage in this space. Is it really sustainable to believe we can keep demanding incremental cost savings with our suppliers year after year? With cost savings off the table, where can procurement add value?
In many of the conversations I have held over the last few years, there has been a recurring theme that the next big opportunity for procurement is to starting contributing towards top line growth. Businesses are now asking more of the function, and that’s a great thing. Our savings focus has dragged us out of the back office into view of executives in our businesses. As the savings well start to dry up, our businesses are asking us ‘how else can you support our growth? What value can you deliver beyond savings?
For many large enterprises, up to 80 cents in every dollar of spend is spent with suppliers. That is an astronomical figure. If we want to impact change and grow our businesses, surely optimising these critical supplier relationships is the first step.
Supplier Collaboration and Innovation: The Next Big Opportunity.
By reimagining the way our organisations interact with suppliers, we can unlock the huge potential that sits with these partners and can deliver significant results.
I am convinced that collaborative supplier relationships are the most tangible lever an enterprise has at its disposal to drive organisational growth. By creating an environment where an organisation can share its challenges and opportunities with its critical suppliers and can develop an ecosystem where both businesses can jointly innovate, and problem solve we go a long way towards optimising the significant spend that we place with external partners.
It won’t be easy mind you. For one we need to readdress the way we engage with these suppliers. The hard work we’ve done in the past delivering cost savings has left some of these relationships in a position where collaboration and innovation are not easy to attain. When your primary focus is to drive lower costs, then you probably stunt the flow of innovative ideas and approaches to problem solving. We need to reconstruct these relationships and empower our suppliers to contribute to the goals and objectives of our business.
There is a vast array of technology solutions out there – many of which focus on cost reduction and compliance. These are vital tools for every enterprise and yet they do not help us in what should be a key mission to empower further our strategic partners to contribute to our growth targets by active collaboration and ongoing innovation. We are starting to see the emergence of this new category of solutions – Collaboration and Innovation solutions. Leading the charge in this space is a growing company called Old Street Labs – their solution Vizibl has certainly attracted some interesting early adopters and the early outcomes seem really compelling. It’s clear that other technology providers – both large and established as well as small and nimble are starting to look at this space – which further legitimises the efforts of OSL and Vizibl.