As the role of Procurement continues to evolve, a new approach is required. Leaders are actively transforming their organizations, with a new mindset, new processes and new technology. There is no textbook answer to all of these – needs differ based on the organization, talent, industry and other factors. Yet best practices exist and certain approaches are clearly driving Procurement in the right direction. Having worked with hundreds of leading organizations as they transform Procurement, I’d like to share some tips for Procurement managers that should serve them well.
TIP 1 – Digitize – Automation is your friend.
A massive trend across companies is digitization, with digitization of the Source-to-Pay process a key initiative for many CPOs. The inherent automation, which promises to only accelerate as innovations such as Artificial Intelligence (AI) evolve, is viewed suspiciously by many as a threat to jobs. There is no doubt certain roles are changing or even being eliminated by automation, but fundamentally it is critical to empowering procurement to succeed. As the list of objectives continues to grow, from a cost focus to risk management, driving innovation, improving cash, increasing revenue and more, Procurement is becoming ever more strategic. But doing so much more is only possible if capacity is freed, which is a key benefit of digitization. Don’t resist digitization – it’s coming. Embrace it to redefine your role and become ever more valuable to your organization. Leaders are already doing so, in some cases automating 99%+ of their procurement and AP processes, CACI being one great example.
TIP 2 – Know your suppliers.
Supply risk is hardly new, but with ever growing dependence on suppliers paired with more complex, global supply chains, it is ever harder to manage well. And with social media amplifying scandals around the world in minute, the potential impact has never been as large. Few things can strike terror in a CEO’s heart faster than a scandal or supply shortage, which we read about daily. Even compliance, take GDPR for example, often requires ensuring suppliers are compliant. Procurement leaders must ensure a solid understanding of their existing and potential suppliers. It can be a daunting task, but there is so much information now available and tools such as SRPM solutions that can bring it together, generate insights and make them available at your fingertips. Integrated action plans, flexible surveys and other capabilities let you quickly gather information, address deficiencies and ensure auditability of your actions. Leaders are going a step beyond, not just passively assessing risk but proactively helping mitigate risk, as Fannie Mae does by notifying suppliers at risk from cyber security threats.
Tip 3 – Build a solid data foundation.
There is so much focus today on the latest innovations, with AI front and center of most conversations. But not many actual success stories. A key reason, as confirmed in a recent Forrester study, is poor quality data. Procurement leaders that are having success operating smarter, leveraging analytics and technologies such as AI, are addressing data quality in parallel to implementing new technologies. Integrated suites generate clean data, at least if they have a unified data model, and master data management solutions are available that can address issues in back end systems, cleaning and normalizing suppliers records for example. Embrace new technology but don’t forget to work on the basics too.
Tip 4 – Believe in Darwin.
Charles Darwin famously stated that “It is not the strongest or the most intelligent who will survive but those who can best manage change.” This was part of his theory of natural selection, but it has never been more relevant to companies than today. Markets are rapidly evolving with a continuous stream of new regulations. New technologies are disrupting traditional business models. New risks such as cyber security are arising. The only certainty about the future is uncertainty. Procurement is well placed to help companies adapt, meeting new regulatory requirements, shifting supply to optimize an evolving tariff landscape and much more. Successful Procurement leaders are ensuring their organizations are agile and can evolve. That means being flexible in processes and it also means ensuring technology supports rather than constrains your plans. The shift towards Cloud-based solutions offers many advantages to companies, but can also impose constraints, forcing companies to adjust processes to the software and tying your hands if your needs change. This is a key reason why so many companies switch providers – they realize too late the technology doesn’t meet their ongoing needs. Be sure any technology you implement is likely to allow you to meet unforeseen needs.
Tip 5 – Care about your customers.
Successful Procurement leaders are seen as helping employees do their jobs better. Increasingly, that means making the purchasing experience a pleasure rather than a hassle, as employees expect consumer-like shopping at work and home. Companies of course have constraints, such as buying off contracts or from preferred suppliers, but that should be built into your procurement process so it feels seamless to employees, who are guided to what they need and can easily track the status of orders. The more procurement can be viewed as making employees happier and more efficient, the better for the function and your career. And the more automated this process, the more time for strategic activities.
Tip 6 – Engage Your Suppliers to Innovate.
Suppliers are a vast pool of potential innovation. Much talk is made of untapping that innovation but far less results. This is a tremendous wasted opportunity, and one that needs more attention. Success here can drive significant revenue opportunity and reduce costs, ultimately greatly increasing the stature of Procurement in an organization. A great example is MBf Holdings, where Procurement collaborated with suppliers to develop a new outpatient services offering to not only save a strategic customer, but grow share of wallet and create significant upsell opportunities. The key to success here is making such collaboration scalable, through effective platforms that allow sharing of requirements and communication between internal stakeholders and suppliers.
Tip 7 – Think Beyond Best-in-Class.
As a final tip, I feel its important to look at your end goal. Procurement teams are often obsessed with benchmarking against and achieving best-in-class performance on a range of metrics. This is all good, but the most effective Procurement teams don’t aim for best-in-class as their end goal but an interim step. You don’t build a competitive advantage by being as good as your competition and doing everything the same. You also don’t attract and retaining talent by forcing them to operate in a fixed, generic best-in-class process. Winners empower their talent to bring their best ideas to life and do a few strategic things differently, better than the rest. A leading Telecom provider realized they had an untapped source of revenue in used mobile devices so configured their sourcing tool to run forward auctions, generating tens of millions in new revenue. Join the upcoming webinar to hear how Meritor, a leading automotive supplier, configured a unique New Product Introduction (NPI) process to drastically accelerate launch of more profitable products, driving huge share price appreciation relative to peers. So if you rather win the World Cup than just play in the tournament, leverage technology that can both bring you to best-in-class quickly but still empower you to go beyond.