The need for Procurement to improve collaboration with suppliers, and other stakeholders, has gained broad acceptance in recent years. In case anyone was sleeping, the Covid-19 crisis has provided further evidence. As supply chains were disrupted, those organizations that had the closest relationships with suppliers were most likely to gain preferred access to keep goods flowing, and effectively forecast. Those that communicated with suppliers could have a better sense of sub-tier exposure to shocks and plan for them. As we are reminded that cash is still king, those organizations that closely engage suppliers on payment strategy are most likely to maintain financially viable supply chains.
Looking beyond Covid-19, virtually any of Procurement’s growing list of objectives can be better achieved through better collaboration. Improving CSR/sustainability? Check. Accelerating innovation? Check. Even the old reliable cost reduction objective can be better served by collaborating with suppliers. You can only squeeze so much margin out of suppliers by repeated reverse auctions on precise requirements. Allowing them to offer creative solutions to meet business requirements opens up far greater cost savings, expanding the overall margin pie rather than shifting the size of slices.
To Procurement leaders’ credit, they have made significant improvements in collaborating with suppliers. According to a recent study by Forrester commissioned by Ivalua, 53% responded that they have effective, strategic collaboration with suppliers. 45% say collaboration has improved significantly in the past 2 years, with a further 46% saying it has improved slightly.
Yet, there remains significant room for improvement. Only 2% of respondents said improving collaboration with suppliers was not an important or crucial priority for the coming year. So how can collaboration be improved, to reach more suppliers at greater depth?
“I don’t source goods and services, I source relationships”
As with many business challenges, there really are two core areas to focus on. The first is people. The above quote is my favorite of those submitted by Ivalua customers on why they #loveprocurement (you can find more or add your own quotes here). It captures the mindset needed to establish a truly collaborative approach to engaging suppliers. Viewing them as partners instead of vendors, as innovators rather than order-takers, as essential rather than expendable. It may seem obvious but it is a major change for many procurement professionals.
A critical way to drive such change is to formalize it in incentive plans, putting an organization’ money where it’s mouth is. The top ranked way to improve collaboration in the Forrester survey was setting performance goals / KPIs that place greater weight on collaboration (76% saying it would be very effective in doing so). Too many organizations talk about balanced priorities but ultimately focus KPIs on cost (77% stated it still dominates supplier selection). People gravitate to what they are rewarded for. Setting the right incentives is critical to driving step change in employee behavior, regardless of the objective.
The Technological Edge
The second area to focus on is enabling collaboration through technology, with 2 sub areas to consider. The first is to enable collaboration indirectly, by freeing capacity through automation of operational activity and improving access to insights to better assess suppliers. Here it is essential to deploy technology that can digitize the complete procurement / AP process, to ensure quality data and access across all processes, and seamless process flows. This is a key reason vendors have rushed to offer full suites and plug any gaps they had. But be sure to look under the covers and ensure there is true integration, at the workflow, UI AND data level, or you’ll always struggle to achieve even close to 100% digitization and data quality / reporting will suffer.
Technology can also directly enable improved collaboration. The second most effective strategy specified to improve collaboration was deploying technology to enable better information sharing with suppliers (63%). And 56% specified technology to help better manage communications and planning with suppliers. As a technology vendor, we see the criteria evaluated by prospects and I can say there is relatively little weight or rigor around collaboration capabilities, despite there being significant variance among vendor capabilities here. Key capabilities to assess include the ability to securely share documents / information, communicate with suppliers and stakeholders at any point in your process, enable cross-stakeholder visibility into activity and support effective project management. True platforms offer an advantage here since collaboration can be embedded at the platform level, rather than the solution-level. Most strategic initiatives span more than one solution area.
Global automatic parts leader Meritor presents a great example. In support of a board level initiative to grow revenues and profitability, they sought to accelerate innovation via better supplier collaboration. They effectively digitized the supplier and new product introduction lifecycle, resulting in bringing more profitable products to market faster and driving significant stock price appreciation.
Digitization improves collaboration beyond direct materials. Public sector organizations have struggled meeting the surge in demand for PPE and other medical suppliers in the face of Covid-19. Compounding their challenge is the fact that most face extensive supplier vetting processes that must be followed to onboard a new supplier. Ivalua customers such as the state of Maryland saved time by launching surveys to existing suppliers of various goods and services that were not contracted for PPE but may have such items to quickly assess how much inventory is available and the certification of any suppliers. They could then quickly requisition those supplies without exposing themselves to unnecessary risk.
The Supplier Perspective
Finally, I also want to look from the outside in and briefly discuss establishing yourself as a customer of choice to your suppliers. After all, collaboration only works when all parties are motivated to do so. The Forrester survey also included suppliers and asked what would make them most likely to share innovations with a particular customer. While factors out of your control, such as customer brand value and revenue, were noted as important, the top factor was actually visibility into and timeliness of payments (noted by 88% as increasing willingness). This is an area technology can greatly assist with.
With organizations having grown increasingly dependent on suppliers and procurement increasingly tasked with a myriad of strategic objectives, effective collaboration is now a must have. With the right mindset and the right enabling technology, Procurement leaders can set the stage for success.