How optimizing your Procurement Process can give you Competitive AdvantageProcurement
In my previous posts, I looked at how to successfully launch a digital transformation and progress to best-in-class Procurement. Achieving best-in-class is a worthy goal, but should be viewed as an interim one rather than the ultimate objective, at least as typically measured. Most leaders seem to track their progress with metrics such as percent of spend managed and digitization levels, defining best-in-class as being the top quartile or similar high percentage.
Being on par with your top competitors does not give you a true competitive advantage. Deploying a best practice procurement process is great, but just means you are doing the same thing as other high performers. True advantage comes from doing something strategic differently – better than the rest. Best practices are great for the majority of processes, but for the most strategic doing things differently is the way to win.
This is where helping organizations innovate, ensuring business agility and even growing revenue comes into play. Global automotive component supplier Meritor is a great example. Procurement was tasked with supporting a board level initiative to accelerate innovation and increase margins. They configured a unique approach to new product introductions (NPI), digitizing their engagement with suppliers, resulting in bringing more products to market faster and with greater profitability, multiplying their stock price over the period.
Think that such types of strategic value apply only to direct materials? Then look at Sprint, where the handset division came up with the idea to effectively create their own marketplace for used handsets, configuring their sourcing product to run mass volumes of global forward auctions on used handsets to optimize the price received, generating over $1B in revenue in 2018.
Bringing more spend management discipline and digitizing are key steps along the way. That frees capacity, increases influence and improves access to insights for better decision making. But it doesn’t by itself give you an edge. To do that, you need teams that can act on that information, use that free time, to bring their best ideas to life.
The Importance of Ambition
Just how can you do that? First, realize what is possible and be ambitious in your goals. Leaders need to be more ambitious if they are to truly establish their procurement process as a source of strategic value. Too few are and many overestimate their maturity. In a recent Forrester survey on Executing a Successful Procurement Transformation, 65% of respondents self-assessed their organization as advanced, delivering a competitive advantage. Forrester’s own assessment based on their responses was that only 12% were truly advanced, with many of those that self-assessed as being advanced actually being beginners, below their peers and the rest just keeping up. That is a shocking disparity.
Those same respondents provided realistic levels of digitization across most processes, in line with the low-mid 30% found in a recent Procurement Metrics that Matter study from Ardent Partners. Presumably they feel that is close to the best possible. The reality is that 99%+ is possible today, as the examples of CACI, Credit Agricole and others attest to.
Is 100% digitization going to happen within a few weeks? Can you go from being a beginner to competitive advantage in a few months? Very unlikely. But it should be your ultimate goal so set it and plan how to achieve it.
Plan for Today and Tomorrow
The reality is that most digital transformations stall. The same Forrester study found that 82% of respondents switched (39%) or were planning to switch (43%) their technology, hitting roadblocks. The primary reasons varied significantly by stage. The key to not running into a wall is to plan the overall journey, even if you are just getting started, and make sure the team and procurement system you select can help you at every step of the way. For advanced respondents looking to build a competitive advantage, the top obstacles are integration of Source-to-Pay tools followed by Procurement’s change resistance (13%).
Plan to avoid those. If you are getting started, you are likely looking to start with procurement solutions to address a specific process (Strategic Sourcing or Procure-to-Pay for example). Naturally, you should make sure you evaluate technologies’ capabilities in those areas, but think about the future at the same time. Make sure you can extend the procurement solution to cover the full source-to-pay process over time and that capabilities of any suite are strong in all areas, and that integration is real at all levels. That means not just the workflow (which demos nicely in sales meetings to mask deficiencies created by acquisitions), but also at the data level and UI. It is exactly that deeper level of integration which delivers the efficiencies and seamless access to information you need to advance fully in your journey.
Same applies to your team. Are the people you are bringing on and developing just good at following best practices or are they also open to new ideas (better yet, sources of those ideas)? Assemble the right team. Without the right team and procurement system, you are bound to be one of the many that hit a wall at some point, faced with the difficult decision of whether to replace past investments or keep fighting through it.
Especially these days, the one certainty about tomorrow seems to be uncertainty. The same applies to Procurement. Do you really know what tomorrow’s requirements will be? Or which idea will give you a competitive advantage?
Make sure the procurement technology you select is flexible enough to meet those unknown requirements when they arise, or bring those great ideas to life. Deploying quickly is great and you don’t want to compromise there. But make sure you aren’t selecting quick at the cost of future flexibility, where any new workflows or capabilities you need to bring your ideas to life will become a hostage to your vendor’s unpredictable roadmap. Insist on realizing value quickly, deploying best practices but having the control to configure unique ideas.
The acceleration of innovation at Meritor was possible because the team was able to configure the Ivalua Platform to support their unique approach to NPI, which gave them an edge over competitors. Sprint could not have run forward auctions on their huge volume of used handsets if their technology did not scale beyond typical reverse auction volumes and not be able to run forward auctions.
And remember that the right technology and right people compliment each other. Good technology attracts good people and good people will maximize the potential of good technology.
So when planning your own digital transformation, be ambitious, map your full journey even if you are only at the beginning, and stay flexible. If you do, you’ll already be a step ahead of the competition and very likely reach a higher level and do so faster. For an objective assessment of how mature your Procurement organization is, plus specific tips on how you can accelerate the next stage of your journey, take the free Forrester Self Assessment.