Chapter 8: The Dawn of Procurement‘s New Value Proposition: Innovation, Collaboration and Focus
Uncertainty is perhaps the word to describe the feeling in today’s global marketplace. Increased exposure to shocks and disruption is an outcome of economies, financial markets and supply chains growing into global interconnected webs. Complexity exacerbates the problem; today even minor mishaps and miscalculations can have major consequences as their impacts have something approaching epidemic proportions throughout complex supply networks.
In this chapter we begin to investigate what the future might hold for procurement and supply chain management: by absorbing what we have introduced through the book so far as well as contemplating how those who are likely to be making decisions now might prepare for what comes next.
We have spent considerable time looking at the three most significant aspects of capability development: people, processes and technology. This trinity is unequivocally the power behind procurement capability. Moreover, it is incumbent on procurement and business leaders to avail themselves and the organizations they run of this fact. However, in doing so they must scale a problem that burdens so many leaders and their managers – and that is answering the question ‘what is best practice?’.
The question of ‘best’ practice
There is no such thing as ‘best’ practice. Best must be judged in context; it is relative to needs and circumstances. Another way of looking at it is to ask: what is right for this organization? What is right for your own needs and, crucially, for your own needs at a particular point in time and in particular market circumstances? Needs vary and they vary by organization, location, culture, geography, industry sector, capability, maturity, philosophy, personality and over time.
The broadening range of the procurement profession’s contributions to organizations has made this concept even more significant over time. Reducing cost is clearly important to all organizations, but organizations also have other decision drivers, which demand the derivation of greater value. Examples of these value drivers include security of supply, speed to market, service levels, quality standards, and social and environmental responsibility. So it should be patently obvious that one organization’s ‘best’ practice might not be ‘best’ practice for another organization.
Needless to say, there is still ‘good’ practice and we have suggested an idea of what ‘world-class’ practices might look like. Much of the writing on procurement in the last 30 years or so has focused on and provided a wealth of research, data and experience that indicates the characteristics of both good and bad practice, but so far no one has found that single, superlative, best practice.
The characteristics of what good practice is can be reasonably well defined. They can even be graded and quantified to show a linear progression across a broad range of criteria (as was highlighted in Chapter 2). They can also be used as part of a process to define progress and set goals (as was discussed in Chapter 4). But, such characteristics are outcomes really. They are the benefits to be gained from sustained effort and continued investment in good procurement practice. However, if these characteristics are to be developed and built into the organization’s processes and mindset then much hard work and serious influencing has to be brought to bear. As Dan Milman (1980) wrote in his book Way of the Peaceful Warrior: ‘to rid yourself of old patterns, focus all your energy not on struggling with the old, but on building the new’.
Issues in the management of modern procurement
A great deal of focus and writing on procurement has been on the relatively simple context of a large and powerful buying organization, procuring an uncomplicated product or service from an acquiescent supplier.
However, in reality things are not as simple as that and real-life procurement is a far more complex issue. Procurement managers have to manage for innovation, manage often well-established markets and be able to do this in the increasing complexity of our globalized business world.
In today’s business-to-business environment the complexity of the procurements made are reflected in the complexity of the business-to-business relationships required to support the procurement activity they are engaged in. Today, with the multi-organizational alliances often created to develop strategic leverage, procurement and supply management crosses many organizational boundaries and especially that of operations.
The contemporary procurement professional is engaged in optimizing the balances of risk and cost in the context of the increasingly complex procurements they are making. Issues such as the adequacy of contractual arrangements, which as we are aware can never hope to cover all eventualities and circumstances and, as a consequence, impinge on both governance and relationships. Both of these issues – risk and cost – are business critical and procurement must play its part in the emerging debate on risk and cost management by means of the implementation of relational mechanisms, which will operate alongside traditional contractual mechanisms to support them.
Procurement: why traditional approaches no longer fit
A focus rounding on uncertainty and risk are central in establishing the rationale of any contemporary procurement strategy. Today the very core of the discipline centres around a tool developed in 1983 by German consultant Peter Kraljic. He devised the 2 × 2 matrix that maps profit impact against supply risk. Most procurement people use Kraljic’s tool to analyse their purchasing portfolio and to divide how procurement resources should be allocated. However, while this approach was fine in the context of procurement in the 1980s – where there was a greater degree of certainty in markets, and the impacts of offshoring and a globalized market were much less impactful – the commodity-led approach that this tool drives does not address some of today’s big issues. For example, the political dimensions of contemporary procurement, where powerful interest groups will pressure for things that are not aligned to the economic efficiency of the commodity model – CSR being possibly the most obvious. This results in a complexity in the ‘procurement‘ of both investment and coordination across multiple stakeholders. This in turn leads to fragmented decision making and an increase and decrease of focus on who is important – customer or the project depending on the external environment, typically in the form of media scaremongering or the career path or even the recruitment of specific individuals.
Many contemporary procurements are bespoke, especially those in sectors such as construction or the manufacture of civil or military aviation. Here, different skills and competencies are required as are different relationships between the customer and the procurer. Today many contractual and other relationships, especially those with strategic suppliers, need to be dynamic and in some cases iterative. Procurement professionals need to be able to align outputs and requirements rather than provide compliance. This demands a performance mindset, which looks to spread risk and reward sharing across the entire supply network.
Traditional procurement has brought little if anything in terms of new practice. Kraljic’s Matrix was developed in the 1980s, before the shift in the global centre of economic gravity from West to East. The five ‘game changers’ discussed in Chapter 4 signal that the demand for products, services and utilities will increase and there will need to be a corresponding increase in the agility of supply chains/networks as well as procurement competence and skill sets to meet these new demands.
Figure 8.1: Procurement‘s triple focus
Global procurement practice in the 21st century goes far beyond the mere compliance of the late 20th century; it must move towards the imperatives associated with long-term growth innovation and a closer and more strategic proximity to the supply base.
Today a difference is emerging in procurement distinguishing the ‘old’ from the ‘new’. Contemporary procurement demands that procurement activity is freer, less proscriptive and restricted, more interactive and certainly much more about the long-term. It is clear that a new set ofchallenges are facing procurement leaders today. They need to be able to forge and maintain relationships with suppliers with the capability to innovate and supply match the long-term requirements of the buying organization (see Figure 8.1). These areas include:
the management and co-creation of innovation;
the management and understanding of markets;
the ability to operate in complexity.
Managing for innovation
Today it is no longer enough to build a supply management capability that is efficient, demand-driven or even transparent. Procurement must offer the organization something that is value adding; procurement needs to deliver innovation through its collaborations and longer-term focus.
Terms such as state-of–the-art have a much shorter shelf-life as the pace of technological advances quickens across the world. Suppliers invest heavily in research and development – it is not uncommon for this to be as much as 10 per cent of their annual revenues. It is important to have supplier relationships in place that allow this innovation to flow into the business – and equally for the suppliers to understand the business needs in order to guide and tailor innovation.
There is also a greater need for clarity over intellectual property (IP). Through the necessity in modern business to outsource, much IP has shifted out of the company and into the supplier base. This creates what is termed a shallow depth of manufacture. As supply managementprofessionals look to extract more value from their supplier relationships it stands to reason that, in time, leveraging supplier resources and integrating supplier functions one-to-one with their own will become a reality. Much in business is about timing; the unreachable becomes reachable, theunavailable become available, the unattainable becomes attainable. Customer–supplier collaboration will shift, and whilst today suppliers may be asked to contribute ideas to existing designs or to help fix existing processes soon they will be frequently in from the beginning.
For some time manufacturing has been led by the ‘make versus buy’ paradigm, and whilst the manufacturers intend to stay there, services organizations will join the outsourcing melee too. The expanding trend to extended enterprises promises interesting times for supply professionals in the very near future.
To take advantage of IP in the future, it is imperative for businesses to understand what IP is being generated through their activities – whether that is formal IP assets or simply organizational knowledge – where it sits, and who owns it.
A paradigm is a typical example or pattern of something; a pattern or model. The historian of science Thomas Kuhn gave it its contemporary meaning when he adopted the word to refer to the set of practices that define a (scientific) discipline at any particular period of time, in his 1962 book The Structure of Scientific Revolutions.
Procurement will remain core in that businesses need to have the right procurement strategies; but it is not core to the extent that today’s outsourced procurement service providers can better leverage markets. Many of these organizations have developed exponentially better capabilities than businesses have in particular commodities or spend categories, because they source them on a more regular and broader basis than we will ever do internally.
This situation has been developing for a number of years as service providers honed their offerings – building their business models, tying in the technology, and so forth. Today, we see service providers getting to the point where they do things better than many seasoned procurementorganizations.
The role of procurement leaders will be to leverage the expertise and excellence and then to developing relationships with the service providers that put them completely into synch with their own business models. This will enable CPOs to extract more and more value from outsourced relationships.
Another factor relates to high-performance enterprise procurement organizations – those that began their strategic transformations in the early 2000s and have attained high levels of spend management maturity. These organizations will continue to spin out discrete business units that offer procurement and sourcing services often geared to specialized segments of industry. This is already happening in sectors such as health care, hospitality and food services.
A significant characteristic of the new procurement professional will be the extent of their expertise. Whilst procurement has spent the last 30 years looking backward at money spent last year, supplier performance in the past week, month or quarter – contemporary procurement professionals will be forward-looking deal shapers. These people will need to be both analysts and commercially proficient, guiding the business in its strategic planning.
We have lots of data at our fingertips in procurement, but it is data that tells us what has already happened, how many defects we had in the last month, how many shipments were late, and how much savings we achieved (or not). To operate in today’s volatile global markets procurement will focus more on forward-looking, predictive analysis:
Procurement will use models to project where supplier defects are most likely to occur, and have KPIs for suppliers that measure the discrete pieces of their processes that are most likely to affect our end customers. We will be able to prioritize supplier processes according to our customer requirements and measure them.
While the ability to execute predictive performance management is elusive today, procurement needs to push in this direction if it wants to become more deeply ingrained in such functions as business strategy development and new product design, development and launch. Procurement needs to be able to predict how a product or service will perform from both quality and total cost perspectives. Businesses need to know when changes in data predict problems in the future.
Supporting and reinforcing predictability will be business communities trading information in real-time in much the same way that communities such as LinkedIn enable one to obtain predictive information about how a person is likely to perform on the job, eBay gives one information about how a particular buyer/seller is likely to behave, and Amazon can suggest books that one is likely to enjoy by comparing searches and purchases among people with similar habits.
Depth and value of predictive information being exchanged among trading partners will grow as participation in networked business communities expands exponentially and procurement professionals will be capable of analysing and understanding the worldwide dynamics ofmarkets on a variety of fronts. By way of example, it may be prudent in some countries to pay people to witness your containers being loaded on to ships, while in other countries you do not need to make that investment. Procurement professionals of the future will have that kind of deep, detailed insight into the markets that matter most to their enterprises.
No company can afford to be surprised by one supplier leapfrogging past another. Procurement professionals will need to be like investment analysts, possessing both deep and broad knowledge in and around their supply markets and industries.
Procurement‘s role is increasingly to maintain a constant understanding of the marketplace and those working in it are going to spend much more time understanding markets from longer-term perspectives rather than always looking through the lenses of sourcing events or transactions.
What is more, their understanding will extend down into the lowest tiers of the supply chain, to understand how to build a product or service as effectively as possible by taking knowledge that is inside the supply chain and bringing it forward to the designers within their own companies.
With technology innovating at such a rapid rate, supply management will be expert enough to understand if a supplier is staying current, innovative and creative in its marketplace or if there are new players coming along to unseat them.
Working with complexity
Over the last 120 years two paradigms have dominated management thinking and both naturally have a value centricity. The first of these was Taylor’s Principles of Scientific Management (1911), which focused on ‘performance’ with a command and control approach to the structure ofwork. The second, which emerged in the 1990s, was business process re-engineering (BPR), which encourages revisiting your business objectives and defining the outcomes and goals. You then establish the values and/or behaviours you want your staff to adopt.
In parallel, and increasingly since the 1990s, we have seen the emergence of a third paradigm, one that is people-focused, exploits mass collaboration and universal social computing, and relies on shared understanding. We live and work in a globally interconnected world and this is where complexity stems from.
In a nutshell, complexity is a function of the structure and uncertainty we have created in the business world. Outsourcing, offshoring and the universal use of information and communications technology (ICT) have made our supply chains and markets increasingly sophisticated and chaotic in equal measure. In the past we dealt with systems that were complicated, but very low in complexity. Complication and complexity are very different. If something is complicated (like a watch) you can disassemble it and then reassemble it and it will still work (if you have the right knowledge). If something is complex (like the weather or the global markets) it has the power to shock. For example, the 2008 financial crash or unanticipated storms. We know they can happen but we often get little or no warning. Complexity differs from the notion of complicated (systems) because, as highlighted above, something complicated – like a wiring diagram – can be looked over and understood, even memorized and it will do what you expect it to do. A complex system has so many variables that you cannot take account of them all and thus it has thecapacity to surprise.
Value creation in business remains the order of the day but where value creation in the past was a function of economies of (industrial) scale – mass production, efficiency in repeatable tasks – now it is achieved by delivering innovation into the business to impact profitability and customer satisfaction.
We have in essence moved from economies of scale to economies from creativity – mass customization, new products or service improvement to market – where knowledge workers rather than manual workers are deployed to find a solution to perplexing business/customer problems.
So how do we do this? How can CPOs and CXOs adapt to this, the third paradigm? We can start by seeing modern business as three system or network models:
Ordered systems where the actions of the people working in it are limited by the system; making their behaviour predictable. For example, where standard operating procedures are applied or best practice – there is no room for change or innovation.
Complicated systems where people are unconstrained and independent of each other. This is the world of subject experts and the province of statistical analysis and probability. For example, the aerospace industry or law or medicine.
Complex systems where people working there are lightly constrained by the system, and have mutual interactions with each other and with the system environment. The people working there also modify the system. As a result, the system and the people in it ‘co-evolve’. For example stock markets, and modern supply chains.
Since the global economic downturn in 2008, we have entered a new turbulent economic era where complexity is the predominant domain for procurement. The key to managing complexity is to attune yourself and your organization to emerging trends as early as you can. Here are some ideas you may want to contemplate to encourage this:
Develop a mindset of ‘theory-informed practice’ by analysing data from your organization and your networks and using analytics and ‘big data’ for innovation, competitive advantage and productivity. Best-practice databases tend to lead you to rely on what you ‘learned’ in thepast.
Set aside time to carry out analysis based on surveys or focus groups, which capture and display evidence-based findings, rather than measuring performance against targets. Measuring the impacts of activities allows for emergence and adjustment.
Instead of using centralized scenario planning why not set up approaches that allow for scenarios to be generated by your team. Take people out of their boxes. See your procurement team as part of a dynamic, boundary-spanning group on watch to spot trends. Also, working across boundaries develops your knowledge collectively and shares intelligence across functions, rather than in silos.
Deliberately build an eclectic team and commit significant time to building the next generation of the new procurement professionals.
Finally, act with demonstrable integrity and the highest professional ethics. Had this principle been applied in banking and accounting, would we be in the mess we’re in now?
From our perspective, as professional procurement practitioners, our job today is to decipher business objectives and communicate them regularly and effectively to the team and the rest of the business and its stakeholders. Focus on ever-closer inner and outer synchronization, from building bridges across the top team and the operations of the organization to tightening the links between the supply base and out to the customer base. Crucially, it is also about being part of the solution and not only running a function.
As stated above, it was in the early 1990s that the idea of applying complexity science to management was first being discussed. People were developing management models based on systems thinking. Managers’ eyes were opening to the reality that organizations are not just complicated but complex. And yet this interest and work in complexity did not lead to immediate changes in management practices. This is unsurprising given the way that business reacts to changes of any sort.
Complexity simply wasn’t a convenient reality, given managers’ desire for certainty and control. They were not prepared to change even though they knew that the ‘lessons’ of the past were no longer a guide for future action. The old methods would not furnish managers with the agility and intelligence to respond to emergent threats and opportunities. Consequently, the potential of applying complexity science to business has undoubtedly been held up by managers’ reluctance to see the world as it is.
Where complexity exists, managers have a predilection to create models that simply wish it away. It is much easier to make decisions around a straightforward understanding of cause-and-effect. A good example is Milton Friedman’s shareholder value philosophy, which determines so much of how today’s corporations operate. Annularity becomes the norm; because placing a rigid priority on maximizing shareholder return makes things clear for decision makers and relieves them of having to consider any alternatives.
Counter-intuitive management decisions, such as constantly cutting costs to boost short-term margins, damage the long-term health of the business – but they still do it. Fortunately some people do realize that a complexity approach keeps in view competing values and priorities and theeffects of decisions on them – and not just for businesses, but equally for investors, analysts and the regulators.
Added to this, technology back in the 1990s was not powerful enough to capture much or make sense of complexity. However, the proliferation in computing power and the progress in statistics have propelled us into the era of ‘big data’ and analytics. With our ability to draw on databases and map networks at scales that were unthinkable even in the mid-2000s, we can understand the various flows across large supply and/or value chains, and the impact of disruptions on these flows.
Finally, for many managers the prospect of non-human decision making is unnerving. The surge of computer processing power has developed another nagging concern in managers’ minds. Does the fact that massive computing power is required for systems-level comprehension mean that the interpretation of information, sense making and learning will become ‘extra-human’ activities? Will we reach a point where brainpower is obsolete? Well, frankly no. How often have models designed to predict the future state of complex systems, on their own, fallen short on accuracy? There is no substitute for the brain!
In fact, the overeagerness of futurists who advocate machines taking over evaluation of situations and decision making has created this myth, because sense making is always informed by values. The idea that we might look for value judgements from systems is daft. Fortunately, there is a growing recognition that, while computers can provide us with enormous extensions in storage and processing capacity, they will only ever be inputs to human brains, where the ultimate evaluation and deliberation must continue to take place.
Our awareness of complexity and the acknowledgement that simplistic thinking and linear approaches are no longer sufficient are the first steps in embracing complexity. Managers must now get ready to face the full complexity of their organizations and the prevailing economic environment and, if not control them, learn how to intervene with deliberate, positive effect.
We need to take a more nuanced view of complexity. When organizations simply take it as something to be overcome, they are missing a trick. If complexity in all its aspects is seen as a challenge – as something that needs to be managed and potentially exploited rather than something that needs to be eradicated – it can be used to generate additional sources of profit and competitive advantage. Managed deftly, complexity can increase an organization’s resilience by enhancing its ability to adapt to a changing world.
Complexity is a feature of modern society, whether apparent to consumers or not. It is characteristic in the variety of processes and outcomes linked to consumer choice and stoked by increasing customer expectation regarding the range of options available today.
Frederick Winslow Taylor was an American mechanical engineer and is regarded as the father of scientific management. Taylor summed up his efficiency techniques in his book The Principles of Scientific Management (1911).
Business process re-engineering (BPR) is the practice of rethinking and redesigning the way work is done to better support an organization’s mission and reduce costs.
The six signposts to procurement‘s future value
The procurement function, as we have already discussed, is expected to address an increasingly sophisticated agenda in meeting the needs and demands of modern business. As set out in earlier chapters, our long-held view is that competency in procurement and supply chain management is a prerequisite skill set that must be fully embedded inside organizations. Only then can procurement truly satisfy the strategic imperative of consistently delivering incremental value that offers tangible competitive advantage to the businesses it serves.
Procurement‘s new value proposition is multifaceted requiring a focus on cost management, supply risk and sustainability. Unfortunately, the skills gap to deliver all of these elements remains an ongoing challenge for procurement leaders. However, there is growing evidence that overall delivery capability is being enhanced by CPOs more readily utilizing third-party specialists and, where appropriate, outsourcers to bridge knowledge and technology shortfalls and to enable hard-pressed procurement teams to focus on strategic issues.
Some businesses have already secured incremental investment for their CPOs and their teams, providing enabling technology and putting forward a compelling business case to their organization that clearly shows how their new value proposition will deliver a significant return on investment within a short time frame. Other procurement leaders, one can only hope, will soon be able to follow suit by digesting the issues in this book. The ways in which we do business are ripe for transformation. Building on the typologies developed in earlier chapters it is possible to distinguish six activities that address the changes discussed and act as signposts to procurement sustaining its future value to business.
Intelligent cost-reduction strategies
New commercially focused demands are rocking this traditional area of procurement strength. Globalization has proven to be more about revenue growth than cost savings. Spend management is shrinking and the focus is on profits. Today CEOs might well ask the question: ‘how much might that price cost the business?’ Procurement leaders will have to be able to answer it.
That said, and whichever way you view it, cost reduction remains procurement‘s number one responsibility to the business – ahead of enterprise growth and product or service innovation. This intense focus on costs is evidenced throughout procurement activities and programmes, for example, by improving productivity and efficiency. It is also the area where executives have realized the most past success. Undoubtedly CPOs and their teams must continue to get the basics right now and in the future; earning their spurs via attention to the ‘foundations’ remains essential.
Shifts in costs and other operational fundamentals can happen so quickly that conventional strategies are becoming obsolete. And yet there is no panacea. Today flexibility and agility are the watch words. CPOs must use their experience and adaptability because when it comes to managing costs they must be agile; flexibility is the antidote to cost volatility and helps to improve the organization’s cost structure and growth.
If this is to be the case then the elastic procurement organization will be composed of an interconnected network of suppliers, manufacturers and service providers that can be tapped on demand as conditions change. To leverage resources optimally, supply managers in the future will employ intelligent modelling capabilities; using these modelling techniques will allow them to see the cost, service level, time and quality impacts of the alternatives being considered.
A holistic focus around risk
CFOs are not the only senior executives urgently concerned about risk today. Risk and the management of it rank remarkably high on the procurement department and supply management‘s agenda too. Risk management in the form of mounting supply chain risk, more so than increasing customer demands and higher costs, is becoming the ‘stay-awake’ issue. The current economic environment, although it may be exacerbating concerns, is not the impetus for this response to risk. It is stimulated by and from a deepening realization that globalization and greater supplychain interdependence have not only elevated risk, but also made it more difficult to manage.
Alongside a general awakening around supply-related risk comes more agreement regarding how we should measure it. We need more standardized, readily available third-party information shared amongst networked communities where people can pool data for operational assessment. Whilst many businesses have programmes in place to monitor compliance it would seem that there is a clear need to take risk management a step further – incorporating it into business plans and using IT to monitor and act on disruptive events.
Risk comes in many forms. The last 10 years has been peppered with wake-up calls: tainted food and toys, acts of terrorism, oil spills and counterfeiting. As supply chains become more complex and interdependent, risk management must become more comprehensive, extending far beyond what any one enterprise can control.
Risk management has to become everyone’s business as capacity and demand soar and complexity dominates our thinking. The process of selecting suppliers will carry more risk, more complexity and become increasingly fluid. As converging trends make supply relationships even riskier as this decade progresses, innovative cross-organization solutions will need to be developed as contexts and challenges change. Supply management will need to anticipate scenarios and increase awareness around supply risk, plus an expansion in its perception of where risk lies.
Demand-driven mantras require procurement to be involved in determining what the customer wants and what the organization needs from suppliers to deliver business value. Aligning with customer demand ranks pretty high as a supply management challenge, and there is a real need for procurement to have a customer-centric mindset. There is also an increased importance of integrating procurement choices with customer demand to deliver business value.
Procurement must become more involved in determining what the customer wants and what the organization needs from suppliers in order to deliver it. Direct engagement with large business-to-business customers must become a key part of procurement‘s role. However, despite theobvious need for customer interaction, procurement continues to be pushed to focus more on their suppliers than their customers. Even in supply chain planning, with all the demand-driven hype, not everyone includes customer input.
And yet, because customer interaction seems costly and time-consuming, many businesses it seems feel that the cost can outweigh the benefits. But as the pressure to be more profitable grows, businesses won’t be able to afford the excess inventory, lost sales and missed innovation opportunities caused by inadequate customer collaboration.
Essentially, managing value can help to deliver profitable growth; for example, innovation is focused on products and services that provide value to your customer. Procurement is expected to deliver innovation often from the supply base and this is reflected in the end product or service. Any innovation that does not provide additional value relative to the best alternatives is in essence money wasted. Customer input must add tangible value to your supply chain.
Most organizations excel at meeting customer needs once they are known. As has already been stated, it is the ‘knowing’ part that is difficult. Some supply chains connect with customers primarily to provide timely, accurate delivery. Yet organizations should get smart and interact with customers throughout the product life cycle.
In effect, any interaction with your customers should become an opportunity for inherent customer collaboration. Smart procurement professionals should use their judgement and business intelligence to rise above and beyond the noise. Through advanced analytics, they can identify ever-finer customer segments and support the organization to tailor their offerings accordingly. Products and services become a function of knowledge.
Sustainability and diversity challenges
In today’s business world we face an array of difficulties whose scope and complexity can make them intractable. Sustainability, once considered the preserve of the impassioned few, has become a burning issue to all in business. And yet if we think carefully through the trends affecting procurement and supply chain management today, and focus on using resources productively, sustainability needn’t be one of these intractable difficulties.
A key sustainability theme today is supplier diversity. Suppliers have an impact on the price and quality of an organization’s products and services. They affect efficiency and ultimately they can affect the performance of an organization, including its relationships with key stakeholders. It is becoming clear too that supplier diversity programmes can benefit businesses in a number of ways. For example, engaging with suppliers who are more efficient, flexible and innovative, adding value to your supply chain as well as providing you with access to new markets. They can also help businesses to meet corporate social responsibility (CSR) objectives, improving sustainability and reducing risk.
Many organizations feel that they must think about quality, cost and equality to ensure the company’s reputation and reduce risk and this is one route to meet these needs. It is apparent too that the next generation of procurement professionals will understand the benefits of having a diverse supply chain because it will reflect the world they live in; and, increasingly, multinational companies will be asked about their supplier diversity programmes in bids for contracts.
As was emphasized in Chapter 5, there is a strong sense that ensuring that small and medium enterprises (SMEs) are given equal opportunity to bid for contracts will put them way ahead of the game; by guaranteeing that their supply base is innovative, flexible and that it represents thechanging face of the company’s customers.
Supply management must establish itself as the ‘differentiator’ in all matters relating to sustainability by working with the business to define tomorrow’s standards. By leading on issues such as sustainability and supplier diversity, supply management will drive innovation for smart organizations through engaging small businesses or ‘green’ applications and in doing so bring competitive advantage to the business.
Supplier diversity has long been neglected as part of a source of innovation, and a specific aspect of procurement‘s role. Social and economic inclusion has to have equal weighting to environmental considerations. Supplier diversity is not about quotas, it is about widening the applicant pool to secure the best suppliers. The supply base and value chain must be re-evaluated and aligned to seize competitive advantage opportunities emerging from developing supply markets.
Flooded with more information than ever, supply managers need to be able to discern and act on the right intelligence. They also need to think about their visibility and impact within the business. This refers to both the impact that the organization’s own purchasing choices has on its brand, as well as a need for procurement to build its own internal reputation within the organization.
As we have already seen, procurement has a brand and PR challenge. Although information is freely available it would seem that less is being effectively captured, managed, analysed and made available to the people who need it. Procurement leaders must be purposeful and effective. Gaining the visibility and developing alliances internally does not appear to be attracting the attention it needs in terms of activities and programmes to achieve this. Whilst it may be argued that more focus has to go to the issues around strategy alignment, continuous process improvement and cost reduction, if procurement as a service is to be taken seriously then future leaders will have to decipher business objectives and communicate them regularly and effectively to their team and the rest of the business.
The development of ever-closer inner and outer synchronization is paramount, from building bridges across the top team and the operations of the organization to tightening the links between the supply base and out to the customer base. Aligning with inner and outer contexts is a key part of the procurement leader’s task.
Contemporary supply managers have to be able to decipher business objectives and communicate them regularly and effectively to their team, the rest of the business and its stakeholders. Effective supply managers get the attention of the right people about the important issues. Themore people appreciate their role then the more likely they are to include it in their determination of what strategic changes the organization needs to make. Procurement‘s aim must be to become the ‘go to’ people in the businesses they serve.
Procurement‘s bright future
Much of the foregoing suggests that procurement‘s bright future may actually be a change of modus. One where the incumbents are more entrepreneurial, brand-conscious, skilled analysts with a bimodal capability; a team of enablers, operating under a name that is as yet to be determined. But it will come. And with it the need for essential up-skilling to deliver a new value proposition; armed with increased business acumen and working in ‘elastic’ multifaceted strategic business mode they will communicate their value propositions to the organization via targeted market-led initiatives.
To take advantage of some or all of these opportunities, knowledge and intelligence development are key to gaining competitive advantage and developing capability in our rapidly changing world. Procurement professionals must become focused and respected across the business, collaborative, influential, persuasive and visionary. With access to knowledge and market intelligence, the function will progress from providing decision support to a predictive capability.
These factors suggest that modern procurement professionals are under considerable pressure, with the weight of expectation on them to deliver value-adding business performance. As supply networks have become more complex, costly and vulnerable, those leading procurement are finding it increasingly difficult not to move away from conventional purchasing and supply management strategies and seek out something new. It is no longer enough to build a supply management capability that is efficient, demand-driven or even transparent. Procurement must offer theorganization something that is value adding; a new era of supply management where the strategic scope of procurement adds tangible value. In essence, procurement‘s new value proposition will be delivered via innovation, collaboration and focus.