What's Hot in Procurement: Observations from ISM (Dispatch 2 — Part 1)

It's been a busy few days at ISM. Between catching up with old faces and new, I've spent quite a bit of time in sessions, looking at quick software demonstrations and talking to speakers. There are a number of trends and topics getting more attention this year than before. Moreover, some providers are up to some innovative things -- in some cases which may serve as a sneak peak into where the broader sector might be heading. With apologies for not better organizing these thoughts, here's a laundry list of areas, providers and items that captured our attention at the show (a second part is coming soon!).

Contracting, Sourcing and Price Indexes -- We attended two sessions in these areas, and there were many more. Procurement practitioners are looking to understand the role of price of price indexes in sourcing and contracting. On a foundational level, category/commodity managers are looking to use indexes to measure past and current procurement performance, including whether or not they're beating the market. As companies become more mature, indexes become a component of contracting to separate out raw materials from value-added supplier price components. Finally, the most advanced procurement organizations appear to be increasing their knowledge base in this area to drive price forecasting and scenario analysis to better plan in an uncertain commodity climate.

Supply Chain Risk -- Supply chain risk is proving a hotter and hotter topic. While the supply chain risk management track was well attended by those focusing on the area for their companies (in certain cases 100% of the time), it also brought in others new to the discipline. Some we spoke to are looking to build business cases to increase their investment in the area for their companies. More organizations appear to be curious about investigating supply risk management that goes beyond supplier financial risk (e.g., examining CSR, country, commodity, incident, materials/substance, weather, logistics and related risks) however this interest appears cursory, in most cases

Commodity Management -- Commodity management is the new strategic sourcing for manufacturers, CPG and food companies. How best to explore risk exposure, take risk off the table and map risk exposure (and risk positions) directly to demand forecasts, logistics planning and production scheduling are all topics attendees looked to explore. The emphasis that more advanced companies are putting onto it cannot be overstated (nor can the "ignorance is bliss" approach that less sophisticated companies appear to be following). Managing risk throughout the supply chain by understanding both direct and lower-tier commodity exposure is also capturing the attention of more advanced companies in attendance.

Training and Skills Development is Back -- Companies appear once again to be investing in training and skills development programs for their employees. There are a handful of providers we spoke to in this area that are all observing strong -- and in some cases pent-up -- demand for on-site and remote training in both procurement and supply chain.

Consultants are Busy -- In some cases, consultants are very busy. Talent appears to be at a premium and a number of small and larger firms alike have really noticed a solid pick up in demand for services throughout 2012 and an even stronger demand in Q2. Practitioners looking to become consultants (or contractors) should take note that if they bring specialized skills and knowledge, that they might be surprised what they can command on a salary or day rate basis from both boutique and larger firms looking to bring experienced skills to their clients.

Services Procurement is Getting More Attention -- Practitioners led a number of sessions on services procurement practices and trends, and one we went to was extremely well attended. John MacLean, VP Purchasing and Transportation, American Airlines, suggested in his session on Manufacturing Best Practices in a Services Environment that "you can measure services procurement like manufacturing" and "when we're making a complex sourcing system, [it is possible to use] a decision analysis process" just as you would for direct materials. Services procurement providers were out in force, including IQNavigator, Volt and many other specialized firms marketing their services wares.

Everyone is Realizing Direct Materials Sourcing is Different -- Co-Exprise, MFG.com (LiveSource), CombineNet and others who had booths in the exhibit hall reinforced the discussions that I had with a number of practitioners, analysts and consultants interested in exploring the intersection of direct materials sourcing, product costing/design and commodity management. There appears to be growing interest in separating out sourcing approaches, tools and strategies for indirect and services spend from the specific needs of manufacturers for direct spend. We fully expect to see more organizations using technologies and solutions from multiple providers given the rise and nuances of direct materials sourcing requirements that basic sourcing packages fail to address.

Stay tuned as our Cliff-Notes write up of popular topics and trends from ISM continues.

- Jason Busch

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