Transactional procurement has been a hot area these past few years. The rise of Ariba/SAP, Coupa, Basware, and others in the eProcurement and e-invoicing sectors (not to mention supplier network providers like OB10 and Tradeshift) has been consistent, with varying degrees of product innovation tossed in for good measure. But let's call a spending and buying spade a transactional spade.
If you apply the 80/20 rule to where procurement should focus its overall efforts based on opportunities for cost savings, value creation and risk management, indirect P2P would quickly fall off the list of the top three items. Sourcing, supplier engagement and supplier development would – and should – be much, much higher on any organization's list of priorities.
One could argue that organizations that are world-class level at P2P have a finance-centric view of purchasing controls and compliance, and this may not be a bad thing. And I've argued in the past – and continue to believe – that a combination of AP, finance, and IT resources taking a leadership role over P2P investments and management is not a bad thing. This can free procurement up to do more remarkable things in the organization from strategic sourcing programs that range from multi-tier demand aggregation (including rebate programs so that everyone benefits) to lean supplier development to should-cost analysis to supplier risk management.
But on a more strategic and influential level, procurement should be about creatively working with suppliers looking far beyond the transaction. It should not just be about focusing on trading partner efficiency, despite how guilty all of the industry analysts, consultants, blogs, media resources and others (including Spend Matters) of prioritizing coverage and opportunities surrounding P2P and related programs. For our second New Year's Resolution, we propose to dedicate more time on our sites and subscription services to getting back to what really counts in managing the area between buyers and suppliers: sourcing and supplier engagement.
This includes a more frequent focus on areas like:
- Strategic sourcing (including advanced approaches that are gaining favor in complex and basic categories alike)
- Supplier development and joint cost-take-out
- Engineering and design collaboration
- Supplier diversity and supply base localization
- Contract negotiation, management and implementation
- Demand visibility, aggregation, commodity and cost management
- Alternative buying models (GPOs, leveraged contracts, etc.)
- Working capital management and treasury integration (inclusive not only of supply chain finance but also capital investment, inventory, make/buy and related decisions)
It's easy to fall back on established technology as a crutch. We've done it far too long here. But just imagine, for example, how much better off the sector would be if the majority of Ariba and SAP's (among others) procurement growth and success over the past fifteen years was tied to sourcing, supplier engagement and collaboration rather than transactional buyer/supplier automation.
In 2013, we resolve to pay more attention to procurement as a means of strategic and continuous business improvement rather than saving a supplier a stamp or a phone call to AP or making it easier for Marge to buy a paperclip. You should too.