If you do an exact web search on the terms in the title, you will get zero results. Zero. If you do a similar exact search on “chief medical information officer” (CMIO), however, you will get more than 100,000 results. The need for such a person in procurement and supply chain, however, is clear. Since procurement and supply chain organizations are becoming “procurement as a service” (PRaaS) providers that need some level of autonomy to construct the world-class services that support the business, there needs to be an effective operating model between IT and procurement — and someone leading that effort.
Earlier Tuesday at SAP Ariba LIVE, Dr. Matthias Dohrn, CPO at BASF, outlined his organization’s approach to supplier management using SAP Ariba. He began his talk by sharing one of the best equations we’ve ever heard to refute the notion that technology alone benefits procurement: PP + NT = EPP. Specifically, poor processes (PP) + new tech (NT) = expensive poor processes (EPP)! Dohrn noted during his talk that BASF partnered with SAP Ariba to develop a supplier management capability suited to its needs and processes — which, you guessed it, came before the technology.
SAP Ariba President Alex Atzberger and a number of colleagues took to the main stage at SAP Ariba LIVE Tuesday morning to present an update on SAP Ariba’s operations, products and strategy. The discussions were interspersed with customer stories from procurement executives at Johnson & Johnson, BASF and Nielsen. Also, Resilinc CEO Bindiya Vakil made a brief appearance to talk about her firm and the evolution of supply risk management.
At the analyst session that marked the start of SAP Ariba LIVE Monday, SAP Ariba President Alex Atzberger kicked things off by sharing a few numbers and observations on what’s trending within SAP Ariba and its customer base. Here are some of the points in his talk.
In a world where everything is quickly becoming a service (XaaS), perhaps the single most important differentiator is being customer-focused and aligned in order to allow you to deliver value to them over the long run. It is a simple principle, but procurement is not so easy to implement. Everybody who spends money in the enterprise has the potential to get more value from their spend and is a potential “customer” for procurement to help. Given procurement’s limited resources, adopting and adapting CRM principles, practices, and tools can help. As we get started, note that CRM for “supply” and suppliers is not the buy-side of “SRM” or supplier management – it’s a much bigger, hairier, and more encompassing beast.
So who are the customers? And should they even be called customers?
Many procurement organizations do not like the term “customers.” Some use the term “clients,” and others use the term “stakeholders.” Still others use the term “internal partners.” It doesn't really matter as long as the organization defines the nomenclature that works best for them. That said, it is important to understand who all the various stakeholders are within the procurement process, so that they can be appropriately targeted to drive more value out of the process. In fact, if you think of the term "stakeholders," it means anyone who has a stake in the process and who consumes the outputs of that process: information, materials, services, cash, goodwill, etc.
So, to be a stakeholder in a procurement process means to be a customer of that process. This means that procurement needs to be explicit in defining and working with 10 key stakeholders – and reconciling which of these will get the most attention.
Let’s get to the list (and beyond that, 14 critical areas of CRM begging to be addressed).
In Part 1 of this series on Procurement as a Service (PRaaS), we outlined numerous reasons why procurement organizations should consider adopting a service-oriented operating model. In this next installment, we'll explore how procurement organizations are learning from other industries and other world-class services organizations.
Many procurement organizations may wince at the idea of being called a "service provider.” The term seems very transactional and low impact. Most procurement organizations are striving for much deeper spend influence and usually prefer a term like "business partner." Yet the world is moving to a service orientation, not just in the consumer world but also in the business world, which in turn is becoming a digital world. Whether procurement groups choose to use the “service provider” terminology or not (e.g., the principles can be adopted without using the explicit terminology with stakeholder), they will need to consider a services-oriented operating model, or “service delivery model,” if they want to improve their delivered value. Here’s why.
In 2012, AGCO stood at a crossroad. The agricultural equipment manufacturer faced stiff opposition from competitors, and knew that to extend its global reach, the company would need to transform the way it operated. The key to this transformation was a reimagined supply management function. The former AGCO purchasing organization ran a decentralized, regional and brand-oriented procurement model that had proven sufficient for those needs. But to become the operating company management envisioned, AGCO knew it needed to establish a single, global procurement organization, based on a global commodity management approach and setup, a strategic procurement philosophy and the technology platforms necessary for a streamlined supply chain.
A few months into any new year, many people’s New Year’s resolutions start to unravel. Psychologists can offer numerous reasons why you have (yet again) failed to maintain that new diet, but when it comes down to it, there’s really one explanation: accountability. Whether you’re trying to cut carbs or make it to the gym, your chances of sticking to a new habit increase greatly if you don’t take on the challenge alone. In the business world, if you’re trying to get adoption of new approaches and tools, you may become dismayed when end users don’t adopt a new tool that you know will create value. In procurement, take the example of strategic sourcing. Many large organizations buy a new e-sourcing solution, but don’t get adoption. The reason? A shared tool doesn’t imply a shared commitment to continuous improvement.
The idea of “tail spend” doesn’t seem very complicated at first.
Run a Pareto analysis on your spend categories and suppliers to make a cutoff at, say, the 80% that represent only 20% of your spend. Your numbers will, of course, vary, but the idea is to find a way to better manage such “nuisance” low-dollar spend that doesn’t detract from your efficiency, or worse yet, from spending time managing the truly strategic spend categories more deeply.
You might think of this as the spend in the lower-left quadrant of the famous Kraljic 2x2 matrix, which describes a strategy of “purchasing management” to manage non-critical, abundant supply that can be sourced locally in a de-centralized manner for maximum efficiency. And, maybe, if you manage this nuisance spend properly, you can even extract some value from it (e.g., a “quick source” process to gain some speedy spend savings).
Sounds straightforward, right?
Well, it’s not, and I have purposefully led you astray to prove a point.
The problem is that I never really defined tail spend in the first place – and if you can’t define it or see/measure it, you can’t manage it. And herein lies the rub (and the opportunity):
Tail spend could better be described as “nuisance spend” or “tactical spend,” and is comprised of many sub-segments — not just one or two.
Let’s return to our examples above. Segmenting on a spend-per-supplier basis, like in our Pareto diagram, is by no means perfect. What about low-spend, sole-source suppliers tied to large revenue or profit? OK, well, you might then refer to the Krajlic matrix as the solution. It’s better, because it helps profile the categories into complexity vs. impact (or risk vs. reward if you view it as such), but again, these are only two variables, and do not factor in any others.
Which ones? Let’s list six of them and ask whether you’d consider the resulting spend segments as ‘tail spend,’ or at least ‘nuisance spend.'
Gartner recently came out with their 2017 Magic Quadrant for Strategic Sourcing Application Suite review. There was material movement from this year’s quadrant compared to the previous one that was published two years ago, and in this post we offer our commentary on it.
Without question, Gartner has some of the best minds in the technology research sector. But given the pace of technology providers’ innovation, our perspective is that the notion of publishing a report every two years is not terribly useful outside of the point-in-time snapshot — which may in fact be six months old by the time a report is published — that a comparative analysis provides. In the end, for better or worse, the Magic Quadrant becomes ubiquitous with IT professionals to shortlist vendors (and sometimes more) and often a CYA for procurement.
There’s no perfectly prescriptive guidance we can offer, but, generally, if you want more flexibility to chart your own destiny in managing more complex supply chains and services networks, you want to focus heavily on your own native supply analytics (which can use third-party analytics solution providers, of course).
This way, you’ll be able to switch out the workflow execution apps as needed where you use BoB suites (e.g., source-to-pay suites) or “mini suites” (e.g., CLM) to manage the hard stuff — and also use ERP to manage the easier stuff until that day when ERP may eventually catch up.
The “hard stuff” isn’t just advanced industry-specific processes, but also just the richer data models that are required to support the advanced analytics that are part-and-parcel of areas like artificial intelligence.
CLM is actually a great example for us to highlight in closing out this series.