Managing Risk – Data-Driven Supplier Management Programmes Are Key (Part 1)

This is the first in a three-part series of articles by Jeremy Smith, Director at management procurement consultancy 4C Associates on the changing roles of procurement, supplier management and how accurate data can optimise value from the supply chain.

Increasingly complex supply chains, tighter margins and global economic uncertainty have pushed risk management rapidly up the corporate agenda. The good news is that technological solutions, data analysis platforms and procurement best practice have all evolved at pace. The latest innovations not only allow businesses to pinpoint the areas of their supply chain which need the most attention, but, coupled with a more co-operative approach to risk management, provide greater visibility and foresight than ever before, such as:

Data-driven supplier management programmes - a well implemented process will not only decrease the workload for purchasers, but engender a more informed decision making process, which will consequently improve risk management at a strategic level.

Increased focus on the value of Procurement capabilities - organisations are changing the way they work with Procurement and the value, beyond cost and into risk and innovation, that a strategic rather than tactical approach to procurement can deliver when working collaboratively with the business and the impact this has on recruitment and retention approaches.

Supplier Relationship Management (SRM) -  the latest innovations can yield substantial rewards, such as invaluable insight from suppliers which can be used to guide the development of new products and services.

In terms of the first, most organisations have pockets of good practice across the stages of the procurement lifecycle, but where they struggle is consistency across the functions, staff, categories and regions. In order to improve this, the Procurement function must take the lead. Often this requires a change in the way Procurement supports the organisation, embedding procurement skills outside the function and changing the organisation’s culture to ensure supplier relationship management is not just a procurement task, whilst underpinning this with clear, accurate and robust data.

Before you start to change the role of Procurement within an organisation or implement cross-function supplier management programmes, you need to ensure that the data supporting these programmes is available, accurate and repeatable.

This data will drive sub-category prioritisation, the approach to category management, tendering and negotiation strategies, risk management, contract and KPI reporting as well as overall internal procurement performance reporting, particularly benefits tracking. If there is no trust in the data or information, lots of work required to obtain the data, or a lack of repeatability to refresh the data, then this will mean that the wider organisation will not support any strategic initiatives, will be unlikely to accept the role of Procurement beyond a tactical function, or genuinely will not trust Procurement to deliver.

Overcoming these concerns means that information requirements must be appropriately scoped, planned and then obtained. Companies that have not previously had procurement functions often do not have P2P systems and rely on AP data, which is often not fit for purpose. The new cloud-based P2P systems make the implementation and switching costs more manageable and provide a route to obtain the required data.

Where Procurement is embryonic in the organisation, without credibility or a mandate, trying to implement category management or supplier relationship management programmes will be set up to fail without the data. You should think what the organisation values from a procurement function, and the reality is it will be related to risk management, performance and to a lesser extent, value for money. The data will allow you to accurately measure these items so that the value for money conversation becomes the main measure and it is done from data rather than hearsay. This will allow a natural evolution of Procurement’s relationship with the organisation in order to help deliver greater value for money and make Procurement a more strategic role in the organisation.

The next part of this article will focus on how we can reposition the role of Procurement in an organisation and touch on the sensitive topic of operating models.

 

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