Key Procurement Tensions/Trade-offs for 2017 – Supplier Collaboration and Innovation versus Tactical Power Plays

A few days ago,  we outlined five key areas of interest or tensions maybe for procurement in 2017. TWe are now looking at each in a bit more detail, and in each case, giving three key actions for 2017 that might strike a chord for you. Today, our tension is supplier collaboration and innovation versus tactical power plays.

The need for savings in many industries and categories has not gone away, and as we face uncertain economic outlooks in many parts of the world for 2017, we might even see that focus increasing rather than decreasing. Inevitably, that will lead to some blunt approaches used with suppliers, with traditional techniques such as spend aggregation, supplier consolidation and power-based negotiation strategies to the fore.

But some of the best sessions we saw and heard through last year’s events and conferences focused on how to capture innovation from supply markets and how to collaborate better with suppliers and potential suppliers. Organisations have realised that suppliers are better placed and have more capacity to drive innovation and revenue than they can achieve purely internally. But there has not been enough thought often about just how to make this happen, including an understating of the need for all parties to benefit.

If a supplier has got used to years of tactical, price-driven negotiations, it is impossible to simply announce one day that “we want to collaborate with you “or to ask for “your latest innovations” without explaining why your approach has changed and without offering to share with the provider any gains from the new approach. That is where many firms go wrong; you cannot become a genuine “customer of choice” just by saying that is what you want to be.

So again, three points to take away and consider:

- Segmentation is key here. Which spend categories, items and suppliers offer promise in terms of benefiting from collaboration and potential innovation from the market? Which are simply tactical and can be treated in a more direct manner in terms of negotiation and supplier management?

- Look at the situation from the supplier and supply-side point of view. Organisations need to have their own good reasons for working with a customer in a closer and more open manner than usual. What are they going to get out of your relationship? If you are not prepared to share the gains, why would they help you?

- Understanding the value that procurement can bring and being able to articulate, measure and report it (which we talked about in earlier parts of this series) are important if the function is going to re-position itself a look to generate more sophisticated benefits and value.

That really brings us full circle to where we started this discussion. Procurement is facing some major opportunities but there are tensions and issues to address. Re-defining the purpose of procurement and making sure our organisations understand what can be done through best practice procurement is perhaps the most fundamental challenge faced by the “profession” in 2017.

 

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