In another of eWorld’s 30-minute briefings, Jon Vass, Account Executive at Tradeshift, the business commerce flexible platform, talked to us about Procurement’s future. By that he meant Procurement’s move away from being looked upon traditionally to manage costs, improve operational efficiencies, and manage supplier relationships, towards facilitating innovation and agility across the business, and adapting to become more accommodating. Here are a few of his pretty radical thoughts.
If the procurement function carries on the way it is now, he says, it will either face extinction, or head towards science fiction – a bold statement and not much room for any other scenario. Jon explains this: because of the way technology is developing and taking over commerce, we either have to become best in class – or not keep up and peter out. And it doesn’t matter how big you are: this polarisation is driven by technology. And those that understand it, will continue to pull further ahead of those that don’t.
It’s not an advantage to be big anymore (eg Uber); in the past 15 years 52% of Fortune 500 companies have disappeared. And what has happened in the past 20 years will translate into the next 10 years, if you accept Moore’s Law. When the question was asked of procurement professionals what the tipping point for technology would be, various dates where given, however, no-one mentioned beyond 2027. The point is – the future is here, now, it’s just not widely distributed yet! (William Gibson). Basically, we are saying that it doesn’t take much to make one technology or service extinct.
A good example is the ‘dollar a shave’ story, where two LA surfers got tired of paying through the nose for razor blades, at a time when one brand controlled most of a $13bn industry! They set up their own online membership service, supplying razors at low prices and launched a ‘memorable’ campaign. Three years later, it had 52% market share. No-one saw it as a threat, because it was so small. The industry leader took 24 months to respond to this emerging competition.
It was a reflection of production and strategy disciplines that reside at the core of procurement. If you do not react quickly, if you do not look beyond cost savings to wider strategy, you will lose. Just like the good old Blockbuster/Netflix story. The message is – you need agility (and the startup mindset).
One of the main reasons behind the small gaining ground over the big, is that companies put process before innovation. In procurement, rogue spend and maverick buying come from the people who are willing to break the rules to get things done. A smart person who wants to do something, and sees a system in the way, will navigate around it. It’s not the end of the world if we make that easier for them, in fact, it will empower employees to get ahead of strategic threats and protect market share.
Companies tend to prioritise cost savings over value creation. Firms ask: what more can I do to reduce my price? They should be asking: what more can I offer? Focusing on savings will not: enable new product and service innovation, or accelerate speed to market, or protect your business from disruptive forces.
Procurement in the future will likely be about achieving an outcome, not a commodity, and Procurement is just the starting point to this process. Some things will always remain in common, same suppliers, same end user, same data. But, we will need everything on one platform, rather than using single-purpose tools - just like a mobile phone as a platform, with everything you need in one place, and in real-time. We will no longer be obsessed with catalogues and preferred vendors – that will not foster agility. And we will be able to buy anything from anywhere at anytime – with flexibility – because we will have a single, dynamic product stream.
Ultimately, we will need to be flexible, collaborative and innovative.
Our rogues will be heroes. We will give maverick buyers credit. We will be partners, and our systems will be workarounds – we will be the enablers not the blockers.