7 Tips: A Guide to Mastering Procurement Transformation
Spend Matters welcomes this guest post from Alex Saric, Ivalua’s chief marketing officer.
As the role of procurement continues to evolve, a new approach is required. Leaders are transforming their organizations with a new mindset, new processes and new technology. There is no textbook answer to all of these because the needs differ based on the organization, talent, industry and other factors. Yet best practices exist, and certain approaches are clearly driving procurement in the right direction. Having worked with hundreds of leading organizations as they transform procurement, I’d like to share some tips for procurement managers that should serve them well.
1. Digitization is Your Friend
It’s not news to anyone that digitization is a roaring trend, and I’m here to say, “Embrace it.” Digitization of the source-to-pay process is a key initiative for many CPO’s. Innovations such as artificial intelligence will only accelerate the digitization wave. That said, it can create anxiety. Suspicion that digitization will eliminate jobs is not without cause. There is no doubt that certain roles are changing or being eliminated by automation.
However, the best approach is to embrace this trend and turn it to your advantage. The capacity freed by automation can be redirected to higher value work, helping you better address the growing list of procurement objectives, from driving innovation to reducing risk. It can make your job more interesting, more rewarding and increase your visibility in the organization.
2. Get Smart
Managing supply risk is not a new concept. However, with growing dependence on suppliers paired with more complex global supply chains, it has never been more critical. With the digital age comes a magnified lens via online news and social media. Nothing strikes terror in a CEO’s heart like a scandal or supply shortage!
A great way to tackle this is by having a solid understanding of existing and potential suppliers, including THEIR supply chain. It can be a daunting task, but there is so much information now available and tools such as SRPM solutions that can bring it together, generate insights and make them available at your fingertips. Integrated action plans, flexible surveys and other capabilities let you quickly gather information, address deficiencies and ensure auditability of your actions.
And be proactive about your suppliers! Fannie Mae is a great example, notifying suppliers at risk from cybersecurity threats, ultimately reducing its own risk and being a true partner to suppliers.
3. Take Control of Your Data
It’s easy to get caught up in innovations like artificial intelligence, but the success stories are lacking due to one major problem: a weak foundation! A recent Forrester study found poor quality data to be the major brake on a smarter procurement function and realizing the potential of AI. Successful procurement leaders are operating smarter by leveraging analytics and technology, such as integrated suites, to generate clean data (at least if they have a unified data model), and master data management solutions to fix existing issues in back-end systems — for example, cleaning and normalizing suppliers records. Digitization is your friend, but quality data is your foundation.
4. Believe in Darwin (Change Is Good)
Charles Darwin made famous the idea that it is not the strongest or the most intelligent who will survive but those who can best manage change. This was part of his theory of natural selection, but it has never been more relevant to companies than today. Markets are rapidly evolving with a continuous stream of new regulations. New technologies are disrupting traditional business models. New risks like cybersecurity are arising. The only certainty about the future is uncertainty.
Procurement is well-placed to help companies adapt, meet new regulatory requirements, shift supply to optimize an evolving tariff landscape and much more. Successful procurement leaders are ensuring their organizations are agile and can evolve. That means being flexible in processes, and it also means ensuring that technology will support rather than constrain your plans.
The shift toward cloud-based solutions offers many advantages to companies but can also impose constraints, forcing companies to adjust processes to the software and tying your hands if your needs change. This is a key reason why so many companies switch providers: They realize too late that the technology doesn’t meet their ongoing needs. Be sure any technology you implement is likely to allow you to meet unforeseen needs. Change is coming, and that need not be a bad thing if you are prepared for it.
5. Boost Your Employees
If you want to be seen as a successful procurement leader, the winning ticket is helping employees do their jobs better. How do you do that? Start by making the purchasing experience a pleasure rather than a hassle.
Companies of course have limits, such as buying off of contracts or from preferred suppliers, but that should be built into your procurement process so it feels seamless to employees, who are guided to what they need and can easily track the status of orders. The more procurement can be viewed as making employees happier and more efficient, the better for the function and your career.
6. Master Innovation
Suppliers are a vast pool of potential innovation. Tapping into their ideas can drive significant revenue opportunity and reduce costs — greatly increasing the stature of procurement in an organization. A great example is Meritor, a leading automotive supplier, who accelerated the level of product innovation by engaging suppliers, ultimately driving significant stock price appreciation. The key to success here is making such collaboration scalable through effective platforms that allow sharing of requirements and communication between internal stakeholders and suppliers.
7. Think Beyond Best-in-Class
Procurement teams are often obsessed with benchmarking against and achieving best-in-class performance on a range of metrics. This is all good, but the most effective procurement teams don’t aim for best-in-class as their end goal. Instead, view it as an interim step. You don’t build a competitive advantage by being as good as your top competition and doing everything the same. You also don’t attract and retain talent by forcing them to operate in a fixed, generic best-in-class process. Winners empower their talent to bring their best ideas to life and do a few strategic things differently, better than the rest.
A leading telecom provider realized it had an untapped source of revenue in used handsets so it configured their sourcing tool to run forward auctions, generating tens of millions in new revenue. Meritor’s accelerated innovation was driven by configuring a unique new product introduction process to dramatically accelerate the launch of more profitable products. So if you’d rather win the World Cup than just play in the tournament, leverage technology that can both bring you to best-in-class quickly and empower you to go beyond.