Procurement Will Eat Itself (Part 2)

Yesterday, in Part 1, John Milton of supply management specialists, Comensura, looked at the cannibalisation of procurement especially in terms of margin squeezing and what that means for consumers - today he continues with what that means for supply and Comensura's own 'adaptive' model.

In considering the way that Comensura procures, we’ve started to adjust our model to try and counter the external threats to supply, and to secure the most competitive, yet sustainable margins available dependent on our customers’ need. This approach forms part of our new ‘adaptive’ managed service, which is designed to be shaped around the customer’s unique circumstances, rather than providing the more traditional ‘one size fits all’ model. Key learnings are as follows:

  1. Start with the customer and work back. Look at the circumstances in which the consumer operates and try to identify supply solutions that help, not hinder them from delivering their outcomes. This topic is explored further in our forthcoming paper with Spend Matters (details to come).
  2. Make it easy for the supplier to do their job. As suppliers are given more exposure to an organisation they understand its drivers and how they can support and ultimately win business. By doing so you increase their odds of winning and make it more attractive for them to play. The longer the odds, the more likely they are not to bother supplying.
  3. Technology cannot replace the human touch in people-based categories. The more the computer says no, the less likelihood of a supplier staying interested. A lot of organisations seem to believe that technology will cure all ills – perhaps it will in the future – but at the moment a lot of existing technology solutions are improved based on legacy applications, and as such can be very restrictive from a supplier perspective. In Comensura’s case when we decided to refresh our own technology we built a completely new application to address these issues and futureproof its development.
  4. Be sensible with margins. No-one wants to increase their costs but in some cases this may be inevitable. Wherever possible we maximise competition or leverage volume with our supply base to drive best value, but in scarce supply categories these tools may not yield the required results, so flexible margin negotiation may be required.
  5. Adapt and adjust where required. If something isn’t working, change it! As new technologies or service possibilities emerge, investigate and if worthy embrace it.

For many buyers the ‘ask no questions’ procurement approach to margins will no doubt continue to prevail, but as may have been the case with Carillion, this approach is not sustainable in the long term, and carries substantial risk. To prevent procurement from effectively eating itself we believe that the relationship between buyer and seller has to become more inclusive and focused on the bigger picture if it is to survive. Mutual understanding (and indeed respect) and a shared commitment to delivering the right outputs is a must, as is the need to be agile in the face of changing circumstances. Procurement should have an important part to play in any business, so the ability to be adaptable and customer-facing obviously represents a great opportunity to (and taking another pop-based reference!) let it shine.

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