Establishing procurement as a competitive advantage

procurement technologyS2P/ P2PStrategy Development
Establishing procurement as a competitive advantage

In my previous posts, I looked at how to successfully launch a digital transformation and progress to best-in-class procurement. Achieving best-in-class is a worthy goal but should be viewed as an interim – rather than the ultimate – objective, at least as typically measured. Most leaders seem to track their progress with metrics such as percentage of spend managed and digitisation levels, defining best-in-class as being the top quartile or a similarly high percentage.

 

But simply being on par with your top competitors does not give you a true advantage. Deploying best practices is great, but it just means you are doing the same thing as other high performers. True advantage comes from doing something strategic differently – better than the rest. Best practices work for the majority of processes but, for the most strategic procedures, doing things differently is the way to win.

 

This is where helping organisations can innovate, ensuring business agility and growing revenue come into play. Global automotive component supplier Meritor is a great example. The procurement team was tasked with supporting a board-level initiative to accelerate innovation and increase margins. The function configured a unique approach to new product introductions (NPI), digitising its engagement with suppliers. This resulted in the business bringing more products to market with greater speed and profitability, multiplying its stock price over the period.

 

 

Think such types of strategic value apply only to direct materials? Then look at Sprint, where the handset division came up with the idea to effectively create its own marketplace for used handsets, configuring its sourcing product to run mass volumes of global forward auctions on used handsets to optimise the price received. As a result, it generated more than $1bn in revenue in 2018.

 

Bringing more spend under management and digitising are key steps along the way. This frees capacity, increases the procurement organisation’s influence and improves access to insights for better decision-making. But it doesn’t, by itself, give you an edge. To do that, you need teams that can act on such information and use that free time to bring their best ideas to life.

 

The importance of ambition

First, determine what is possible and be ambitious in your goals. Leaders need to aim high if they are to truly establish procurement as a source of strategic value. Too few procurement chiefs are sufficiently ambitious in their thinking while, at the same time, many overestimate their function’s maturity. In a recent Forrester survey on Executing a successful procurement transformation, 65% of respondents perceived their procurement organisation to be advanced and able to deliver a competitive advantage. Forrester’s assessment based on the survey responses was that only 12% were truly advanced. In fact, many of those that believed their function to be advanced were actually beginners. That is a shocking disparity.

 

Those same respondents provided realistic levels of digitisation across most processes, in line with the low-mid 30% found in a recent Procurement metrics that matter study from Ardent Partners. Presumably they feel that is close to the best possible. The reality is it is possible for procurement teams to digitise 99% of their processes – or more – as the examples of CACI, Credit Agricole and others attest to.

 

Is 100% digitisation going to happen within a few weeks? Can you go from being a beginner to having competitive advantage in a few months? Very unlikely. But it should be your ultimate goal, so set it and plan how to achieve it.

 

Plan for today and tomorrow

The reality is that most digital transformations stall. The same Forrester study found 82% of respondents switched (39%) or were planning to switch (43%) their technology, hitting roadblocks. The primary reason for switching provider depended significantly on the stage to which respondents had progressed in their digital transformations. The key to avoid running into a wall is to plan the overall journey – even if you are just getting started – and ensure your team and technology can help every step of the way. For advanced respondents looking to build a competitive advantage, the greatest obstacles are the integration of source-to-pay (S2P) tools followed by procurement’s change resistance (13%).

 

Plan to avoid those. If you are getting started, you are likely looking for technology to address a specific process such as strategic sourcing or procure-to-pay, for example. You should, naturally, evaluate technologies’ capabilities in those areas, but think about the future at the same time. Ensure you can extend the technology to cover the full S2P process over time and that any suite is strong in all areas, and integration is real at all levels. That means not just the workflow – which demos nicely in sales meetings to mask deficiencies created by acquisitions – but also at the data level and user interface. It is exactly this deeper level of integration that delivers the efficiencies and seamless access to the information you need to make progress in your journey.

 

The same applies to your team. Are the people you are bringing on and developing just good at following best practices or are they also open to new ideas? Or, better yet, are they the source of those ideas? Without the right team and technology, you are bound to be one of the many that hit a wall at some point, faced with the difficult decision of whether to replace past investments or keep fighting through it.

 

Stay flexible

At present, the only certainty is uncertainty – this applies to procurement as much as anything else. Do you really know what tomorrow’s requirements will be, or which idea will give you a competitive advantage?

 

Ensure the technology you select is flexible enough to meet those unknown requirements when they arise or bring those great ideas to life. While deploying quickly is great and you don’t want to compromise in that area, do not pick a product too quickly. This risks compromising future flexibility as any new workflows or capabilities you need to bring your ideas to life will become a hostage to your vendor’s unpredictable roadmap. Insist on realising value quickly, deploying best practices while also having the control to configure unique ideas.

 

The acceleration of innovation at Meritor was possible because the team was able to configure technology to support its unique approach to NPI, which gave the company an edge over its competitors. Sprint could not have run forward auctions on its huge volume of used handsets if its technology did not scale beyond typical reverse auction volumes and was not able to run forward auctions.

 

Remember, the right technology and right people compliment each other. Good technology attracts good people who can maximise the technology’s potential.

 

Be ambitious, map your full journey even if you are only at the beginning, and stay flexible when planning your digital transformation. If you do this, you’ll already be a step ahead of the competition and likely reach a higher level at a faster rate. For an objective assessment of how mature your procurement organisation is, plus specific tips on how you can accelerate the next stage of your journey, take the free Forrester Self Assessment.

 

Alex Saric is CMO at Ivalua.

 

This contributed article has been written by a guest writer at the invitation of Procurement Leaders. This is published as a piece of sponsored content, published in partnership with Ivalua.

Alex Saric
Posted by Alex Saric

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