Procurement professionals have spent the last 30 years talking about moving from the transactional to the strategic, but sometimes I wonder whether those three decades have been ineffective.
That’s certainly how I feel when I see the popularity of marketplaces that treat the procurement process as if it were the same as shopping at an online supermarket. It’s not just that these marketplaces miss one of the cardinal rules of procurement – to minimise the amount of spending – by enticing enterprises to bulk buy.
Equally as worrying is that they fail to tackle one of the biggest business strategy imperatives of our time – forging ever-stronger bonds between businesses and their suppliers.
Procurement: more than just materials
This isn’t in any way to denigrate the increased choice these marketplaces bring. But there is much more to procurement than the initial cost of buying raw materials or components.
With enterprises now commonly outsourcing functions as diverse as IT, HR, logistics, legal and manufacturing to third parties, these formerly in-house operations now fall under the remit of procurement.
It’s not just that procurement now covers vastly more strategic scope than ever before. With upwards of half of revenue going to suppliers, there is a concomitant reduction in the amount of money flowing to full-time employees, who were once the sole engine of innovation within the business. If an enterprise can’t work with its partners to replicate this innovation through a broader ecosystem of suppliers, it leaves very little left in the tank to sustain its future growth and survival.
It might seem odd to think of suppliers as being the key to innovation and business strategy. But then again, we live in a topsy-turvy world where some of the world’s most famous manufacturers don’t actually make anything at all. Next time you slip on a pair of Nike trainers, do so in the knowledge that it took a global ecosystem of more than 1,500 suppliers to get those air-cushioned soles ready for you to wear.
Building better supplier relationships
Whereas the old procurement model was fixated on aggregating supply chains to cut costs, the big question today is how a business can access the innovation and expertise of its ever-widening supplier base.
The same is equally true when a business outsources its other line of business operations. After all, these functions don’t magically stop becoming strategically important once they are funnelled through to third-party providers.
If businesses are to solve the most pressing problems they face, such as remaining competitive and innovative, reacting to rapid shifts in consumer expectations or changes to the law, or enhancing their sustainability, they will need to increase their supplier base while simultaneously strengthening each relationship.
To do this effectively, businesses need to reimagine their whole approach to procurement – starting with the people. Where once procurement was a matter for numbers people, tomorrow’s practitioner will need a portfolio of skills and experience that goes beyond far beyond questions of profit and loss. The role of the CPO will be far more strategic, encompassing issues such as profitability, risk mitigation, revenue generation and innovation alongside traditional supplier management skills.
They will also need to be much better-acquainted with the actual value generated within the business. For example, if the business’ primary value lies in design (as it does with a business like Nike), then procurement leads will need to have a thorough understanding of that side of the business to wring full advantage out of supplier relationships.
Businesses must also adopt a new approach to procurement technology. The monolithic suites of old simply aren’t suited to the needs of tomorrow’s nimbler, more symbiotic supplier relationships. With businesses simultaneously expanding their roster of procurement partners and creating their own complex buyer-supplier ecosystems, the traditional ‘one-size-fits all’ simply won’t cut it any longer. The technology that underpins these process must shift from the traditional procurement and IT to a more user-centric design.
The idea that I can have ‘one tool’ that can satisfy all the needs across every department and across every demographic is ridiculous. In a complex network of relationships that encompasses external suppliers and internal departments across a business, the only way to get all parties on board is to make life easy for them and allow them to participate in ways they feel most comfortable.
And this is where procurement marketplaces need to be focused if they are to retain any relevance for the future. As procurement meshes ever tighter within business strategy, we need to reject these “stack ‘em high, sell ‘em cheap” marketplace models and replace them with one that is closer to the App Store: providing the tools that businesses need to fulfil, finally, procurement’s long-awaited move to the heart of business strategy.