Here’s Why IT Procurement Leaders Are CPOs of the Future

The fourth industrial revolution is here. Change-resistant CPOs who see it as a threat will inevitably see themselves consigned to the scrap-heap.

The CPO of the Future, on the other hand, will seize every opportunity Industry 4.0 presents. And the profession is looking to IT procurement experts for leadership.

CPOs of the future

The procurement function is at a digital tipping point. To quote James Gregson’s analysis of Deloitte’s 2016 Global CPO Survey, “digital disruption will either reinvigorate or replace procurement’s value proposition”. In other words, if you’re not disrupting, you’re being disrupted.

Industry 4.0 marks the convergence of physical and digital manufacturing capabilities, where increasing automation and computerisation allow us to create smart workplaces.

From office printers that automatically order their own ink cartridges, to fully-robotised factories, the scale of change has been compared to the industrial revolutions of the 18th and 19th centuries.

Procurement, far from allowing itself to be left behind, must ride the wave of technological advancement to stay ahead. We’ve even seen the emergence of a new term – Procurement 4.0 – to encapsulate the changes that Industry 4.0 is making in the supply chain.

The vocabulary of CPOs is changing, too. The usual chatter around traditional practices such as sourcing, contracts and requisition-to-pay is fading away to make room for cutting-edge concepts like cognitive analytics, crowd sourcing, digital reporting, artificial intelligence and machine learning.

If you’re already in IT Procurement, then let me be the first to congratulate you! IT Buyers are going to be the CPOs of the future. Here are five reasons why.

  1. You already control an important chunk of the strategic spend

Global IT spending, according to Gartner, is expected to reach $3.5 trillion in 2017. As the future of business lies in the Cloud and with digital technology, it’s easy to predict that those professionals who are buying this future are best-positioned to lead the profession.

Arguably, no category of spend touches all areas of the business as much as IT. It’s a highly-specialised, big-ticket category where the buyer regularly deals with tier-one vendors.

Salary ranges, according to The Source General Manager Tony Megally, reflect the high-level impact of IT buying roles. “Generally, IT procurement managers’ salaries are 15 per cent higher than other specialisations. They are, without doubt, one of the best-paid categories in the profession.”

  1. Soon everything we buy will include an element of technology

Direct or indirect, goods or services, in the new world of Industry 4.0 just about everything we buy will have some element of technology. IT Buyers have the opportunity to add some runs to their career scorecard by seeking out innovative technology that solves previously “unsolvable” problems.

Take for example the decades-old safety concern around the fatigue levels of operators of heavy machinery. Mining truck drivers now have wearable technology (essentially baseball caps) that regularly conduct electroencephalogram (EEG) tests on the wearer.

The SmartCap knows when you’re approaching a micro-sleep even before you do. It then sounds an alarm in the truck cabin that alerts the wearer. The alarm can be routed to a remote monitor, who will stop the truck and remove fatigued driver from duty.

For the IT procurement manager, it’s important to understand the technology to manage it commercially. Which companies currently produce these caps? The earliest adopters are in the mining sector – what other sectors could benefit from this product?

What will it mean for safety standards across every industry where operator fatigue is a concern? Could your organisation be accused of negligence if you’re slow to implement this technology?

  1. You know how to drive change

Introducing new technology to an organisation is a major change process. More than anyone, IT procurement buyers are very aware of this fact, many having fought and overcome end-user resistance to new processes or systems.

Here at the threshold of Industry 4.0, the experience gained by battle-scarred IT change-management veterans will be invaluable as the pace of transformational change continues to accelerate.

  1. You’re an innovation scout

IT Procurement professionals have witnessed a huge amount of change in their search for the ultimate technology solutions over the past 20 years.

Take, for example, the evolution of the laptop. These have developed from bulky, suitcase-like machines in the 1980s, to sleek thin-screened notebooks in the early 2000s. However, the devices were effectively (and dramatically) made obsolete in 2010 when Apple released its first-generation iPad.

As technology increasingly becomes the product, we must keep options open to take advantage of the frenetic pace of change. This means shorter contracts, built-in optionality, and smaller, more agile suppliers who will drive innovation.

CPOs of the future will essentially be “innovation scouts”, with a major focus on finding, and profiting from, the next big thing in IT.

Organisations are also increasingly looking to supplier innovation to boost top-line revenue. This means the skill-set required to source from technology providers is fast becoming invaluable.

  1. You understand cyber security

88 per cent of U.S. CEOs are somewhat or extremely concerned about cyber threats. These CEOs are looking for technology savvy leaders across their business to protect them from cyber breaches.

Again, IT Procurement managers are ideally positioned to become experts in the cybersecurity challenges associated with the coming IoT wave, which will bring a rapid expansion of potential entry points for malicious software.

Whether you’re a problem-solver, change-management veteran, innovation scout, cyber-security expert, or all of the above, IT Buyers are already in possession of the ideal skill-set that will be needed by Procurement 4.0’s CPOs of the Future.

Procurious is at ProcureCon IT in Amsterdam this week. Stay up to date with what’s happening on Procurious, and by following us on Twitter.

Peak Oil – From Global Catastrophe to Global Opportunity

Modern economics is a matter of supply and demand. And when it comes to ‘peak oil’, it’s the difference between catastrophe and opportunity.

peak oil

Since the early 20th Century, scientists, experts, and economists have been predicting the manifestation of ‘peak oil’. For years, many people viewed ‘peak oil’ as a herald of global catastrophe, and the end of major economies.

However, in recent years, the supply and demand situation for oil has turned in favour of supply. It now appears that peak oil demand is what organisations and countries need to be aware of.

What’s more, some experts are predicting that this demand will happen sooner than expected. And global oil and gas organisations need to consider their next move in order to stay competitive.

What Do We Mean By ‘Peak Oil’?

Peak Oil‘ describes a situation where global oil production hits its peak, then is in perpetual decline. The first prediction of this was in 1919, and an expectation that peak would be reached by the mid-1920s.

Throughout the last century, a number of geoscientists have continued to make predictions. And these predictions have all been proved to be wrong. However, some experts believe this peak may already have happened without anyone really noticing.

Studies have shown that in North America, the volume of oil discovered has dropped consistently since the 1930s. In addition, production of oil in the region has dropped year on year since the 1970s. That’s not to say that overall fossil fuel production has dropped – we’ll come to that shortly.

What people have agreed upon is that the concerns over ‘peak oil’ have abated, or disappeared entirely. The expected global economic collapse is unlikely to take place (or at least be a result of running out of oil).

Supply Outstripping Demand

So what has changed? Well, there are three reasons that keep appearing in a lot of the articles written about ‘peak oil’. They are:

  1. A huge increase in the volume of shale oil being produced. The oil is produced differently, but can be a direct substitute for crude oil.
  2. The US-Iran deal signed in 2015 has lifted sanctions on the oil-rich Middle-Eastern country.
  3. OPEC, which accounts for 43 per cent of global oil production, has, until recently, refused to cut supply. This surplus of supply was the reason the price of a barrel of oil dropped dramatically earlier this year.

This has shifted the thinking on a surplus of demand for crude oil, to a surplus of global supply. Or from ‘peak oil’ to peak oil demand.

Simon Henry, the Chief Financial Officer at Royal Dutch Shell, has predicted that this could happen in as little as five years. Henry stated that, “peak may be somewhere between 5 and 15 years hence…driven by efficiency and substitution.”

This view is at odds with many of the other major global oil producers, however. Exxon Mobil is anticipating a 20 per cent rise to 2040, while Saudi Arabia, the world’s largest crude oil producer, has argued that demand will rise on the back of increased consumption in emerging markets.

But, as some experts point out, even these predictions are built of shifting sands. The global trade slowdown, combined with the events of 2016, could adversely impact demand in developing countries.

Consumers & Organisations Shifting Focus

Whether it’s five years, or fifty years, what is clear is that oil is still a finite resource. Production will eventually diminish, and consumer requirements will change alongside this. This is where the global opportunities come in, but only for organisations willing to keep pace with change.

Public interest in renewable energy is increasing rapidly, and consumer buying habits are changing too. Even industries traditionally driving oil consumption, like the automotive industry, are seeing massive change.

In the UK alone, sales of electric cars have increased by 48 per cent in the past year. Sales of hybrid cars during the same period have increased a whopping 133 per cent. There are large solar panel fields being built around the world, and Ikea is even selling them to consumers in the UK.

Shell and BP are just two of the organisations expanding their portfolios into renewable energy sources, such as biofuels and natural gas. Greater investment in the renewables industry by major organisations has also helped to reduce costs associated with it. And as costs fall, demand from organisations and individuals will inevitably rise.

It would be foolish to make predications given how difficult it is to predict correctly about oil and energy. It’s a topic that is unlikely to go away any time soon, and one that organisations and wider supply chains need to be keeping up to date with.

Do you have a view on ‘peak oil demand’? Do you think it’s time to focus more on renewable energies? Let us know what you think in the comments below.

Like a treat behind each door of your advent calendar, we’ve found the tastiest procurement headlines this week.

Robotic Exoskeleton Gives Workers Super-Strength

  • SuitX, a Californian robotics company, has unveiled a new Modular Agile Exoskeleton for manual workers.
  • The suit is expected to greatly improve worker productivity and limit exposure to long-term health risks such as back injuries.
  • The exoskeleton is comprised of three modules – backX, shoulderX, and legX – which can be worn separately or as a single system.
  • The exoskeleton supports the body, reducing the amount of effort required to perform tasks such as lifting heavy weights.

Watch the video on THOMASNET

U.S. CEOs Face Consumer Backlash over Trump Victory Response

  • US Corporate CEOs have not hesitated to make their political views known in light of Donald Trump’s election victory.
  • Responses have ranged from congratulatory, to calls for unity, and commitments to company diversity policies.
  • Statements in support or against President-elect Trump have put brands at risk of consumer backlash.
  • Some CEOs who have spoken out have seen calls for boycotts of their brands on social media. Other CEOs have experienced backlash from their own employees on the other side of the political spectrum.

Read more at the Washington Post

Bank of England Seeking £5 Note Solutions

  • The supplier for the new £5 is looking for solutions to the make-up of the note’s base polymer following a backlash this week.
  • It was revealed that the note’s polymer contains animal fat in the form of beef tallow.
  • A petition on behalf of groups including vegetarians, vegans, and religious groups garnered more than 100,000 signatures in two days.
  • The Bank of England has said that their supplier, Innovia, is working with its supply chain to come up with a resolution.

Read more on Supply Management

Maersk Line Acquires Hamburg Sud

  • A.P. Moller-Maersk has agreed a deal to acquire German shipping line Hamburg Sud from the Oetker Group.
  • It’s estimated that the deal is worth over $4 billion, after Maersk won out in the bidding process.
  • The deal brings Maersk’s share of the global container market to 18 per cent, and it hopes to use the deal to return to profitability.
  • It’s the latest in a long line of mergers and acquisitions in the shipping industry, thanks to a huge downturn in 2016.

Read more on Supply Chain Dive

Could Direct Bookings Help Drive Value for Procurement?

Travel procurement tends to get people hot under the collar. But should procurement be more open to direct bookings to drive greater value?

Hotels direct booking

This article is based on a study conducted by Software Advice, available to read here.

In the hotel room booking wars, online travel agencies (OTAs) seem to be giving up a little ground. This represents a great opportunity for small, boutique and independent hotels.

Hotels that sell rooms through OTAs must pay a commission, so direct bookings mean higher profit margins. For many years, hotels gave up that extra profit in order to reach a wider audience.

However, new data shows that many rates are now cheaper when booking directly through the hotel website.

What Is Causing Cheaper Direct Bookings?

The true cause of this shift is hard to nail down, though some experts think a combination of a couple key factors may be leading to cheaper direct bookings:

  • Effective regulation against rate parity clauses. Regulations against rate parity clauses – contract language that forces hotels to maintain the same rates on all distribution channels – may be having an effect. This means some hotels could offer lower rates on their own website.
  • OTAs are willingly easing up on commissions. OTAs often charge hotels an average of 15 to 25 per cent per booking, so it’s easy to see why hotels would want travellers to book direct. It’s possible the OTAs believe reducing commission rates won’t matter, since their volume of business is so high.

This shift is an opportunity for small and independent hotels to educate potential guests, and market these cheaper direct booking rates to them.

Taylor Short, Hotel Market Researcher for the hotel information systems reviews companySoftware Advice, believes that incentives could be the key to attracting customers.

“Hotels and resorts want to attract organisations and groups for the revenue and sales potential when the group is on property. Because of this, hotels will often use software to manage incentives offered to guests, such as free wifi or rate discounts, for those who book in groups,” says Short.

“To compel group over individual bookings, hotels will try to tailor packages to the groups they see most often. For a business networking group, for example, they may offer free transportation from the airport, discount on drinks, or a round of golf. There are things to offer that can help deliver a better, more personalised experience.”

Driving Direct Bookings

Shifting consumer habits to looking at a wider range of options presents an opportunity for small hotels to educate travellers that booking directly can be cheaper and more valuable.

There are a number of tactics smaller hotels can use to help drive customers to websites, and boost brand loyalty. These include:

  1. Compel website visitors to book direct with pop-ups or calls-to-action (CTAs).
  2. Offer incentives on the website.
  3. Arrange OTA widgets so that rates capture visitor attention.
  4. Focus on what they can offer vs. bigger brands.
  5. Prepare for the long game.

Changing Habits and Procurement

So if consumer habits are changing, it’s probably fair to say business travellers are looking for similar options. But where does this leave procurement?

Travel procurement is one of the ‘hot buttons’ for organisations. Procurement need to find the right balance between value for money, and ensuring that their staff are getting a good experience.

Every year, millions of pounds are spent outside of travel management systems. This maverick spend, which can be up to 20 per cent more expensive than through authorised sources, further hinders procurement’s position. Maverick spend comes in all shapes and sizes, and organisations need to be aware of why it is happening so they can combat it.

However, as travel options, in particular accommodation, open up with businesses such as Airbnb, procurement needs to stay in step with changes. This doesn’t mean allowing staff to book directly themselves, but not staying with preferred suppliers because they happen to be on a list.

The difficulty for procurement lies in how organisational travel is booked. Large organisations tend to use a travel management system, or agency, to collate bookings.  Smaller organisations might be more flexible. However, if processes are in place, then it’s likely to be more difficult to justify a change.

However, it doesn’t stop procurement looking at smaller hotels who may offer added extras that employees will enjoy. If direct bookings could offer greater value, then it’s worth considering working with these suppliers in the future.

Big Ideas Summit 2016: Big Idea #25 – Collaboration is King

Collaboration is king, particularly when it comes to procurement. And it can also help drive huge benefits across the board.

At the Big Ideas Summit 2016, we challenged our thought leaders to share their Big Ideas for the future of procurement.

From ideas that have the potential to change the very nature of the procurement profession, to ones that got the assembled minds thinking about the profession’s impact outside of the organisation, the response we received was amazing.

Building Cross-Sector Collaboration

Kavita Cooper, founder at Novo-K, argues that it’s time for procurement to become more active in collaboration, particularly between the private sector and the charity sector.

Kavita says there are huge benefits in building this collaborative environment. Procurement professionals can build their skills, while charities can tap into tools and best practice from the private sector. Additionally, there are benefits for society, with charities being able to focus on their beneficiaries and purpose.

Catch up with all the delegates’ Big Ideas from the 2016 Summit at the Procurious Learning Hub.

Want to find out more about Big Ideas 2016? And maybe what we have planned for 2017? You can visit our dedicated website!

If you like this (and you haven’t done so already) join Procurious for free today. Get connected with over 18,500 like-minded procurement professionals from across the world.

Tania Seary Named ‘Influencer of the Year’ 2016

Procurement’s influence is driven by its leaders. And having a great influencer at the top can make a world of difference.

hello influencer

This week the procurement community made a dint in the universe when Procurious’ Founder, Tania Seary, was named Influencer of the Year by Supply Chain Dive, a leading industry news publisher.

Congratulations to our 18,000 Procurious community members, as well as the 32,000 other procurement professionals who follow us on LinkedIn, Twitter and Facebook! This award recognises your commitment to sharing, connecting and collaborating within the world’s first online community for procurement & supply chain professionals.

The Dive Awards

Supply Chain Dive solicited its 6,000 readers to identify the industry’s top disruptors and innovators. Procurious was selected as an award winner along with other leading companies including Amazon, Patagonia, and J.C. Penney.

Fellow nominees for ‘Influencer of the Year’ included supply chain luminaries including Bill McDermott, Chief Executive Officer, SAP, Bob Ferrari of Supply Chain Matters, and Lora Cecere of Supply Chain Insights.

Commenting on Tania’s award, Edwin Lopez, associate editor of Supply Chain Dive, said, “The supply chain is incredibly fast moving, and the influencer award seeks to recognise those who through their actions or words are helping supply chain managers do their jobs better.

“Tania Seary did both as the founder of Procurious, a social network designed exclusively for peer-to-peer education, where supply chain managers can go to ask questions, share tips, or learn from others’ experiences on a daily basis.”

Learning, Sharing, Collaborating – Growing

At our Big Ideas Summit this year, Tania put forward her big, simple idea: the procurement profession needs to share.

In many ways, by putting her Big Ideas out to the universe and now being announced “Influencer of the Year”, her wish has come true.

“We’ve got to remember that Influencers are just normal people. They are not marketers, but generous communicators who can drive powerful industry shifts before they happen,” says Seary.

“In the end, influencers are probably a type of evangelist. At Procurious, we want you all to be evangelists for procurement.  You all have a role to play.

“We all have the ability to influence. It doesn’t matter which country, industry, age or stage you are – we all have a unique perspective. If we share this unique view, we can give others in our profession insights they may never have otherwise had.

“Your personal influence can make a world of difference.”

Share, share, SHARE!

Tania believes that procurement needs to share – share learnings, stories, experiences, and questions – in order to change the face of the profession.

And on Procurious, it’s clear to see that professionals are rising to the sharing challenge. The Discussion Forum is one of the most popular areas of the site, with nearly 1,000 visits per week. Nearly 1,000 questions have been posed, with members sharing their knowledge in over 4,500 answers.

Want to know the difference between a supplier and contractor? Or what’s the best route for professional accreditation? Or how about how to detect procurement fraud in your organisation? The Discussion board has all these topics are more for you to get your teeth into.

And as Tania speaks at conferences and events around the world, “share, share, share” is a message that she gets to deliver face-to-face too. This will be especially true during the Procurious Big Ideas 2017 series, being held across the year in 5 countries.

Language Matters

As the amount of procurement-related content grows exponentially around the world, we need to keep in mind that the language we use matters.

We know that the procurement and supply chain profession has struggled to overcome outdated stereotypes. Positive words and imagery can make a huge impact on how the people who make decisions in business see procurement.

Through Procurious and other social media channels, we can change the face of the profession from the inside out.

Ensuring your profile is picture perfect (and we have some great tips on Procurious) makes a big difference. It will also help to ensure that when you come to face-to-face meeting with peers, colleagues, and stakeholders, they are seeing the best of you.

So don’t just wait for things to happen! Take a leaf out of Tania’s book – get out there and connect with fellow professionals and share your stories. You never know where it will lead you!

What Tech Start-Ups Need to Know About M&A Deals

While M&A deals have decreased in 2016, broken deals are on the rise. So what do tech start-ups need to know before getting involved?

M&A rules

Christina Wojcik, vice president of legal services at Seal Software, breaks down the steps to consider throughout the M&A process.

With over $5 trillion in deals signed in 2015, it was a record breaking year for M&A activity. However, 2016 does not appear to be following suit.

Over the first eight months of this year global M&A dropped to $2.2 trillion with 28,720 deals. This is compared to $2.9 trillion with 30,894 deals at the same time last year.

In fact, 2016 appears to be a record year for broken deals instead. Between Brexit concerns and US anti-trust regulations, an increasing number of deals are breaking down before they become official.

The Unknown 

M&A deals are complex events that require overcoming a hefty number of obstacles. These include corporate governance, forms of payment, legal concerns, contractual issues, regulatory approval and tax issues.

It’s very challenging to fully assess and understand the kinds of contractual risks, restrictions, obligations, and exposure companies will take on after the deal is closed.

Uncovering this information requires many hours of manual contract review work from either a law firm or lower-cost legal service provider. Before they can even begin reviewing the documents, organisations first must find and centralise all the relevant contracts.

This may sound simple, but tracking down thousands of contracts, which have been created in varying formats, across different departments, and stored in various locations over the years, is an arduous and sometimes overwhelming undertaking.

The Real Work

Once all contractual documents are collected, the real workof extracting contract data begins. It’s vital that the data be useful before closing a deal. Legal teams must review a host of provisions, and not fully understanding assignment or change of control provisions can be especially detrimental to the dynamic of the acquisition.

If your contracts cannot be assigned, or if change of control triggers automatic termination for cause, the strategic value of the acquisition may be called into question. This can, in turn, lead to many hours of renegotiation.

In addition to assignment and change of control, here are a few more to consider:

  • Be aware: Auto-renewal

Many sales organisations work to negotiate auto-renewals and every procurement department dreads tracking auto-renewal provisions. If the goal is to terminate a contract within the specific notification period, you must know which contracts contain the provision and the window for cancellation.

A missed auto-renewal can result in hidden costs that most companies will not have considered. One of our customers, a large energy company, discovered they were auto-renewing a lease costing $400,000 per year on property they didn’t use, three years after a takeover.

  • No nonsense: Non-competes & non-solicits

Monetary damages can also occur if a company breaks a non-compete or non-solicit clause. It’s important to know whether contracts include these provisions, as a non-compete is a promise from both the buyer and seller to refrain from engaging in activities with competitors.

A non-solicit clause prohibits a company from trying to lure or hire the other company’s customers or employees. This is particularly relevant when two companies in the same industry merge, as many of each company’s existing customers or partners are likely competitors.

  • Identify: Indemnity

The acquiring company should clearly understand what the target company has agreed to indemnify. These limitations of liability can be very complex and should be heavily negotiated prior to closing an M&A deal.

These are often the most negotiated provisions and typically have cross-references which makes them especially difficult to fully comprehend.

Careful review of the indemnification provisions of each contract is needed to ensure that these provisions align with the combined entity’s indemnification standards and practices.

  • Limit: Unlimited liability

When startups are motivated to close a new deal, especially with big, recognisable brands, they will often accept potentially unacceptable provisions. This is commonly seen with limitation of liabilities. Accepting unlimited liability does not necessarily pose a large risk to a startup, because they have much less to lose.

However, it can pose a significant risk to established organisations with much higher exposure if they accept that unlimited liability. It becomes very important for the acquiring company to quickly identify contracts containing unlimited liability. They can then look to renegotiate, amend, or possibly terminate, the contract.

We worked with a software giant which bought a startup and discovered it had inherited numerous unlimited liability provisions. A small problem for the $1.5 million startup, but a much bigger problem for the $1 billion company.

The Silver Lining

As M&A activity increases, especially within the startup world, knowing what’s in contracts is more important than ever. Having easy access to and visibility into contracts data is essential.

Due to the time sensitivity on many M&A deals, and the manual labour often required to analyse contracts, most companies resort to sampling just a small portion of the target company’s contracts. They assume that if the sample passes the test, the rest will as well.

But, countless cases prove that this approach exposes the acquiring company with risk they had not anticipated. Luckily, current contract technology offers machine learning and natural language processing solutions.

This allows organisations going through the M&A process to streamline the due diligence process, to consolidate contracts, pinpoint and understand risk, and uncover vendor consolidation opportunities.

Contract Intelligence Can Reduce M&A Concerns

Contract intelligence solutions can also help to alleviate some of the M&A concerns companies have when it comes to Brexit. By gaining full insight into the terms impacted by the separation from the EU, such as governing law, currencies, and other commercial terms, companies may find that the merger, acquisition, spin-off, etc. will actually give them a competitive advantage or provide for growth.

By extracting metadata and clauses through a sophisticated search and analytics, businesses can quickly understand the risk and opportunities in those contracts and determine if there is still value to the deal. This will help facilitate closures with the added security of fully knowing what is being acquired.

So put away the extra water or paracetamol. By understanding contract terms, you’ll prevent the post-deal hangover that so many rushed deals result in.

Christina Wojcik leads the Legal Service Channels division, globally, at Seal Software. As VP of Legal Services, Christina engages with legal industry partners to create best-in-class solutions to meet the complex contractual needs of Fortune 1000 organisations.

Seal Software is a leading provider of contract discovery. It uses artificial intelligence and natural language processing to help companies efficiently uncover what’s in their contracts.

How to Change the Game with Sole Suppliers

Sole suppliers – you might think you’re stuck with them in procurement. But once you know the why, you can plan a change for the better.

sole suppliers change game

This article was first published on Future Proofitable. 

In the first part of this series, I discussed how sole supplier situations can occur. From monopolies, to high exit barriers and business attitudes, there are a number of reasons procurement might find itself in this situation.

But now we know how these occur, the question to ask is how we can do something about them.

Sole Suppliers – Can you do anything about it?

Definitely – yes. What you can do depends on what you are dealing with, and which stage in the process you are in.

1. Product Selection

If you can avoid buying the product in question, you should. You can also head off the sole sourcing situation by being involved in a process as early as possible. Making products in house is an option too.

You may also be able to find a provider who offers similar services or products, and convince them to adjust their offering to your requirements. Integrate vertically by buying your supplier and making them your internal provider.

2. Tender or Category Strategy Review

Assess the full lifecycle of the product or service. Analyse what, if any, additional costs are related to object you are purchasing.

Study alternative sources of supply, or look at the make vs. buy decision again. Even if you choose to buy, when the time comes to create negotiation leverage, you will have done half your homework already.

Choose the right way of buying. If it is possible, could you buy machines and servicing or maintenance separately? Or, on the other hand, could you bundle the products and service together?

Prepare a good contract in advance, and communicate it upfront. Build in price review mechanisms and no-penalty exit clauses. Alternatively, invest time in developing a full SLA, and ensuring this lasts for the whole relationship.

Share the information (technical, legal, commercial) early in the process with all suppliers. Cross-validate information and responses with specialists or 3rd party service providers. Finally, analyse proposals with the purpose of identifying “unique” solutions.

3. Analyse Sole Suppliers Business Needs and Decision Drivers

What time of the year is it and when does their financial year finish? Is there a reason to believe that tendering on a specific time frame might give you better or worse conditions?

  • Like buying grain just after new harvest data is clear and not based on assumptions
  • Or negotiating with software companies closer to their financial year end, when they are likely to be more aggressive with pricing.

Consider geographical aspects. If you are negotiating with a large multi-national, perform a market test of their pricing policy in different countries. You might be surprised that a branch, located somewhere further away from the central function would get a better group deal purely because of the location.

What sales strategy are they using? Are they more aggressive with the pricing of new solutions or new technology? Are they interested in growth? Market entry? Stopping their competitor entry? Can you invite someone new, who is not yet in the market? Does the size of the contract matter?

Do not forget to negotiate small value adding add-ons and other benefits to the contract. You can ‘sell’ positive references, feedback and referrals. You can help to reduce the supplier’s risks and become a better customer (implementing electronic ordering and invoicing tools, consolidating POs).

Or you could threaten them with moving to an alternative supplier, or bring one in.

4. Business Strategy

One thing to think about might be a change to your business strategy. Could you move the location of your HQ (for a critical product), or give up certain markets or products?

You could invest in in-house R&D, work with laboratories and universities. While doing this, educate business users. Challenge old ways of working, and help to eliminate all pseudo-sole suppliers.

Re-evaluate short term switching costs and compare them against long term business losses, if you decide (once again) not to change anything.

Should you do anything at all?

That is the question, too. The saying goes “nothing personal, just business”. Procurement should also be business oriented and invest its resources where they matter.

Should you start any project? Well, that depends. If this is something that you must do routinely (review a category or contract), you might consider how much time and effort to invest. And similarly, if the prize you are after is big enough, it’s probably worth spending time on it.

Based on the situation your business is in, you should perform opportunity analysis and evaluate your expectations. It’s not only about the size of the spend.

With sole suppliers, there is another level of complexity to be evaluated – the nature of the business situation. You can do this for single supplier situations, too.

For the categories mentioned above, approximate ratio of effort to success are shown in the graph below. Required effort is a relative number and can vary in units of measurement (days, weeks, months, people involved).

roe

It’s only one part of the equation in that it performs a sense check from Procurement’s perspective.

Weighing Dissatisfaction vs. Change

Another key part in projects like this is implementation. In many cases, it can (and will) end up in a change project. If you don’t want Procurement’s credibility to suffer, you must make sure that savings promised and savings achieved are as close as possible.

If the dissatisfaction with the sole supplier situation outweighs resistance to change, and if you have a plan on how to act, you increase the chances of success.

At the same time, it suggests what you can do if any side of the equation is not favourable. You can increase internal dissatisfaction among key stakeholders (clearly communicate risks and losses of the situation to finance people), or reduce resistance to the project (get the buy-in from engineering, technology, sales and other departments).

Is Your Technology Serving Up Greater Procurement Performance?

To what extent is your organisation using technology to improve the performance of procurement?

serving up procurement technology

Procurement’s adoption of technology has been surging in recent years, and it’s showing no signs of slowing down.

But what is the best way to transform the processes and performance of your Procurement organisation, while facing up to the need to restrict budgets and generally tighten up on spending?

Next week, Procurement professionals from all over Europe will gather in Amsterdam at ProcureCon IT Europe to discuss exactly that, as well as a host of other transformational topics.

In advance of the event, we asked 100 IT Procurement executives from some of the world’s largest organisations what they are doing to drive performance using technology. Here’s a preview of the results.

Procurement on Cloud 9

ProcureCon IT technology improvement

Technology is serving up Procurement teams with a wealth of tools with which to enhance their ability to add value to their business.  From social media to the cloud, automation and the Internet of Things, the list is growing ever longer.

Our research identified the cloud as one of the biggest areas of adoption today. Almost half of surveyed procurement organisations are already heavily invested, and a further 30 per cent are currently experimenting.

However, Procurement organisations will have to learn on their feet to get the most out of this new technology. Poorly implemented systems can end up being little more than expensive white elephants.

In addition, procurement professionals need to evaluate how to best implement transformational systems and processes, while reducing costs. One solution is to avoid hiring permanent new staff with the requisite skills, but instead to find strategic external technology partners who can manage the supply chain cloud on their behalf.

Adapting to these kinds of tectonic shifts in the procurement landscape is done best by the nimble. And to the victor will go the spoils.

The Future’s Bright, The Future’s Digital

Cloud technology is just one element of the digital transformation of procurement. Another important area of investment and focus for procurement teams is harnessing the power of big data.

More than 35 per cent of respondents to our survey are already heavily invested in big data, and more than half are currently experimenting. Going hand-in-hand with big data is spend analytics, another huge investment area for procurement organisations according to our research.

However, big data means different things to different people. Procurement’s approach needs to be moderated by a focus on desired outcomes.

Without a set of clear objectives, the insights offered by analytics will be limited and difficult to put into action. Once you have decided your goal, you’ll be better placed to select the ranges of data which are most appropriate.

Join Us at ProcureCon IT

ProcureCon IT is all about finding practical solutions to the challenges which IT procurement pros face on a daily basis. It’s the only truly peer-led conference of its kind in Europe.

Not only will you meet hundreds of people who are successfully taking their IT procurement technology strategy to the next level, but it’s also a superb opportunity to meet with some of the most innovative solution providers in the market place today.

To get industry-leading insight on the issues mentioned here, as well as lots more, join us on the 5th and 6th of December at the Mövenpick Hotel Amsterdam for ProcureCon IT.

Take a look at the full event agenda and download the research on procurement technology here.