All posts by Arnaud Malarde

Supplier Motivation, A Key Component of Supplier Management

Motivate your suppliers rather than merely manage them


As we have already seen in a former blog, enterprises often fail at maximizing the value of collaborating with smaller companies. Convinced that their sizes and brands will attract suppliers anyway, they entrench themselves behind the gates of rigid procurement processes. They miss the huge opportunity of co-innovating with these businesses, especially startups, by failing to take a differentiated approach. This multi-channel strategy tailored to suppliers’ capabilities is what differentiates best-in-class from a peer group as a report from The Hackett Group reveals.

On the other hand, let us not forget a wise piece of advice from Procurement Management expert, Natacha Trehan, in her keynote last year at Ivalua NOW –  every customer wants to collaborate with the best suppliers, which means that, eventually, the supplier chooses who they want to work with. This translates into a powerful lesson learned for Procurement: motivate your suppliers rather than merely manage them.

This is a method medium-size companies have already integrated in their supplier innovation strategy.

I was lucky to attend an inspirational presentation on the subject by Virginie Favray, Urgo Healthcare’s CPO, at a Procurement roundtable event, before the lockdown. Urgo is a leading international healthcare group which specializes in advanced wound care and self-care. Their €640m turnover qualifies them as a medium-size company, especially if you compare them to pharmaceutical giant Sanofi with its €35b revenue.

Even taking a cautious approach to comparing figures, I cannot help but notice that Urgo’s revenue growth rate is more than double some of its larger peers. Is a strong supplier innovation strategy the key to additional growth points? It certainly contributes and we will dig into Urgo’s methodology.

This methodology was new to most Procurement peers attending due to both its philosophy and the way it translated into concrete actions.

When it comes to the philosophy, Urgo decided to play a different tune compared to its larger peers. They cannot leverage the massive spend volumes that the pharmaceutical giants can. Additionally, if their brand awareness is strong in France, it has limited traction on international markets. That is why, the group fully plays the trust card.

How do you build such an asset and how does it turn into better innovation?

It all starts with building up a transparent relationship. What are they transparent about? They share Urgo’s business strategy, how it drives Procurement objectives and finally how strategic suppliers are valuable stakeholders of it. As I have often highlighted, there is a prerequisite for that to happen: Procurement practitioners must enlarge their focus to embrace the full strategy of their company, which often they do not. At Urgo, they do.

Establishing trust in a relationship is a safe place to start. However, it will not last long if no long-term relationship management is applied. This is something Urgo has perfectly understood. As most Procurement organizations do, they evaluate their suppliers. Nevertheless, they do not satisfy themselves with this one-way view. In fact, they ask suppliers to assess Procurement too. Due to this 360-degree assessment, their relationship trust index reaches high scores. The postulate here is that detecting and solving inevitable business frictions on a regular basis allows a healthier relationship on the long run.

In order to turn this healthy relationship into a thriving partnership, they have developed a supplier award program which recognizes suppliers’ efforts. In the HR realm, expressing gratitude is widely acknowledged as a powerful means to foster motivation. Why would it be different for suppliers? Each year, Urgo acknowledges three suppliers for direct and for indirect spend. They are rewarded with a “best supplier of the year” certificate, some Urgo products and a personal note from the CPO.

Once such a favorable environment has been set up, initiatives aiming at capturing co-innovation with suppliers can be implemented. Urgo employs a wide range of tools to do so.

First, they have a suggestion box concept for suppliers to submit. This is a method that is proving more and more efficient to boost innovation according to procurement consulting group AgileBuyer. On Urgo’s suggestion form, suppliers may recommend new products or improvements to existing ones. They must be as specific as possible about their idea (investment cost, timeline, potential savings…). If the idea generates savings, these are shared between Urgo and the supplier. Buyers receive about a thousand forms per year and commit themselves to responding in a reasonable period of time.

Second, every two years they organize a supplier-buyer speed dating event, focused on indirect spend. As a result of these encounters based on a specific theme, two or three new processes are designed. For example, last year’s topic was about digital marketing. They created a commercial through a crowdsourcing process instead of using traditional communication agencies. Indeed, some preparation is necessary before this innovation event: fifty new suppliers were sourced and only ten were selected for speed dating.

Third, they have an annual two-day innovation workshop which mixes stakeholders from Urgo as well as direct suppliers and even tier 2 and tier 3 suppliers. These workshops focus on specific topics that are prepared ahead to get the most of this workshop. Last year, sixty concepts emerged from the discussions which eventually shortlisted into three projects.

Finally, buyers also spend time on their strategic suppliers’ premises. This is not to discuss day to day operations or business or pain points but rather serve as a vehicle to discuss long term strategy, find synergies in situ and foster innovation ideas.

Obviously, this is not an approach you can replicate with every supplier you work with. This is why, Urgo applies a supplier attractivity matrix which identifies the partnerships they really want to nurture. Only strategic suppliers are part of this matrix. A supplier becomes strategic when it ranks high in a wide range of criteria: margin level, market share, supply chain criticality, procurement annual review score, ethics and innovation rating. Suppliers are then positioned against a second axis: the maturity of the relationship with Urgo. Combining these two filters brings to focus the suppliers that are core to the business and which innovation proposals can truly be beneficial.

All these are smart and actionable ideas which can easily be replicated into any large enterprise. Let’s get started!

Procurement: The Startup’s New Best Friend?

We looked in an earlier blog at the benefits for large businesses of working with start-ups and SMEs and how procurement could make a successful connection. Here we investigate why procurement often has difficulties with small businesses and examine SME-friendly procurement practices already in use in pioneering organisations.

Procurement doesn’t engage well with start-ups – why?

Procurement often gets in the way of establishing good relationships with innovative start-ups.

Major corporations seeking the next start-up to rejuvenate their business models are running innovation labs and incubators. Often, suppliers participate in the incubators. But the initiatives are rarely owned by procurement.

In fact, procurement often plays the bad-cop role, creating barriers to the onboarding of new and innovative suppliers, asking for endless compliance documents, ending the magic of the incubation.

Why does this happen? Procurement has expertise in the supplier market. Isn’t it the team best-placed in an organisation to unearth innovative gems?

One difficulty is that not all partnerships with start-ups go through the typical customer-supplier relationship. They might come in other forms like a joint venture, an equity investment or a licensing agreement. And these are traditionally not procurement’s area of expertise. They typically involve other teams from finance.

According to a survey by KPMG, collaborations involving equity (joint ventures, equity investments, acquisitions, etc.) comprise 40% of total collaborations. Customer-supplier relationships comprise only 24% and licensing 19% of the total. Therefore, it’s understandable that procurement does not take the lead in all cases.

But procurement remains an asset. It has a key role in identifying potential targets. What’s more, in those 24% of cases procurement should be on top of the customer-supplier partnerships with start-ups. That is largely not the case.

I can think of at least 3 reasons why.

3 reasons why procurement does not approach startup collaboration well

For one thing, procurement is often not sufficiently aligned with its company’s business. It lacks the understanding to find the next start-up or innovation to accelerate business.

To build relevant partnerships, procurement must grasp its company’s challenges and its future areas of development. It needs to get a broader view. It needs to see beyond the often narrow procurement lens.

This kind of mindset must be instilled by the Chief Procurement Officers themselves – even though business curiosity remains everyone’s duty. This is actually one of the main recommendations produced by Forrester in its Q1 2019 survey about the keys to a successful procurement transformation.

Second, procurement often lacks the time and resources to perform these tasks.

Its resources are too often consumed in labour-intensive activity that has lower added value – like gathering data from scattered legacy systems.

This is where having a powerful digital procurement platform that automates processes and enables actionable analytics is key. You free resources for new value-added tasks.

With such a tool, you could even afford to have somebody specifically in charge of supplier-enabled innovation.

A third and more general problem is that procurement processes are not designed to work effectively with new start-ups.

They tend to favour larger companies, especially under the dependency criteria or volume concentration strategies.

Let’s dig into this aspect of things.

Time frame. To start with, procurement and start-ups work within different time frames.

For start-ups, typical procurement qualification processes take too long. They often require browsing many documents, answering hundreds of questions and attaching several justification documents.

And start-ups often face these obligations before they know about the type of partnership and the benefits that are expected.

On the other hand, decision-making about a qualification process or a purchase order is too slow. Start-ups expect answers in days, not weeks.

Resources. Resources are scarce in start-ups.

Start-up employees often have many functions. They find it very time-consuming to deal with complex organisations with numerous specialised points of contact – one for bidding, one for contracting, one for ordering, one for invoicing, etc.

They want access to the real decision-maker.

Procurement cannot change a company’s complex organisation. However, it can define a single point of entry for start-ups: a person with a strong internal network in the organisation, a deep understanding of the organisational maze and the ability to grasp the particular challenges start-ups face – and how to solve them.

Checks and declarations. A supplier wanting to work with a large company typically has to pass several checks and tests.

This process is designed with bigger organisations in mind. The process includes checking dependency criteria, environmental charters, ethical declaration, quality labels and so on.

The solution here is: start simple. Use a non-disclosure agreement to ensure confidentiality, a letter of intent to ensure motivation and some intellectual property (IP) general rules in case any IP is built jointly.

Invoices. The main concern for start-ups about procurement processes is invoice payment.

Big corporations are often slow at paying supplier invoices. But cash is a matter of survival for start-ups.

This is a critical point in collaboration. Start-ups would rather get less money but get it faster.

This means that a company with an efficient source-to-pay process will definitely have a competitive advantage over its peers when it comes to working with innovative start-ups.

Good procurement practices already in use that are helping start-ups.

Here are good practices already implemented by some best-in-class procurement departments.

First, they have opened a gate for start-ups. Several procurement departments have created a dedicated start-up portal based on the Source-to-Pay solution they use. Some have even interfaced it with public start-up portals.

Second, they have adapted the contracting process to focus only on the essentials of a start-up collaboration. They avoid sending a hundred pages of standard contractual documents at an early stage.

For example, the process could evolve along with the incubation stages of the target that have been defined – for instance a non-disclosure agreement for ‘discovery’, data protection clauses for ‘incubating’ and proof of concept with formal description for ‘pilot’.

Third, they have speeded up decision-making. They have implemented shorter approval workflows for interactions with start-ups: contracts, orders, invoice and payment processing.

Next, they have set up accelerated payment terms. Making these the default for start-ups is a major part of speeding up the payment process.

Finally, they have appointed a dedicated contact person. She or he facilitates start-ups’ interactions with the organisation.  

So it’s well worth considering why your procurement department may be struggling to interact well with SMEs and start-ups. And looking at the SME-friendly practices already in use in some organisations can provide key inspiration for changes you can make.

For this reason we will take a more detailed look in part 2 of this blog at use cases from pioneering large companies.

For more information on how Ivalua can help you work better with SMEs, go to ivalua.com