All posts by Peter Smith

New Goals for Procurement – Driving Revenue Growth Through Supplier Collaboration

Procurement professionals need to think in more innovative ways about how we can drive competitive advantage and shareholder value for our organisations.

By Greg Epperson / Shutterstock

In my recent article, I talked about “the Art of Procurement”, and suggested that the time is right for procurement to move beyond our traditional focus on transactional improvement and basic cost reduction. Whilst remembering those are still important aspects of the role, we need to think in more innovative ways about how we can drive competitive advantage and shareholder value for our organisations.

Revenue growth is one key factor that determines shareholder value and organisational health generally. While profit is of course important, and the procurement goal of cost reduction plays a key role here, “you cannot cut your way to growth” (or ultimate success), as the saying goes. Growth is vital, and stock markets arguably value growth more than absolute profit levels or even margins.

So, firms can grow revenue through a variety of activities, for instance;

  • Finding new customers for existing products
  • Improving existing products (so the firm sells more)
  • Introducing new products – either totally “new”, or line / range extensions and additions
  • Improving the efficiency and effectiveness of sales and marketing activity

In every case here, it’s clear that procurement has a potential role to play. Even in terms of the “improved sales / marketing” route, there are possibilities – maybe procurement can work with the marketing team to find innovative suppliers in areas such as digital marketing? 

For one European bank, the capability of their internal procurement team has become a customer benefit that is winning new revenue.  Potential business customers – particularly small and medium sized firms who may not have much internal capability – are offered access to a set of procurement tools, templates and good practice guidance developed by the bank’s procurement team, who are also available for telephone consultation if the clients want that too. In a market where the core banking service on offer from every competitor is very similar, this has proved to be a differentiator that has won new business for the firm.

When it comes to improving existing products (or services), suppliers are often better placed than the business itself to identify opportunities. Procurement can really come into its own by supporting that supplier-driven innovation and improvement. But in many cases, it is not simply about identifying the innovation or improvement – it may well be that the firm gains revenue and advantage through the speed to market compared to the competition.  

That was highlighted in a recent webinar I enjoyed, which featured my old friend and ex-colleague Jason Busch of Spend Matters as well as KPMG and Ivalua. But the highlight was hearing from Mark Gursky, Director of the Procurement Center of Excellence at Meritor (a $4 billion global manufacturer of automotive components). He explained how procurement in that business was contributing towards ambitious targets for growth via new product launches.

The key was (and is) enabling more effective working between Meritor and key suppliers, who are supporting the drive for growth. That change in the whole working relationship between buyer and suppliers, needed to support Meritor’s goals, has itself been supported by technology (that’s where procurement technology firm Ivalua comes into the picture).

It struck me that the technology achieves two goals. First of all, to really make the most of what your suppliers can offer, you need to manage the basics of supplier management well. That means supplier master data management; spend and contract analytics; risk management and so on. Putting it simply, if you don’t have a grip on who your suppliers are, what they’re doing with you, where in your organisation they are already working, and how they are performing, then impressive sounding “supplier innovation programmes” will be built on sand.

Then, having got the foundations in place, technology can support the actual collaborative development work. Gursky talked about using the Ivalua platform to manage all the work between the firm and key suppliers. Information is captured in one place rather than emails flying around between lots of different people. Complex requirements can be quickly translated into bills of material, then suppliers can respond rapidly to requests and questions. Projects can be tracked, data and information exchanged securely between the parties, and outputs tracked and monitored via the platform. Information is easily shared, but proper controls are managed too, important when we’re talking about potentially innovative new products.

You can still access the webinar here to find out more about the Meritor story; it’s a great example of procurement looking beyond the norm, and really contributing to those wider goals such as revenue growth.  And at the Ivalua Now “Art of Procurement” conference next month, I’m expecting to hear more examples like that of procurement moving beyond our traditional heartland of cost control and transactional management.

You can book for that here, and join the firm, key clients such as Total, Suez and Deutsche Telekom (and me) in Paris for what should be a stimulating couple of days – maybe see you there!   

Ivalua are sponsoring today’s Big Ideas Summit in London. Sign up now as a digital delegate to follow all the action wherever you are in the world.  

The Science And The Art Of Procurement

As we move towards a new decade is the emphasis in the procurement world changing – are we going to see a new age, where the Art of Procurement comes to the fore?

By hidesy/ Shutterstock

Much of our focus in the last twenty years or so within the procurement profession and within our specific procurement functions has been on what we might call the “Science of Procurement”.

The huge growth in the use of technology has been the most visible part of that developing picture. Over the years, we have moved from the first spend analysis initiatives, laboriously building Excel-based “spend cubes”, through to today’s automated, cloud-based, AI-driven, integrated, holistic (add your own buzz-word here…)  procurement platform. Technology has radically changed procurement activities and procurement roles across virtually all our spheres of activity.

Outside the technology field, we have also seen “science” come to the fore in terms of codifying processes such as Category Management. There may be different models in use, but there is a pretty well-accepted logical methodology behind how organisations approach their management of major spend areas. Professionalisation of the function, logic and analysis has also extended into other areas, with a growth in relevant qualifications, all the way through to procurement and supply chain MBAs and even Doctorates.

But, as we move towards a new decade, perhaps the wind is shifting, and we may see a different focus in the next ten years.  Is the emphasis in the procurement world changing – and are we going to see a new age, where the Art of Procurement comes to the fore, alongside the scientific approaches?  I first saw this term used a few years ago by Philip Ideson, as a title for his website and excellent series of podcasts, and it feels like this may be an idea whose time has come.  

However, we would stress that doesn’t mean forgetting the science and (of course) the technology. After all, we’re only just beginning to see what AI and machine learning might do to revolutionise procurement and supply chain management; the possibilities are endless and hard to predict.

But we are also seeing increasing focus on issues such as;

  • how procurement can successfully influence, engage and collaborate with internal stakeholders to drive value;
  • procurement being asked to support development of unconventional business models that move beyond traditional buyer / seller (partnerships, JVs, large firms running start-up incubators, etc); and  
  • capturing and exploiting innovation from supply markets and individual suppliers becoming a top priority for organisations and therefore procurement functions.

When we look at that sort of activity, we can see that it is very different to the standard procurement processes – spend analysis, competitive sourcing, purchase to pay management. Now those core tasks and issues are not going to go away, and we would not want to suggest procurement leaders take their eyes off those particular balls or stop trying to execute this work as effectively as possible! But adoption of technology, automation, and best practice process is not the ultimate objective; it is a means to an end. 

The emerging strategic priorities for our organisations require different approaches from procurement, different skills sets amongst staff, and critical success factors such as creativity, flexibility, adaptability and even imagination really start to come into play. In addition, our expectations and requirements of technology must evolve as well, to support not just rapid deployment of standard best practices, but the ability to bring our best ideas to life and promote agility.

So, this talk of creativity, agility and innovation all starts sounding and feeling much more like “Art” rather than pure “Science”, and it is interesting to see that technology firm Ivalua has titled the Ivalua Now 2019 conferences this spring (in Chicago and Paris) the “Art of Procurement”.  To support that, the firm hopes to challenge the speakers to go beyond the usual “journey to best in class” descriptions and include their reflections on how procurement is embracing change in their organisations. How will procurement leaders contribute to generating real competitive advantage, to growing business revenues through innovation – supporting the top-line as well as the bottom line, as it were.

I’ve argued elsewhere that actually, if procurement doesn’t change and widen its scope, we in the profession may face existential issues of survival, as technology advances further. So, in our next two articles in this series, we’ll look at case studies that demonstrate the sort of innovative approaches procurement organisations are taking and how considering the Art of Procurement might secure our future. And finally, you can register for the Ivalua Paris event here if you want to participate in what should be a stimulating couple of days, from April 10th-12th.

Ivalua are sponsoring Big Ideas Summit London on March 14th. Sign up now as a digital delegate to follow the day’s action wherever you are in the world.