Still using cost as a primary criteria for supplier selection? Our latest webinar shares all the secrets you need for success.
Have you been tasked with running a selection process for a
new supplier but don’t know where to start?
Perhaps you’ve been using the same routine for years but feel it’s time
to freshen it up? Are the old ways just
not delivering the outcomes you need?
Here are five great take-aways from that discussion.
Supplier Selection – Get the Balance Right
Our panel reported that many organisations are not yet on a path that leads away a cost-driven focus. Tech tools that are available to help with future cost modelling mean procurement can go to the market with uncertainty about this type of risk reduced. When cost risk is managed this leaves the way clear for the road to value.
A great example quoted in the discussion was a utility contract. The focus was on value rather than cost. It led to costs being reduced and also meant a more sustainable outcome was delivered. This lowered usage and introduced measures to promote sustainability.
Can you introduce a selection process that balances cost, value and your organisation’s wider sustainability goals to select a supplier who is right for you?
Remember, One Size Doesn’t Fit All
Making sure a supplier is a good cultural fit for the organisation is a key requirement that all our panel members stressed. Think about the impact of a cultural misalignment on your organisation’s reputation or brand.
Cultures vary across the world and getting a cultural fit when you’ve got a global supply chain is hard. However, there are many things on which the buyer and supplier can agree. How about meeting with your supplier’s leadership team as part of the sourcing process? This would allow you to assess their management ethos to make sure that the cultural fit is there right from the start?
The unknown unknowns
Managing external factors and risks, particularly those that are not yet known, are something that supplier selection process is often expected to address. All panel members reported the challenge of grappling with the unknown unknowns in the current period of global upheaval and change.
The advent of technology-driven real time data is something panel members welcomed to manage supplier and supply chain risk. It’s also a great way to check and monitor supplier financial health.
Make use of the new tools that are available to ensure your organisation is prepared and have a backstop position to allow a response when situational or supplier risks change.
Be a customer of choice
When it came to the supplier-buyer relationship our panel had very clear advice. Whether we’re a supplier or a buyer, we’re all looking of a return on the investment in the relationship we’re about to have. Focus clearly on the outcomes both sides are trying to achieve.
Make sure you put yourself in the seat of your supplier’s sales director – how can a contract with your organisation provide a supplier with the opportunity for fair value earnings or a sustainable revenue stream?
Start the conversation
Changing the way your organisation selects suppliers will not happen overnight. When you’re engaging with stakeholders our panel advises you to talk in their terms not the language of procurement.
Will the change you’re proposing add value? Why will it improve customer experience? Why could it safeguard or improve reputation?
So, go ahead and pick one of the secrets that the webinar
panel shared as being critical factors for success and start that conversation with
the business today.
We are living in exponential times. While that fact makes it exceedingly exciting to be alive right now, it also comes with a lot of procurement related issues. Let’s examine a few facts, and see if you can realise where I am going with this:
In 1984, there were 1,000 internet capable devices.
By 1992, there were 1,000,000.
In 2008, there were 1,000,000,000.
Today it is estimated at 30,000,000,000.
Last year, 4 exabytes (4.0 x 10^18) of unique information was generated, which is more than the previous 5,000 years in total!
It is estimated that there will be 70 billion connected devices by 2025.
NTT Japan has successfully tested a fiber optic cable that pushes 14 trillion bits per second down a single strand of fiber
Technical obsolescence is accelerated with technologies becoming obsolesced in as little as 3 years!
The Exponential Risk in Your Tail Spend
Let’s talk about third-party risk management. In procurement we need to focus on getting the correct supplier/provider/adviser at the best total cost, delivering the right level of quality and service levels.
To most people, this means that we are living in exponential times. But to a procurement person it means “oh no, I need to look at all of my supplier relationships because of the possible threat of risk.” The issue with this logic is we don’t know what we don’t know. And that means we have probably done little to no research/cyber security/risk assessment on our tail spend, let alone on every supplier in our critical spend.
Most companies have entered into multi-year agreements with their critical spend suppliers. This is in an effort to secure the best total cost of ownership and allow ample time for their suppliers to retool, ramp up and to get to know them in order to meet their service and quality requirements.
Therefore, despite quarterly business reviews (QBRs), it can possibly be as long as one to 10 years since that contract and relationship has been assessed (if ever) for real third-party risks.
Getting to Grips with your Supply Chain
I speak with CPOs on a daily basis and every one of them admits that they do not have a perfect grasp of their third parties, let alone their fourth-, fifth- or sixth-level parties. When was the last time you asked a supplier (especially in the tail) if they ever subcontract? Or whether their third parties, or fourth, have been reviewed for cyber risk? Or any risk at all for that matter?
Do you know whether your fourth parties are using human slavery? If every device is updated for the latest virus check? Whether employees are charging their phones through their devices, or if they are permitted to insert USBs into their computers from an unknown source?
How do we know if our fourth-level parties have a proof of mining to avoid conflict minerals? When was the last time we even checked our own staff for complying with strong cybersecurity norms?
The Cyber Risks Within Your Organisation
Just recently at a convention for hackers, cables that looked like Lightning cables were modified with extra hardware that gave hackers remote access to devices. Here’s how they work:
“O.MG cables are indistinguishable from the real thing, and they even come with the iconic adhesive binding rings you’ll find wrapped around new Apple cables. The [modified] cables act normally, too, letting you charge your devices via USB or transfer files from your iOS devices.
Neither your PC nor your connected devices will ever notice that anything is amiss. Short of dissecting the cable to look for the extra hardware, the only way to detect that you’re using an O.MG cable is when you realize, after the fact, that your device was exploited.
And even if you happen to catch an attacker running a terminal window on your PC remotely, O.MG cables include a kill switch that disables the implanted hardware, thus destroying any possibility to track down the attack’s origins.”
‘These Dummy iOS Lightning Cables Let Hackers Remotely Access Your Devices’, Lifehacker, August 2019
Apple would have you believe that your iPhone is very secure, until you add your first app. For example, when traveling recently I downloaded an app to play Dominoes (the game, not the pizza). This is seemingly innocent, but since I was on a long flight, I actually read the privacy information.
Check out some of the following extracts from the Terms & Conditions and Privacy Information:
FM GAMES App is a gaming application that may utilise your personal data. You also consent to FM GAMES’s cookie policies, as described herein.
Types Of Data We Collect: We collect personal data and non-personal data about you.
Location and Distance Information: When you use the FM GAMES App, we will collect your location to determine your distance from other users (“Distance Information”) through the GPS, Wi-Fi, and/or cellular technology in your Device. Your last known location may be stored for the purpose of calculating Distance Information between you and other users.
Messages: When you send a message we may retain the message for archival purposes or as otherwise allowed by law.
Purchases: We collect information necessary to complete purchases. This may include, among other things, your name, credit card information, billing information, address, telephone number, and email address.
Third Party Service Providers: We may share your Personal Data with third party service providers
When I tried to turn off location services, this was not allowed, so I discarded the app. If this is the case with a gaming app for my phone, can you imagine the angst my home screen caused our IT folks?
Would you know if you had been hacked?
If I charge my phone through my computer, imagine what I am opening up for hackers to get to? How many of you reading this are using public Wi-Fi? What about Starbucks, or at the airport? Many of us will pass through at least one on the way to the Procurious Big Ideas event.
Did you connect to the seemingly innocent Wi-Fi? Would you know if you were hacked? If you haven’t heard about the reporter whose email was hacked on an airplane while using the airline app while working on a story about the FBI and Apple, take the time to do so.
The hacker read nearly everyone’s email on the plane. They then pulled the reporter aside when they landed to discuss the security, or lack thereof, of his phone while using public Wi-Fi, even if was at 35,000 feet.
The Fallability of Passwords
If this isn’t enough, consider what anyone can do with your passwords. Take for example my login for Amazon. If you were able to see my screen while I was logging in, this is what you could do.
Then, if in Chrome, right click and click on Inspect.
By merely highlighting the password and writing the word “text,” you will see my password. It is that easy if someone is “looking at your email” as you are logged in.
So, there you go. This is my Amazon password and I have now changed it since I wrote this post (but don’t tell my kids). This is the most basic level of cyber protection you can get, but even at a personal level with my own “research,” we are so out of our league, especially when dealing with technology obsolescence.
In the era of BYOD (bring your own device) who knows what your staff is exposing your company to. If we take this one level further to our third parties, who out there is doing the exact same thing and exposing their company to the same risks I just showed you?
So, while we are going to discuss third-party risk management in my session at The Big Ideas Summit, this is just the icing on the cake. If I am just one of the hundreds of contractors, imagine what damage I could be doing to your risk profile.
The Art of Third-Party Risk Management
So, the long and short of it, we are living in exponential times and it is time we paid clear attention to all of our third-party relationships (and their third parties, etc.) along our supply chains or we are destined to be in for a large risk event. It isn’t a matter of if, but when it will happen. If technology obsolescence is happening faster all the time, then we need to stay educated and alert, not paranoid.
To overcome these obstacles, we need to have an effective third-party relationship management and framework. Successful third-party management programs should focus on the four cornerstones approach: contract and performance management, risk management, financial management and communication management. The risk aspect of the relationship framework needs to be addressed for both critical and non-vendor relationships, along with non-critical vendors.
I recently took SIG University’s Third Party Risk Management Certification Program and was amazed to learn how much risk we are exposed to within our contracts and the need for a strong third-party relationship framework with a focus on risk. For a framework to be successful, it must have strong governance and approved by senior management.
As a result of the 2008 financial crisis, there has been a renewed focus on the role of board of directors, the composition of the board, capabilities, accountabilities, and responsibilities for prudent acceptance and management of risk. This renewed focus has made it much easier to focus on third-party risk and to get strong governance in place to mitigate risks.
The most important lesson to leave you with is that third-party risk management is an art, not a perfect science. Having a framework in place to address and mitigate risk, escalate issues and seek resolution is the key to making strategic procurement decisions.
Dawn Tiura is the CEO and President of SIG, SIG University and Future of Sourcing and has over 26 years’ leadership experience, with the past 22 years focused on the sourcing and outsourcing industry.
In 2007, Dawn joined SIG as CEO, but has been active in SIG as a speaker and trusted advisor since 1999, bringing the latest developments in sourcing and outsourcing to SIG members. Prior to joining SIG, Dawn held leadership positions as CEO of Denali Group and before that as a partner in a CPA firm. Dawn is actively involved on a number of boards promoting civic, health and children’s issues in the Jacksonville, Florida area.
She is a licensed CPA and has a BA from the University of Michigan and an MS in taxation from Golden Gate University. Dawn brings to SIG a culture of brainstorming and internal innovation.
Change all starts with one small step. But Big Ideas are great in helping us get our feet moving!
What happens when Australia’s biggest CPOs and procurement leaders gather in one room?
You get a flood of ground-breaking ideas that are bound to push our profession into an exciting new era.
The Big Ideas Summit Melbourne 2019 has wrapped after a day of thought-provoking speeches, lively discussions and the unforgettable sight of 120 procurement professionals hopping on one foot before their morning coffee. You probably had to be there to believe it, but it’s true.
A recurring theme throughout the day – both from our presenters and from the attendees themselves – was fun. Whether they were creating unusual networking opportunities, encouraging us to gamify our processes to make the mundane tasks more enjoyable, or reminding us that positivity was the secret to longevity, fun permeated this procurement event.
Our line-up of inspiring speakers spent the day continually challenging existing ideas and shifting the goalposts as we took a glimpse into the future. Here are five of the biggest ideas to come out of the Melbourne Big Ideas Summit this year:
1. Co-design is the essential skill needed to succeed in Industry X.0
Ben Tulloch, Managing Director at Accenture, lead us on a journey through the history of procurement. We’re standing on the cusp of Industry X.0. Soon we’ll be utilising the full force of advanced technology and challenging the ways we do business to become faster, smarter and better.
But what do procurement professionals need to focus on now to best utilise emerging technologies in the future? Co-design is the ability to actively involve all stakeholders in the problem-solving process, focusing on the user and pulling apart the problem to find the best answer.
2. Think with your head, but lead with your heart
We all know the three C’s of procurement: cost, control and compliance. But Henrik Smedberg from SAP Ariba believes we need to be aware of three new C’s: convenience, connectivity and conscience.
It’s time to move beyond just checking the boxes of legal compliance, and start using our hearts to think about the humans affected by problems like modern slavery.
But if administrative processes to monitor our supply chains are too difficult, they simply won’t happen. We need to utilise tech solutions to manage and automate our supplier risk administration. Only then can we have a more holistic view of our suppliers and be proactive about driving change.
3. Psychological safety is the number one factor in high performing teams
We’re at record high levels of anxiety in the workplace. When we’re under extreme stress our brains can only focus on getting the task in front of us done, making us lose our ability to think creatively, innovate and problem solve.
To counteract this and create high performing teams within our businesses, John Dare of Emotous believes we need to create a positive environment and foster a level of trust that will lead to psychological safety.
This is the common thread of high performance – the confidence to innovate, share ideas and take risks with the support of your team.
4. We need to give new starters support to agitate change
During their panel discussion, Billie Gorman of Accenture, CPO of the Year, Lisa Williams, and Future Leader in Procurement, Sapphire Loebler, tackled the issue of encouraging the next generation to drive change.
Ultimately, we need to give them room to operate, an opportunity to speak and the space to try new things. Whether they make mistakes or have success, there will be important learnings that will benefit the business going forward.
5. Agile procurement is a competitive advantage
Agility and flexibility are big news at the moment. It’s a trend that has crept in from software development into all facets of the business world and is increasingly becoming important in procurement.
Andrew Shaw, Enterprise Sales Manager at Felix, shared how agile frameworks can help to increase efficiency, simplify processes and shorten delivery times. Moving away from rigid plans make you more able to adapt to change – an increasingly important skill as the entire profession evolves exponentially.
The Big Ideas Fun isn’t Over Yet…
As an added bonus, our high-energy MC, Dean Gale from Phuel, reminded us of an important lesson for all procurement professionals: learning and growth comes from incremental changes and regular challenges. If we’re going to drive change within our company – and the wider world – it all starts with one small step.
Thank you to everyone who joined us in Melbourne and online – we can’t wait to see what ideas await us in Chicago on September 18th.
Did you miss out on Melbourne? Or can you just not get enough of the Big Ideas vibe? If you want to get more, more, more, there’s still time to register as a Digital Delegate for the Big Ideas Summit Chicago 2019. Even if you can’t be there in person, you can still be in the room. Find out more and sign up today here!
In 2013, UN member states officially adopted the 30th of July as the ‘World Day against Trafficking in Persons’. The aim of the day was to raise the profile of this critical issue, and “raise awareness of the situation of victims of human trafficking and for the promotion and protection of their rights.”
In September 2015, the same member states created new goals aligned with this agenda. The goals aimed to put in place measures to combat people trafficking, specifically to end trafficking of and violence against women and children.
In the simplest terms, it’s up to the individual organisations to take responsibility. Responsibility for their own operations. Responsibility for their suppliers. Even responsibility for the wider supply chains.
Modern Slavery and People Trafficking doesn’t stop with a tick-box exercise. Procurement needs to stand up and make a difference through its actions, rather than words. Under the Modern Slavery Act, any organisation with an annual turnover greater than £36 million must publish a statement on what they are doing to combat slavery in their supply chain.
Let’s look at public procurement in the first instance. (But don’t let that make you think private companies are off the hook. We’ll come back to this!)
Public procurement faces huge scrutiny and rightly so. According to reported figures, an estimated £220 billion worth of contracts were awarded in 2017 by the UK Government to private companies. (See, we did say this was coming.) However, in 2018 it was reported that 40 per cent of the Government’s top 100 suppliers by lifetime spend had failed to comply with Modern Slavery legislation on reporting.
Far from leading from the front, the UK Government was being criticised for continuing to award contracts to these organisations. Figures for the private sector are harder to come by, but we can assume that the same reporting issues exist there too.
Procurement’s Role in Reversing Fortunes
Compliance with legislation and reporting issues would be a good place to start. Beyond this it’s about creating a culture of responsibility throughout the supply chain. Openness, honesty and transparency are the hallmarks of a strong supply chain. This is what procurement must aim for as a minimum.
Tools such as blockchain and other technological advancements can provide key assistance. From here, procurement can move to open up data and shine lights on the dark corners of supply chains. By doing this, it helps to expose poor practices, undermine slavery operations and start making a real difference to those in need.
The final thing to remember is not to do this in isolation. True, each organisation has individual responsibility. But as with many procurement progressions, collaboration and communication are key. The whole is greater than the sum of the parts. Organisations face common challenges, so they should be able to come up with common solutions.
Shared expertise is the way forward and the path to procuring with purpose. Let’s finally put an end to modern slavery and people trafficking. You can take the first steps now.
Procure with Purpose
Procurious have partnered with SAP Ariba to create a global online group – Procure with Purpose.
Through Procure with Purpose, we’re shining a light on the biggest issues – from Modern Slavery and People Trafficking to Minority Owned Business, and from Social Enterprises to Environmental Sustainability.
Traditional procurement roles will perish if significant progress isn’t made. But how can the profession progress enough to deliver true value?
By Ben Tulloch, Managing Director at Accenture
Ask any business executive in Australia how procurement has made their life easier, and they’re more likely to tell you that it’s been a roadblock.
Despite the profession’s brilliant minds, appetite for improvement, and advanced solutions from AI to blockchain and beyond, only 20 per cent of procurement tech projects down under prove successful. The issue, it seems, is something more deep-seated. The modern Australian enterprise is not geared for rapid evolution.
By the time Aussie companies have dedicated years of effort and distraction to available solutions, the market has advanced beyond recognition. What we really need is the ability to rapidly prototype and test ideas, implement them at scale and do it all again next month.
A lack of agile skills has left Australia lagging behind the EU and US. In fact, we’re probably at a 3/10 in terms of our capabilities and maturity, still using procurement tech and processes that harken to the 1970s. As we’re so late in implementing the basics, how can we even begin to place ourselves ahead of the curve?
Progress: The role of the traditional procurement manager will perish if it doesn’t change
There’s a fearmongered risk that jobs will be lost to advanced technologies. At some level, that’s correct: if a theatre nurse implemented AI to predict, trigger and record stock orders in the blockchain, they wipe out the P2P function of procurement. But this doesn’t spell disaster, it opens up new opportunities for growth.
If we can remove the administrative element of the job, procurement professionals can progress from a traditional role and take a more strategic view, rather than just buying stuff. They can leave a legacy and make a tangible difference – socially, environmentally and economically. For example, readily available blockchain solutions have the ability to eradicate modern slavery by providing ultimate transparency across supply chains.
But the skills needed to run a digital control tower or AI stock predictor are different. We’re going to need system integrators, program managers, design thinkers, full-stack engineers, mathematicians and AI experts. How do you rapidly shift engrained national mindsets – quickly and cheaply? A culture of co-design, ecosystem partners and using the success of tangible use cases to build trust are key.
‘Design Thinking’ is the Next Step
One of Accenture’s government clients had small armies of people trying (and failing) to keep up with updating pricing lists. Place an order, and it was most likely attached to the wrong stock number. As a result, buyers lost trust in suppliers and vice versa.
Now imagine if those master pricing lists were housed on the blockchain – transparent, secure and updated in real time? That technology exists, it’s cheap and takes only weeks to implement. But this isn’t a tech problem, it’s a change problem.
In the startup ecosystem, design thinking is in their DNA. Even three months is considered a long time, and products evolve continuously to keep up with market changes. These newer generations of Australian innovators would laugh our outdated tech and processes out the room, instead turning to a slick new app or platform that can be pushed to market within weeks.
But if procurement brought a startup solution to the CMO of a large Australian enterprise, it would likely be met with, “they’re not on our preferred supplier list.”
The Business Case for Innovation
The return on investment for agile solutions is not only profound, it’s immediate. We’ve been working with a major airline in Australia on using AI to predict, prioritise and elevate invoices for large suppliers, and manage changes in very complex supply chain relationships. In doing so, they’ve removed all paper processes, increased transparency, and seen a significant ROI in only three months.
Another major telco client has been tackling customer service with an omnichannel conversational platform that can replicate complex human conversation, comprehend voice, text and multiple trains of thoughts – not just spit out an answer to a direct question. Within months, the bot has compressed contract changes from 3.5 days to 8 minutes. This relatively inexpensive solution has potential solutions for the entire procurement profession.
The best part is that the platform was in live testing by week three. That’s on a live contract with live scaling and live data, three weeks after the idea was suggested. That’s design thinking in action.
The Art of the Impossible
Showcasing the impossible is powerful. If I utter the word ‘blockchain’ to an old-school Australian organisation, they’re likely to palm it off as a futuristic dream. But show them a functional, cheap and efficient blockchain contract in action and they’ll get it. Demystify advanced technology for your workforce, and take the objection off the table.
Collaborate with industry partners to forge a path forward that benefits everyone – not just your company. Start with the problem, and isolate solutions. Sure, there are technical and personal risks involved in evolution. But there are risks with everything in business. Not every idea has to be rolled out permanently across your entire enterprise. But not taking steps towards the future is the biggest risk of all.
At this month’s Big Ideas Summit, procurement professionals will be coming together to understand, challenge and solve the profession’s biggest problems. I’ll be speaking to the power of design thinking in facing the future of procurement, and how an “Industry X.0” mindset can pave the way forward.
The bottom line is that if you do nothing, people will find their way around you. The best way forward is to recognise that you’re not alone – Australia lags behind with you – and then get on the front foot and be ready to progress.
Traditionally, when organisations have discussed supply chain visibility, the focus has very much been on the downstream. Why? Because common thinking is that the customer is king. And, as downstream visibility focuses on the customer, it is the first, and sometimes only, priority.
This has in turn given credence to the biggest myth about supply chain visibility, which is that downstream visibility is more important than upstream visibility. It’s high time this myth was busted, because this belief has a very narrow focus, and is not truly reflective of modern supply chain thinking. The truth is that upstream visibility is just as important as downstream visibility. Why? Because a lack of upstream visibility is just as likely to impact your customer.
Supply Chain Visibility – Upstream vs. Downstream
Before we get any further, let’s make sure to clarify some basic definitions.
Downstream visibility is a clear understanding of exactly how your products are moving down to your customer. Basically, it covers all the processes and actions that are involved in getting your finished product from your warehouse into the hands of the end user.
Upstream visibility, on the other hand, is a clear understanding of exactly how all the parts required to make your product are moving down through to your organisation. From a supply chain perspective, this covers all the processes and actions involved in getting what you need to create the finished product.
You might also occasionally hear the term “midstream visibility” to refer to what’s happening in production. From a supply chain perspective, these processes are often amalgamated into the category of downstream visibility.
Together, upstream visibility and downstream visibility combine to create end-to-end supply chain visibility.
Too Much Downstream Focus?
Let’s say, for example, that your company manufactures cameras. You need to make sure that you have full visibility of what’s happening when a camera is moving from your warehouse to your customer. Right from final testing right through to delivery to the store.
There are several processes that are available to organisations in order to track and improve downstream visibility. Depending on the complexity of the product in question, this can range from optimization of transportation and warehouse logistics and unifying ERP systems, to creating digital twins of their production, and more.
If your organisation is already looking at these kinds of projects, well done. But if downstream visibility is your only focus, you’re only doing half the job.
Without upstream visibility, you run the risk of not getting the parts you need to build your product. How are you going to get your cameras into the hands of your customers if you can’t build them in the first place? This is why upstream visibility is just as crucial as downstream visibility.
Upstream – Just around the Riverbend
So how do you get upstream visibility? A supply chain risk management programme is a crucial first step. If you’re not monitoring your suppliers (not to mention your supply paths, your own sites and your second and third tier suppliers too) for events that are going to impact them, then you have virtually no upstream visibility.
Here’s where you should start:
• In procurement: Your procurement department owns the relationship with suppliers. The department needs to have access to data allowing for all the necessary insight into any type of risk affecting your supply chain, both upstream and downstream.
• In your supplier sub-tiers: According to the Business Continuity Institute, most supply chain disruptions occur below tier one, where visibility can be even harder. You need visibility into not just your tier-one suppliers, but of all your sub-tiers. This is where good tier-one supplier relationships are key.
• With your major logistics hubs: What major logistics hubs are your supplies and your products going through? Do any of these areas represent bottlenecks? And are you aware of events there that might impact your supply paths? If not, you’re not going to be able to effectively mitigate threats.
• Your own warehouses and distribution centres: You need to monitor your own sites as much as you need to monitor your suppliers. Creating good communication lines and relationships with internal stakeholders is going to help here. The people on the ground will know best if issues are on the horizon, and then you can collectively work to implement actions and processes to prevent, or at least mitigate, them.
The supply chain visibility conversation is an important one to have in any organisation that has a supply chain. But if you’re focused on just downstream visibility, you’re missing half of the equation. And this could ultimately be the difference between success and failure.
Myth = Busted!
Find out more about upstream and downstream visibility, as well as Supply Chain Risk Management software, with Big Ideas Summit sponsor, riskmethods, here.
What critical factors do you look for in your suppliers? What does an organisation have to offer to get their foot in your door?
When you think of procurement, and get beyond the savings agenda, then the first thing that comes to mind is managing suppliers. While employees may be the life-blood of an organisation, suppliers are definitely the nourishment and support that keep organisations alive.
Without suppliers and their extended supply chains, organisations wouldn’t have any raw materials to make into products, any products to sell, or anyone to deliver much-needed services. That’s why a good supplier relationship (or relationships) can be critical to your daily operations.
However, one bad apple, one flawed contractors could not only stop the seamless functioning of your supply chain. It could also harm those two vital elements for all businesses – trust and reputation.
Your Critical Factors
If supplier relationships are key, then surely procurement should be taking its time selecting the right ones. And given the importance of this, procurement also needs to be applying the right ‘critical factors’ when selecting their suppliers.
As has been discussed in the past on Procurious, there are a number of factors that must be considered when selecting suppliers. The only issue is that these don’t appear to have changed very much over the years, begging the question – is procurement doing everything it can to adapt these criteria in line with the external environment?
Sure, it’s high time that procurement was looking past the traditional criteria of cost and quality when making their assessments. But the truth is, there’s no getting away from them.
However, this isn’t necessarily a bad thing if they aren’t the only factors in the equation. As procurement professionals, you are probably only too aware of the myriad of other factors that you need to be accounting for, from cultural fit and financial stability, all the way through to ethics and sustainability.
So which are the critical factors that procurement should be using? Is there a list that we should all be looking at?
Join our Webinar
Help is at hand in the form of Procurious and Ivalua’s latest webinar, ‘Critical Factors for Selecting your Suppliers’.
Sign up now to join our panel of experts at 11am (BST) on Tuesday the 3rd of September:
Tania Seary, Founder, Procurious
Stephen Carter, Senior Marketing Manager, Ivalua
Fred Nijffels, Accenture Operations ANZ – Procurement & Supply Chain
Gordon Tytler, Director of Procurement, Rolls Royce
In the webinar, you’ll hear from a panel of experts on a range of topics including:
The importance of cultural fit in your supplier relationships;
If sustainability, social value and fair working practices are becoming more prominent for procurement;
What your suppliers are looking for in your organisation; and
How to start the conversation in your organisation to move away from just cost and quality criteria.
Is the Critical Factors webinar available to anyone?
Absolutely! Anyone & everyone can register for the webinar and it won’t cost you a penny to do so. Simply sign up here.
Help – I can’t make it to the live-stream of the webinar!
No problem! If you can’t make the live-stream you can catch up whenever it suits you. We’ll be making it available on Procurious soon after the event (and will be sure to send you a link) so you can listen at your leisure!
Can I ask the speakers a question during the Critical Factors For Selecting Your Suppliers webinar?
If you’d like to ask one of our speakers a question please submit it via the Discussion Board on Procurious and we’ll do our very best to ensure it gets answered for you.
Don’t Miss Out!
This webinar promises to provide a fascinating insight for all procurement professionals into the Critical Factors you should be considering in supplier selection.
Bringing it all together by bringing Intelligent Spend Management to the business.
If you’re just buying office supplies, you’ve probably got a good idea what you’re spending on paper and pens. But odds are your budget goes beyond a few reams of ultra-white printer stock. And while you are specifically tasked with procurement, you actually help hold the reins and hold influence on multiple categories of spend — from direct and indirect goods, to services, contingent labour — even T&E.
True, this spending is spread out across your organisation and, yes, in many of these categories, spending is more decentralised than ever with employees all over the company buying what they need when they need it. And, it’s true that all of this spending and all of these categories aren’t even in your charge.
However, the business needs you to help bring all that spend under control across all those categories, so you can not only reduce costs, but also help your company:
Manage supplier performance holistically
Diminish delivery and reputation risks across the board
Improve compliance and enforce purchasing policies equally in all categories
Increase productivity across procurement and throughout the entire company
Organisations are expecting this and more from procurement.
They want you to collaborate with finance and supply-chain leaders and address spend management across the business.
They’re expecting you to bring more spend categories under control, to unify how you manage suppliers across all categories, and to help bring direct and indirect spending together with services and T&E to increase visibility into all your spend.
They want more, and there’s an easy way to deliver and manage every source and every category of spend in delivering one, unified view.
Unfortunately, the systems most businesses use to manage all of these different spend processes can create barriers between spend categories and keep people from working together. Intelligent Spend Management, on the other hand, is a strategy designed to bring those barriers down, so you can get visibility into and control over each and every area of spend. In one place.
Why Intelligent Spend Management Matters
Intelligent Spend Management means comprehensive policy and supplier management. This gives you oversight over indirect and direct suppliers while bringing that same level of discipline to services/external workforce suppliers as well as key travel suppliers.
And, integrated with your ERP system, an Intelligent Spend Management solution creates a common set of spend data — a hub where you can unify and clarify the information. You’ll also be able to:
Capture and centralise once-invisible spend like p-card transactions, non-PO invoices and direct travel bookings that used to slip through the cracks in your systems
Apply sourcing best practices consistently to all of your suppliers across all categories
Centrally manage supplier risk as well as tax and other regulatory requirements
It brings you best-in-class control of each spend category. This means you can manage the entire procure-to-pay process for direct and indirect expenses from a single solution. Imagine being able to:
Deliver a guided user experience that makes it easy to follow policy
Give users a simple way to make procurement requests, plus tactical purchases directly from suppliers
Ensure the suppliers you source, the prices you negotiate and the terms you establish are pulled through right to the point of purchase, so policy compliance becomes everyday practice
Capture data from across the process and use AI and machine learning to automate mundane tasks and serve up insight-driven recommendations at critical decision points
Strengthen supplier relationships and, ultimately, get more innovation from suppliers to improve how you work and what you deliver
And you can bring that same level of precision, efficiency and user experience for services, your external workforce – and the same level of control.
Presenting a Unified View
You get a unified view of spend. The Intelligent Spend Management solution connects procurement spend data with data from across spend categories, giving you a single, near-real-time view — without having to piece together reports from disparate systems.
This means you, your friends in finance and your supply-chain peers can see where every bit of your budget is going, and help the organisation:
Ensure that all spending is in line with corporate policy and priorities
Get up-to-date views into your KPIs, so you can adapt accordingly
Manage discretionary employee spend before it gets away from you
Feed this spend data back into supplier management and fuel stronger negotiations
Intelligent Spend Management breaks down the silos, so companies can control spend across the board.
This is about procurement, but it isn’t simply for procurement. Intelligent Spend Management enables you to work across categories and bring all the data together — so you can bring confidence to your company by bringing certainty to your spending.
This article was written for Procurious by Drew Hofler, VP of Portfolio Marketing for SAP Ariba & SAP Fieldglass.
The US escalating a trade war with China by imposing additional tariffs on Chinese goods. The ongoing debacle of European trade policies over Brexit. The perennial Middle East crisis over oil. 2019 has not been easy for global businesses and their procurement professionals.
But given that it is only one-quarter of the exhaustion, could we benefit from an expert’s insights and frame strategies such that procurement can navigate successfully through the rest of the waters?
Sure! Zycus got in touch with the CEO & President of SIG, Dawn Tiura soliciting her point-of-view on how procurement professionals can navigate through the uncertain times ahead. Dawn, a former partner in a CPA firm, focused on early-stage Silicon Valley enterprises and high wealth individuals, kindly agreed to explain her actionable list of do’s and don’ts that every Procurement leader can benefit from.
Zycus: What elements should be central to our conversation on procurement in the coming year?
Dawn: One of
the important conversations that procurement teams all over the world should
reflect on at the moment is their understanding that every dollar-saved might
not directly translate into company’s eventual revenue objective but they do
improve the bottom line when the focus is consistent. We have the unique
ability to impact not only bottom-line savings but also top-line growth. We
have insight into all lines of business as they are making decisions, not in
the rearview mirror. And, we have relationships with suppliers who are incented
to bring innovation to us. If that is not enough, why not use equivalent
revenue? That will get the attention of the CFO, CEO, and Board.
Zycus: Most organizations majorly use hard dollar savings
as the primary parameter to measure procurement and sourcing performance. Would
it be safe to say it is a dated method of measuring current performance?
Dawn: Absolutely. We have to stop using savings as our sole barometer for measurement. Let’s look at an example:
The spend of an organization is $500 million; the cost avoidance from sourcing efforts at 12% comes to $60 million. Net profit margin is 7.5%. The equivalent revenue to generate the same value from sourcing efforts is $800 million (or $60 million divided by 7.5%)
The amount of energy required by the company to generate
$800 million in revenue is massive and clearly understood by all members of the
C-suite. Therefore, reporting results in terms of “equivalent revenue” instead
of “savings” positions the sourcing organization in a more impactful and
While you would assume that others will make this
calculation and realize this is the case, they don’t, or can’t make the analogy
to give us the credit we deserve. We must step up and change the dialogue to
get the respect we have earned.
(Read Dawn’s complete blog that talks about this issue
and a lot of others here)
Zycus: So the first focus of a procurement and sourcing
professional is getting the C-Suite to shift focus from savings to equivalent
revenue, what would you say would feature next in their “things to keep in
Dawn: Third party risks. Procurement and Sourcing professionals should be
particularly mindful about these threats and therefore should have a foresight
aided by technology that would mitigate the potential of loss. A take charge
approach towards risks is what the current environment demands. Procurement and
sourcing teams all over are responsible for managing goals and key relationships
for the organization. It becomes vital for them to work on these objectives
while taking into consideration the various risks they might be exposed to.
Strategical planning and readiness will help not only tackle these risks better
but also ensure the routine operations and performance doesn’t get disrupted.
Zycus: From what we’ve seen, these discussions seem much
underrated, what can organizations do to ingrain this line of thought across
make a valid point. However, that is changing. Organizations are becoming more
mindful that this change in mindset is long due, and they need to adapt. This
is why we’re seeing more and more people investing in education and
certifications, so they have the necessary skillset to tackle these changes better.
Zycus: Artificial Intelligence has created a lot of buzz.
How do you think that is changing procurement today.
is a breakthrough using Artificial Intelligence to manage risks in tail spend.
A lot of companies are still new to the idea of AI, but the use of AI will be a
Zycus: Gartner’ predicts, “By 2022, 75% of all B2B tail
spend goods will be purchased in an online marketplace.” Do you agree with
As legacy systems continue to phase out, it is only AI that can redeem
procurement an improved balance sheet.
Another aspect of change that people might miss out on is
accounting regulations changing concerning leases and procurement people need
to be aware of the changes and impact on their companies. While the
implementation of the new lease accounting guidance will fall within the
accounting department, procurement needs to be a part of this review to provide
its perspective on any proposed changes to agreements and to do the
Zycus: Moving forward, one thing that has always been a
concern is how procurement can have a facelift from being a more tactical
function to a strategic one. So what steps would you recommend teams take for
this significant makeover?
strategic mindset is crucial to this rebranding of procurement. This transition
is what will make other functions value procurement’s take on importing
sourcing decisions. For this procurement, professionals need to be all eyes on
various risks and opportunities. Professionals must be mindful of changing
technologies. They need to prepare for it with certification in third party
risk management and sourcing professional’s coursework.
Procurement and sourcing teams should consistently
measure their contribution to the enterprise. An excellent way to measure one’s
impact on to company’s strategic objectives would be to create a chart that
cascades from the top management down to the business units, and how at each
phase, the person has contributed to every success. On this note report from
the Hackett Group also states, “This is a unique time for procurement
organizations. Never before have companies been able to derive more competitive
advantage from superior procurement capability. The function’s role is shifting
from a sourcing gatekeeper to a provider of insight and decision support, made
possible by improved access to digital technologies, data, and advanced
analytics. World-class procurement organizations consistently get better
results with 29% fewer (but higher-paid) FTEs per billion dollars of spend.”
Zycus: One parameter to measure overall procurement
impact would be to track contribution in top-level business objectives, what do
you think could be other benchmarks procurement teams could use to measure
to, as proactive procurement practitioners, change how savings from procurement
is measured. “Equivalent revenue,” the term will not only consist of hard
dollar savings but elements like savings through cost avoidance. Anything that
impacts the bottom line and contributes to growth counts!
Another common and useful benchmark used to measure
performance is FTEs. The number of full-time equivalent employees (FTEs) needed
to perform a process, or a group of processes is one way to gauge process
efficiency. The fewer FTEs required to process purchases, the higher the
efficiency and the lower the overall cost of the procurement cycle. However,
consider only those who formally report into the procurement organization.
FTEs are employees who devote all or part of their jobs
to sourcing activities, and they should factor into the measurement. Meaning,
if a non-procurement employee spends a portion of his time to procurement or
sourcing activities, he or she is a partial FTE. Their effort will also
eventually add up to that of full-time employees.
Zycus: My last question to you is, what are three things procurement should start/stop doing this year?
first thing that Procurement professionals must stop is being transactional and
writing checks. The second to stop would be to keep talking about savings over
everything else, while the last one would be to learn to communicate in the
language of the CFO.
Our Conclusion from the interview
A seemingly strong inference that can be drawn from this
interaction is Procurement’s transition from a transactional to a strategic
function. This shift in approach has been a necessity for some time now;
statements from subject matter experts and veterans advising Procurement
professionals advising alignment of goals and their measurement, to learn the
language of a CFO instead of focusing on operational goals, go to show how
vital that shift is now.
At the Big Ideas Summit 2019, Justin Sadler-Smith, Head of UK & Ireland, Procurement & Supply Chain at SAP Ariba shared his view of procurement in an insightful and thought-provoking presentation.
Among the issues that Justin talked about was an ever-decreasing time for procurement to react to the changing market environment and put actionable strategies in place. Because if procurement isn’t fit for purpose, not delivering against stakeholder expectations, then there is the potential for huge, negative impact from a brand and shareholder perspective.
There is a whole mix of uncertainties which are causing people to reassess how they are doing business and then ultimately doing it in a different way. Organisations, and procurement as part of them, need to be looking at what we are doing tomorrow and reinvent ourselves to become more competitive than they have been in the past.
As part of this Justin talked about an issue that is fast becoming a key for procurement to take account of and account for in its day-to-day operations. And that is leaving behind a positive legacy. Here is Justin explaining it in his own words:
Faster Reactions, Greater Purpose
When it comes to procuring with purpose, procurement professionals around the world need to be able to react quicker to changes in order to set the foundation for the legacy we should all be leaving behind.
Justin argued during his presentation that it’s almost as if procurement is in a race. In simple terms, those who are fastest to react, fastest to respond to changing demands are those who will win. It might not even be procurement who are the ones triumphing in the race, and that could spell the end for procurement as we know it.
The issue here is that many procurement professionals just haven’t been trained to do this. Without adequate training, much like an Olympic athlete, or Tour de France rider, there is no chance of being able to meet these demands and deliver what is required.
How do procurement professionals get trained up then? There’s no use knowing that there is a need to change unless there is willingness to do so, as well as more support to implement it.
Help is at hand, however, from an unexpected source. When Sir David Brailsford became Performance Director at British Cycling, he came up with the idea of breaking down the individual aspects of a race and then improving them one by one. The notion of ‘marginal gains’, was that a number of small, 1 per cent, improvements would collectively add up to a major competitive advantage.
It was this thinking that helped British Cycling dominate on the track at successive Olympic Games between 2004 and 2012, and then Team Sky/Ineos win seven of the last either Tours de France (not to mention other events and Grand Tours).
How then do we take this concept and apply it to procurement? Justin has shared his thoughts on this, helpfully broken down into five key areas.
Marginal Gains in Procurement
Data – Where is data stored within your organisation and how easy is it for you to get it? How is HR data incorporated in your function? You need to look after people – those who own the data – as this is the life-blood of the organisation and you need to make the breadth and depth of your data valuable and usable.
Productivity – procurement can drive this in an organisation by looking at different areas of automation that probably haven’t been looked at before. For example, how many people are really looking at AI as a way to change their organisation, without worrying about the spectre of job losses?
Innovation – this is the concept of co-innovation by working in collaboration with suppliers to building differentiation. For this you need to get closer to your supplier base and remove any barriers to working closely with the right suppliers.
Purpose – what do we mean by purpose? It’s the idea of driving social responsibility through supply chains at multiple levels. This is well beyond a tick box exercise now – it’s a must for good business as well as for making a better world. The idea runs beyond risk mitigation and focuses more on building value through sustainability.
Well-being – people are living in a much more stressful period globally. However, by driving these needs and having a purpose, it can change the game when it comes to how people operate and feel. For procurement, this means attracting, retaining and caring for their top talent and nurturing their people.