All posts by Vishal Patel

A Rare Opportunity To Reset And Accelerate

Will businesses go backwards due to necessity and survival or will they step up and push forward to go further and faster to achieve the right balance?


Many of us are in a post-covid state of mind, I most certainly am. But will you and your organisations come out of this stronger, weaker or just different? Of course, the crisis is still very much real, affecting many people and businesses with long-lasting effects.  Perhaps there are slight signs of a slow down in certain parts of the world but who really knows how things will fare without a vaccine. Either way, we have to overcome this and look towards the new normal, which I believe can be a better one.

The pandemic is surely one of the greatest affecting the world and for many it has or will be a pivotal turning point. On the personal side, it may bring focus back to the things that really matter, be it family and friends or health and lifestyle. Or, it may send you down a new path. On the business side, it may question the raison d’être and bring focus to finding the right balance between society, the environment and the economy. From certain perspectives, the pandemic presents businesses a rare opportunity to accelerate on digital transformation initiatives that have been dragging over the last few years. Not for the sake of digital transformation but rather to rapidly ensure more resiliency and hone in on or further develop competitive advantages.

Who better to bring balance, build resilience and solidify competitive advantages than Procurement and Supply Chain.

Balancing the Imbalanced

Until recently it would have been fair to say that most businesses operated in an imbalanced manner with regard to society, the environment and the economy. With the main focus being on economic development, too often at the cost of society and the environment. Of course, there have been big strides made in recent years to balance this out but the big question is – What Happens Next?

This is a pivotal point. Will businesses go backwards due to necessity and survival or will they step up and push forward to go further and faster to achieve the right balance? I do hope it’s the latter and guess what, I believe Procurement is a key player in this. How you spend can transform your business and beyond. Where a business directs its spend can make the difference between an unsustainable imbalance and a sustainable balance to develop society, the environment and the economy equally. I strongly believe (and hope) we’ll see more and more organizations taking a stronger stance on this issue. Be it stronger support or stricter policies around supplier management for sustainability and diversity or more efforts to improve the communities involved in and around a business. Overall, Procurement organisations can influence entire ecosystems of suppliers to develop with this balance in mind.

Building Resilience

Resiliency has always been an important business strength but naturally during times of crises, there is more focus on this. For Procurement and Supply Chain leaders, while this is very likely not a foreign concept, it is likely that they have not had the opportunity to fully execute on a strategy to be more resilient to external events. This is the opportunity to show real business value. Now is the time to show the business how Procurement can add value around supplier risk management, new sources of supply, changes to contractual arrangements and much more.

Building resiliency begins with suppliers but must involve collaboration with the business. How much information do you have on your suppliers? How well connected are you to your suppliers? Are you monitoring risk across your suppliers? Do you have a mechanism to communicate and collaborate with suppliers in times of crisis? Do you have a clear view of supplier hierarchy to understand parent / child relationships? Do you know who your suppliers subcontract to? The list of questions that need answering is long. Needless to say that Procurement must accelerate on its plans to digitally connect to its suppliers to get better information, better assessment of risk (and performance) and overall infuse the multitude of Procurement and Supply Chain processes with better supplier information to improve decisions.

Solidify A Competitive Advantage

Lastly, the opportunity to establish or further develop a competitive advantage is too great to ignore. Some may ask, how can Procurement help here? We have seen first hand from our customers that Procurement does, in fact, have a lot to contribute in developing a competitive advantage. There isn’t an easy answer, however, as it really depends on the business and industry. We have a leading telecom customer where procurement was instrumental in generating significant revenue. Another where Procurement impacted the financial performance of the company by launching more new products, faster and more profitably.

Procurement is a gateway to probably the most significant source of innovation that any company has, its suppliers. By harnessing this rich resource companies can build great competitive advantages but they also need the people, processes and technology to take full advantage.

Technologies such as strategic sourcing, procure-to-pay or full source-to-pay that are instrumental in managing spend must empower versus limit. Often however, software solutions are designed in a way that forces organizations to compromise due to the limitations and restrictions presented. For those organizations that are ready to develop a competitive advantage (and many won’t be, as they still need to attain a level of maturity), technology must empower the skills and ideas that people have to be implemented and executed. Technology must empower creativity, this is how a competitive advantage is both born and executed.

A Cross-Industry Look At Direct vs Indirect Spend

Vishal Patel explores the difference between direct and indirect spend across three different industries…

By jirawat phueksriphan/ Shutterstock

The most fundamental spend categorisation in procurement is the line between direct and indirect spend, but one effort that transcends this split is supplier management. This includes supplier information management, supply chain risk management/mitigation, and supplier performance management.

Whether spend is direct or indirect, supplier information should be maintained centrally and with a high level of accuracy. Who is the supplier, who are the points of contract, what are the terms of service or delivery? How much spend does the company have with the supplier and for what? As long as indirect suppliers are meeting expectations, they are doing what is required. Direct spend suppliers, on the other hand, must deliver a different level of ROI. Meeting expectations is the foundation for strategic partnership and collaboration.

Manufacturing

In manufacturing, materials, components and assemblies that will be sold to customers are direct spend while facilities, equipment, consumable supplies and MRO are indirect.

Direct suppliers often become strategic partners because the company’s collaborative efforts with them have a direct impact on innovative potential. They make it possible to develop products that lead to the expansion of market share and profit margin, both through their product offerings and their ideas. They sometimes participate in the R&D process, adding their IP to the company’s own.

Because of the key contributions these supply partners make to corporate performance, procurement needs to pay far more attention to risk and quality issues – whether they are present in the supplier or in their supply chain. Ensuring continuity of supply is far more critical when a supplier is a strategic partner and difficult to replace.

Most indirect supplier relationships are far more transactional, although services and deliveries still have to be dependable. Customer orders can’t be filled on time if machines don’t run, safety supplies are out of stock or facilities are poorly maintained. While procurement might not consider these relationships strategic, they are critical nonetheless. What you don’t necessarily want to do is separate your direct and indirect supplier information, risk and performance management efforts, ideally, you want to be able to look across all suppliers and spend.

Financial Services

One could make the case that financial services firms have no direct spend. Since salaries are beyond procurement’s purview, nothing the company ‘buys’ is resold to customers. That said, supplier information and relationship management are still high priority efforts. Risk and regulatory compliance requirements span nearly all categories of spend, and address global, high-profile concerns such as bribery, corruption, and data protection and privacy. We’ve all heard of KYC (know your customer) initiatives in banking for example. KYC has now gone beyond verifying and monitoring customers of the financial institution and now also often includes suppliers that provide IT solutions that touch the FI’s infrastructure (and thus their customers) called know-your-suppliers (KYS). For instance, a key piece of information that is often difficult to find but critical is knowing the ultimate parent of a supplier.

Although the vast majority of a financial services company’s spend is indirect, it can still affect the top line. In the case of banks, for instance, property management is critical to securing and maintaining customer loyalty and reinforcing brand identity. The remainder of indirect spend includes the ‘usual suspects’ like office supplies, travel and IT/telecom but often with a heavy services procurement need

Healthcare

Not unlike financial services, procurement teams in healthcare organisations are predominantly focused on indirect spend. The primary exceptions are the equipment and facilities that patients come into contact with. These indirect spend items have a direct impact on patient satisfaction despite not being resold. Machines must be running, supplies must be plentiful, and facilities must be spotless.

For the rest of indirect spend, Group Purchasing Organizations (GPOs) are common, based on the fact that the vast majority of transactional purchases are common across institutions. There are cases, however, where physicians need to have additional selection authority. These non-standard items, often referred to as Physician’s Preference Items (PPI), can present a challenge in terms of finding a qualified source and managing the cost and supply of the items. Those purchases, while indirect, do justify closer and more strategic supplier relationships, similar to a direct materials supplier

Supplier management is spend management – although the information, risks, and relationships vary by category and industry. Procurement’s challenge is knowing which supplier relationships are strategic and deserving of additional effort and which are not (but still knowing who they are) – regardless of the type of spend in question. Overall, having a strong supplier management capability and technology can work as a solid foundation to accelerate and improve digitisation and transformation efforts in all areas of procurement.

Ivalua is sponsoring the upcoming Procurious London CPO roundtable on 29th May. If you’re a CPO and would like to attend one of our roundtables in person please contact Olga Luscombe via [email protected] to request an invitation.

Procurement is Already Awesome – Here’s Why So Many #LOVEPROCUREMENT

It’s becoming increasingly apparent that procurement professionals love what they do. And here’s why….

We have all seen how far Procurement has evolved in recent years. The process has certainly not been easy for some; most of us are still on the journey (after all, transformation isn’t a destination) and others have yet to begin. But one thing is clear, procurement has turned the transformation corner and is speeding forward.

It’s not long ago that procurement departments were shunned and dismissed as merely back office administrators. But a lot has changed and the new terminology used to describe procurement is hardly recognisable; collaborative, innovative, data-driven, agile, change agent, advisor. Much of this due is to the broader realisation that Procurement can add significant value to an organisation. But to me, there is even more to it. I believe that the passion that many procurement professionals have for their work and the fact that many of us love what we do plays a big part.

Over the last year, and before that as an industry analyst, I spent a lot of time listening and talking to procurement professionals and it became apparent that people in this function really do enjoy and love what they do. It may have something to do with the fact that procurement is now exciting and invigorated but regardless, I wanted to investigate further. So, at our annual event we asked real procurement practitioners one question “Why do you love procurement?” and the response was overwhelming and quite frankly, surprising. We received over 120 answers, many of which expressed a great passion and  love for procurement. This was enough evidence for me.

The response was so great that we felt obligated to share a few, in the hope that they:

  • Inspire those in this profession (and maybe others)
  • Show that this is not your parent’s procurement; this is a dynamic, modern and challenging profession
  • Prove that many procurement professionals are excited about their roles, what’s in store for them and the impact they can have on an organisation
  • Drive even more proclamations of procurement love (you can submit your own by clicking on the image below)

I couldn’t help myself, so I threw all the responses into a word cloud tool to highlight some of the most common words used:

Why do you love Procurement?

Above are some of the main words used to describe why people love Procurement but here are some actual responses. To see more please visit this page

My favorite one really captures the dynamic nature of Procurement and the impact:

“It gives me that spiderman feeling- middle of the web with the other players and a superhero when we get the cost out.”

Procurement is about relationship building.

“I do not source goods and services, I source relationships.”

Procurement is fun…

“Involves cost, saving, buying, innovation, suppliers and all the fun in the world.”

Who said Procurement doesn’t care about suppliers?

“I love helping suppliers innovate develop and succeed”

Procurement helps make businesses more agile.

“I’m ready to fully respond and support continuous and radial changes in a business.”

Procurement is an exciting place to be right now. It’s a dynamic function that demands a multitude of skills from the traditional negotiation, relationship management and process skills to the increasingly important sales, communication, analytics, innovative technology and more. Many procurement groups are having to familiarise themselves with emerging technologies such as AI, blockchain and IoT. The rapid innovation in these areas and potential impact means that procurement must keep pace.

Procurement is a gatekeeper to potentially the largest source of innovation any company has – its suppliers. Fostering those relationships, building new ones and becoming the customer of choice is critical in this hyper-competitive age.

All of this makes Procurement fascinating. As such, we will continue gathering these quotes from around the world and hopefully generate more interest and excitement about Procurement.

So, if you #LOVEPROCUREMENT, tell us why.