Spend all your time at work fighting fires? Proactive risk management can help douse the flames and get you ahead of the game.
For as long as procurement has been a profession, risk management has largely been seen as a data collection exercise, undertaken at alarmingly infrequent intervals. Often, it was nothing more than a checked box to indicate assumed compliance, with no deeper insight or follow-up.
But as the reach of procurement extends beyond savings, compliance and performance. The profession touches almost every facet of a company, and mitigating risk is increasingly being seen as the fourth pillar of the profession. To be truly successful, risk management requires robust insight into all links of a supply chain – a task that has often been insurmountable.
How can you properly manage your company’s risk as supply chains go global? And who should be responsible for ensuring you’re ahead of issues before they arise?
Procurement teams have the potential to drive big changes on a global scale. If you’re not successfully navigating your risks then you’ll struggle to join the ranks of the world leaders.
Proactive vs Reactive
Whether caused by bankruptcy, politics or even severe weather events, risks to your supply chain come in all shapes and sizes, so it’s not completely unreasonable to be overwhelmed. Preparing for every single eventuality is a daunting task that seems to stop procurement professionals in their tracks.
As such, many people start on the back foot, considering the risks only when their bottom line has already been affected. However, if you understand your risk profile – the types of threats that will have the biggest impact on your business, whether they’re physical, logistical or reputational – then you’ll be able to develop proactive risk mitigation plans that can keep your business flowing seamlessly through strikes, shut downs and storms.
Successful risk management in action
At riskmethods, we combine advanced AI technology with human support to offer comprehensive risk management solutions for our customers. We train our AI using over 5 million articles relevant to their unique risk profiles, to allow us to give our clients the visibility into what the current and future risks are for their business and offer insight into the underlying threats in their supply chain – so they can take action before it hits.
For example, when Hurricane Harvey hit Texas in 2017, it made landfall three times in six days, causing $125 billion in damages and sending a third of Houston underwater. As the storm began making news, we were able to use our technology to create storm projections for our customers that narrowed down the affected location as the storm approached. This alerted them to the risk of damage or delays, and allowed them to contact any suppliers or manufacturers within the impact zone before the storm arrived.
As a result, they were able to take action to create proactive mediation plans for their impacted suppliers with outstanding orders before the storm even hit the ground, successfully navigating potential shutdowns that could have impacted their supply chain for weeks to come.
In an elite enterprise, this active monitoring of new and emerging threats means that while it may not be financially possible for all enterprises to have crisis management teams on hand, ready to pounce at the first hint of trouble, they will have contingency plans in place. This increases your ability to react faster and could potentially give you the leg up on your competition.
Where is risk management going in the future?
The next procurement transformation is taking the profession from a singular discipline to a cross-organisational centre for increased collaboration and supplier transparency.
Risk management is set to go hand-in-hand with this transformation to alleviate the risks within an enterprise, bringing another tool to the table for CPOs to leverage and creating a competitive differentiation for enterprises. While this direction may seem like common sense going forward, the reality is that it’s only in recent years that its importance has really been acknowledged.
Those who continue to think of risk as someone else’s problem will soon find themselves falling behind.
riskmethods was one of the sponsors for the Big Ideas Summit Chicago 2019, with Bradley Paster delivering an ace keynote too. Don’t worry if you missed out, you can still sign up to access all the great content. Register now by clicking here.
If suppliers are treated as part of the team, rather than punching bags, it can actually help to accelerate procurement’s ability to add value.
When you are hiring employees, do you focus just on the salary negotiations? With the only goal being to get the lowest cost talent? No, because we know the value we are going to receive from that individual is through many years of ideas, quality work and the leadership they provide to others.
The price negotiation is a point in time, while the relationship is the multiplier.
The same holds true with suppliers.
As you look across our supply base, procurement has a range of suppliers from “high potential” to “needs improvement”. As we do with top performing teams, procurement has the opportunity to cultivate high potential suppliers through exposure, stretch assignments, and trust.
There is also an opportunity to manage up or out the “needs improvement” suppliers by developing their capabilities and giving them the opportunity to improve. Through this approach, procurement now has the ability to discuss with their new-found talent how to creatively reduce total cost of ownership, to solve problems, and to provide innovative solutions.
When trusted are offered development opportunities, suppliers will go above and beyond for the customer. They assign their best people on the account. They look for ways to improve the relationship, reduce costs, and proactively call out risks. And, in times of short supply, will serve their preferred customer of choice first.
Through one change in perspective, one change in a relationship, procurement achieves lower TCO, lower risk, more innovation, and a reliable supply chain – this is the key to delivering value.
The Next Big Idea in Procurement
Procurement is on the brink of significant change, as are many more areas of our lives. There will be many big ideas that brilliant procurement professionals implement into their organisations to support the advancements in technology, the new expectations of talent, and techniques to add value well beyond cost. These are exciting times to lead, inspire, and create within procurement.
Each year a small group of influential procurement thought leaders gather in Chicago for the Procurious Big Ideas Summit. Participants are inspired and take back many big ideas for their personal growth as well for their organisations.
While technology advancements often receive a lot of focus, perhaps the biggest shift within procurement is the expectation to move beyond cost to becoming value providers. Procurement is being challenged to find new ways to reduce risk, increase sustainability, to help solve complex business problems, to increase revenue, to generate new innovations, to become an internal consultant to their stakeholders to obtain the best out of every investment.
This expectation is becoming more pronounced and will allow procurement to analyse how they measure success, the skills their talent need, and even what technology they might need to deploy.
Those organisations who make this change exceptionally well will also realise that their suppliers offer a limitless capability to accelerate procurements’ ability to add value. When suppliers are treated as an extension of the supply chain, as part of the team, the relationship with suppliers also moves beyond cost. In fact, one could argue that becoming a customer of choice to suppliers is the key to unleashing value, reducing risk, increasing innovation, and achieving agility within the supply chain.
Leading the Supply Base
An idea is just an idea until it is implemented, so how do procurement organisations get started with this change? Below are some low investment ways to start this journey.
Toss out outdated segmentations – Start looking at the supply base like one would talent. Understand high potential suppliers, remain in role, and need improvement suppliers. This does not need to be complicated nor does this need to be scientific. Without putting much effort into this, the top performers and the lowest performers could be listed. Start there.
Offer development programmes – As one would with their internal talent, offer programmes that will help suppliers operate with excellence. These programmes can even be supplier funded, but it shows suppliers that procurement cares about their success. It develops a relationship where it is understood that procurement is only as good as their suppliers. When suppliers perform at their best, procurement, suppliers, and the communities around them all benefit.
Think differently about procurement’s role – When procurement starts thinking about their role as a hiring manager to suppliers, it creates a change within every interaction. Set the expectation that a procurement manager’s role is to lead their team of suppliers to success. This will have downstream impacts around measurements and skills needed but starting here will start the cultural change needed for success.
Procurement is on the move. These are indeed exciting times to renew the spirit of what procurement is all about. Let’s not be overwhelmed and paralysed by the amount of opportunity. The best thing to do now is to start. Start taking the small steps that will create big change and the next big ideas.
As the Big Ideas Summit Chicago facilitator, Amanda Prochaska will be harnessing the biggest and brightest ideas presented. You don’t need to be “in the room where it happens” – you can register as a digital delegate and get up-skilled and uplifted from the comfort of your own desk. Register now by clicking here.
Procurement can do much more than it’s already doing when it comes to sustainability. And together we really can save the world…
Historically, Procurement’s mandate has involved cutting costs and little else. The reputation for barking orders and slashing spend has led to more than a little resentment within certain organisations. Business units are often hesitant to engage with the function. When they do, they’re typically gritting their teeth and counting down the seconds until they can go back to focusing on their own key objectives.
Reducing costs is a noble cause – and Procurement’s top priority. But it’s just the beginning of what Procurement can offer the business and its customers. With its cross-functional position and unique insights into the supply chain, Procurement has the capacity to fundamentally change the way an organisation operates.
In Part 1 of this blog series, I examined some of the life-saving initiatives that Procurement teams across the globe are supporting. Cracking down on modern slavery and optimising disaster response plans, they’re evolving in their role and making it possible for corporate leaders to serve a higher purpose.
This time around, I want to look into Procurement’s efforts to address even broader issues. In addition to saving individual lives, great Procurement teams can potentially save entire species by working to identify and address worldwide environmental concerns.
Procurement Can . . . Save the Planet
Addressing Climate Change
The most pressing environmental crisis of our time, climate change, has dominated conversations among politicians, business leaders, and consumers for more than a decade. While forecasts vary from source to source, it’s clear that rising temperatures and sea levels present nothing short of an existential threat. From a business perspective, the myriad effects of a changing climate could mean a 10 per cent reduction in profits for American businesses. The planet and its people could suffer even more dire consequences.
The global economy simply cannot continue along the path that’s gotten it to this troubling position. For Procurement, the looming threat of climate change should provide the quintessential burning platform. It’s an opportunity for the function to distinguish itself as the value-added entity and to take the lead in designing a totally new worldwide supply chain.
When most of us think of climate change, we think of greenhouse gas emissions. While it’s somewhat reductive to describe such a broad issue through these narrow terms, addressing emissions is certainly a high-impact way to begin promoting responsibility. It’s not nearly enough to clean things up internally. Even organisations that don’t personally burn coal and oil often rely on supplier networks that make an outsize contribution to climate change.
The Carbon Disclosure
The Carbon Disclosure has found that suppliers often account for four times as many carbon emissions as an organisation’s direct operations. This eye-opening fact has inspired a number of businesses to broaden their approach to sustainable business. As organisations gain additional visibility into their supply chains, they have more and more power to enforce a higher standard of responsibility.
Target, for example, has made supplier-generated emissions an important part of its climate goals. In addition to establishing objectives of its own (including a 30 per cent reduction in emissions by 2030), the retailer is asking nearly every one of its suppliers to begin working toward similar goals by 2023.
One of Target’s direct competitors, Walmart is taking a similar approach. The world’s largest retailer is not merely holding its suppliers accountable for cutting down emissions, but offering additional incentives for those who successfully do so. They’ve partnered with HSBC Bank to introduce a new program that will provide better loan terms to organisations who make demonstrable progress.
Data, visibility, and consistent communication will only become more important as Procurement teams work toward cutting down emission and addressing their contributions to climate change. Still CDP reports that just 35 per cent of organisations are tracking emissions throughout their supplier networks. With the wealth of information at Procurement’s disposal growing in scope and the conversations around our climate growing in intensity, there’s no longer any excuse for inaction.
Fighting Ocean Pollution
Paper straws aren’t especially popular, but they’ve already served a valuable purpose. In addition to getting plastic out of the restaurant supply chain, they’ve forced consumers to confront their own reliance on plastic-based products and materials. Simply put, businesses and their customers buy a lot of plastic and Mother Nature is typically the one stuck footing the bill.
Eight million tons of plastic wind up in world’s oceans every year. With consumption expected to surge, experts predict we could see more plastic than fish by 2050. In certain regions, plastic particles are already outnumbering plankton 26 to 1.
With its central role in material purchasing, Procurement enjoys an obvious opportunity to take the lead in identifying and introducing sustainable alternatives to plastics. In 2017, Dell Technologies announced that it would take an especially creative approach to amending its supply chain. The organisation elected to create an entirely new supply chain dedicated to collecting and re-purposing ocean-bound plastics. This initiative provides a perfect example of the wide-reaching effects an environmental initiative can have.
Providing access to near-endless supply of affordable materials, Dell’s new reclamation supply chain helps the organisation cut down on its material spending, create a slew of new jobs for collectors and recyclers, and (most crucially) provide an example for other business leaders to follow.
They’re already partnering with likeminded organisations through their Next Wave program to build a collaborative supply chain for collecting and reusing ocean waste. They expect to reclaim more than three million pounds of it within the next five years.
Dell’s not the only organisation cleaning up its act to clean up our oceans. Businesses throughout the retail and restaurant sector have also taken swift action to address the question of waste. Walmart, Aldi, and Trader Joe’s are just three of the retailers looking forward to a post-plastic world.
Starbucks and Dunkin’ Donuts, for their part, have made headlines by pledging to provide sustainable alternatives to their single-use cups. Each of these projects, regardless of scope or industry, will rely on strong Supply Management minds to steer the ship.
Procurement Can . . . Do More
It’s an unfortunate reality, but time is running out for businesses to take action and pursue environmental initiatives. In the past, organizations might have hemmed and hawed on the subject of sustainability. Fearing higher costs or the hard work of transitioning to new suppliers, they might have looked for excuses to forget about the environment and focus on something more directly relevant. There’s no forgetting about the environment anymore. Reports from organisations like the Intergovernmental Panel on Climate Change suggest that while businesses and consumers have done a great deal of damage, they still possess a valuable opportunity.
Back in 2015, Nielsen confirmed that more than half of consumers will pay more to do business with environmentally responsible organizations. They want to purchase natural, sustainable products from companies that have made green practices a central component of their missions. The conversations around pollution, deforestation, climate change, and other environmental concerns have only grown more intense in the intervening years. Companies that continue to avoid pursuing the “triple bottom line” (people, profit, planet) will soon find themselves growing more irrelevant, unsuccessful, and even controversial throughout the next few.
I look forward to addressing Procurement’s environmental imperative at the Big Ideas Summit. Last year saw thought leaders describe their efforts to identify alternate materials, repurpose recycling, and make Procurement a more purposeful function. This year, I’ll join the conversation by sharing some of the green initiatives my team has spearheaded throughout the last several years. Want to listen in? Make sure to register as a Digital Delegate today.
Do you want a steer from Diego on what your organisation can do with your triple bottom line? You can access this and much more by registering as a Digital Delegate for the Big Ideas Summit Chicago 2019 next week. Even if you can’t be there in person, you can still be in the room. Find out more and sign up today here!
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!
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.
Procurement professionals need to think in more innovative ways about how we can drive competitive advantage and shareholder value for our organisations.
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
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
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
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.
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!
How does an organisation know that the procurement initiatives, projects, efforts really result in a quantifiable benefit to the business?
As both a former CPO and consultant, I’m often asked about the strategies I have employed to grow, reach and deliver results. Yes, I can tell you stories from past lives of wooing reluctant stakeholders and setting savings records year over year. Actually, the secret to my success in procurement is much less glamorous, and I’d like to share that with you:
and prioritising initiatives and meticulously tracking ROI through a rigorous
project benefit validation process and governance framework are the best ways
to increase your organisation’s credibility, dependability, and recognition.
a critical role in the cost management of an organisation. This is why many organisations are quick to
tout the cost savings and bottom line benefits generated by procurement’s
efforts. Procurement’s maturity journey, when done right, can last months to
years, and often requires significant investments – consultants, technology
infrastructure, headcount, and support services. How does an organisation know
that the procurement initiatives, projects, efforts really result in a quantifiable benefit to the business? Furthermore,
how can the organisation fully appreciate procurement’s value? When the results
are not tracked, reported, and kept as the focal point, procurement’s full
impact can be overlooked, or underappreciated at best.
ROI is your friend
across the business’ most strategic functions: operations, finance, legal, while
managing critical external supplier and partner relationships. This broad
exposure is combined with well-honed skills in cost control, analytics,
process, research, contracting, and negotiation, as well as a deep knowledge of
the business and company culture. Yet, we are often not given the respect we
deserve as a key trusted business partner. Why is that? Procurement teams tend to sell themselves
short by not forecasting ROI and tracking quantifiable benefits for all
project benefits and estimating an accurate return on investment (ROI) can be
very challenging for organisations. There are several possible reasons why ROI
often goes unmeasured:
Being satisfied too early
are satisfied with the general improvement in their financial statements after
formalising a procurement strategy, because now a methodology in which to
quantify “savings” or “value” has been defined.
When this journey begins, controls are strengthened, initiatives are
defined, “low hanging fruit” is addressed, resources are deployed, and as a
result, the organisation performs better as a whole.
Focusing on tactics
focus intensely on training resources and executing projects in the early
stages of a procurement journey, and place secondary emphasis on measuring ROI,
believing that the benefits will come.
Can’t find the right formula
attempt to measure ROI, yet they are unsure how to quantify project benefits
generated from procurement, especially if there are multiple ways to measure a
successful procurement effort. It is evident that, even considering how
well-known or understood the procurement function is to the world, there is
still a significant knowledge gap. How can procurement quantify project
benefits and truly link them to a company’s financial performance?
The well-reported results of industry
pioneers that are more mature in their procurement function, as well as the
pressing need to reduce costs and improve productivity, have encouraged company
leaders to push their teams to undertake even more procurement initiatives.
Sometimes, after an initial burst of enthusiasm, these efforts languish over
time, or procurement becomes less engaged than they once were. This can often
be because benefits have not been accurately estimated or verified as impacting
the bottom line. In some cases, benefits can be reconciled as tangible
contributions to the income statement; but in others, benefits may not be so
evident during a reconciliation process.
A critical key to success is to ensure that procurement does not miss an
opportunity to bring true credibility to their efforts is to implement a
process that directly reconciles project benefits to the company’s accounting
and reporting systems.
The tools you need: project selection, benefit
validation and governance
A strong project governance process is
key to the successful project execution and results. A comprehensive project
governance process encompasses how projects are identified, selected, executed
and reported. However, in most project governance processes, a key element is
often forgotten: benefit estimation and validation.
While most organisations recognise the
value of properly vetting project ideas and opportunities prior to launching a
project, many fail to follow the process religiously for every initiative. Some
may launch projects before a proper prioritisation effort has taken place, or
others may spend too much time in the idea generation phase. Often, organisations
fail to estimate potential benefit prior to project chartering or prioritisation
Experience has shown that the pressure
to get started, or to drive quick results, pushes teams to launch projects
without taking the time to adequately plan or determine probable benefits. This
ineffective approach to project selection and prioritisation means that
projects are often executed without being fully linked to the organisation’s
overall strategic goals, and as a result, too many projects are chartered, and
few are completed to the company’s expectations.
Not only does a project benefit
validation process help with initial benefit estimation during project
selection, it adds rigor during project execution by defining project benefits
with more accuracy and clarity. This facilitates credible benefit reporting,
and establishes a foundation for post-project benefit reconciliation, where
benefits can be reconciled to the organisation’s financial statements. Simply
stated, the benefits driven by the procurement effort can now be fully
understood as to their impact to the business.
A strong project benefit validation infrastructure can support the procurement function as it matures an evolves to take on more challenging value-add activities for the business. It provides not only the basis for identifying and approving projects, but also serves to maintain the momentum and retain ongoing management and stakeholder support to build the brand, extend your reach, and deliver better results year over year.
WNS is 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.
How can virtual card payments improve the procurement experience?
Traditional card-based solutions link one card to one individual. Virtual card solutions, on the other hand, link one ‘virtual card’ to one transaction. It’s a technology that has the potential to add real value to corporate payments – especially as controls on credit limit and dates of use can be set per transaction – but it’s one that is yet to be implemented across the entire corporate environment.
The key to
unlocking the full potential of virtual card solutions is about partnerships
with existing procurement systems, especially in meeting the needs of
“In B2B payments,
we’ve had good traction for [our solution] in mid to large corporates, but
utilisation for the very largest multinationals has been limited, and that’s
because of their significant investments in sophisticated procure-to-pay (P2P)
software,” says David Price, Managing Director of Client Coverage at
allow businesses to procure in a compliant and cost-effective way, and provide
a good experience for the user, except when it comes to payments.
The impact on buyer experience
Previously, procurement teams had to step outside the P2P environment to
complete payment through a separate portal. Now virtual card platforms are being integrated into procurement systems
including Coupa, adding ease of use and another option for users within a
technology that is already trusted and familiar.
“From procure-to-pay to
“As soon as transactions are authorised, virtual card
payments are triggered automatically so there’s no need to leave the
environment or to process payment manually,” says David. “The common
terminology is procure-to-pay; through integrations, it’s a move towards
Integrated solutions have the potential to improve the
buyer experience further, bringing additional benefits to the business such as
greater efficiencies, control, data insights and cash flow flexibility.
End-to-end procurement costs are often high because of
bureaucracy and paperwork, with efficiency gains made elsewhere in the process
lost at the point of payment. That’s especially the case in the tail-end spend
of large volumes of small-value transactions. When suppliers are paid using a
virtual card platform, there’s no need for a business to run lengthy due
diligence checks or set them up on internal finance systems – typically saving
them 3-5 hours per transaction for a new supplier.
“Virtual card platforms can
help to streamline a business’ payment system.” They can also
be used to make payments directly into suppliers’ bank accounts meaning they
can be paid using the platform even if they don’t accept card payments.
“That’s the through the card piece in procure-to-pay that
we are addressing,” notes David. “Precisionpay, [Barclays virtual card platform] helps to
streamline a business’ payment system and also allows payments to be
automatically reconciled to invoices and purchase orders, creating further
Authorisations and controls are fundamental to the
procurement department, as it looks to avoid uncontrolled or rogue spend. The
result can be over-engineered and over-complex control policies, with a bias
towards the buyer rather than supplier benefit. Such an imbalance can make it
challenging for procurement to negotiate the best deal.
“Objective advice to create
sustainable long-term relationships.”
“Therefore, what we suggest is adjusting your policy so
that your authorisation and control strategy is reflective not just of a desire
to create control but is also proportionate to the supplier you’re working
with. As procurement functions start to implement appropriate, supplier centric
payment strategies, that’s when some of a
virtual card platform’s capability becomes even more valuable.”
Moreover, by using a virtual card solution, companies can
flex cash flow, much as a consumer equipped with a credit card could. Payments
made today, for instance, can be repaid as per the billing cycle, plus an additional
28 days after the equivalent of a credit card statement has arrived.
Building a strategic
It’s unlikely a
virtual card platform would be the right payment vehicle for all suppliers. It’s
important to figure out where best to deploy virtual card technology. By
analysing a client’s account payable file and understanding their business
strategy, it can provide recommendations for different categories of spend and
which result in the greatest benefit for the buyers, such as where to quickly
drive efficiencies through volume.
An upgraded operating system (OS) takes the procurement function out of the traditional back-office role, and into that of a valued strategic business partner.
That little flag in the corner of your laptop screen, the red exclamation mark on your phone, the middle-of-night system message. You know what it means- it’s time to upgrade your operating system.
Yes, it’s painful to exit your
programs, save your work, and sadly close all 35 of your vacation-planning web
browser tabs. You sit, you wait, then
you reboot and possibly even get reacquainted with your digital systems again.
No one wants to do it, but in the end, we all are all thankful to those glowing,
pulsing indicators for pushing us and guiding us through the process for that
Things run so smoothly now, don’t
What if we received the same
upgrade reminders in real life? What
would your red exclamation mark tell you about your procurement operating
system? Is it time for an upgrade? Almost definitely! An upgraded operating
system takes the procurement function out of the traditional back-office role, and
into that of a valued strategic business partner.
The transformation, however, can
neither happen overnight nor without setting the right goals and planning. You’ll need to close some browser windows and
maybe lose a few saved files in the process. In our decade-long process of
co-creating this operating model with leading global companies, we have
identified four key enablers required to help you upgrade. Read on and trust me,
it will all run so much more smoothly in the end.
Structure of Upgraded
1. Strategic Category Management
At the heart of the transformation
is the shift that procurement has to make from being reactive problem solvers
to proactive solution providers. This is not possible without category managers
or business-aligned spend managers aligning with the business, understanding
strategic priorities and building relationships with stakeholders. When category
managers proactively reach out to the business, they begin to demonstrate value
and finding a place at the table will become easier.
Building a centralised Center of Excellence (CoE) can help category managers develop the required skills. The CoE can provide the necessary support such as tools, methodologies, templates, market intelligence and coaching.
2. Centralised Procurement Help Desk
On any given day, procurement
functions are inundated with queries and work requests. As procurement
transitions to operate more strategically, it is critical to find an effective
way to service internal and external stakeholders.
Setting up a centralised
procurement desk can help channelise the requests to various specialist teams
support team that can be responsible for services such as market research,
category strategy development, stakeholder workshops and portfolio development
manage execution team thatcan
manage the execution of activities such as creation of request for proposals,
supplier management and contract authoring
execution team thatcan manage
back-office operations such as purchase order management and invoice-to-pay
3. Technology Accelerators
The digitisation of transactional
and repetitive procurement activities is a low-hanging fruit for organizations as
it will release the bandwidth of resources for more proactive, strategic planning.
Further, digitisation can help identify patterns, norms and trends leading to a
Supply chain management is
experiencing a quantum shift because of emerging technologies such as internet
of things, artificial intelligence and advanced analytics. Adoption of these
technologies, is critical to upgrading procurement’s operating model, but it should
be planned well. It is necessary to define the overarching vision and strategy,
and to then evaluate how technology fits into the roadmap.
4. Implementation Approach
The final piece of the puzzle is
the actual re-organization of the procurement function into the new operating
model. It is a myth that technology by itself will be enough to integrate all
processes. Putting together the right team, getting executive sponsorship,
ensuring alignment with the vision and finding collaborative external partners
are all critical success factors in upgrading to the optimal OS for your organisation.
This is where the smart phone
operating system analogy falls a bit short- unfortunately, we, as the
procurement team, can’t expect to wake up to a fully-restored bug-free system-
good results take time. It is necessary to plan for adequate time required for
the new model to mature and assimilate into the organisation’s new way of
working. If this is done correctly, your
stakeholders will certainly experience the thrill of a significantly improved
Now is the time to upgrade your
framework and develop the future infrastructure for procurement operations.