Tag Archives: data-driven procurement

The Efficiency Value of a Marketplace Approach

Procurement talks a good game when it comes to efficiency. However, few are walking the walking when it comes to taking real action.

marketplace-efficiency

This is the second in a three-part series of posts. If you missed my first, ‘Instant Access to Supplier Information a Step Change for Procurement Productivity’, click here to read it.

In that post, I presented a challenge to anyone who assumes that having technology guarantees progress. Make sure your technology is earning its keep and not just putting your inefficient, manual methods online.

In this post, I’m going to take the same approach to efficiency.

What is Real Efficiency?

We talk a lot about efficiency in procurement, but we take very few steps to actually improve it. Real efficiency is more than doing more with less. It is also about timing. Sometimes, doing the same task at a different time increases the impact potential of the effort behind that task.

Take risk management or risk mitigation as an example. Addressing risk should be an active part of the sourcing process, not something to be managed afterwards. While risk information is readily available, sometimes what procurement really needs to know what their peers think of a supplier.

That is why tealbook combined internal supplier knowledge, data from Dun & Bradstreet, and aggregate intelligence from your industry peers into each supplier profile. Adding a peer view to the supplier discovery process not only makes it more robust, it significantly increases the trust factor for everything procurement learns.

Addressing risk early is critical. Two of the first opportunities procurement gets to mitigate risk arise during the supplier discovery process:

1. Inviting more qualified suppliers to participate in the sourcing process improves the final award decision.

You’re always going to lose some suppliers to disqualification or elimination. Investing in the discovery process up front decreases the fall-off rate, and ideally presents the team with a larger number of more qualified suppliers to negotiate with and consider for contracts.

2. Looking at supplier-related risk factors before the sourcing process begins makes it possible for procurement to push back on requirements if they are too confining.

Procurement tries to be good about collecting risk information in RFx’s, but many times it is too late to change the direction of a project based on what the team learns from suppliers.

By doing an early assessment of the available pool of suppliers and their relative risk before going to market, procurement creates an opportunity to widen the pool of prospective suppliers.

Making Efficiency Proactive

In addition to thinking about the timing of tasks and what impact that has on efficiency, procurement needs to look for opportunities to combine activities.

If you are going to conduct a supplier discovery exercise anyway, why not search a platform that incorporates third party risk data in addition to supplier information and buyer knowledge? tealbook incorporates D&B information into supplier profiles so procurement see which suppliers offer the product or service they are looking for in one place.

Taking efficiency to a more proactive level, why not pre-vet hundreds (or thousands!) of suppliers across a wide range of categories? With the right technology and information, procurement could, in essence, create a custom virtual marketplace of suppliers that are ready to bid at any given time.

A broad approach drives efficiency because the suppliers are already vetted and risk is moved up in the process without adding a step or a delay. This is an ideal application of technology because it enables something procurement can’t do on their own on the same scale.

Value creation goals notwithstanding, good procurement teams want competition as well. Without the supplier discovery pre-work being done, procurement is stuck with the same old suppliers time and time again.

And there is nothing efficient or strategic about that. Marketplaces are certainly not a new idea, but they are a path to efficiency that we should look for ways to improve.

Now that I’ve shared my point of view on scalable technology and marketplace efficiency, I’m going to wrap this series of posts with an optimistic view of procurement’s forward looking potential.

Gregg Brandyberry is a recognised pioneer in procurement and sourcing technology. He has over 40 years experience in industries such as automotive, textile, manufactured goods, electronics and healthcare.
He is the former Vice President of Procurement – Global Systems and Operations for GlaxoSmithKline, and a Senior Advisor for A.T. Kearney’s Procurement and Analytic Solutions organisation.

Procurement Will Be ‘Cognitive’

It’s time to redesign the function to be ‘Cognitive’. Procurement once again faces revolution, and this time it is beyond ‘only’ a transformation. The function we know today will cease to be.

Cognitive Technology

The first turning point saw the profession move to an industrialised model, including centralisation and strategic sourcing. Later on, transformation reached another key step, enabling Category Management, and increasing focus on automation for higher efficiency, better compliance, and outstanding cost savings.

Taking the function to the next level, CPOs then focused on supplier innovation and risk mitigation, to provide more value to their stakeholders on top of day-to-day savings.

Today, equipped with the right technology, CPOs have the opportunity of accessing, and acting upon, huge volumes of relevant data in order to truly impact supplier innovation and mitigate risk, two major mandates in today’s procurement environment. Deriving insight from this data provides the modern CPO with an incredible opportunity to execute procurement strategy on an entirely new level.

New, Data-Driven Era

As the buying function continues to automate, CPOs can plan and prepare for a new data-driven, ‘Cognitive’ era.

Let’s firstly clarify what cognitive technology is, before we explore its implications. Cognitive technologies are products of the field of artificial intelligence. They are able to ingest data and continuously learn as humans would, but with data on an enormous scale. They can perform tasks that only humans could, thereby allowing the workforce to concentrate on more innovative work streams.

Cognitive technology now brings the capability to ingest all (even unstructured) data, and can understand its meaning, reason and context to generate hypotheses, arguments and recommendations from which procurement professionals can make more informed decisions.

How is This Relevant to Procurement?

It means that we can now apply technology to automate and execute tasks that were initially performed manually. Many companies have now implemented catalogues, and automated PO creation, invoicing and reporting, all being ‘operational’ or administrative tasks.

What Procurement cognitive technologies bring to the table is the ability to take over strategic sourcing tasks, such as RFx creation, analysis and even scoring, including a level of complexity and data analysis that can’t be handled by ‘human’ on the same scale.

Even market research or negotiation can be improved, to reach a point when the technology will perform these tasks in a better, more efficient and secure manner.

What Does That Mean for our Procurement Function?

It means that the opportunity for Procurement is huge. However, the function needs to be ready and start considering how technology will indeed transform their very role and skill-set in their organisations.

1. Changing CPO Focus: Today, focus is placed on the front end of the procurement lifecycle, mostly on steps until the contract signature with suppliers. Introducing Cognitive technology to this part of the process will allow procurement to concentrate more on the post-contract signature activities. Vendor management will become critical, improving supplier collaboration, innovation and value-add.

2. Organisational Structure: Is the relevance of organisation by spend category diminishing? The model was relevant to procurement objectives which were to industrialise operations, consolidate, standardise and leverage volumes to generate savings. But today we know that we are reaching the limits of this model, and we are changing our success factors towards outcomes and values, so organisational changes to reflect this will pave the way to a function that is successful and efficient.

3. Measuring Procurement Success: One of our key measures is savings, but because KPIs such as revenue growth, value add, innovations, customer satisfaction, and risk management are also becoming increasingly important, we need to be able to implement a reliable calculation model to quantify progress.

4. Technology Assessment: Are CPOs equipped with the right tools to fully enable this collaborative approach with stakeholders and suppliers, as well as being well to manage risk and protect their brand?

5. Skills and Training: CPOs will need to define what new skills their team will need to develop to be successful in a new strategic model of cognitive procurement. Key competencies such as a collaborative ability to manage complex vendor and stakeholder relationships, leveraging technology, influential communication skills, problem solving, and changing agent attitude, will become even more critical.

In fact, failing to acknowledge the need to evolve will put the procurement function in a position of road blocker rather than a growth enabler, threatening competitive advantage. Embracing a cognitive approach encapsulating procurement data represents a key stepping stone for procurement organisations to remain relevant to the business and successfully differentiate themselves.

With the right strategy, structure, skill-set and cognitive technology, the procurement function is best placed to thrive and evidence its value to the organisation.

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