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New Goals for Procurement – Driving Revenue Growth Through Supplier Collaboration

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

By Greg Epperson / Shutterstock

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Your Procurement Resolution: Don’t Settle For Best-In-Class

What better time to set and start tackling key objectives for 2019? Your new year’s resolution is to be better than best-in-class…

In this time of personal New Year’s resolutions, it seems appropriate for leaders to also consider a resolution for their departments. For Procurement leaders in particular there couldn’t be a better time to do so. In recent years, the function has made tremendous progress in transforming into a strategic value driver.

Yet, as leaders broadly acknowledge, this transformation journey still has a long way to go. A recent study by the Hackett Group found that only 63 per cent of procurement organisations have even developed a plan for digital transformation and 33 per cent bluntly stated their service does not meet customer expectations. A Forrester study on enabling smarter procurement found only 22 per cent believe their reporting and analysis is where it should be and only 22 per cent that they have the required agility to respond to changing requirements.

So what better time to set and start tackling key objectives for 2019?

My recommendation is to set an aspirational resolution that reflects procurement’s true potential. One that is distinct from your MBOs, which are likely based on continuous improvement of performance aimed at closing the gap with best-in-class.

The problem with best-in-class

There is nothing wrong with benchmarking yourself and striving to improve performance to match the best of your competition. Organisations should do so, especially if still early in their transformation journeys. Success will result in greater value to those organisations. But achieving best-in-class performance won’t result in procurement becoming truly strategic, and may actually hinder progress in the long term.

How is that so?

Look at it in the context of the World Cup (or the upcoming Superbowl). Every team in the tournament earned its spot by being the best in their region. Hence, each team can be said to be best-in-class. Yet only one is the champion and that team doesn’t win by playing at the same level as their best-in-class peers but by playing better, doing something critical differently. Best-in-class is not a competitive advantage in sports, nor in today’s increasingly winner-take-all market. It is a stepping stone on the path to true greatness.

If leaders are to build competitive advantage and truly drive strategic value, they have to think beyond best-in-class and view that as an interim objective on their transformation journeys. Leaders must ensure that the people and technology they embrace to navigate those journeys have the capability to take them the full way, and not become a constraint at some point.

Yes, your top competitors are doing this right now

What exactly does going beyond best-in-class entail? Is anyone actually doing this? Yes they are. Your top competitors are extending their competitive advantage even as you’re reading this. Below are just a couple of examples:

  • Revenue: A leading Telco leveraged the flexibility of our platform to create a private marketplace where suppliers can bid for used mobile phones in mass volumes, generating hundreds of millions of dollars each year
  • Innovation: In 2014 Meritor launched a three-year initiative to drive massive value by transforming their supply chain in what can be thought of as a drive to achieve best-in-class. They then followed that with a new initiative to unlock massive innovation through a unique approach to new product introductions, configuring our platform to their ideas. The result? Their stock price rose from $4.45 to $13.30 at the end of 2016 and much further since, far ahead of competitor growth.

Note that in both of these examples the teams implemented best-in-class processes and wanted quick value. It should never be a compromise. But they kept the ultimate objective in mind and brought on the right talent and technology to take them to the next level when ready.

The talent challenge

In any meeting with CPOs I have attended in recent years, the top pain point raised is attracting and retaining top talent. Talent that is up to the task of driving successful transformations, to best-in-class and beyond.

The above examples illustrate an important point about talent, and the symbiotic relationship with technology. What good is top talent if your systems are too rigid for them to bring their best ideas to life? Out of the box best practices are important, but that shouldn’t mean constraining yourself from doing a few strategic things differently.

Meritor has a great team with great ideas. So when deploying software, they took embedded best practices but ensured they had the flexibility to easily configure once they were ready for that next phase. This empowered them to realise a unique and innovative approach that supported their financial success.

Realise your true potential

So as we enter a new year, filled with endless challenges and opportunities I encourage you to set a procurement resolution. One that, if achieved, will set you on the path beyond best-in-class, to building a competitive advantage. One that will empower your talent to truly make procurement strategic and realise your true potential.