How can Procurement stop its backwards path?
Over the past 12 years or so, I have had the privilege of working with Procurement, seeing its tremendous growth in importance, performance and capability. However, there are indications that Procurement’s progress is stalling and, worse, even moving backwards in some cases. What could be the reasons for this?
Developing Functional Capabilities vs Enterprise Procurement capabilities
A key challenge for the function is to move beyond Procurement as a ‘functional capability’ and start thinking of Procurement as an ‘enterprise capability.’ Procurement will, of course, still have a critical role to play, but the capability will become more distributed and certainly not limited to the typical KPIs most Procurement functions are still measured on.
I think consulting firm, Kearney, is on point when they argue that Procurement’s ‘new’ role should primarily focus on “strategic sourcing, supplier management and orchestrating the procurement ‘engine.’” The reality, however, is that we are still forced into tactical ways of working and pursuing ‘control’ levers, such as chasing POs and other activities related to the Source to Pay (S2P) process that, by now, should either have been automated or done by teams other than Procurement.
Procurement Leaders, the membership network, suggest that, based on their data, 56% of CPOs and their teams are now equal partners in strategic cross-functional projects – and that by 2022 this will rise to 82%. It is in Procurement’s hands to make this happen, but several challenges need to be overcome to enable this.
Over the last ten or more years, a key initiative for Procurement has been to digitalize Source to Pay. But this often solves procurement-specific functional priorities around improving control, buying efficiency and generating savings. This is partly what is fueling the trend towards best-of-breed landscapes, as a plethora of new technology solutions are supplementing areas where Source to Pay vendors don’t have capabilities, or are plugging gaps in the suite by offering much greater depth and functionality – as well as usually offering a much improved user experience with updated technology platforms suited to modern day expectations.
Both strategic sourcing and supplier management are highly multi-functional capabilities and extend far beyond procurement. It requires alignment, collaboration and governance across the enterprise. And it relies on data and insight, which is where a major barrier exists today. This is well highlighted by the latest Deloitte CPO report, where access to clean data and the ability to generate analytics across systems have become the top two functional challenges as the function moves beyond its traditional siloed view.
Supplier management as an enabler of strategic sourcing and ‘engine’ orchestration
I can share – from a supplier information management perspective – that the journey is underway, driven by early adopters such as our client Mondelez, who is now moving beyond the ERP and S2P tech stack to build this capability.
The topic of supplier management and the interest in building more collaborative supplier relationships is not new. But these early adopters are now switching their thinking to how it can be achieved and the broader benefits managing suppliers effectively can have on building an enterprise capability.
Traditionally, Supplier Relationship Management (SRM) initiatives have been driven from the top down and focused on only a handful of suppliers, with the aim of developing ambitious partnerships centered on innovation and areas of value beyond the transactional and ‘business as usual.’ However, these are still also often nothing more than another attempt to squeeze out more savings. They have a tendency to fail and generally don’t last long.
A key reason for this is lack of trust. In the hierarchy of what is important for a supplier they ask themselves: (1) Are we treated fairly, consistently and efficiently at the transactional/operational level? And (2): Is there evidence that we are important to our customer and pulled into joint objectives around risk, compliance and performance management?
Before any sensible supplier will fall for the partnership ‘sales pitch’ of their customer, these factors need to be solved, which is a major reason for program failures.
The solution early adopters are now seeking to develop involves taking a step back to fix the issues that are preventing further progress. The data problem, as highlighted in the Deloitte surveys has to be tackled first.
This means centralizing all supplier information in a single place. But rather than attempting to extract data from the different systems in which it resides today, they have come to the realization that they need a mechanism to collect, govern and maintain this information in a single solution. This has a number of benefits.
At transactional and operational levels, it ensures all suppliers go through the same portal when they are onboarded, whether it is the local flower shop or the uranium used to power nuclear power plants. This makes it consistent and efficient and the process can be tailored to each onboarding requirement so that the supplier experience is optimized. But, critically, it allows for data capture and provides an environment for managing all this data in one place – which can now be utilized for the analytics that the enterprise so desperately needs. A double whammy win!
With your data centralized, it becomes easy to distribute this information automatically to your other systems (such as ERPs and P2Ps). The portal can also act as the gateway into best-of-breed environments and provide seamless connection to things like your sourcing, contract management and analytics tools as well. Say hello to the first true enterprise grade supplier portal.
But isn’t this what the S2P suite is supposed to provide us with, you might ask? Yes, but these solutions were never set up to handle all your supplier spend; rather they focus on particular categories of spend, meaning that most companies have ended up with several systems. For instance: systems doing general indirect suppliers in one P2P, more specialized indirect suppliers in other solutions, direct suppliers in a third; and still having a long tail of other spend left (for instance low value invoice-only suppliers going straight through finance and their local, regional or global systems). And each of the P2P systems are focused on P2P for their own use cases leaving, unsurprisingly, significant gaps in functionality, security, and user experience.
Remember, suppliers expect to interact with you as an enterprise entity, not as an amalgamation of different systems and points of relationships. And more importantly, all these different systems and ways of dealing with suppliers do not lead to the efficiency and trust required to take the relationship to the next level.
The key point
Unless the data and analytics challenge is solved, Procurement’s progress will be stalled. One has to get out of the procurement functional mind set and elevate thinking to the enterprise level. Part of that journey is to design true end-to-end processes, select software that best tackles specific challenges and stop dreaming of the ‘all-in-one system’. Instead, now is the time to start orchestrating the enterprise system with a carefully selected blend of optimized solutions.
If you found this blog useful, then you may want to check out our other detailed resources as well, covering different aspects of master data management, data cleansing, data governance and more.