Procurement as an Ecosystem: Becoming a Strategic Partner in the Digital Age
A strategic meeting is in progress to speed up the market release of a product for competitive advantage. The Chief Procurement Officer (CPO) proposes an alternative to using a supplier-developed customized design and production process that will lock the company’s future product roadmap to a single supplier. The CPO suggests Design-based Bidding (DBB), inviting potential suppliers to propose a product design and manufacturing process that leverages generally available components to build a custom design that the company owns. This is done in collaboration with the company’s product engineering and management teams to achieve the required cost target, design objectives and go-to-market acceleration.
This is Next Generation Procurement, a partner focused singularly on value-creation for the organization. Besides its pivotal role in achieving cost savings, Next Generation Procurement can act as the much-needed innovation catalyst connecting external expertise with internal business functions to maximize their potential in co-creation. The mandate for Next Generation Procurement is to orchestrate the identification, acquisition and management of all external (third-party) resources in concert with an organization’s business imperatives to create sustainable value. This can only be accomplished by integrating with core functional stakeholder groups and aligning with their agendas.
Driving Sustainable Value
As in any core function, establishing a robust, well-functioning operating model is at the heart of the procurement ecosystem. Our research shows that 80 percent of high-performing procurement organizations make a distinction between strategic and operational roles. Imagine a model where operational execution tasks are removed from strategic planning; category managers are closely aligned with business stakeholders; a center of excellence provides category managers with the knowledge, data, tools, templates, methodology and coaching they need; and a service desk responds to the organization, streamlining and prioritizing routine tasks in a timely manner.
A robust ecosystem provides connectivity and information flow among the key players without friction. Next Generation Procurement calls for agile decision-making. Suppliers are identified based on relevant, timely market intelligence. They are selected based on best available information obtained during the strategic sourcing process. Suppliers are managed based on actual performance metrics, and changing risk and market dynamics.
The starting point for a healthy procurement ecosystem lies in creating a world-class data, information and intelligence strategy that provides visibility into spending decisions, consumption patterns, performance and quality data, supply chain risks, market insights and intelligence.
Information and insights help category management teams develop smart strategies and identify a portfolio of value-creation projects, and mature their categories over time. Such an approach creates sustainable value. Savings become a natural outcome, but not the objective — building sustainable procurement models is the primary goal.
The Power of Embedding Technology
Next Generation Procurement has to embed digital enablers to achieve its mandate. Robotic Process Automation (RPA), Artificial Intelligence (AI), advanced analytics, and peer-to-peer platforms are generic terms used loosely by procurement practitioners. Combining AI, RPA and analytics to provide a superior buying experience to corporate users is a must in Next Generation Procurement. It includes: weaving market insights and spend / supplier data to offer predictive analytics to category managers; applying knowledge management and AI technologies to capture, organize and reuse knowledge gained after each project; automating routine tasks where no human touches a Purchase Request (PR) before it converts to a Purchase Order (PO).
Re-focusing on Talent
A strategic approach also calls for attracting and retaining the right talent. Our research found that almost 90 percent of high-performing procurement teams consider business acumen, relationship building and category knowledge as crucial. In the new model, technology and analytical skills will also be important capabilities. Organizations will need to invest in new-age skilling approaches — such as micro-learning and peer-to-peer learning — with emphasis on knowledge management.
Architecture of a Procurement Ecosystem
Creating an ecosystem of talent, digital enablers, information, processes and knowledge artifacts is the keystone of Next Generation Procurement. Dedicated teams such as strategic support, source-to-manage execution and transaction execution enable laser sharp focus on crucial tasks. Insulated from tactical activities, category managers can focus on strategic initiatives. The strategic support team aids them with market research, category plan development and stakeholder workshops. The source-to-manage execution team manages projects, RFXs, contract authoring and execution. The transaction execution team minimizes the effort to review and respond to traditional procurement back-office operations.
There is no one-size-fits-all solution as every organization has a unique business context, legacy and maturity level. Along with the right team, leadership must be fully invested in and committed to providing the support required for the long term.
Another key aspect often overlooked is that any model will evolve. Expecting immediate results, or failing to continually adapt the model to changing business needs can be counter-productive for success.
Total business alignment – that is the value that Next Generation Procurement brings to the table. Our research reveals that 60 percent of high-performers in procurement have a clearly documented vision and value proposition. Procurement must be inducted into an organization’s inner circle – and be an integral part of a company’s goal-setting process from the beginning.
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