CPO Rising: Agile Procurement Requires e-Sourcing
The new CPO Rising report for 2014 is here! If you’re in procure-to-pay, you’ll want to get your hands on this report, as it contains a wealth of insights on what the future holds and how you can prepare.
Looking ahead, as the pace of business quickens and procurement tries to do more with the same resources, organizations will need to become more agile.
In our fourth interview of our CPO Rising series, we spoke with report author Andrew Bartolini, Managing Partner and Chief Research Officer at Ardent Partners, and Publisher of CPORising.com, the first independent media site written for and about Chief Procurement Officers, about how to do that.
Coupa: Let’s talk about agility, because you’ve called that out as
a key imperative. How can procurement maintain discipline, do more with less, and become more agile in the process?
Andrew: This goes back to the shortening of product life-cycles. The window of opportunity to charge a premium for a most products and services is collapsing. There are fast followers who come up, products get commoditized, and this is all happening at a much faster pace. Sourcing cycles have to accelerate in a like manner.
If your supply base today looks exactly like it did ten years ago, you’ve missed opportunities because supply markets are moving much faster than they used to. Companies aren't able to maintain market leadership for as long as they used to.
If you were to fast-forward to ten years from now and your supply base looks like it does today, you're probably going to be in serious trouble. Agility means adapting to market conditions and business needs and these are changing more quickly than in the past. For procurement, agility requires consistent review of your strategic suppliers and markets to understand where shifts are happening, and the ability to perform fast evaluations, make decisions and execute seamlessly when a change needs to be made.
Coupa: It sounds like this should be a near constant process.
Andrew: For strategic suppliers that have critical impact on your products and services, yes. It's going to vary by industry. If this is not something you’re doing now, you need to start, and if you're doing it today, you probably need to be doing it at a faster pace.
We've hit a point in the market where there's not a lot of pressure on procurement departments relative to where we were five years ago. Today, the opportunity is to start thinking about, where's the business going, and how a CPO can get his or her organization aligned with what the business needs will be in three or five years.
CPOs don't have to shift their business every three months, or have this dramatic overhaul. What's needed is getting better alignment with the way the market and business is changing.
For example, one thing is to consider where the large market opportunities are going to be in next decade. Are some of those in Africa? If the answer is yes, what does that potentially mean for a procurement organization and the supply chain if it's doing no business in Africa today? What actions are needed?
There are opportunities today to invest in many newer markets. Which are part of the next frontier from a sales and revenue standpoint? Does it make sense to begin developing local capabilities now as a way to help build out and understand that market? CPOs should be thinking about what will be needed to support where the business is going, not just where it is today.
Coupa: You had some very strong words in your report about e-Sourcing, saying that it is inexcusable in 2014 not to be using e-sourcing. Is the need for greater agility one of the reasons for those words?
Andrew: Yes, in part. The strong words about e-Sourcing are based on the fact that we're in 2014 and organizations that are utilizing an offline process eschewing technology can't be strategic. If you’re doing strategic sourcing, I think you have to strip out the word “strategic” if you're doing offline sourcing today.
I'm a firm believer that any supplier negotiation that results in a contract should have some type of audit trail of the discussion and the negotiation. There should be some documentation that explains why a contract was awarded to a supplier, what the discussion was and the considerations were.
In today's market the average tenure for an employee is five years or less. You have category managers and sourcing teams who are building up expertise in the category and relationships with suppliers and then they leave the company. If they’re doing everything offline, everything goes with them except for what's left on their laptops, email and their notebook in the desk drawer. All of that knowledge has just left the organization, and I'm saying that is absolutely ridiculous.
Let's get this information captured and archived in an automated way. I've been in this industry for 15 years, and I've spent 15 years talking about the benefits of e-sourcing from a price-discovery standpoint, from a process efficiency standpoint, all of those things are still true. Groups typically get better pricing and better results faster when you use e-Sourcing.
But it’s not just about running better sourcing events and making every bid a competitive bid. It’s about using the system to capture information so that we get smarter going forward, which is just basic common sense.
Coupa: Do you feel like technology today is such that this is an implementable recommendation for almost any company?
Andrew: Yes. There’s a learning curve that has to be ascended, but absolutely. Even if you’re just taking basic information and putting it into some kind of system of record, that's a step forward for many organizations.
Next: Toward an industry-standard definition of spend under management