CPO Rising: Procurement Innovation Starts With a Conversation
The new CPO Rising report for 2014 is here! This report contains a wealth of insights and from 270 procurement executives that anyone involved in the procure-to-pay process will want to know about.
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 some of the points that stood out about this year’s findings. Last week, Andrew talked about convergence and doing less with more as the new normal.
Agility, innovation and collaboration are the watchwords of the day. In this post, the second of a series, Andrew shares his thoughts on how procurement can innovate.
Coupa: When people are charged with innovating in a do-more-with-less culture, sometimes they get scared to raise their hand with a new idea because it gets added to
an already impossible list of tasks. How can procurement innovate now that doing more with less has become the steady state?
Andrew: I think there's a misconception when people think about innovation. They tend to think, procurement's has to go out and find the next iPad or some other game-changing supplier product that's going to shift the market dramatically. The reality is that most innovation is incremental in nature and there are opportunities for innovation in processes within the organization and in how it engages with suppliers that can have an impact on company products and services.
When you look at procurement organizations today and how they compare in the market, those groups with some basic standardization of processes, automation, and a decent level of talent are ahead of the game. When you start to look at business in the future, we certainly expect to see increased competition. Today the windows where companies are able to charge a premium for their products and services are getting smaller and smaller. And, the opportunity cost of missing those windows is much greater than it's ever been before. Look at is the consumer electronics market, where we see market leadership shift very dramatically over a period of maybe three to five years. For example, in a relatively short timeframe, Motorola goes from the hands down market leader in cell phones to an afterthought in the smart phone market, acquired by Google largely for its IP.
The same level of disruption is happening in most supply markets today. It may not be as visible and it may not be as fast as the phone market but it's certainly happening. Procurement has to begin to anticipate these market shifts and begin to model and support the business as it's changing.
So, where execution, discipline, and rigor -–the Six Sigma approach--was once prized above all else, now, it is all about being agile and collaborative and finding ways to innovate.
Coupa: Can you be more specific about how to innovate around processes and suppliers?
Andrew: Part of it is getting better collaboration with the business decision makers and subject matter experts within the organization. For procurement to continue to maintain its momentum, it needs to be a better partner with the business. That's a very commonplace strategy, and procurement organizations around the world know that.
But the reality is that today, with most of the sourcing opportunities that come up, the procurement organizations or sourcing teams are getting involved in midstream. They're not really engaged at the front end of the discussion where they're talking about new product development or about a specific business need that's coming up. Often, procurement is brought into the conversation at the point where there is a defined need and only six weeks to fill it at some specific price.
Coupa: When they've known about it for months . . .
Andrew: Right. So getting procurement into the conversation earlier allows for a broader and hence better, discussion. Those who aren't in procurement are given a budget and focus on whether or not they can get what they need and stay on budget. They tend not to ask the deeper questions such as why do we need this, what's the ultimate business purpose, how well have we defined what we need, and who are the best suppliers?
Getting procurement into the conversation earlier can allow them add discipline and rigor into the evaluation process. They can go out and canvas the supply market to understand market trends, and which suppliers that are best-equipped to deliver what is needed.
What I'm describing here doesn't sound like something that's sort of innovative or transformative, but by having conversations with both sets of stakeholders (buyers and suppliers) with enough lead time to incoporate new information and make changes, you begin to unlock different things that were unknown or that would remain undiscovered in a sourcing process that's simply oriented around, “here's what we need, deliver it on this time frame.”
Coupa: So, that's not innovation per se, it’s more a matter of getting the information that you need to be innovative.
Andrew: Right. How you actually go about innovation needs to be in a much more deliberate fashion. When you look at procurement organizations that are successful in quote-unquote “driving innovation through their products and services,” they actually have a formal process where they go out and try to find those opportunities.
They have to market themselves to the current supply base or potential suppliers, and then do some type of vetting process of identifying and selecting the best opportunities to actually bring back and implement.
Internally it's pretty clear which stakeholders you should be talking to. With supply markets, you have to take a broader view. You have to be able to do an analysis of who you should be talking to, because you can't have conversations with 40 different suppliers on every bid. So there's a balance there, but if you're not engaged in proactive conversation, you're just going to fly right by the opportunities to innovate.
We talk in the report about how one CPO works to try to convince his people that yes, you may be the category managers, but your suppliers, have information that can be very valuable to the business. It's by getting into those conversations that procurement can begin to unlock innovation and value.