3 Realistic New Year’s Resolutions for your Procurement Organization.
I’m one and a half weeks deep into 2019 and I ate half a bag of potato chips last night as I simultaneously began to lose interest in ‘book #1’ of my 2019 reading list.
Our Western society has developed a widely accepted notion of the need for a ‘fresh start’ with the coming of January 1st and the New Year. New Year’s Resolutions are meant to serve as the North Star on our incessant human journey towards self-betterment. Resolutions are the promises we make to ourselves to improve or develop a particular aspect of our existence. Sometimes we keep them to ourselves and sometimes we post them on our Facebook statuses.
Unfortunately, we’re all too well-versed in making these resolutions with unrealistic expectations.
Why do we make New Year’s Resolutions? To break them?
When stripped down to their core, New Year’s Resolutions are wishful thoughts — backed by a promise of self-perseverance — in the hopes to make a change. Whatever our resolutions may be, it is, indisputably, change we seek as an outcome.
Speaking of change always brings me back to John Kotter’s 8-step Model for Change and Change Management. Kotter suggests that change must be managed with a clear process in order to be impactful. This is applicable to our personal lives but even more so our professional lives and the company’s we’re members of.
In my opinion, there’s a clear element missing as a prelude to Kotter’s change model. Change is certainly best managed when one creates a climate for change, keeps an organization engaged in the change and implements/sustains change as planned. But, change, just like New Year’s Resolutions, materializes most often when our expectations of desired change are realistic.
I have no problem with setting ambitious goals, but I also know that I really like potato chips.
Catch my drift?
Here are 3 Realistic New Year’s Resolutions for your Procurement Team:
Digitalization of daily activities and processes should be the main initiative for all procurement teams in 2019, if not already in the works.
As our first resolution for your procurement organization, let’s remain realistic and boil the digitalization of procurement systems down to “digitalize something.”; one process, one resource demanding task, one traditional procurement practice, one analysis method.
You can’t shoot for the moon before you build your rocketship. Whether you’re just putting together blueprints for your engine or are already on your way out of Earth’s atmosphere, you should stay true to this resolution and continue working to further develop your digital procurement strategy.
Digitalization is often bunched together with digital transformation, and the ambiguity of the language/understanding of the two can be dangerous. Too often digitalization is seen as a daunting task that will entail lengthy implementations of new digital systems, resource consuming training of stakeholders/users and disruption of existing business processes. Digitalization isn’t a digital transformation, and to help clarify I’d like to offer a definition below, from the digital procurement wizard himself — Bertrand Maltaverne.
“Digitalization: impacting business processes (daily operations or activities) with the use of digital solutions.
Digital transformation: is a digital-first approach encompassing all aspects of business, regardless of whether it concerns a digital business or not. It leads to the creation of entirely new markets or business” (Maltaverne 2017).
The misconception of what digitalization really entails creates reluctance amongst stakeholders, especially senior stakeholders. 30% of CPOs in the 2018 CPO Survey listed “limited senior stakeholder endorsement and prioritization”, as a significant barrier to the effective application of digital technology in procurement (Deloitte 2018).
These emotions of reluctance for digitalization are clearly present in many procurement organizations, and funnily enough, remind me of the days of my early childhood; being a picky eater. I didn’t like stuffing. Then again, I was reluctant to even try stuffing. Simple math tells us, I didn’t really have the right to say I didn’t like stuffing, because my reluctance to try it made its flavor unknown to me.
Don’t let digitalization become your procurement team’s stuffing.
Trying to ‘Digitalize Something’ is a realistic resolution, and a reasonable goal if you’re looking to future-proof of your procurement organization.
Digitalization ties directly into a competitive edge, driving collaboration and innovation within the supplier base, and the ability to make more intelligent, data-driven decisions.
Locating areas where you and your team can gather data from your supply chain is a good first step.
These key data points will be individual to each organization’s business-critical goals, but some areas where digital solutions are present within the market are:
· Spend analysis
· Operational Procurement: Contract Management
· RFI, RFP, RFQ
· Product Life-Cycle Management
· Supplier Relationship Management & Supplier Performance Management
· Auditing and Quality Management Systems
Digitalization of procurement processes will show a rather immediate ROI by saving your team time of manual tasks and will create long-term value by improving quality of supply chain data sets. Data is the groundwork for applying innovative technologies to make your processes more intelligent in the future (Automation, RPA, Machine Learning, Predictive Analytics, and AI).
2019’s Procurement Mantra: ‘Digitalize Something’
Leverage Supplier Relationships
You’re a procurement wizard. We know this. Your team knows this.
But, the simple fact is:
You can’t do it all yourself!
Make a resolution in 2019 to start leveraging your supplier relationships to build value for your overall supply chain.
The graphic below is a journey our team at Kodiak Rating looks to help procurement and sourcing teams achieve. This is sourcing and procurement that drives top-line and brand value. To truly leverage supplier relationships, one must keep this journey in mind, but be practical and start in the bottom left-hand corner of the graph; risk management.
How will you complete this journey? An easy way to start… Complete the 4 steps of SRM excellence.
1. Know Your Suppliers
One must first focus on developing and executing a comprehensive supplier risk assessment, which may be operational and boring (without technology), but risk management will serve as the hygienic factory necessary to enter collaborations with suppliers, grounded in governance.
2. Communicate w/ Your Suppliers
Build a vision together with compliant suppliers. Enter contracts with suppliers who can prove themselves to be partnership material. This means that you should look to enter agreements with suppliers that share your corporate value and goals.
It’s also important for your procurement team to communicate internally to define the objective of the supplier partnership relationship. Ask yourself: Is the supplier a strategic partner, a value partner or a profit partner etc.? Having a definition of the relationship as a foundation of your collaboration with your suppliers will allow you to more clearly communicate your expectations, intervene when need be and serve as a guiding principle in negotiations.
Communicating goals and expectations to suppliers should also be done implicitly, as much as directly, within buyer-supplier touch points where such is possible. For example, having suppliers agree to a comprehensive Supplier CoC that is reinforced with clear questions in a Self-Assessment can be a method for implicitly communicating and driving expected behavior and performance.
3. Evaluate Your Suppliers
Identifying KPIs in your procurement organization will be a crucial prerequisite for evaluating your suppliers’ performance.
First, develop parameters by which supplier performance will be measured, and then you’ll be able to fill that closet with the proper shelving. Some supplier performance areas I think you should consider evaluating within are:
· Supply Chain: Adverse impacts of a suppliers individual supply chain, and the risk management completed in tiers 2&3.
· Quality: Product quality, on-time delivery, customer satisfaction, management systems present, auditing results etc.
· Sustainability: Overall environmental impact visavi people, planet and profitability.
· Commercial: Price point and competitiveness.
· Innovation: Ability for a supplier to create collaborative innovation within a product or category area.
· Proactivity: Level of engagement in the buyer-supplier relationship.
Some of these evaluation data points will have to be sourced from qualitative observations by internal stakeholders (category managers/strategic purchasers/quality managers) while other data points should look to be gathered from a PLM, ERP, or P2P solution.
4. Innovate w/ Your Suppliers
Well managed supplier relationship management — risk management, assessment, communication of goals, and performance evaluation — will allow you to quickly locate which suppliers have the competency to innovate.
Allocate your resources to these suppliers accordingly, as their innovation will likely enhance your value proposition, create a competitive edge, or offer new-market potentiality. This kind of enablement has been branded Supplier-Enabled Innovation or SEI.
It was found by ISM in 2017 that “25%-45% of revenues coming from product innovation and up to 65% of innovations are sourced externally through external partners and suppliers, SEI represents a treasure trove of opportunity” (Abdullah 2017).
Your suppliers are experts in their fields, so allow them to let their expertise shine!
But, harnessing true potential supplier innovation can’t be possible without a clear definition and communication of innovation goals. You could avoid inconsistencies in supplier innovation (manage innovation risks) by segmenting innovation priorities: “(1) Transformative, New to the World Innovation (2) Substantial New to the Category Innovation (3) Close-In Line Extension Innovations (4) Productivity Driven Innovation (5) Sustainability Driven Innovation. Deploying more than two strategies to a product category will drive an unfocused approach” (Spend Matters 2013).
Mapping of your innovation priorities will allow you to best allocate resource spending within your procurement team. Furthermore, you’ll be able to categorize suppliers by products and skillset into specific innovation segmentations and begin to locate/leverage the key supplier relationships to create focused innovation results.
Value in procurement and supply chain management has long been tied to, and put importance upon, the monetary measurements of value(ex. cost, price and profit margin).
So, what is it about today’s global marketplace that has created a shift in the way we talk about value? Is it shifting corporate initiatives? Market trends? Globalization? Consumer concerns?
I believe the next generation of value in supply chain management, Value 2.0, takes into account a holistic understanding of what it requires to create value.
A value chain in a traditional sense is typically modeled after Porter’s Value Chain which focuses on the primary and support activities in an organization that works in harmony to drive top-line value (Seen below).
While this model is a staple in the value analysis and value enhancement of any product/service, it’s also 30+ years old. Value in 2019 encompasses a much wider scope of primary activities than Porter’s modeling, and the output isn’t solely marginal gains in profit or market share, but also in societal and environmental impact.
Value 2.0 is an ideology that encompasses a larger scope of profitability and involves new stakeholders who are impacted by value creation. We must account for value creation in this next generation by gauging value in new dimensions directly tied to people and planet, not just profit. Value 2.0 requires us as business professionals — more specifically procurement professionals — to ask ourselves 2 very important questions:
1. Who am I creating value for?
2. Is anyone(thing) being impacted negatively as a result?
I urge you to make it a resolution of 2019 to work towards cementing procurement, sustainability and quality as new primary activities in your organization’s value chain (if they’re not already).
“My New Year’s Resolution Is…”
I hope this post has inspired you, or spiked a train of thought, to enact change in your procurement organization.
You’ve missed a few weeks of the New Year, but so what! Miss a few months even! What’s important is that you continue to keep your eyes on creating impact and change in your procurement organization and corporate vision.
And, above all… Make your New Year’s Resolutions Realistic.
In the meantime, I’ll be enjoying this bag of chips I started eating last night.
Until next week.