You aint seen nothing yet!
Those regular readers of mine realize that sometimes I reference song titles ... a lot.. Sorry!
Once again, it’s a report filled month! This month there have been three standouts for me. I’m always a fan of Andrew Bartolini, and its good to read the State of procurement report again. There’s also an interesting Gartner report around navigating supplier management. Supplier Management has never been more important than right now, finally is Sustainability the next paradigm shift for procurement? Well the Oliver Wyman report thinks so, it likens it to when Total Quality Management (TQM) shifted thinking previously. Its an interesting report. As always, love your feedback and comments, and ill be back next month with another report and or article review!
Ardent Partners State of Procurement (and the CPO) 2021
The Ardent partners 2021 report, like the Hackett report there was a webinar that went with it. Some interesting things on the Webinar. The customer stated that the Initial interest they had was dynamic discounting, before realizing that supplier management and master data was the key to get those benefits. You may remember last month I spent a bit of time discussing Supply Chain Finance, and how the Beroe article suggested it was an essential tool in every procurement leader’s toolbox.
An interesting learning, they said was that the ones they didn’t think would take discounting did and vice versa. A good takeaway is to make sure that when looking for the research and expertise about running one of these, is to make sure the advice you are given is based on solid research and experience.
So you can see the top priorities, in the screen shot. There is cross over from the Deloitte and Hackett as most of what those reports say are also reflected here but what's interesting is the call out of the digital transformation. The link to Deloitte is that they had drive efficiency, and I think digital allows that through automation.
Agile is there again, we will hear more and more of this throughout the coming years. SAP recently collaborated with Oxford Economics on a range of research reports around Agile which has some interesting findings for driving digital transformations.
Looking through these priorities I think they are all clearly linked. If you drive the digital transformation, you will streamline and improve processes (assuming you don’t replicate manual process to digital) which allows you to become more agile and as Chris Sawchuck said in the Hackett report, if you want to drive and increase your influence, you really need to get the basics working really well. Well that’s digital!
Savings is never going away, and here it’s at number 5 which is a little lower than the others had it but still clearly a priority OK
Interestingly the report calls out some of the strategies to achieve this and the biggest strategy is to improve internal comms and collaboration with stakeholders. 49% of CPO stated this is the main strategy to overcome these hurdles and address their priorities.
When the report talks about aligning systems, its alignment with the other parts of the organisation. With AP and treasury and finance. As transformations within procurement rarely operate in a vacuum.
So the need to engage with as many of the key internal stakeholders here is imperative if you the procurement team to align these processes and ultimately drive success. Therefore, it’s a top strategy for procurement leaders.
Quote from the report – “it’s easier to drive adoption of a new solution when it has been selected as part of a collaborative processes a that incorporates the views and requirements of all key stakeholders” This is really going to help adoption and this is an issue as we talk about below
Whilst budget constraints are high, it’s worth noting that this is a big drop (46%) from two years ago and the report speculates that it may be easier now for procurement to get the budget it needs.
The report states that CPOs are planning to increase their investments in tech over the next 2- 5 years. In general, they say that adoption is overall low, but that Sourcing adoption has also risen a lot over the last two years. Still plenty of room for growth is basically what the report talks to.
An emerging trend is the interest in supplier management solutions. No doubt spurred on by not having visibility into the suppliers during the pandemic, and the need to increase supply bases.
So the report goes into some metrics which they will be doing a deep dive in the next month or so Ill spend more time on that when they do, but quickly some takeaways
Spend under Management (SUM) is flat, and has been for a few years.
There is a theory that the average organisation is happy at 2/3 managed. This is a lost opportunity, maybe because of number of people, maybe because of poor time-consuming processes or not adopted tech. Probably a mix of all three.
A key thing to remember is that Every new dollar that goes under management it represents savings of 6-12% when sourced for the first time.
One consistent area of growth is the number of suppliers digitally enabled.
The report states that in an age of global commerce, connectivity between buyers and suppliers that is enabled by technology will be a critical piece of the global business environment. Therefore, the need to connect buyers and sellers together via a network is a strategic driver for many.
The report also suggests that another tactical reason to digitally enable suppliers is that it also lowers transaction costs which makes your more efficient.
The non-compliant spend is important. – every dollar spent with non-compliant contracts represents 12-18% increase in costs according to the report. So understanding why there is non compliance (are the contracts good enough, can the items be found by the casual buyer) is a key area to diagnose.
Gartner Report - Navigating Supplier Management
I've mentioned before that I think Supplier Management is a really key area for procurement to get control of.
Many organizations intuitively understand the value of having a supplier management application. However, many companies still rely on internally developed tools, or excel which are limited in effectiveness due to only having access to internal data sources.
The pandemic has brought renewed interest in the supplier management solutions market. The lack of visibility into supply chains, the increase in supply bases the need to find and use more and newer suppliers has increased the reliance on this area.
Supplier management encompasses
Supplier information management,
Supplier governance and risk,
Supplier performance, and
Supplier development strategies.
They help organizations monitor and better plan for the major supply shifts experienced in supplier health, material availability and price volatility.
There is often overlap among them. For example, information gathered by a supplier information management application can be leveraged in a risk management application. Typically, most organizations should start from the top and establish solid supplier information management capabilities to serve as a foundation for the more strategic activities. As supplier management matures, additional measures are added.
At the centre of the report is that the market for supplier management solutions is fragmented, and there are several different types of applications
You can see how they have segmented the services types we talked about on the last slide with the vendor types. Where I think this is slightly wrong is that it doesn’t include the SAP Ecosystem and the services that we have that none of our competitors can match.
Supplier information management solutions were originally created to provide supplier on-boarding support for buying organizations. They consist of tools and services to collect the necessary information to set up (or onboard) the suppliers in P2P or procurement modules of ERP systems – Some providers also offer this as a service during implementation (free or paid for) so there are other ways to drive this.
For both risk and integrated risk, the report talks about using third party data providers to augment these solutions. For example
S&P Capital IQ for financial data
D&B Supplier Evaluation Risk Rating
Rapid Ratings’ Financial Health Rating
Eco Vadis’ Corporate Social Responsibility (CSR) rating
Looking at broader providers ECO systems is key here to understand how all of these really play and talk to each other.
Oliver Wyman – Sustainability
Sustainability is a key area for procurement. On the Hackett and Deloitte reports it ranked as a key priority. I really enjoyed reading this and how it identified some great strategies for alignment with achieving these goals. The report suggests that it could be the next paradigm shift as TQM was last century!)
The report which is a survey of over 300 large organisations. suggests that CPOs must assume leadership for ESG at the executive table if organisations are serious about carrying out their ESG policies, and, 80 percent say they are committed to sustainability targets.
But half had not yet reached a supplier engagement level of 60%, meaning half their spend in direct procurement categories was not tracked from an ESG perspective. For indirect categories, such as services, the figure was 40%.
The proportion is even lower when it comes to those actively scrutinizing supplier compliance with ESG standards and drops once again when we move from looking at direct suppliers to those in tier 2 and 3. IE this is supplier management and performance management again.
The procurement function is at the heart of any transition towards sustainability: its key assets, including its ability to connect with stakeholders and create coalitions, are essential to success in integrating ESG.
The report identifies a 12-step process at the heart of the way for procurement to drive sustainability, from aligning objectives to revising category strategies, measuring against targets and embedding this into TCO calculations.
To achieve integration of ESG into the procurement processes requires ensuring that sustainability commitments and objectives are well-connected with the actual decision-making processes. Without this, there can be no significant progress. The report goes into a couple of ways to do that from supplier panels approved through third parties as well as adjusting TCO as part of its evaluation. Overall a really interesting and thought-provoking report.
I hope i've whetted your appetite to read more about these reports. Links to downloaded them are embedded so please download and read them as your perspective will give you something different.
I will be back next month, reviewing whatever comes out!