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Supplier Strategies

Thu 22nd Oct 2020: Procurement's Time to Shine

If the Covid 19 pandemic has taught us anything at all it has taught us how reliant the normality of our lives is upon good procurement and supply chain execution. Whilst initial pictures on the news of empty shelves in the nation’s retailers, there are dozens more stories focused on how good procurement has delivered in our time of need. Distillers turning their equipment over to the manufacture of hand sanitising gel, clothiers re-sourcing to manufacture PPE and masks. The role of procurement has been thrust to the forefront and it has not disappointed.

All this while procurement professionals - like everyone else – are navigating a new environment of working at the kitchen table, unreliable internet connections as they vie for Wi-Fi signal alongside their Netflix watching families and Zoom calls interrupted by family pets.

Whilst the pandemic has been good in many ways at showcasing what good sourcing can do in extreme situations it has also come at a time of upheaval for those in the profession. The landscape is changing. More and more companies are beginning to see the value of procurement not in terms of percentage savings from the previous year, but in how it can help shape the future of the organisation. This move began in forward thinking organisations a few years ago and is beginning to find traction more widely. Whilst some companies are always going to measure procurement on the hard calculation of cost savings – in itself often a contentious issue between CFOs and CPOs – and supplier performance, softer metrics based on supplier innovation and supplier eco-system development are increasingly being used to encourage procurement professionals to think more strategically about their role in the organisation.

Let’s not forget that this is not an either/or situation. The ultimate goal will always be to maximise value. Cost savings, however they may be measured, may eventually come in the form of a new more strategic relationship between the supplier and its customer, one that maximises the opportunities for both parties and ensures mutual success.

The CPOs I have been talking to are keen to accelerate this drive up the value chain but are cognisant of the challenges faced by their companies in the face of the pandemic. Unless they are “Amazon-like” there will inevitably be a squeeze on the cashflow of the most robust of companies. Hiring freezes and redundancies are already becoming everyday news, and CPOs along with many other function heads will be asked to do more with fewer resources.

The conundrum many CPOs face is that whilst procurement professionals have adapted to the changes forced upon them by Covid 19, the shift from a backroom function to a strategic powerhouse requires additional skills that are not as easily acquired. Sourcing managers are used to being set year-on-year savings targets. It drives their narrative, underpins their conversations with suppliers and whilst they can be challenging it is comforting in its familiarity.

What CPOs will require of their sourcing managers is something altogether less comfortable. If cost savings is not the primary goal of a contract renewal, how will a sourcing professional structure their meetings with their suppliers? What’s the hook? How does a sourcing professional think like a business strategist?

Currently a good procurement professional will have a clear understanding of what his or her objectives are down to the unit cost and will be armed with strong game theory-based negotiating techniques, detail of last year’s on-time delivery performance in the minutiae and promises of jam tomorrow. But give them a brief to provide competitive advantage in their market and the conversations they need to have with their suppliers are fundamentally different from the ones they’ve been having.

So, what specifically are the new skills procurement need to enrich itself with? In short, today’s procurement professional needs to think like a CEO. The questions a sourcing manager should be asking are not about what leverage he or she has over a supplier to drive an 8% reduction over last year. Instead the questions he or she might need to answer are what strategies do I have for leading my organisations growth in the next 5 to 10 years? What are the opportunities and threats to my plans? How are my competitors doing this? Will my plans give me the competitive advantage we are looking for? What synergies do I have with my suppliers to maximise the advantage to both our companies? How do I take my stakeholders with me?

Business nous, strategic thinking and problem-solving skills will need to be supported by a raft of soft skills such as relationship building, change management, influencing skills, leadership skills. Whilst elements of these skills will be very familiar to today’s procurement professional, they will be needed in different contexts than perhaps they are used to. For instance negotiating a reduction on cost per unit based on a suppliers past performance is a different beast to influencing your own leadership as well as that of a supplier to drive up the level of partnership based on the promise of a new market

What is going to differentiate the winners and losers from 2020 and, by all accounts, the turbulent few years we have ahead of ourselves are the companies that can innovate grow and navigate new landscapes with their procurement lockstep with them on the journey. Its going to take some brave thinking both from procurement leaders and their host organisations, but those ahead of this curve will reap the rewards. Those companies are already upskilling their procurement teams, beefing them up with business skills and helping to develop the soft skills required to navigate new procurement environments.

Those companies that continue to bean-count and treat the procurement function as a tactical rather than strategic necessity might find they are missing valuable opportunities that might make a world of difference as the global economy becomes more turbulent