Procurement’s role and status have been on an upward trajectory for many years, accelerating during the Covid-19 crisis. Leaders demonstrated their ability to respond to the many shocks incurred, keeping supplies flowing and costs under control. With business priorities shifting from damage control to restoring growth, innovative procurement leaders are positioning the function to be a driver of growth and thereby further elevating the function’s status. Yet at most organisations procurement remains an afterthought when it comes to revenue. Those need to quickly learn from the leaders, for the sake of their businesses and their staff. A new study by Procurement Leaders dives into the strategies being employed, providing useful examples and lessons. I’d like to elaborate on two areas I have found to be particularly important for success, unlocking supplier-led innovation and identifying new revenue opportunities.
Unlocking supplier-led innovation
Supplier-led innovation is hardly a new concept. It has been applied for decades in certain industries, notably automotive and aerospace, and is now recognised as a priority at most organisations. Approximately three-quarters of respondents to the Procurement Leaders survey indicated this is an activity procurement performs to support revenue growth – by far the number one response. Success can help increase margins, accelerate time to market and differentiate products/services to capture market share. Even in indirect purchasing, giving suppliers more flexibility in how they meet requirements can increase savings and sustainability. As organisations become increasingly dependent on suppliers, the potential value continues to increase.
A leader most can learn from is Meritor, which brought a unique approach to supplier collaboration and new product introductions to life, delivering more products at a higher profit and multiplying to support a board-level initiative and multiply its stock price. The key to the company’s success was fully digitising the complete supplier and product life cycle, which delivered scale and efficiency to its approach. Many other organisations have leveraged this strategy, but almost all can do so better to drive greater value. I recommend the following approach:
- Assess your current supplier collaboration capabilities/shortcomings. Most organisations overestimate their capabilities here, with 83% of respondents to a recent Forrester survey on supporting growth indicating they had closer collaboration with suppliers than their competitors (and only 10% worse).
- Structure. Implement a structured framework to supplier-led innovation, including when to bring suppliers into the process, how to communicate with stakeholders and monitor progress.
- Incentivise procurement with performance goals and KPIs that encourage supplier collaboration. And suppliers by developing yourself as customer of choice. While some factors, such as company size and brand, are out of your control, the top factor according to a Forrester Consulting study on collaboration is the timeliness of payments. All leading P2P solutions can address this.
- Digitise to enable effective collaboration across more suppliers and categories. Efficient communication, the ability to securely share information and project-manage efforts are all key to scaling collaboration across more processes, suppliers & categories. Remember that collaboration doesn’t start or end with one process, so be wary of siloed technologies. This is one of the core advantages of the platform approach increasingly adopted by leaders.
- Guide, rather than prescribe. Provide more flexibility to suppliers in how they meet your needs. The less descriptive your requirements are, the greater the potential for suppliers to offer innovative solutions.
Creating new revenue opportunities
The specific opportunities vary greatly across industry and organisation. But they are also the most exciting as they have the potential to actually turn your spend and suppliers into a source of competitive advantage. For example, a commercial real estate leader is building a marketplace to extend its pricing to (usually much smaller) tenants, thereby differentiating its properties from the competition. Or look at Sprint (now T-Mobile), which configured Ivalua Sourcing to run high-volume, forward auctions to sell used handsets at optimal prices rather than the highly discounted bulk prices obtained before. The initiative generated $1bn in incremental annual revenue.
While there isn’t a simple formula to apply here, I have seen a consistent approach across successes.
- Engage. Procurement must engage other parts of the business to collaboratively identify & execute growth opportunities. The most meaningful examples I know of all involve other functions. Their knowledge is key. It is not about procurement operating in a silo to save the day, but being a proactive and supportive business partner.
- Digitise agility. Select and deploy source-to-pay technology that enables rather than stifles creative ideas. Innovation does not come from deploying technology but applying it. While you will likely want a technology deployment to support standardisation for most of your processes, ensure you maintain sufficient flexibility to easily and quickly digitise new processes and ideas in the future, without dependence on your vendor’s unpredictable and uncontrollable roadmap.
- Market. Once you have brought a new revenue opportunity to fruition, promote the success. Procurement is notoriously bad at marketing itself, to its own disservice. Promote successes to educate employees on procurement’s potential and to encourage proactive engagement by other functions.
Organisations’ spend and suppliers are often an untapped resource to drive growth. Procurement leaders must show the way, for the sake of the business and to show that procurement is as relevant when growth is in focus as when cost is the priority.
Alex Saric is Ivalua’s CMO. Procurement Leaders is proud to have Ivalua as partners for the Innovation To Fuel Growth research stream.