Long live agility. Savings are dead.
Bold? Perhaps, but it conveys a simple message; Procurement’s purpose is changing in light of faster market evolution. Competitive advantage comes from agility, and is progressively less likely from lower costs. What does this mean for Procurement now?
An agile Procurement function is not the same as Procurement functions of the past, but what do we mean by that?
By agile, we mean the ability to respond faster to market changes, and the ability to launch new offerings faster than your competition. It is more than speed – it is the ability to change course and do new things.
It is well understood that markets are changing quickly and that businesses (and consumers) must adapt. In the last sixty seconds, WhatsApp processed 29 million messages*. It did not even exist ten years ago.
It is less well understood what this change means for Procurement functions, however. The average large company spends more than 2/3 of its revenues with suppliers. Changing direction in that environment means not only changing what internal resources do, it means changing which suppliers are being used, and what those suppliers do for the organization. A function that just runs RFPs and marginally improves on the past will be swept aside by the winds of revolution.
The Agile Procurement function is different. It has to be in order to help the business change course. The Agile Procurement function is…
It cannot be measured on savings; it is involved in areas of the business which are inevitably new. There is nothing to save because there is no reference point for there to be a ‘saving’.
…famous for different things
Speedin’ things up, not slowing ‘em down; and process only where absolutely necessary. Efficiency is a by-product, not the goal. Compellingly persuasive and engaging, not aspiring to mandated compulsion
…made up of different types of people
Boy is the person who loves innovation, is curious, intellectually imaginative and capable of feats of exemplary persuasion different. Stepping up to the plate needs a new psychological profile. The people who go out to find networks of suppliers who can help launch new products and services (what we call Network Partners) are not the same as those who seek to negotiate a supplier into submission. They are motivated differently, have open minds, must be managed differently, and may struggle with repetition and convention. They hunger for the new.
…working with suppliers and managing risk differently
This new function has to find suppliers who can respond at pace and/or the ones interested in reshaping industries. These suppliers are often new kids on the block with nothing to lose and everything to gain. They may not be as good at bidding as a well established supplier; they will not have the best relationships compared to your incumbents, but they certainly stoke revolution. These new suppliers might be closer to leading edge – they will not yet have the six sigma disciplines that emerge with stability. Someone has to persuade this supplier to share their best ideas with your company first, and then figure out how to deal with the different risks which come from dealing with pioneers (this is a particular problem in the regulated industries).
…undertaking different tasks
The new function needs to do different things. It needs to simplify bidding and contracts. There may be no conventional RFI or RFP. You are expected to be constantly surveying the market for the new best, sharing these ideas with your colleagues to shape their thinking and coaching the new supplier into the business.
You then must develop the relationship into one where the supplier continues to innovate and bring the best ideas to you first. That means not bashing the supplier on the head for a price reduction every time, otherwise this supplier will take their best ideas to others first.
Interestingly, you also need to be able to wind up relationships faster and eject the old (sometimes entrenched) from the business faster. This facet of change is under-considered but becomes more important. It is easier for an innovative supplier to fill the vacuum created by gaps.
…different. As a whole.
We believe that the Agile function is kite shaped. The shoulders of the kite are top level ‘Network Partners’. Technology and other external business will resolve the activities which used to be handled by the base of the triangular hierarchies of old.
Agility is our new life
The generation that grew up with seven stage sourcing cycles will be replaced with a new generation. The thoughtful, current generation of CPOs is grappling with the above and the resulting challenges. Agility is life as we should aspire to it, and it is time to embrace it and its consequences.
(*source Statista Digital Economy Compass 2018)