In the world of sourcing, the more competitive the marketplace, the greater the need to negotiate, score and scrutinise your supplier networks for value, diversity and innovation, rather than just focusing on price. Technology is the driver to streamline, automate and deliver insight and action-ready data. But remember, theory alone won’t suffice, here are seven crucial pitfalls to navigate.
In our New Rules of Procurement Engagement series we are engaging with leading thought leaders and practitioners, from global powerhouses to tech wizards, to gain insight into the changing landscape taking place in finance and procurement.
In the latest eBook: Reevaluate Sourcing, we asked the changemakers to share their insight on the most common barriers and challenges that hinder sourcing. Here is what they said.
Seven Common Pitfalls that Hinder Sourcing
Times have changed. Organisations must expect the unexpected. And they have to be ready.
“Five years ago, we were in the situation where, yes, the world was complicated, competition was there, something was always going on in the business world that companies needed to adapt to but… that was very much built into the vision. It was like driving a formula 1 car, a lot of things can happen but you’re going to stay on the track.” Emmanuel
The CPO Rising report by Ardent Partners identified a multitude of high and medium level risks facing procurement.
Unsurprisingly, the top concerns were inflation, recession, budgetary pressures, and supply chain disruptions due to geopolitical issues.
“Companies are starting to realise that, ‘Okay, maybe I’m not driving a formula 1 car on a race track. Maybe it’s more like an off-road situation.’ This changes your strategy drastically. It’s changing the rules.” Emmanuel
The traditional purpose of sourcing was to get the best deal or price. This is still true, especially in an inflationary market, but there are many more layers of complexity. Managing cost savings has been joined by resilience, agility, ESG obligations, compliance and all bound by the requirements of devising both short term and long term strategies.
“One of the biggest concerns that CPOs have is not building supply chain resilience for the long term, but addressing more immediate and current problems.” Jon
Mastering this new situation is where excellence starts.
Technology alone will not solve problems. Technology is a tool that first requires a person to have an idea of how they want to use it and then the skills to execute on that vision. A thorough requirements analysis is critical to understand what you want to do, how people will use the technology, how the technology will help people collaborate, how it will help meet objectives—for the individual right through to the company as a whole.
“Once you’ve understood where you want to go, then you can look at your strategy… and once you understand your strategy, you can start looking at your toolset as in which platforms align to those strategies.” Alun
Procurement needs to get serious about digitalisation—and we are not talking about spreadsheets and emails!
“We’ve had technology available for 25+ years now so I think any procurement function needs to adopt a digital-first mindset when it comes to sourcing.” Jacob
Research produced by Probrand, in collaboration with CIPS, has revealed that procurement professionals feel held back by a lack of digitalisation with almost two thirds (63%) still relying on manual systems to complete standard tasks, such as placing orders, and 70% saying they spend a ‘significant’ amount of time emailing or on calls with suppliers.
“Technology is what will address, automate and fix some of these constraints that we see right now with us trying to do everything at once in a manual way.” Jacob
Professional training has been a weak spot for procurement teams in the past. Many people ‘fall’ into procurement from other areas of the business and, as a result, tend to learn on the job.
“Generally, if someone’s joining a sales or a finance role, the requirements both before and after University are more defined but procurement is an area where people are still finding their feet in terms of apprenticeships or institutional programmes that people use to get up to speed.” Alun
Supply chain issues have hit the mainstream media in recent years (caused by everything from port congestion, manufacturing delays, raw material shortages, extreme weather events and even a blocked Suez Canal!).
The upside of this notoriety is an increased recognition and interest in procurement as a top career choice, “Almost half (49%) said working in procurement and supply management was a conscious choice, a strong indication that the function is growing in recognition and desirability,” CIPS/Hays Procurement Salary Guide & Insights.
The types of skills that you need should be driven by your strategy. Where is your team excelling or lacking in terms of executing on your business strategy—analytical skills, data-driven, insight-based skills, negotiation, ethical sourcing, collaborative, strategic skills? Having this awareness will bring more clarity and precision to new talent searches and nurturing existing employees.
“A number of surveys came out with CPOs saying, ‘We don’t believe that we have the necessary skills and the requirements to deliver our strategic objectives,’ and that was before the pandemic. So when you look at the ‘people’ problem, are you investing in education and training?” Jon
In some cases, companies have implemented a sourcing methodology and the tools to support it, yet the processes are not followed. This comes down to senior influence and a compliance issue, that the methodology is not being followed in all sourcing events, but why?
“Simply, there are a million priorities if you work in procurement these days. We have the cost agenda, we need to secure supply, we have other priorities around ESG… procurement is drowning in work and that has an impact that sometimes we may cut corners when it comes to sourcing—it’s easier to do it ‘quick and dirty’ rather than following the methodology that the company has adopted.” Jacob
“There’s the question of how much you mandate the tools. I think my view on this has changed over the last 13 years to believe in maybe a bit more firmness and rigour in terms of what tools procurement should use. Within the sales and finance profession this is very well understood, ‘you need to use this tool to raise an invoice’. Procurement really should have the same kind of remit in terms of ‘you should use this tool to run a tender’.” Alun
To meet today’s (and tomorrow’s) challenges, procurement must embrace competition. There is a tendency to stay with existing suppliers and renew existing contracts. But this approach just won’t cut it. To ensure the best market-value contracts, procurement must leverage competition within its supplier base.
“If we really want to drive a professional process and get the optimal deal for our company, especially in these times, we need to leverage competition. I am a strong advocate for a market-driven negotiation process in the shape of e-auctions.” Jacob
But e-auctions shouldn’t be an isolated exercise. They must add value to the user, the department and to the organisation so interconnected systems and tools are essential.
“With inflation increases and recession everybody is focusing on cost, and there is simply no more efficient way to claw-back cost savings and find the right market level than e-auctions.” Jacob
Procurement is not an island. It’s not enough to just build bridges. It must truly start to operate from the centre of the organisation, to see itself as an integral part not an adjunct or optional accessory.
“Some companies have stronger silos between departments than others. And this is not just with Finance and Procurement, it can be wider than that.” Emmanuel
“It’s very rare that you can do something by yourself within an organisation, and it’s very rare that a department can do something by itself in an organisation. In other words, you have to collaborate with other people, other departments, your supply chain partners, your customers, suppliers and so on.” Emmanuel
By its very nature, procurement departments tend to evolve. Few companies (if any) start from day one with a procurement person. Furthermore, the point where they do set up a procurement function—50, 100, 200 million in revenue—depends very much on the industry. So procurement is in a constant state of evolution requiring new processes and methodology to meet the demands of the business. This level of micro-changes can be challenging for many people.
Now, add the continuously changing conditions in the economy into the mix and you have a perfect recipe for disengagement, resistance and fear.
“When situations change, weaknesses that may have previously existed, were not apparent as fundamentally they were relatively unimportant to the situation that the business was in.” Emmanuel
“The situation today in the business world has changed drastically. And when that happens, the weaknesses appear and people say, ‘we should have done something about it long ago’. This is true, but nobody did anything because it wasn’t worth it at the time.” Emmanuel
“There’s always a fear of change, especially when we talk about the use of technology. We are all human and we have our habits and we know where we are comfortable and then suddenly changing that, with something as important as for example, the annual tender that I run as a category manager, I can completely understand why people would have reservations. But it is a bit of a Catch 22, because all of these priorities that everybody in procurement is exposed to these days creates more work. The solution to that is technology but that does require a change.” Jacob
So, how will you overcome the barriers and challenges hindering your sourcing initiatives?
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