EXCLUSIVE
Issue 1 / April 2019 / www.cpostrategy.com
DO PROCUREMENT LEADERS FEEL LET DOWN BY TECHNOLOGY?
THE LAU NCH I SSUE
HUMANISING T H E S U P P LY C H A I N LEO Pharma’s Head of Operational Procurement, Martin Starcke talks us through the company’s digital transformation
LISTED: THE BEST GLOBAL PROCUREMENT EVENTS OF 2019
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REASONS WHY S U P P LY C H A I N STRATEGIES FALL SHORT – AND
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I am very excited to welcome you to the first issue of CPOstrategy. Procurement is undergoing nothing short of a revolution right now and we will keep you up to speed with all the latest insights and stories from the biggest names in this space. CPOstrategy is from executive, for executive. Procurement is being transformed by new technologies, but people are the secret to success according to LEO Pharma’s Head of Operational Procurement, Martin Starcke in our cover story t h i s mo n th . D r u g developer LEO Pharma is seeking to revolutionise its procurement right now through the deployment of a decentralised system. However, Starcke, believes that the digital transformation of procurement is about a lot more than software or computer services. “It’s fundamentally about people. I think implementing software, implementing the technology is around 10% of your effort,” he says. We also have an exclusive interview with Frank Vorrath, Executive Partner for the Gartner CSCO and COO Service who talks about the importance of delivering real value to its clients. Elsewhere, we speak to procurement consultancy Efficio who ask: “Are procurement leaders feeling let down by technology?” We also detail the barriers to smart procurement technology and list the five top reasons why supply chain strategies fail and what to do about it. Plus, lots, lots more.
I hope you enjoy the issue!
EDITOR IN CHIEF Kevin Davies EDITOR Lucy Dixon CONTRIBUTING EDITOR Jason Walsh CREATIVE LEAD Mitchell Park SNR. PROJECT DIRECTOR Andy Lloyd PRESIDENT & CEO Kiron Chavda
– K evin Davies, Editor in chief Content@b2e-media.com
PUBLISHED BY
Contents
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LEO PHA RMA : HU MA N I S I N G THE S U PPLY CH A I N
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CONTENTS
Use these menu icons throughout the magazine to navigate back to this page
20 THE BARRIERS TO SMART PROCUREMENT TECHNOLOGY
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FIVE REASONS WHY SUPPLY CHAIN STRATEGIES FALL SHORT – AND WHAT TO DO ABOUT IT
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WHY PROCUREMENT PROFESSIONALS MUST OVERCOME DATA HURDLES
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THREE BRANDS EMBRACING DIGITAL INNOVATION
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28 DI GITIS ING THE SUPPLY CHAIN
DO PROCUREMENT LEADERS FEEL LET DOWN BY TECHNOLOGY?
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84 THE PROPER ROLE OF IT IN THE PROCUREMENT PROCESS
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LEO PHARMA
H U M A NI S ING THE S U P P LY CH A IN PRODUCED BY K i ro n C h avd a WRITTEN BY J a s o n Wa l s h
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PROCURE ME NT I S BE I NG T R AN S F O RM ED BY NEW TECHNOLOGIES, BUT PEOPLE ARE THE SECRET TO SUCCESS ACCORDING TO LEO PHARMA’S HEAD OF OPERATIONAL P R O C U R E M E N T, M A RT I N S TA R C K E W H O TA L K S U S T H R O U G H T H E C O M PA N Y ’ S DIGITAL TRANSFORMATION
ounded in 1908, the Denmark-based multinational pharmaceutical company LEO Pharma has a storied history, but over a century after its foundation the company sees innovation as the key to success – and not only in its core business of drug development. For example, the company has sought to revolutionise procurement through the deployment of a decentralised system. However, Martin Starcke, LEO Pharma’s Head of Operational Procurement, says that digital transformation is about a lot more than software or computer services. “It’s fundamentally about people. I think implementing software, implementing the technology is around ten percent of your effort,” he says. Starcke joined LEO Pharma in 2012
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to develop the digital transfor mation of the company’s supply chains. In the time since there has been a radical shake-up, he says, driven by new technologies and processes. “It was primarily driven by invoices – old-fashioned invoice processing – and [there was]
slim-to-none governance on ordering indirect goods and services.” The company has implemented, over a 24-month period, a new solution that is fully scalable; one that is up and running for 30 affiliates and departments in real production environments. “It’s decentralised in the sense that we have around 400 people who have access to the system in order to make their requests. We have a very efficient team doing the sourcing and procurement,” he says. At times, digital processes have had a reputation for being mere cost-cutting measures; doing more with less. Starcke says that while companies like LEO Pharma appreciate cost savings, the driving force is more strategic. “The pharmaceutical industry is about mitigating risk, efficiency, gaining trust with the partners we have so that we can actually drive the spend. I think there’s a lot of tangible and intangible benefits,” he adds.
GDP R The pharma industry, of course, is a highly regulated sector, and the introduction of the GDPR, the EU’s new General Data Protection Regulation, has also meant that all businesses must now be more careful with data. This has not resulted in a retreat from digital processes, however. “Of course, the GDPR has developed over the last couple of years and it applies w w w. cp o stra te g y. co m
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now, so there have also been considerations around that, but it has not been the primary driver. The primary driver has been to streamline the process.” THE PHARMACEUTICAL INDUSDigitising the supply chain is about T R Y I S A B O U T M I T I G AT I N G generating benefit for all parties, he R I S K , E F F I C I E N C Y, G A I N I N G says, with a focus on properly using the T R U S T W I T H T H E PA R T N E R S contracts. “You need a system for that, W E H AV E S O T H AT W E C A N rather than autonomous behaviour.” A C T U A L LY D R I V E T H E S P E N D Starcke, who has implemented software for – Martin Starcke more than a decade, says that the key to Head of Operational Procurement, a successful digital transformation is more LEO Pharma about people than technology. “It’s around people and processes, but definitely the most important part is the people,” he says. But which people? Is it a question of engaging staff, or of getting buy-in at board level? “I think you need a bottom-up and a top-down approach.” Getting buy-in from senior management is a must, he says, and should be married to creating incentives for end users. This requires direct engagement. “We have spent a significant amount of time face-to-face, getting the feedback from the end users; not customising the technology as such, but listening to what makes their lives easier, as well as what we do and don’t do.” The feedback from these consultations has varied according to different national cultures. Dealing with this means starting with a common denominator and working upward from there. “You work out from principles rather than rules and then, I think, you can implement a solution which is scalable,” he says. In the end, it comes down to keeping a focus on the 10
LEO PHARMA
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Denmark IS THE LOCATION OF THE WORLDWIDE HQ OF LEO PHARMA
In1945 LEO PHARMA WAS THE FIRST PRODUCER OF PENICILLIN OUTSIDE THE US AND UK
LEO Pharma’s global team consists of around 5,000 people in 61 countries 12
LEO PHARMA
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Experts in procurement and supply chain Founded in 2008, Prokura is an entrepreneurial consulting company specializing in procurement and supply chain. Led by highly-experienced specialists from McKinsey & Company and The Boston Consulting Group, Prokura has already become a key player in the market, creating significant savings for leading private and public organizations in Nordic countries. Prokura’s expertise combines deep functional skills and product, process, and service-industry experience to help clients build competitive and differentiating purchasing and supply chain capabilities that deliver value and allow companies to operate profitably and invest in the future. Our expertise covers a broad spectrum of skills and we have developed a number of our own tools and methods. These include; diagnostics and optimization potential assessment, development of strategies and objectives and optimization of organizations, systems and processes.
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actual goal of the process: understanding what the problem that needs to be solved actually is.
B E L I E V E I N P EO P L E “We want to utilise and build stronger partnerships with our vendors; build an efficient ‘machine’ to buy the stuff we need and help compliance through easy purchasing.” Starcke says, when all is said and done, the systems that are put in place should have a laserlike focus on making people’s working lives smoother. “I believe in people. I
believe systems are supposed to work for you. You’re not supposed to work for the systems, and I think that’s really key.” “In the nineties and at the beginning of this century there was a lot about training and learning the system. I think the system should be built to bring benefits to the people, and not the other way around,” he says. Starcke says that many ERP (enterprise resource planning) systems in use today are still built for processes rather than for people, but that there is a growing focus on usability that was not present
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YOU WORK OUT FROM PRINC I P L E S R AT H E R T H A N R U L E S AND THEN, I THINK, YOU CAN IMPLEMENT A SOLUTION WHICH IS SCALABLE – Martin Starcke Head of Operational Procurement, LEO Pharma
just a few years ago. In part, this is a reflection of structural changes that have been brought about by technology, most notably mobility. “Working from a mobile device is definitely on the rise,” he says. “I think it’s about empowerment and globalisation. You can basically work from anywhere.” A wider change in the role of IT in business has also been a factor. It has been clearly observable in recent years, with both the rise of pervasive networks and, hence, cloud computing, and the reinvestment and development of new strategies during the recovery from the 2008 economic crash, that IT is no longer merely about keeping the business running. Today, with stronger board representation, IT has taken on a strategic role in industry. IT’s former reputation as a mere cost centre is no longer relevant, he says, and so-called ‘devOps’, where development and operations work together is part of this. “I think it has been a problem in the past, but what I see – and what we’ve also done – is that we originally hired people with a business understanding and allowed them to roll out the system. So, they actually understand the business value of it and not just the IT side.” w w w. cp o stra te g y. co m
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MARTIN STARCKE Head of Operational Procurement LEO Pharma As member of the leadership team in Global Procurement in LEO Pharma, Martin Starcke is a focal point for delivering on one of LEO Pharma’s strategic improvement initiatives as part of the 2025 strategy. Previously, he held positions in Corporate Procurement and Corporate IT at Coloplast, where he designed and established the procurement back-office in Poland – and orchestrated a successful global implementation of eProcurement and eSourcing as a contribution to Coloplast turnaround in the years 2007-2012 (EBIT increased from 12 to 27+). Early in his career, he contributed to the Danish Wind Industry Association (DWIA), a trade and network organisation (non-profit) promoting the interest of the members on the political stages nationally and internationally. He played a vital role in the development of the award-winning web site Wind with Miller still being one of the most visited and well-known web sites in the industry. Martin Starcke holds a Ms.C in Supply Chain Management and a Bs.C in Business Administration and Economics from Copenhagen Business School. Part of his education took place at Oregon State University, USA.
I BELIEVE IN PEOPLE. I BELIEVE S Y S T E M S A R E S U P POSED TO WORK FOR YOU. YOU’RE NOT SUPPOSED TO WORK FOR THE SYSTEMS – Martin Starcke Head of Operational Procurement, LEO Pharma
“Of course, it’s a learning curve, so we have the people who are experts in configuring IT systems on board. And what we’ve done, which is fairly non-traditional, is that after we go live everywhere, the operational responsibility is not handed over to somebody else. It’s the same people that are driving it after, and that gains a lot of trust,” he says.
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THE BARRIERS TO SMART PROCUREMENT TECHNOLOGY BY Phil Mos s , C TO,
Procure me n t fo r H o u s i n g
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OF ALL THE sectors I’ve worked in - automotive, aerospace, retail, construction and housing – the last two face the greatest barriers when it comes to smart procurement technology. Pressured by tiny margins and led by giants such as Amazon, the retail industry has per fected the art of getting the right products in front of the right customers, making the purchasing process as frictionless as possible thanks to chat bots and machine learning. The automotive sector has used digital systems, namely enterprise resource planning (ERP), to integrate tightly with its supply chain. Car makers provide advance notice of manufacturing schedules to suppliers almost one year ahead, offering more granular detail as delivery dates approach. These levels of efficiency in the retail and automotive industries are propelled by a critical need to reduce supply chain costs and never lose a sale. But the housing and construction sectors don’t have the same drivers. Margins aren’t quite so tight. Nor is the difference between profit and loss. And the supply chain complexity that drove digital procurement in aerospace and automotive isn’t mirrored in the 22
Phil Moss CTO, Procurement for Housing
T H E BA R R I E R S TO S M A RT P RO CU R E M E N T T EC H N O LO GY
“ FOR DATA-LED PROCUREMENT TECHNOLOGIES TO BE EFFECTIVE, HORDES OF ANALYSTS ARE NEEDED TO INTERPRET DATA AND DRAW MEANINGFUL INSIGHTS” – Phil Moss CTO, Procurement for Housing
more linear supplier ecosystem of the building world. Regulation is another factor. The asset management and building sectors are incredibly tightly controlled, for good reason. The procurement mistakes around Grenfell illustrate how vital buying regulations are and also the high degree of perceived risk and cost attached to changing any tendering, sourcing or transactional processes. There is a real sense of the personal cost of failure that might come from change. As a result, housing and construction organisations set targets that support the status quo and there is a culture of risk being transferred to supply chains. These factors all contribute to an innovation deficit in the sector, and the uptake of digital procurement technologies has suffered. Another cause is poor data. Building and housing haven’t been as strong as other sectors in terms of gathering and categorising data and this has delayed smart analytics taking off. Up to recently, very little granular detail was collected, so it’s hard to introduce machine learning for predictive analysis or to compare spend data with other datasets to see w w w. cp o stra te g y, co m
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“ BY 2025 I PREDICT THAT CHATBOTS, AI AND BLOCKCHAIN WILL BE WORKING TOGETHER TO FULFIL SIGNIFICANT CHUNKS OF THE BUYING PROCESS IN HOUSING AND CONSTRUCTION” – Phil Moss CTO, Procurement for Housing
if an organisation is paying too much. Another barrier to adoption has been size. For data-led procurement technologies to be effective, hordes of analysts are needed to interpret data and draw meaningful insights. Procurement functions in the car manufacturing, retail and technology sectors have the budgets to employ these data scientists but that’s just not the case in building or housing. Less expensive, boxed procurement technologies might just be the answer. Vast amounts of data can be thrown 24
into analytical tools such as IBM’s AI system, Watson, side-stepping the need for large data analysis teams. Plug-and-play integration hubs like Jitterbit are flexible and easy to use, allowing businesses to join together with their supply chain’s technologies at low cost. Machine learning is also on the rise in construction and housing procurement. As the sectors gather more refined, low-level spend data, algorithms will be used to classify this data, spot patterns and predict future trends. For example, in my organisation,
T H E BA R R I E R S TO S M A RT P RO CU R E M E N T T EC H N O LO GY
PfH, we can now identify how much a housing association is spending on, for instance, reinforced plastic bath panels; whether they are paying more than last year and if they are buying the best value panels. This granular data is matched against external data sets to see if that housing association is paying more than their peers. Business analytics services such as Microsoft PowerBI are another increasingly popular, relatively low-cost smart technology being used by housing and construction organisations
to connect different data sources. For instance, customer relationship management records about sales, renewals and contracts can be ‘plugged’ into live transactional datasets. This automatic bridging of statistics is reducing error, particularly around spend forecasting, giving organisations a multi-perspective view.  But this is just the start. By 2025 I predict that chatbots, AI and blockchain will be working together to fulfil significant chunks of the buying process in housing and w w w. cp o stra te g y, co m
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construction. Big data and AI will provide insight into all purchasing activity, informing stocking habits; weighing up global, macro and micro economic activity to determine best time to buy; feeding into production forecasting and product criticality. The question is whether humans will still have a part to pay in the procurement process of the future. In housing and construction, once supply chain and block chain relationships are established, there will be less need for human intervention, particularly around the administrative side of transactional procurement. But there will always be a requirement for buyers to manage the more strategic, nuanced work involving complex judgement calls and delicate relationship-building. That’s something smart procurement technologies haven’t yet replaced.
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Digitising the supply chain We discuss the future of supply chain and procurement with Frank Vorrath, Executive Partner Supply Chain at Gartner‌ WRITTEN BY J a s o n Wa l s h
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So, Frank, can you tell me what it is that’s driving new business models in the whole supply chain area? We provide actionable insight and advice to our clients across many industries, really focusing on delivering value to them. These clients are from the more industrial side of things such as heavy manufacturing, high tech, communication, infrastructure, pharmaceuticals, retail and fashion 30
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companies. We focus on trying to put the emphasis on accelerating what companies are hoping to accomplish. We know that probably 63% of all companies will be going through some kind of change related to their business models over the next one to two years and, that really gives us a playing field to add value to their environment, based on all that experience, expertise we have and our focus on them and being really impactful.
When you say business models are expected to change within the next year or so, what’s driving that change? Is this in terms of digital transformation or is it something else? It has a lot to do with digitalisation, which is at the forefront of a lot of these kinds of things, plus mega trends such as urbanisation and mobility concepts. If you think about
interconnectivity of the physical world with the digital world, think about your business models. People were traditionally sold products, which were delivered to them through their entire supply chain. Now, we would probably see that businesses are focusing on selling solutions or outcomes. For example, when you confirm certain outcomes to your clients, it becomes a different business model. So, it’s not just the product anymore, it’s the outcome you actually commit to deliver as a value generator for your customers, and that obviously triggers off a business model change. It triggers off a different kind of capabilities, When I talk about capabilities, I really mean the people element and processes, the technology you deploy; and in a way how you measure that, and how you bring that into your own environment to be able to deliver on the promise you made through your value proposition as a business. So, we observe a lot of changes which are triggering different changes. A lot of companies are going through a complete redesign or review of their organisational design or structure, looking into their ability to w w w. cp o stra te g y. co m
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perform their day-to-day business operations while they transform and what it means in terms of their structure and the skills they need. But also, when you think about that, what kind of skills will they need because a lot of the traditional roles we would see in a supply chain will change over the next couple of years. Just think about one element of supply chain planning, such as the combination of new technologies coming in and artificial intelligence and the combination of what it means between human and machine, and the opportunity to automate certain processes. Now, think about the change of the role of that person in the future and the skills that person needs to have. So, a lot of companies are going through that. A lot of companies are redesigning their processes to reduce cycle times, lead times, focusing on becoming more productive, more efficient, possibly reducing costs, but also being more focused on the customer to deliver value in a more hassle-free environment. A lot of companies are focusing on trying out these new types of emerging technologies. They think about artificial intelligence that I’ve just 32
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spoken about, blockchain I’ve not spoken about, but a lot of companies trying that also like process automation and robots. A lot of companies are really focusing on what it means to have new capabilities. What does it mean to use technologies as an enabler for us to create that new business model or models we are going to have in the future, beyond the traditional models they had in the past?
“ …companies that are automating their decision-making process with integrated business planning processes being driven by artificial intelligence and algorithm” – F rank Vorrath Executive Partner Supply Chain, Gartner
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When you speak about things like blockchain, what is its function in supply chain? First of all, we know that there are very few proof-of-concepts out there to apply blockchain technologies across the end-to-end supply chain. A lot of companies are actually trying to put pilots into place, to see if there are benefits generated over time. It will take at least 10 years before really see blockchain technologies coming into mainstream. So, now if you think about blockchain technology, you need to think about transactions which are recorded in a more secure way and have different trading partners and enter into supply chains and be able to exchange data in real time in a more secured way. Now, you could use that in different ways. It could make your entry into supply chain more efficient, but you still have to really look into the benefits you expect the technology will generate for you versus the investments you have made.
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Is this driven by the board pushing down, for greater efficiency within the company or is it driven by customers demanding more in today’s world or is it both things happening at the same time? I would say it’s pretty much driven by the economy and the needs of customers to generate value. Everything we do is focusing on the customer and delivering value for them. The research is driven around future trends and the capabilities you need as a business to be able to create sustainable performance and results. The technology outlook is driven around that. And we look into mega trends and into combining the research not only on the current environment and current state, but pretty much the future of things, sometimes ten years beyond and having an opportunity to give that advice to our customers in a way that they can take it back to their environment to be able to make better decisions for their businesses and their customers. So, we are really looking to create value for them.
“ I wouldn’t make a difference between B2B or B2C. It’s really part of an ecosystem” – F rank Vorrath Executive Partner Supply Chain, Gartner
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Are you finding that this is further along in business to business or business to consumer? I wouldn’t make the difference between B2B or B2C. Now you have many different business models of companies as a part of an ecosystem. In the future you could see business models that are a combination of B2B and B2C. As part of an ecosystem you have to find ways to partner in a very collaborative way to generate that type of value. I wouldn’t make a difference between B2B or B2C. It’s really part of an ecosystem. I guess statistically B2B transactions online have led behind B2C which I think it’s reasonable when you understand the context that it might be easy to order office supplies of stationery or furniture but it’s perhaps a little bit more complex when you require a specialised machine tool or part. The costs are higher and the tolerances can be very fine and so on… You’re right, the future will see us having to handle a different level of complexity, while we’re trying to be flexible at the same time. Agility and complexity are key focus areas of companies because at the end 36
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of the day. You also want to stay flexible in case you have to make a new environment. Often companies have enormous amounts of change related to business growth activities, merger acquisitions and spinoffs. Now, that means you have to be flexible in your environment, in your setup as an organisation. You have to handle new complexities which are coming in with the new business models. So, in a way that’s a complexity for companies to handle going forward.
In terms of automation and simplifying the process will AI start to move into the supply chain in a more decision-making capacity? Absolutely, I mean we see that already with a couple of companies that are automating their decision-making process with integrated business planning processes being driven by artificial intelligence and algorithm, where the machine is giving certain scenarios to the planner or the person who does the planning. It gives the person
a chance to make a better decision. It’s that combination between the human being and the machine which is really driving the ability to make better decisions going forward. It’s not one or the other, it’s a combination of both. Now, most companies when it comes to having to grow a maturity in terms of getting the data organised are struggling to get through to a clean state of the data to be able to do that, right? But if you’re able to sort out your data then the combination between the human being and w w w. cp o stra te g y. co m
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“ Everything we do is focusing on the customer and delivering value for them” – F rank Vorrath Executive Partner Supply Chain, Gartner
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the skill that human being needs to have, plus the technology you can deploy, is something which is actually taking the whole process of being able to make better decisions to the next level. I believe every company needs to have an understanding of what the data means to them and how they use the data. If you have an e-commerce business model digitalised you receive data from different sources. Now, you have to bring that into your planning environment and maybe do SySAM operational planning for your e-commerce business and bring that into your overall SySAM operational planning and use the data to do that. That’s what we’re talking about here: how to make use out of the data. You have to take the first step and clean your data and have an understanding about what the data means, and could mean for you in the future, in terms of value creation. Now, a lot of companies I’d say, aren’t really mature and probably need to focus on putting a more defined structure into place, especially around getting a handle of the data as an end-end environment. You need to make sure you have people cleaning this data in a certain form so that you’ll be able to analyse it. Then data scientists will able to use the data. It’s a whole maturity walk, which needs to happen and that requires investments. Many companies will probably arrive at a place where they realise that these investments need to happen.
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The best procurement conferences and events of 2019 WRITTEN BY Tams i n Oxfo rd
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EVENTS
Conferences and events provide industry professionals with a forum to share knowledge and best practice while gaining strategic insight into industry trends and challenges. Over the next 12 months, the procurement industry has a number of highlevel events lined up in both the United Kingdom and Europe, each one adding practical business value for attendees.
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ProcureCon 21–17 October
Barcelona, Spain CLICK TO VIEW WEBSITE
ProcureCon is targeted at senior level procurement and focuses on strategy, insight and case studies that allow for leaders to share global learnings and best practice. The speakers include CPOs and executive heads and are representative of some of the largest manufacturers in Europe.
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Gartner Supply Chain Executive Conference 17–19 June
Barcelona, Spain CLICK TO VIEW WEBSITE
Gartner’s conference is designed to provide decision makers with relevant and timely analysis into the industry and the challenges that litter its landscape. The theme of the 2019 event is ‘A New Era: Converging the Physical and Digital Supply Chains’ – a topical theme that examines the blurring of lines between the physical and the digital in the procurement arena.
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World Procurement Congress 15–16 May
London, UK CLICK TO VIEW WEBSITE
Considered one of the premier events in the procurement industry, World Procurement Congress is an immense global gathering that focuses on providing professionals with the experiences and insights they need to make informed business choices. The event includes some of the industry’s leading professionals and provides superb networking and strategy development opportunities.
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Procurex 30 April UK CLICK TO VIEW WEBSITE
Procurex is a forum for professionals working in procurement in the public sector. The events include tailored discussions and sessions designed to engage with the sector and give them the tools they need to manage compliance and legislation, among other relevant topics. The events are situated across the UK with different dates allocated to different areas.
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WRITTEN BY Tams i n Oxfo rd
Five reasons why supply chain strategies fall short – and what to do about it 46
The supply chain has become a complex ecosystem that demands seamless management and control to deliver ongoing results to the business. According to the Supply Chain Leadership survey by Deloitte, 79% of organisations with superior supply chain capabilities achieve above average revenue growth but only 8% with low performance supply chains report the same levels of growth. In short, failures in supply chain strategy impact the bottom line and long-term success.
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There are several reasons why a supply chain strategy could fall short of its goals. Here are five of the most common and five steps to solve them‌
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The strategy follows the money
Early 2018 saw leading fast food retailer KFC shut down more than 600 stores. The reason? Supply chain failure. Somewhere between signing the contract and planning the distribution something had failed. For some experts, this was due to KFC opting into cheap rather than efficient. In tight economic times it makes sense invest into solutions and service providers that help reduce the weight of the supply chain on the bottom line. After all, according to research by Oliver Wyman, this can be anything from 10-20%
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of overall revenue. This is further supported by insights from an Accenture report which found that most cost-saving initiatives only see 3-4% in category reductions year-on-year. The solution: Look to zerobased supply chain strategies that can potentially resolve future cost challenges rather than redress those cost burdens that sit in the past. This, according to Accenture, can potentially see 5-10% savings while simultaneously introducing an agile operating model that’s capable of leaping incoming economic hurdles.
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The strategy isn’t looking in the right disruption direction
Disruption is the norm, as is frantic grabbing at strategic investment that gives the business the edge it needs to be prepared for what is to come. The problem is that many supply chain strategies are so busy looking outwards that they fail to look at how disruption will hit from within. The solution: Existing supply chain management processes and
operations can be disrupted internally. At the recent Infor Executive Forum, three areas of the supply chain stood out as the most relevant for self-disruption: granular segmentation to manage customer and segment change, integrated supply chain versus linear, and holistic cost assessments that funnel back into innovation.
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Future-forward key performance indicators
Rapid change demands rapid decisions. Just as the supply chain strategy has to disrupt from within it has to be flexible and agile enough to handle the digital evolution from without. The consumer, the market, and the channel are moving at ever-increasing rates of change and the business that can’t keep up with demand will likely be the one left lying on the side of the digital highway. The solution: The supply chain
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strategy has to include investment into technology and innovation that allow for the executive to make rapid decisions in a fast-moving environment. This includes developing modern, business-ready metrics that answer questions defined by the organisation’s long-term strategy. Deloitte found that industry leaders were more likely to use optimisation software, analytics, and visualisation software.
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The Deloitte survey above also found that it is critical for the organisation to not just develop talent but to empower the executive. Supply chain leadership has become crucial to supply chain strategic success. Those organisations showing above average rates of growth and high supply chain performance are more likely to have supply chain leaders
Empowerment isn’t strategic (56%) and clearly outlined talent strategies (88%). The solution: Ensure that the talent is not just aligned with the strategy but that the strategy is aligned with the talent. This should also include investment into skills that ensure supply chain leadership is au fait with the technology that’s about to disrupt the supply chain and the business.
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Death to digital
When an organisation’s culture and mindset fail to recognise the benefits of digital, then it is very likely that the strategy won’t reflect this either. Digital may be hype and may fail if implementation isn’t done in line with the business or existing supply chain challenges, but it adds immense value if done well. The solution: Look to how digital can refine supply chain management, process and operations. From the driver to the last mile, from the data used to define short-term strategic goals to the cost-cutting advantages of the right technology in the right place.
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WHY PROCUREMENT PROFESSIONALS MUST
OVERCOME DATA HURDLES WRITTEN BY A l ex S a r i c
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igitalisation is empowering organisations to take a smarter approach to procurement, removing the burden of manual processes and allowing procurement leaders to act strategically, making quick and informed decisions. Yet while the benefits of digitalisation are clear, it’s not all smooth sailing. A recent survey from Forrester found that despite 67% of procurement leaders undertaking digital transformations – and 80% planning investments in artificial intelligence before May 2020 – a number of data-related obstacles are preventing firms from realising the expected ROI. According to the procurement leaders surveyed, organisations have a willingness to digitalise but are currently struggling to integrate technology, gather relevant insights from data, and implement streamlined digital procurement processes. Put simply, in order to benefit from digital transformation organisations need to walk before they can run when it comes to data management, which is the foundation upon which other systems rely upon.
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L AY I N G T H E R I G H T F O U N DAT I O N The first step is breaking down the barriers between siloed data sources, bringing data together to gain a complete view of what’s going on across the supply chain. However, 50% of respondents cited insufficient integration between software tools as a major obstacle, as organisations struggle to bring together data
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when supplier information resides across multiple systems without any integration, both within the source-topay process and back-end ERP tables. Instead of operating on siloed data from across the enterprise, organisations need to utilise smart procurement platforms to bring together data sets from multiple sources: providing a starting point from which they can begin to generate insights. 62
C L E A N U P DATA TO G I V E AC T I O N A B L E I N S I G H TS Even once data has been integrated from multiple locations, there can still be issues. 40% of respondents cited poor data quality as a key obstacle. Simple inconsistencies, from duplicated data to incompatible formatting, can gum up the works and prevent organisations from benefitting from proper data analytics, as well as from gaining
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‘ IN ORDER TO CLEAR UP DUPLICATES AND CREATE A CONSISTENT FORMAT, ORGANISATIONS SHOULD USE THEIR SMART PROCUREMENT TOOLS TO CONVERT THEIR INTEGRATED DATA FROM MULTIPLE ENVIRONMENTS INTO ONE MASTER DATA SET’ insights through new applications leveraging Artificial Intelligence. In the supplier visibility example, system integration is of little use if supplier records are not normalised or linked across data tables. In order to clear up duplicates and create a consistent format, organisations should use their smart procurement tools to convert their integrated data from multiple environments into one master data set.
Fixing existing data issues plus leveraging integrated suites where new data generated is clean will support the data quality needed to leverage AI to derive better insights. This will help organisations to make smarter procurement decisions – whether it’s through identifying new opportunities for innovation with suppliers or flagging potential areas of risk such as supply disruption following natural disasters or vendor bankruptcies. w w w. cp o stra te g y. co m
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AU TO M AT E TO I N N OVAT E Once data quality is addressed, employees still need the skills and time to leverage it. Freeing up capacity through automation is key. Respondents cited a lack of data available at the right time (40%) and capacity being consumed by manual activities (40%) as major obstacles to more strategic decision-making. A recent IDC study found that procurement professionals spend an average of 2.5 hours every day looking for information. Such inefficiency is a costly tax on productivity. To overcome these obstacles and improve efficiency companies need to automate menial tasks, such as matching invoices to receipts and converting requisitions into orders. They also need to automate access to insights so employees are spending time conducting analysis rather than looking for the inputs. New technologies such as AI-powered digital assistants are now maturing to where they can deliver real value here. And integrated suites are now offering best-of-breed capabilities combined with the seamless flow 64
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‘ ONCE DATA QUALITY IS ADDRESSED, EMPLOYEES STILL NEED THE SKILLS AND TIME TO LEVERAGE IT’
of information key to achieving high levels of automation. N OW O R N E V E R All too often procurement has been reliant on paper-based processes and inefficient data sources, but armed with data, insights and integrated technology, procurement can become more than just a set of menial tasks and instead step into the future. The road ahead isn’t easy and there are many wrong turns possible on a digital transformation journey. The key is to look holistically at the requirements, addressing data quality in parallel with deployment of new technologies such as AI to automate processes and improve decision-making. With such an approach, organisations will find the path to procurement utopia far easier to traverse. w w w. cp o stra te g y. co m
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THREE BRANDS EMBRACING DIGITAL INNOVATION WRITTEN BY Tams i n Oxfo rd
Digital innovation is more than a strap line used by brands to showcase a new mobile app or what the non-digital native executive believes to be the next best thing in digital. It is the use of technology to refine strategy, process, supply chain and procurement. It is also being embraced by some of the world’s largest brands as they use digital to redefine how they engage with the customer, the market and their own internal processes. 66
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IN MAY 2018, the iconic UK retailer revealed a dramatic drop in its profits thanks to its plan to close a significant number of its clothing and home stores as it moved towards a digital-first strategy. The cost of the restructure was estimated at around £321 million. The goal was to take Marks & Spencer away from the vagaries of the high-street towards a company that used technology to shape the customer experience and the future. What makes the M&S technology investment significant isn’t that the retailer has acknowledged the value
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of digital but that it is prepared to spend billions on making the move. While still in the early stages, the company’s fresh new partnership with Microsoft and ongoing digital transformation strategy will see the giant make bold moves into a competitive digital MARKS & SPENCER, MICROSOFT AND A VISION FOR THE FUTURE OF RETAIL
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retailer ecosystem. The two companies have been working together since June 2018 to introduce artificial intelligence (AI) to the M&S customer ecosystem. To date, M&S has implemented AI in its call centre system, using the capabilities of AI to manage growing call volumes more effectively while enhancing the customer experience. The new system is capable of handling more than a million calls a month which is a far cry from the outdated system that limited engagement and customer service.
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WALMART HAS DOMINATED headlines with its ongoing, almost relentless, focus on digital innovation and disruption. Throughout 2018, the retailer revealed one innovative investment after another, driving its digital strategy into every aspect of the business. It’s working. According to figures released early in 2018, Walmart’s ecommerce sales grew by 50 percent year-on-year and its stock price rose by 60 percent in 2017.
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Some of the stand-out investments include: • The use of blockchain to track food transportation and health in a pilot with IBM and the Tsinghua University in China. The Food Safety Collaboration Centre in Beijing uses IBM blockchain technology along with Linux Open Source software to manage everything from temperatures to expiration dates to shipping details.
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• The creation of the Data Café. This high-tech analytics hub includes impressive technology and data processing capabilities that allow for the development of agile business processes and improved operating efficiencies • The upcoming Cloud Factory that will expand the capabilities of the Walmart innovation hub in collaboration with Microsoft. The goal will be to focus on building applications that will improve operations, reduce costs and transform processes. • The use of AI internally to manage suppliers and Internet of Things (IoT) sensors on HVAC and refrigeration systems.
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THE AUTOMOBILE INDUSTRY is losing people to the efficiency of mobility-as-a-Service and the Society of Motor Manufacturers and Traders revealed that car sales have dropped significantly over the past year. Some companies, like Daimler, have seen the writing on the wall and used it to power their digital ecosystem. The company started its own mobility-as-a-Service offering and hit a record 22.9 million customers globally in June 2018. It also revitalised and completely digitalised its value chain – investing into technology that allows for real-time business decision making and the ability to adjust forecasts to demand. The company also launched Lab19886 in July 2018, a hub that’s utterly dedicated to developing new ideas that can be used to disrupt internally and redefine the company’s innovation strategy.
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DO PROCUREMENT LEADERS FEEL LET DOWN BY TECHNOLOGY? WRITTEN BY S i m o n W h a t s o n , Ef f i c i o
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large majority of procurement leaders believe making better use of existing digital procurement technologies is a key next step in their digital journeys, according to ‘Procurement 2025: Is digital transformation driving more effective transformation?’, a study we have conducted in collaboration with Cranfield University. In our view, this focus on harnessing existing digital technologies rather than investing in new ones is a result of companies failing to realise the benefits of past technologies in the way they had originally expected. BACKGROUND We surveyed 225 procurement leaders globally about their five-year plans to digitally transform their procurement functions. A significant 4 in 5 (82 percent) say they are keen to make better use of the digital tools they already have in their technology suites. This suggests that investments made to date as part of the digital transformation journey have yet to live up to expectations. In the same survey however, the capability of current technology is the least-cited 76
barrier to technology delivering the expected benefits, with just 37 percent of respondents referencing it as an issue. So why do procurement leaders appear to feel let down by technology?
D O P RO CU R E M E N T L E A D E R S F E E L L E T D OW N BY T EC H N O LO GY ?
“ WHEN IT COMES TO DIGITAL PROCUREMENT, FOR MANY ORGANISATIONS THE FIRST CHALLENGE IS DEFINING SUCCESS” DEFINING SUCCESS When it comes to digital procurement, for many organisations the first challenge is defining success. If a procurement function wants better transparency of spend it may consider investing in a spend analytics tool. But before that it needs to give proper thought to the outcome it wants to achieve once it has gained improved transparency, otherwise the investment is likely to fall flat. So, for example, spend transparency only delivers value if insights that can be generated from the tool are acted upon, such as which categories to prioritise through sourcing and addressing maverick spend. If these are the objectives defined at the outset, then it’s clear that a spend analytics suite can only be one part of the solution. Driving continuous improvement in terms of w w w. cp o stra te g y. co m
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data quality and employing people who can interpret the data and run sophisticated analysis are additional requirements to achieving the desired outcomes. LIMITATIONS OF SOFTWARE There is often an over-estimation of the capability of software, which invariably leads to unfulfilled expectations. Software is generally focused on managing and controlling workflows, as well as capturing data – both of which are important tasks. It can also run pre-programmed analysis, although there is a limitless list of analysis that can be done on the data captured by the tool which cannot all be pre-programmed. Finding alternative ways to run this analysis will help procurement professionals make better use of software. Consider a sourcing platform that allows a company to run competitive tenders with a built-in analytics suite to automate the evaluation of supplier bids and aid supplier selection. Depending on the category sourced, company profile and supply market landscape, there are likely to be a number of custom scenarios that will need to be run to make the 78
CONTENTS
right supplier selection decision. If the tender has been set up well, the data with which to make this decision will be captured in the tool but will require people with specific data analytics skillsets to run the powerful analytics required, often using an additional business intelligence tool to visualise it, such as Tableau or Qlikview. Without this additional skillset, procurement departments are likely to continue to feel underwhelmed by their technology investments. w w w. cp o stra te g y. co m
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‘ THE REALITY IS THAT MUCH OF THE INNOVATION IN PROCUREMENT TECHNOLOGY COMES FROM AGILE START-UPS THAT ARE OFTEN LESS WELL KNOWN’
P OOR TECHNOLOGY BUYING DECISIONS A procurement professional is typically not someone with a technology background. This means that when procurement buys technology, they are less likely to understand what it is they are buying, e.g. how it works and whether it’s the most suitable solution for their needs. They are more likely to be influenced by branding and marketing, such as being sold on the benefits 80
of having a piece of software from a company that has an established market position. The reality is that much of the innovation in procurement technology comes from agile start-ups that are often less well known. BUILDING MOMENTUM Patience is key to deriving the benefits from existing technology. A new solution is unlikely to show immediate benefits but, without this, people
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are unlikely to be motivated to use it and change the way they work. This means procurement practitioners need to lift themselves out of the day-to-day challenges and think of what their role could be tomorrow and how to adapt to it so that they are able to progress their objectives. For example, a contract management tool can help companies make considerable cost savings during the contract lifecycle. Once the tool is
used in the right way and the benefits are clear to everyone, it creates a pull effect. But getting to that stage takes a significant amount of investment in time that involves mapping out the metadata that needs to be captured, ensuring it is captured from each contract, running the analysis that helps to manage supplier performance, proactively managing renewals and maximising contract coverage, and so on. w w w. cp o stra te g y. co m
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MAKE TECHNOLOGY WORK FOR YOU With new technologies continually coming onto the market and a wide range of vendors with clever marketing and branding initiatives, it is hardly surprising that many companies have been driven to make technology investments from which they feel they have yet to see any benefit. Regardless of role or age, everyone has a responsibility to become more digitally literate and understand how systems can potentially transform ways of working. Through an inquisitive attitude, enhancing one’s knowledge of the ‘art of the possible’ and an understanding of forecasted future disruption, it is possible to make better decisions. This is open to anyone who works in procurement and wants to make technology work better for them. Read thought leadership, attend panel debates and teach yourself new skills online or in a classroom.
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The proper role of IT in the procurement process WRITTEN BY J a s o n Wa l s h
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very business needs to remain on top of its supplier relationships but, of course, there is more to procurement than making a few back-of-the-envelope calculations about which materials and services are needed. All manner of concerns can come into play: such as cost, regulator compliance, forward planning and more. Clearly this is an area where IT systems can play a role, smoothing out what can be a notoriously laborious process. And yet business-to-business purchasing as a whole lags well behind business-to-consumer when it comes to volume. Only 13% of business-to-business sales are being conducted online. So, is procurement a cold house for IT? Or is it that further investment is required? Or are some kinds of suppliers simply easier to deal with face-to-face? After all, buying professional services is quite different from buying a thousand ballpoint pens. BEING DIGITAL
Peter Wetherill, Senior Technology Manager at procurement specialists 86
Efficio Consulting, says that as companies go digital it is natural that processes such as procurement come under scrutiny. “We published a study recently, looking at the future of procurement; looking at whether or not digitalisation is the future. Everyone is being pushed to have a digital strategy these days, so we try to turn it into something actionable.” The objective should be to make things more efficient, he says. “If you look at things like strategic sourcing, spend analysis and running a sourcing event, those are very ‘processised’ things. We’ve run that as a structure thing for 18 years ourselves
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‘ Only 13 percent of business-to-business sales are being conducted online’
and we’re building technology now that adds automation to it. It’s repeatable.” Where the real value is added, though, is not merely in the technology, says Wetherill. Instead, the w w w. cp o stra te g y. co m
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value lies within intelligence. “There are a number of assets you create during the process that are useful the next time. Instead of reinventing the wheel you use the same things, albeit modified. Technology really lends itself to the strategic part of procurement. Time and time again I’ve sat with clients who have brand new installations, but it has nothing in it and so they’re only using 10-15% of its capability. They’re not getting the business use case out of it.” In effect, the question becomes no longer one of either procurement or IT per se, but about how to implement a process that makes use of the intelligence in a business. “Are various KPIs being hit? Am I paying the right price? It’s part people, part machine, but we’ve built something that, rather than trying to map invoices to the project, has a workflow that does all these things properly; it has the rate card in it, it has all the data and you can run a large programme through this and show the 5% where there is non-compliance. “The technology is not there to remove the human element, it’s there to help make more data-driven decisions,” he says. 88
COMPUTER SAYS NO
Allyson Stewart-Allen, chief executive of International Marketing Partners, says that she has doubts about deepening the intrusion of IT into procurement, at least when it comes to certain types of purchasing. “I think it’s affecting the bidders significantly because they aren’t always clear what the criteria are. They may be bidding for the provision of professional services and, traditionally, those require a relationship of some kind: interaction with the client
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and the buyers,” she says. Stewart-Allen says that the challenge of e-bidding is that you do not get to easily convey the values of your business. “It’s even more difficult with professional services, as you’re buying the people, buying their judgement, and not a product. My frustration and challenge is that I don’t get to readily communicate, other than in print, what my sources of differentiation are. They can read my background on the website, but that’s not the same as putting trust in
“The technology is not there to remove the human element, it’s there to help make more data-driven decisions” – Peter Wetherill Senior Technology Manager, Efficio Consulting
the person’s judgement and the ability to contextualise,” she says. Nonetheless, IT systems are here to stay, including machine learning (ML) and artificial intelligence (AI) that reduces administration and opportunity for human error. PROCURING IT
One area where it is natural for IT systems to take a lead in procurement is in the procurement of IT itself. This has changed radically as the culture of IT departments has changed, not least as IT now typically has increased board-level representation and it is expected to make a strategic contribution to business objectives. “It’s an interesting time,” says Charles Blair, a senior management consultant for technology at Efficio. CIO agendas have changed. They used to be about building IT; pulling all the widgets together and keeping the lights on. Nowadays, with the maturity and commodification of all of these services, you can buy them all in in the form of managed services. CIOs [now] have a much more greater focus on cost,” he says.
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However, IT departments, historically, have not has the skillsets needed for procurement, he says. “IT teams don’t typically have negotiation skills. Procurement as well, they’re not technology guys. There was [previously] a bit of a ‘project culture’, and procurement wasn’t involved until the end of the process. Procurement ended up with a really bad name. Likewise, some people 90
in procurement don’t understand IT and challenged on the wrong things. On the other side, IT would be approaching suppliers in the wrong way and eroding any levers procurement might have,” he says. Nonetheless, despite the trend toward cloud computing and external service provision, there is greater need for procurement in IT rather than less. True, fewer servers and
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EFFICIO PANEL DEBATE: DO YOU BELIEVE THAT TODAYS PROCUREMENT PROCESS IS FIT FOR PURPOSE?
switches are being bought, but those were always easier to buy than services. “Cost in technology is on the increase as software is invested in instead of people, and also with the trend for using [service provider] suppliers,” says Blair. “There’s no reason for most companies to have their own service desk. It’s much cheaper and more efficient to get a service provider who does it all the
time to run it. Services like that need to be obtained in accordance with service level agreements (SLAs) and (key performance indicators (KPIs),” he says. So, in fact, the stakes are higher than ever—and they are also not on-off. “Procurement is not only about sourcing the solution, but also about managing it,” says Blair. Whether for IT services or any other w w w. cp o stra te g y. co m
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“ Procurement is not only about sourcing the solution, but also about managing it” – Charles Blair Senior Management Consultant, Efficio Consulting
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kind one contractor relationship, procurement teams must, says Allyson Stewart-Allen, make it clear to the business that any IT used should be there to support the decision-making process, not replace it. “The issue that the procurement folks have is that they don’t push back. There’s a difference between buying professional services versus buying pens,” she says. In the end, for Stewart-Allen, humans may be aided by machines, but letting the machines replace them is a false economy. “They’re seeking efficiency, but end-up making bad decisions,” she says. “Maybe they could make better decisions if they applied different processes to services vs goods. I think that the challenge is the one-size-fitsall mentality. There is often bind faith put in technology and what it’s going to do for you, versus the reality. It’s not a great idea when you’re buying people,” she says.
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15-16 May 2019 InterContinental London – The O2
700+
senior procurement attendees
150+
global 5000 companies
$6 tn
annual combined spend under management
The agship event of World Procurement Week, the ultimate team experience! Learn more and book now at worldprocurementcongress.com