In our webinar, The Value of Supplier Relationships, we were privileged to welcome Duncan Jones, Vice President, Principal Analyst Serving Sourcing & Vendor Management Professionals with Forrester Research Inc. Duncan shared his views on what has changed and what hasn’t changed over the past 25 years and what developments we can expect to see in the short to medium-term future.
What has Stayed the Course?
Duncan started by underlining that some things haven’t really changed. Procurement professionals are still searching in vain for what he called the “omniscience that they were promised by the advent of ERP” some 25 years ago. The Holy Grail was to find some single source of truth about everything that’s going on across the organization, including who is buying what from whom. This would then provide the basis for making perfect procurement decisions. ERP, single instances, data lakes, data warehouses and so on still haven’t delivered the omniscience that we’ve been seeking.
In Duncan’s view the world of procurement is still dominated by what he termed “egocentric buying”. He used an astronomical analogy to underline this point. Like Ptolemy, the Ancient Greek astronomer who assumed that the earth was at the center of the universe, buying organizations assume that they are at the center of the commercial universe. They expect suppliers to come to them, “We’ll create a portal. You come to me to give me your best ideas, upload your invoices and download your orders. If we let you use EDI, we expect you to use our spec and change your integration whenever we change ours.”
And although things have moved on somewhat, this assumption is still very prevalent in the procurement community.
The Evolution of the Procurement Professional
And how has the procurement profession developed? Duncan named a couple of things. According to Forrester, supplier value management (SVM) has grown significantly over the years and now stands at $10 billion as a category in its own right, whereas in the past it was regarded as a subset of ERP. SVM comprises six or seven or eight different sub-categories including the Forrester sub-categories of contract life cycle management and supplier risk and performance management. That overall $10 billion market is split roughly equally between full suite vendors and niche vendors.
One development that Forrester has been talking and writing about for a number of years is the evolution of the procurement role from one that was focused primarily on managing and reducing cost first towards a greater focus on value and now to one that is now thinking much more about the broader priorities of the organization. Duncan said that when clients ask him, “What sort of things should we be focusing on?” his usual response is, “Well, think of your organization’s customers, not just the internal customers that you deal with but the external ones, what do they want you to focus on?” Things like delivering more innovation, working closely with suppliers to come up with new ideas for products and services and making sure that supply chains are reliable, sustainable and ethical.
Many organizations are still stuck at the lower end of this maturity curve, perhaps talking more than they did in the past about value, but really putting most of their emphasis on cost. Of course, every organization needs to consider its costs, but the more innovative ones are far more concerned with the customer’s priorities.
From “Duels” to “Duets”
Part of making that change to a customer-focused strategy involves shifting the organization’s relationships, particularly with strategic partners, from what Duncan termed duels to duets.
As we have noted in the JAGGAER white paper, Holistic Supplier Management, strategic partners are more than just suppliers that organizations spend a lot of money with, they’re suppliers with whom they have long-term and mutually beneficial relationships. Organizations rely on these strategic partners to help differentiate their products and services so that they can succeed in the market. Duncan said that he has detected a trend towards enterprises embracing this concept of partnership and moving the sourcing relationship away from one that is adversarial and competitive. JAGGAER refers to such suppliers as “high-value strategic” because they deliver high relative value to the organization, and their loss would have a significant impact on the organization’s success.
Duncan termed another important segment of the supplier universe the “emerging innovators”. Very often they are smaller suppliers who have come up with some new ideas and new technology, something that might go into your product, perhaps to enable you to serve customers better; these innovators are not big enough to be strategic partners but they are much more important than the tactical vendors in the bottom left quadrant, where the organization should look to aggregate spend.
Duncan revealed that many of Forrester’s clients are finding it really quite difficult to manage these emerging innovators appropriately. They require a much lighter touch in the management process and in the sourcing process, but the risks are quite great so organizations still need to monitor and mitigate them without ruling themselves out of actually doing business with these small maybe under-capitalized suppliers. We agree: Because they are innovators, these suppliers add significant value, but it may be difficult to find alternatives.
Continuing with the astronomical analogy, Duncan suggested that we have moved on from the Ptolemaic model with the buyer at the center of the universe to putting the supply network at the center, rather like Copernicus revolutionized astronomy by putting the sun at the center of the solar system, with the buyer one of the planets orbiting around the sun.
Duncan views this as a positive development but the buyers who are using these networks still tend to be rather egocentric and the supplier networks haven’t really fulfilled their promise because they don’t necessarily talk to each other. What we are left with at the moment are more like parallel universes of different supplier networks.
The Importance of Ethics and Sustainability in the Global Community
One of the most important changes we will see in procurement over the coming decade will be the growing importance of ethics and sustainability. Duncan quoted a recent Forrester survey that revealed the shift in attitudes among young people in the United States towards greater concern about climate change and the environment. These are the consumers of the future who will be making choices about the brands that they buy and where they live, study and work, based to an increasing extent on ethical considerations and sustainability.
Procurement has an opportunity to take the lead on this, driving improvements in the supply chain to have better validation of the suppliers that we on-board and then monitoring them. Not being content with adhering to legislative and regulatory requirements but going further and maybe creating competitive advantages through corporate ethics and the pursuit of a more sustainable economy.
Duncan expects to see the accelerated growth of global communities, succeeding closed networks, although that is still some way off. He said that you might think of it in terms of cosmology, in which small perturbations in the time-space continuum seeds the creation of stars and planets and whole galaxies. In community-based data, possibly enabled by blockchain, instead of sending data to each other we will all be looking at the same data in a similar continuum. Getting back down to Earth, in practice that means (for example) that we will not need to ask suppliers to fill in RFIs about who they are and where they are and what they serve, because that information will be in a vast cloud of public sources, i.e. available to the community at large.
One of the benefits of a community approach will be to drive up standards of ethics and sustainability. At the moment if a big brand finds a problem in its supply chain it must stop using that supplier, but it doesn’t necessarily publicize that fact, so that supplier is free to switch to serving some other brand and there isn’t any net gain. If the community really gets its act together then that becomes more public and the brands and their customers realize who is using the suppliers that have bad reputations or insufficient evidence of sustainable, ethical trading practices.
Smart software that is enabled by in-built artificial intelligence will accelerate this development in three ways:
- First, by automating mundane tasks that currently consume a large part of our time, freeing up skilled professionals to focus on things like improving innovation and improving the ethics and sustainability of the supply chain. Smart software is going to help us do that by alerting us to the problems.
- Second, by alerting us to things that are important so we can prioritize action. In the old ERP model, we collect all the data and put it in one place and then drill down to find interesting snippets of data that we can act. That remains important, but there will be a shift of emphasis, one that Duncan terms “from drill down to alert up”. In this scenario the skilled professional is going to spot something interesting and say, “Okay, next time something like that is about to happen tell me about it so that I can do something to prevent it happening, or tell me about it so that I can react more quickly.” Here at JAGGAER we also see this as a move towards the use of more forward-looking predictive analytics in procurement.
- Third, when we do this the smart software is going to enable us to make better decisions. It’s going to collect not just the organization’s own internal transactional data but data from the wider community. Smart software will analyze and process the data and advise us on what actions we should take – what we refer to at JAGGAER as the application of prescriptive analytics in procurement.
So this isn’t eliminating the jobs for the skilled procurement professionals, it’s actually freeing us up to spend more time on the things that we like doing and helping us do a better job at addressing those customer priorities like innovation and sustainability. And this is, precisely, central to JAGGAER’s mission for the next decade on our journey to autonomous procurement.
In an upcoming blog we will investigate some of the practical challenges to supplier management, such as onboarding and compliance, that came under the spotlight in the webinar.