Procurement

Amazon....the Next B2B Network?

Amazon. The name alone makes you think of something big. So it makes sense that they might have something grandiose on the horizon.

With that in mind, I want to start a conversation about whether Amazon might be the next Ariba or Coupa. I heard a rumor that 10 or so Ariba people have gone to Amazon with the intention of making it the next and biggest B2B network in the world. Think about it, we all know how to use Amazon, they have a network that is massive, they have distribution and delivery capabilities, so why couldn't they host additional suppliers and be the purchasing platform for businesses? Amazon has the money, they know how to fill demand, they are nimble, they are constantly innovating...what is to stop them?! They could fairly easily add a feature that limits our searching to approved items with our company's contracted pricing (that it knows to show when we log on with our company credentials) and then check us out with a credit card or even link directly to our accounts payable systems.

Amazon is wildly successful, has a surplus of cash and has set the standard for online purchasing and customer service...so why not go a step further and move from the B2C to the B2B world? I was in the San Francisco Bay Area recently to speak at Coupa Inspire. I love being in the Bay Area surrounded by brilliant people with amazing thoughts and aspirations. After living there for 30 years, I should not be surprised by the number of new companies, ideas and appetite for innovation, however I always am. While there, I spent an evening with my oldest son and his girlfriend, both typical millennials working in Silicon Valley. We started "what iffing" and (since my son has grown up with me as a mom talking supply chain and sourcing and spent time working for Coupa) we convinced ourselves that this is distinctly possible. So was it the wine...or are you drinking the Kool-Aid and see the possibilities here too??

Dawn Tiura, President & CEO Dawn

Set Your Procurement Process to "Automatic"

How many settings does a washing machine need...or for that matter, a camera? It seems that the more settings there are, the higher the price. Of course this seems right, doesn't it? If you're emptying your pockets (or even your bank account) to get the latest and greatest device, whatever it is, you want to be sure it can do absolutely everything. You want it to handle your bed linens as well as your silk shirts (the washing machine, that is, not the camera). Most washing machines CAN do all of that, but wouldn't it be nice if you could just set them to automatic? In my household we used to have a washing machine with a dial labeled "A to J." We always put it on "E" which we decided stood for "Everything." But would we pay as much for a device that only had one button? Perhaps a big friendly button that had "Wash" written on it? Almost certainly not.

Paul Blake, Senior Manager, Technology Product Marketing, GEP

Procurement's New Year's Resolutions for 2015: More Saving, More Doing (But Not More Budget)

Since the New Year has arrived, it's time now for the annual onslaught of Procurement Prognostications for 2015. Of course a year from now, what actually transpires may bear little resemblance to what was predicted – and who really goes back and reconciles results with resolutions anyway? But at least in this case, an educated guess can be made as to what procurement leaders will actually be focused on in 2015, based on their responses to a recent joint survey conducted by Zycus and The Hackett Group of over 200 procurement leaders and practitioners.

Richard Waugh, Vice President, Corporate Development, Zycus Inc

The Source of Value: A Chief Procurement Officers (CPO) Study

What is the source of procurement's value to the enterprise? How do organizations become more effective and efficient in achieving sustainable cost savings? How can procurement deliver even greater value to the enterprise? These questions are essential to the continuous improvement of the sourcing and procurement function. They are the questions at the foundation of the IBM Institute for Business Value (IBV) Chief Procurement Officers (CPO) Study which examines the "journey to value" for procurement organizations – and details the specific procurement strategies that drive business results and bottom-line impact. The study, based on a survey of more than 1,000 procurement executives across more than 40 countries, takes a deeper look at "procurement role models," the 100+ companies in the study that achieved the most impressive revenue and profit performance relative to their industry peers. The research identifies three common attributes that tend to separate these procurement role models from the pack. These high-performing procurement organizations:

Matt McGovern, Market Segment Manager - IBM Procurement and Contract Management Solutions

One-on-One with SAP: Digital Networks and the New Face of Procurement

one on oneOne-on-One is a new Q&A series with leaders in the SIG community. Cost savings. Process efficiencies. They're synonymous with procurement and among the terms most used to describe its role within the enterprise. And with good reason. Over the last decade, procurement has transformed itself from a back-room function to a strategic capability by delivering them. But a new term has entered the lexicon: innovation. There's no doubt that procurement today is a different game. It's more connected, informed and some might even say "social" than ever. Just as consumers tap into personal networks to learn, share and shop better, procurement is beginning to tap into business networks. To learn more on how these digital communities are transforming the function, SIG sat down with Dr. Chakib Bouhdary, President of Business Networks for SAP.

SIG: Social tools much like those used to manage our personal lives have infiltrated the enterprise. How is this changing procurement?

Bouhdary: There are officially more mobile devices than people in the world. More than a billion of us participate in social networks. Over 15 billion web-enabled devices connect us to the people and information we need to manage our daily lives. And data is exploding—doubling about every 18 months. So we are mobile, and apps on our phones and tablets give us new ways to discover and collaborate with our peers and trading partners. Just as consumers tap into social networks to keep tabs on their relatives and friends, procurement is now leveraging business networks to manage trading relationships and commerce activities.

SIG: There seems to be a complete shift in the way trading partners communicate, transact and collaborate. How are business networks driving this?

Sarah Holliman

Lessons Learned from the World Cup

The world is in a soccer (or should I say "futbol") frenzy right now. Every day the best teams in the world are competing for their country in hard-fought matches where the team advancing might be determined in the final few seconds of a game. In the U.S vs. Portugal game, the U.S. was the only team in their group Sunday that could have advanced to the knockout round with a win. Instead, their fate is still up in the air, with a number of possible outcomes. This got me thinking about the lessons we could learn from the World Cup.

Leadership is key. It is easy to credit a coach or team captain with leadership, but if there is one thing I've learned in the past few years, it is that anyone can be a leader—it is not defined by your title. This is evident in any soccer game in the world at any given time. Just listen to players talking to one another on a field. Often it's the goalie or center back defender shouting instructions. They may have a lay of the land that someone in a striking position can't see. I think of the Procurement group the same way—it is often the only department that has regular communication with virtually every other business unit, allowing it insight at a high-level that is difficult for any other department to replicate.

Sarah Holliman

The Impact of Leadership on Procurement Organizations

There is one common, less noticed trait about all companies with successful supply chain operations; they know the value of an effective procurement organization, and have placed a great deal of emphasis in creating/transforming them around a strategic vision. However, only a small percentage of businesses globally can claim this success. Most companies lack the vision and thus have seen their procurement organizations evolve organically, developing around the needs of the time and constraints of supporting revenue growth. This blog post provides insights into what defines the second type of companies and how change at the top, supported by long-term vision, can help a firm change for the better. Businesses have developed practices of utilizing the resources and teams available to them to focus on their immediate needs. With top lines receiving a significant emphasis, procurement organizations have been asked to focus on getting the right material in time, but rarely on quality and best cost. Alternatively, when bottom line results are at risk, procurement teams have been asked to generate additional savings to meet quarterly or annual targets. It is only during times of extreme commodity price volatility and spikes in cost of goods sold (COGS), that teams are created to focus on managing commodity risks and price fluctuations. Competitive forces, lessons learned and recommendations from resources new to the firm or from consultants typically drive the situations described above. However, these are implemented as stand-alone projects and rarely translate to a long-term strategic vision. Procurement and Corporate leadership seldom evaluate a procurement organization from a holistic viewpoint.

Samir Patel, Director, GEP

Business Outcomes for Procuring Value Beyond Cost Savings

"Price is what you pay. Value is what you get." - Warren Buffett So you think you've seen it all in sourcing and procurement? Have you tried to weed out real value beyond cost savings? Just because you are saving money doesn't mean you've driven value for your organization. It might seem to be amorphous and unaccountable, but the "value" of a deal or contract is definable by the stakeholders in your organization. Find out what they want, and you find what drives "value" in your company. When you know what someone wants, you can negotiate based on that. Maybe "value" is measured in time. Maybe it's measured in contract commitments. Maybe your supplier needs goods or services you have, that can be applied in barter or through profit sharing. Procurement has matured into more than just negotiating the best contract for the best price. The creativity and innovation that can spur both value and savings comes from doing deals that exceed the simple exchange of dollars for services. Here are a few things to consider when putting together a deal: Deal summary – create an overview of the deal:

  • Where did it start, how did it evolve?
  • Who is the customer (if there even is one)?
  • What is the desired outcome?

Intangibles to consider:

Celia De Benedetti

Suppliers Managing Suppliers

Over the past two years I have had the opportunity to spend time within several Fortune 500 procurement departments undergoing large-scale organizational transformations. While the goals and approach varied by firm and industry, there was one definitive similarity...each company sought to realign the focus of their full time employees on the most strategic activities. This shared objective manifested itself in various ways, including:

Joel Johnson, Manager, GEP

Procurement, the New Profit Center

Procurement organizations will evolve from cost centers or even shared services centers to be measured as true "profit centers" that are accountable to executive management and shareholders to deliver specific, measurable ROI targets - or risk being outsourced to more efficient third parties. Procurement organizations will continue to be challenged with finding new savings opportunities – a Capgemini Consulting survey of over 1,000 CPOs indicates that 39% say their organizations expect procurement to increase savings, with 35% of respondents expected to generate savings in excess of 6% and 5% targeting better than 10%. However, many organizations may be reaching a point of diminishing returns as evidenced by Hackett Group Benchmarks that point towards a leveling-off of savings achieved by World-Class performers, whose Total Spend Cost Savings as a percentage of Annual Spend (Cost Reduction and Avoidance), are forecast to decline by more than a full percentage point (7.56% to 6.46%) from 2012 to 2013, but are still posting better than 2X greater savings than those achieved by the non-world class peer group (2.93%). In this climate, where savings expectations are increasing while savings opportunities are increasingly hard to come by, procurement organizations will be under the microscope to demonstrate their ability to contribute to corporate profitability by achieving world-class ROI from their procurement operations – 10.72 in 2013 as compared to just 3.89 for the Peer Group – as calculated by dividing spend savings by the cost of procurement. Those procurement organizations that are unable to demonstrate world class Procurement ROI, risk being outsourced. Already, the Capgemini survey indicates about 10% of organizations have chosen to outsource some form of their procurement operations and another 25% are considering that option. Procurement organizations have a real opportunity to be seen as a profit center.

Richard Waugh, Vice President, Corporate Development, Zycus Inc.

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