One-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?
We live in a networked economy. As consumers, we tap into personal networks to learn, share and shop better. And with increasing frequency, companies are harnessing the insights and intelligence of business networks to break down the barriers to collaboration and drive innovation and competitive advantage. Like social networks, business networks are an efficient, effective way to connect with a global network of partners and transact business. And they have fast become the defacto standard for a number of key processes, such as sourcing. But the real power of business networks lies in what goes on inside them – all the interactions, transactions and commentary, and the massive amounts of insights and data that they generate. And innovative companies are leveraging this information to move beyond simply transacting and engaging with partners in new ways that give them a leg up on the competition. Take MSC Industrial Supply Co., a leading distributor of Metalworking and Maintenance, Repair and Operations ("MRO") solutions, services and supplies to North American manufacturers. More than a decade ago, MSC joined a network to provide its customers with a fast and efficient way to find and purchase the products they needed. Today, the company is taking things to the next level, mining the insights, intelligence and transaction data that reside on the network to help its customers run their businesses with greater efficiency and effectiveness. When MSC learned that employees at one of its customers' locations had to walk a mile to get to a centralized storeroom where supply replacements were housed, it suggested they install vending machines to put inventory closer to where the work was being done. In doing so, MSC enabled its customer to save time and money, making it a more strategic and valuable partner. In their initial phase, networks were all about connecting companies so that they could buy and sell more efficiently.
Dr. Chakib Bouhdary, President, Business Networks, SAP
I'll admit it. I was pulling for the Broncos. I know there are two sides to every story, and something preceded Richard Sherman's less-than-gracious on-screen comments in his interview with Erin Andrews after the 49ers playoff game...but all I heard were HIS comments, and they were enough to turn me into a Broncos fan for the Super Bowl. Of course, the fact that Seattle beat my home team to GET to the Super Bowl was also a contributing factor...but I digress. The real reason I bring up yesterday's lopsided game, was that in a very strange way, it made me think about governance and supplier relationships. Why, you ask? Well, it's simple. If you don't set out the terms of a relationship and have a proper governance plan in place, you can end up with a very imbalanced set of understandings, which can have a disastrous result. In a blog posting on governance several months ago, I spelled out my thoughts in a detailed manner, including organizational structure, stakeholder involvement, cultural alignment, milestones, deliverables and goal linkage. Without a doubt, those are all critical, but for the purpose of this "post game report" I'd like to focus on what I consider to be two of the most important components in just about anything.
Procurement's historic focus on managing categories of supply too often assumed that the category was comprised of interchangeable sources of supply to be manipulated to produce perpetual annual cost reductions at the category level. The new realization is that material cost savings are not an annuity and commodity suppliers are not a "commodity." The best suppliers, and the supplier's supplier, are the source of innovation and competitive differentiation, and a supply management, not category management focus, is needed to nurture them. While the orientation towards Category Management remains ingrained - the latest CAPS (Center for Advanced Purchasing Studies) Manufacturing Industry Benchmarks still show nearly double the amount of procurement resources allocated to Category Management as compared to Supplier Management (31% to 16%) - the shift towards Supplier Management has already begun. In a Zycus sponsored, December 2013 webinar in collaboration with The Hackett Group, titled, "Real-time Procurement Benchmarking," almost half of webinar attendees polled expect to get more than 10% of "total procurement value" from Non-Sourcing or Category Management activities - in other words, Supplier Relationship Management. More organizations are turning their attention to Supplier Management as a new source of savings - and value - as a matter of necessity. Hackett Group Benchmarks 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. And according to Hackett benchmarks, Top Performing organizations are already realizing 3.4% savings annually as a percentage of Total Spend above and beyond savings from sourcing or category management, twice as much as their peer group.
Richard Waugh, Vice President, Corporate Development, Zycus Inc.