There’s a lot of talk regarding all the ways technology is going to revolutionize procurement. Blockchain can increase supply chain visibility. The Internet of Things (IoT) can change the way our business devices communicate with each other. But what type of innovations are available at the sourcing level?
From paper RFPs to conferences, it seems the way we source business has largely remained the same. Procurement teams are limited to siloed, outdated supplier databases and incomplete business information when attempting to make business decisions. It’s expensive and time-consuming to get a holistic picture of a supplier’s business health and mitigate third-party risk.
How can we adapt today’s technology for tomorrow’s sourcing needs? Here are a few innovative ways that your organization can source business.
Mobilize Your Supply Chain
I believe the key to sourcing success lies in mobilizing supply chains. Right now, supplier data is locked down in many different places that don’t communicate with each other. A large organization may have supplier data separately located throughout their ERP and CRM systems, accounting and legal departments, and Excel files floating around from supplier diversity programs, in addition to their procurement arm.
Teams are often tasked with managing legacy Electronic Data Interchange (EDI) systems with high overhead costs and systems that are unable to effectively manage the dynamic nature and sheer abundance of today’s business data. Traditionally, supplier information has been limited to line items such as name, tax ID, quantity and price of a sourced product, and remit-to-pay.
Daryl Hammett, CSMP, CSP, C3PRMP, Global Head of Lead Management and Operations Amazon Web Services (AWS)
The Relationship Manager is the first line of organizational defense, tasked with ownership of relationships and risks. The overall accountability of these risks, the performance and the cost management for the supplier through the life of the relationship are also key focus points.
I will discuss how the Relationship Manager (RM) functions as the nucleus of Third-Party Risk Management (TPRM) activities for a supplier with the following points.
Provides Information for Reviews and Decides on Risk Acceptance for a Third Party
It is understood that the liability of our third parties is ultimately ours. This means that the liability of the third parties of our third parties (i.e., our subcontractors) also becomes ours. An effective framework in which risk is indicated and mitigated is essential for our suppliers and subcontractors.
In such a framework, exit strategies and termination processes are set in place for cases in which the risk cannot be mitigated or when a contract needs to be terminated. These are defined by the Relationship Manager, who provides information on the supplier and finds out if there are subcontractors involved. Responses provided will trigger due diligence risk areas for information from the supplier.
Once the relationship is fully defined and risks are highlighted, it is the responsibility of the Relationship Manager to determine whether or not to accept the risk and contract with the supplier.
This is the final chapter in a four-part series on procurement KPIs. Catch up on part 1, part 2 and part 3.
One of the goals of a business is to have as much spend (with a capital “S” for all expenditures: CapEx, OpEx and COGS) under management as possible. And that goal should be extended out to supplier spend, where procurement wants to have as much supplier spend influence as possible.
That way you know what you’re spending on suppliers (and the pricing component of that, of course), what you’re getting from those suppliers (i.e., supplier performance), and how well you’re spending in terms of applying best practices and tools/intelligence to the process (e.g., proactively guiding stakeholders and minimizing maverick spend).
Pierre Mitchell, Spend Matters’ Chief Research Officer
In Part 1 of this series on procurement’s key performance indicators (KPIs), we discussed how legacy KPIs need to be augmented to help procurement expand its value proposition. In this second installment of the series, we’ll focus on how to build a balanced “360-degree” procurement scorecard and highlight some truly KEY performance indicators that help foster the right behaviors and alignment across the source-to-pay (S2P) process and the broader value chain.
Everyone knows the old adage, “What you measure is what you get.” Known as the “Hawthorne Effect,” it has been shown that performance will improve when those performing the process know they’re getting measured on it. So, designing stakeholder-specific KPIs is critical to ensuring business alignment. The “SMART” (specific, measurable, achievable, relevant and timely) metrics model is an excellent framework to apply here. Still, the first step is ensuring a 360-degree measurement system that aligns procurement with:
Pierre Mitchell, Spend Matters’ Chief Research Officer
When Barry Kull was going through the recruitment process at Novo Nordisk, his son was diagnosed with diabetes. Walking into his meeting, Kull was apprehensive about mentioning his son’s diagnosis, but when the conversation went such, Kull brought up it up. He was glad he did. “When I mentioned my son’s diagnosis, the CFO’s body language and energy absolutely changed. He leaned into the conversation and was genuinely curious about my son. He told me how Novo Nordisk addresses challenges that adolescent type 1’s encounter.” Kull realized that the executives at Novo Nordisk care. He is now proud to represent a company that, throughout the organization, empathizes with its customers.
Finding Suppliers That Care
Kull doesn’t expect suppliers to care as much as Novo Nordisk, but he expects them to understand why they care so much. He expects the suppliers to lead, to anticipate and to push their thinking. Kull believes that all procurement professionals should have supply partners that are good people with strong ethics.
The Cooperative Ecosystem
A cooperative ecosystem is a combination of different partners and suppliers that bring their own set of values to the table. The partners and suppliers work together to solve a specific problem or to create an opportunity.
In the context of launching a new pharmaceutical brand, the following is Kull’s (paraphrased) list of potential partners and suppliers that might be part of a brand-viable ecosystem: