Key Challenges of Tomorrow
|Key Challenges of Tomorrow, Part I
by David Bush
November 19, 2007
In this post I summarize the fifth installment of the CPO Agenda 2007 debate series - What are procurement's key challenges in the next 1 years? that took place early this summer in Paris. (I think I'll crack a bottle of Cabernet Franc in honor of our European clients.) My summaries of the previous debates on World Class Procurement - The British Perspective, The Next Wave of Savings, Global Sourcing - A Scandanavian View, and What Capabilities Do You Need To Operate In A Global Market? are still available in the archives.
The debate included Claire Brabec-Lagrange of Thales, Claire Dacier of Alstom, Xavier Cassignol of FCI, David Chambeaud of Thomson, Phillippe Courregelongue of Emptoris, Jean-Pascal de Casanove of Messier-Dowty, Sylvain Fresnault of La Poste, Laurent Jehanin of Safran, Luc Jodry of SFR, Marie Christine Jonon of Alstom, Pierre-Francois Kaltenbach of Accenture, and was charied by Geraint John of CPO Agenda. As with the previous posts, I am going to summarize some of the key points from each contributor.
In the past, purchasing was not part of the [strategic planning] exercise, which mainly involved sales and strategy, operations and technology. Now we are part of this strategic exercise and this has made a huge change because it has led purchasing to get closer to sales and strategy in order to understand where the business wants to go and what will be the requirements in sourcing.
We have to create a strong partnership inside and outside the company.
In my view, it will be less about cost - almost nothing about cost - and probably mostly about how many alliances, how many partnerships, how many joint ventures you have built and how deep they are with your suppliers.
What we see coming up now and over the next three, four, five years is the need to expand our capability to source not just traditional commodities, but also to manage new areas of spending.
The second thing is for sourcing to challenge our business partners, who can be suppliers but also new providers of technology. It's about innovating and finding new partners, new sources.
The third point is that, more than ever, sourcing will need to be a "junctioning" function, mastering communication between operations and R&D.
I don't think any company in the future will be able to invest in every aspect of sourcing; you need to invest in talented people, good communicators, business-driven people, not just good negotiators, who can manage superior customer relationships. If you want to invest there and in IT tools and integrated systems, then you will have to choose.
There are three things you have to focus on: get the basics right, work on compliance to make sure cost reductions are actually hitting the bottom line, and agility to adapt to changing market conditions.
Jean-Pascal de Casanove
We should also have a role to define best practices in the organisation.
We shouldn't also forget the importance of purchasing in sustainable development. It's changing our relationship with suppliers and customers.
The challenge for purchasing is to lead supplier relationship management within a properly qualified team.
The aim is really to position purchasing in the whole company process. The first change will be to involve purchasing in the negotiation phase with our customers because the size of what is purchased has become bigger. The second area is the involvement of purchasing early in the R&D process to be sure we can attract the best of suppliers' innovation and that we are involved in optimising the make-or-buy decision by providing an analysis of the marketplace. The objective is really to make the best of the supply chain, but we can't base that only on cost because it's not sustainable. Sustainability is not just about being green or socially responsible, it's also about the model we can project.
The basics are about cost, but I agree that we have to go further and maybe get into profit management - what will our supplier bring us in terms of innovation?
Marie Christine Jonon
Currently, we don't consider our suppliers as partners and don't invest in the innovation of our suppliers. Now, because of internal growth, our main target will be to push our suppliers and to help them to innovate and to be a preferred customer.
I would make five points about future challenges.
In terms of career path, we are still far away from a situation where you can offer your best buyers a clear perspective.
My second point is about profit centres. I think all CPOs are struggling to justify their contribution, to measure savings.
The third thing is outsourcing. I think a lot of the indirect purchasing and the requisition-to-pay process will be outsourced, so that you will see big indirect and process factories in low-cost countries.
The fourth point is about innovation because there are companies now that have innovation objectives.
And the fifth one is about integrated supply chains, because when you are looking at what your customers and suppliers are doing, sourcing on its own doesn't make sense anymore. You need to be part of a global supply chain, not just look at your suppliers and try to cut costs.
Wow! Best Practices. Compliance. Supplier Relationship Management. Supplier Performance Management. Strategic Planning. Collaborative Partnerships. Outsourcing. Talent. Sustainability. Profit Management. The Centralized Business Function. Innovation. What a great debate - and what a great article! Unfortunately, some of this stuff is at the edge of my area of expertise. I'm an e-Sourcing guy. Have been since day one - and will be until every need of every one of my customers in e-Sourcing is met. So, rather than try to summarize it and take it further on my own, I've asked Michael Lamoureux, the doctor of Sourcing Innovation and regular guest contributor here on eSourcing Forum, to write part II of this post.
Key Challenges of Tomorrow, Part II
by David Bush
November 20, 2007
In Part I, David Bush summarized the fifth installment of the CPO Agenda 2007 debate series - What are procurement's key challenges in the next 10 years? that took place early this summer in Paris and featured a dozen procurement executives from leading companies in the region.
As per his summary, the key topics that emerged from the debate were "Best Practices. Compliance. Supplier Relationship Management. Supplier Performance Management. Strategic Planning. Collaborative Partnerships. Outsourcing. Talent. Sustainability. The Centralized Business Function. and Innovation.". And, collectively, the debaters did a great job of summarizing many of the key challenges for the purchasing function of tomorrow and what purchasing is going to look like in five to ten years.
But they didn't get everything. At a minimum, the following should also be added to the list: On Demand. Analytics and Optimization. Scenario Simulation. Risk Management. Demand Shaping. Guided Sourcing. Change Mangement. Crowd-Sourced Open Source. Capacity & Material Securitization. Visibility. The New ERP. Sourcing as the foundation of the Extended Enterprise.
However, before I explain what the future is, how each of these concepts tie into it, and where they fit into the overall picture, I'm going to start with a brief definition of what each concept is.
Analytics is all about analyzing spend to understand spend patterns and opportunities for spend avoidance and reduction.
Best Practices is all about improving the sourcing function from a process perspective.
Capacity & Material Securitization
As initially described by Jason Busch, this will involve companies purchasing production capacity at manufacturing plants and raw materials in advance of their production to meet future forecasts. Then, if they over-purchased, or under-purchased, they will trade this capacity on an exchange in current market rates. This model could work out very well for all parties as it would ensure much needed cash-flow on a timely basis to manufacturers who would gain increased stability and better financing terms and ultimately be able to lower costs and keep them down in the long term.
Change management is a structured approach to change in individuals, teams, organizations and societies that enables the transition from a current state to a desired future state.
This is where buyers and suppliers work together to serve customer needs and reduce costs in a positive manner. It's not where a buyer beats up a supplier when they are unhappy with quality or cost.
Crowdsourcing is the process of delegating various tasks for which you do not have the manpower or expertise from internal production to external entities or affiliations of networked persons with the expertise, access to, or raw capabilities that you require.
Compliance is a term with at least as many meanings as there are distinct arabic numerals, but generally refers to either ensuring that spend is on contract, that regulations are being adhered to, or that corporate initiatives are being considered.
Demand shaping is a demand-driven customer-centric approach to planning and forecasting that tries to shape the demand to a desired level.
Enterprise Resource Planning systems were early attempts to integrate all organizational data into a system that could be used for enterprise planning. The advantages were that all data was centralized, processes were encouraged, and queries were answered quickly but the major disadvantage was that ERP was primarily concerned with what happened within the four-walls of an enterprise and not the supply chain it was ultimately a part of.
As most recently described by Jean-Phillipe Massin, the extended enterprise is an aggregation/network of independent and top-performing companies, working together to supply products or services as effectively as they can.
In the future, e-Sourcing technology will contain expert systems that "guide" a junior buyer on the right process to follow in sourcing a certain category.
Innovation is progress by way of the new. It's what business should be all about.
On-Demand refers to the delivery of software over the internet using the Software-as-a-Service model.
Open source is a set of principles and practices that promote public access to the design and production of goods and knowledge. The most common instantiation is open-source software, which makes software freely available to the general public with relaxed, or non-existant, intellectual property restrictions. This allows users to create software content through incremental contributions.
Decision optimization is the application of rigorous analytical techniques to a well-defined scenario to arrive at the absolute best decision out of a multitude of possible alternatives in a rigorous, repeatable, and provable fashion.
Procurement Outsourcing is the act of turning over part, or all, of the sourcing function to an external company.
Risk management is the art of predicting, analyzing, and mitigating against potential risks before they happen.
A simulation is an imitation of a real-world process and can be used to determine potential outcomes under different scenarios. It can be especially useful in forecasting.
Strategic planning is the process of defining organizational strategy or direction.
SRM: Supplier Relationship Management
Supplier Relationship Management refers to the art of managing all aspects of a supplier relationship to make sure it is a beneficial and productive relationship.
SPM: Supplier Performance Management
Supplier Performance Management is particularly concerned with measuring, managing, and improving supplier performance on an ongoing basis.
Sustainability is another one of those broad categories that could refer simply to business viability, to environmentally sound practices, or to the broader subject of <a href="http://www.esourcingwiki.com/index.php/CSR">Corporate Social Responsibility</a>.
Talent refers to people - brilliant people capable of doing a brilliant job - and talent management refers to the art of identifying them, recruiting them, retaining them, and when necessary, retiring them in a positive manner.
Yet another of those over-used and often misunderstood terms, visibility could refer to spend visibility, it could refer to inventory visibility, or it could refer to potential disruption visibility throughout the supply chain (as in a supplier's supplier needs titanium for its part and there's a shortage on the market).
The phrase we all hope to say someday when someone asks "How's it going, dude?", unless, of course, you're Canadian, then, when someone asks Howse it gowin'?, you answer Z'allgood, eh?
So, now that we've got the basics covered, I'll put the pieces together in part III.