The “Future” of Procurement: Ongoing Blues Part III: The Inflection Point

It’s taken us eight (8) days, but we’ve finally reached the point where, even though these “future trends” are already here in leading organizations, there’s still some life left in these trends and forward thinkers still have an opportunity to get a bit of a leg up on their competition if they go just a little bit further. However, true forward thinkers have been preaching about these trends for over a decade, so they’re not exactly new shoes, even if, to you, they look like they’re still in the wrapper.

11. Transparent Pricing (thanks to “the cloud” and “big data”*)

This is another trend that’s old news. With the introduction of the internet, e-RFX, and e-Auction technology, which is almost two decades old, and the proper application of database technology and should-cost modelling, pricing has been increasing in its transparency for almost two decades. And with some tools tracking this data across all public and private channels at your disposal, we’ve reached a new level of transparency. Soon the nature of the conversation will change from “what’s the lowest price you can give me” to “how can we work together to take cost out”. When that happens in more than a handful of companies, and it needs to happen, we will truly have reached the next (but nowhere near the last) level of Supply Management. So while this is still ongoing blues, as the leaders have been here for a few years, it’s at least a trend that the doctor can get behind. When it comes to this trend, he can almost stand for it standing.

10. Using e-Procurement to Integrate Sustainability

Sustainability starts deep in the supply chain, not in the retail store. Sustainability is about designing products that use recyclable or replenishable raw materials, minimizing energy requirements (and making sure renewable energy sources are maximized in the production process), and minimizing the utilization of other natural resources and, in particular, water (as fresh water is in short supply). The best place to integrate sustainability into your supply chain is in Procurement. In business, money talks and if you want to make sustainability happen, you talk with your money. And if you want to have a lot of money to talk with in the future, you get sustainable now because, even if there is an up-front premium, raw material and resource costs keep going up and, someday, your costs will be less than your competitors who didn’t get the memo and reduce their non-renewable resource consumption when they should have.

09. New KPIs

It’s true what they say, what gets measured gets managed, and this means what gets measured well, gets managed well. And this means that continual improvement in your KPIs results in continual improvement in your Supply Management. Just as it has for the last twenty years. But this old news still has some life in it. There’s still, hopefully, innovation left to come in Supply Management, and each of these innovations should be accompanied by appropriate KPI improvements. No guarantees, but here’s another trend that we can look upon positively for the time being.

08. Lifecycle TCO

Ever since the first e-Auction failed to deliver a return, which happened to every company that went e-Auction crazy — because once you squeeze the fat out of a supplier’s margins, there’s no savings left to be had on unit price alone — the conversation quickly elevated from unit cost through landed cost to early definitions of total cost of ownership because, when demand exceeded supply, it’s the only way a company could identify real savings.

But, even today, most “TCO” calculations only look at minimizing landed cost across related commodities in a category with immediate utilization costs — such as waste product disposal (from the manufacturing process), expected warranty costs (from consumer returns), expected return costs (to your supplier), etc. They typically don’t extend to end-of-life recovery and disposal costs (as required for many electronic products under various global legislations), production cost models (to help you weigh lower life-time cost vs. the lower right-now cost), premiums for sustainability (as some consumers will pay a few percentage points more for an ethically and sustainably made product), or the marketing benefit of using a certain supplier (e.g., Intel inside). And as the reach of Supply Management grows, so does the opportunity for total lifecycle cost modelling and minimization. There’s still opportunities here for the creative. Leading companies, such as those in The Hackett Group top 8%, have explored most of these, but the remaining 92% of you haven’t. That’s why this is ongoing blues, but unlike The Cloud that beats you black and blue, at least when you think about TCO more holistically, you start to think to yourself, What a Wonderful World.

It’s been eight (8) long days, but we’ve almost made it! Two (2) more days and we’ll be ready for the true “future” trends. All three (3) of them. Just two more days!

* Don’t get the doctor started on “big data” either. Just don’t.