Category Archives: Procurement Innovation

There are Many Key Elements of Sustainable Procurement Strategy — But Three Fundamental Elements that Must Be Present

A recent article over on Material Handling & Logistics on Key Elements of Sustainable Procurement Strategy outlined for key strategies for sustainable procurement that were on point:

  • A Holistic Approach
  • Data Integration
  • Pay it Forward
  • Stakeholder Engagement

But meaningless if you don’t have the basics in place:

  • trained talent
  • well defined processes
  • solution-oriented systems

Trained Talent

All of the above, and all of the other key elements of a strategic procurement strategy not listed, require talent to execute. Talent that is appropriately educated, experienced, and trained on all of the key elements appropriate to your organization. With respect to the above:

  • talent needs to define the right holistic approach
  • talent needs to identify the critical data, formats, and integration strategy — and make sure it is done effectively
  • only talent can handle delicate supplier relationships to make sure it is truly paid forward
  • shareholders need to be engaged effectively, and that requires real talent

Well Defined Processes

Statements, directions, and mandates don’t accomplish anything. Neither do people without an appropriately designed and detailed plan — which goes well beyond we’re going to engage supplier S or buy product P. Procurement success rates are high when there are well thought out and appropriately defined processes that can be followed by all those involved in a project or process, and generally low otherwise. Moreover, without well defined processes:

  • there is no holistic approach, it’s just a buzz phrase
  • data integration is just a one time pull into a system or push into a warehouse, and it gets outdated faster than fashion on Melmac
  • it takes more than smooth talk to pay it forward, it takes processes that ensure knowledge is transferred to, effort is minimized for, and real collaboration takes place with suppliers — it takes processes to make sure nothing critical is overlooked that could hamper the organization’s goals
  • while talent is the most critical to stakeholder engagement, good processes are critical to ensuring requirements and data is efficiently collected and retained (as a stakeholder should never have to make the same request or provide the same input twice) and no concern is overlooked

Solution Oriented Platforms

Sustainable Procurement ultimately relies on appropriately trained talent executing well designed processes with the help of platforms that help them do the jobs they need to do on a daily basis. Platforms that automate the tasks and solve the problems the organization has, not platforms that do nothing but act as fancy middleware or slap roll-the-bones AI-assisted conversational interfaces on top of software that never worked in the first place. Sustainable Procurement requires that the procurement department be able to get stuff done. That will rarely be AI, or spend orchestration, or the buzzword of the day.

  • orchestration may sound like it supports a holistic approach, but all those systems do is tie systems together that actually do the work through a common interface, which, in its attempt to homogenize everything, often weakens the solutions for the individuals that need to use them the most; a holistic approach is about getting things done with systems that get things done
  • you can’t integrate data without the right platforms that collect, process, and normalize the right data the right way
  • it’s a lot easier to pay it forward when you have the right platforms that support the processes and the people who need to pay it forward
  • it’s easier to manage stakeholder engagement on systems designed to support the stakeholders in question, in contrast to one-size-fits-all (but serves no one) “orchestration” systems

In other words, if you truly want sustainable procurement, start with making sure the foundations are in order. The rest will follow in a straight-forward manner once you have the basics right.

Does Logistics Management Understand Procurement Better than Most Procurement Publications?

A recent Logistics Management Article on The State of Procurement in 2024, starts off with Procurement is fundamental. It spans everything from day-to-day purchases to measuring sustainability to future-proofing operations for long-term growth. It’s a wide spectrum of mission-critical responsibilities, spanning all business functions.

As we noted in our recent article on The Future of Procurement is the Past, Procurement is at the heart of the business. It’s always been a core function and always will be. And once businesses realize that the key to sustained profitability going forward is getting back to basics, it will be again.

And while the article says “Procurement is transforming at lightning speed“, it’s only partially right … leading Procurement departments are transforming their technological baseline at lightning speed to become more efficient and effective, but they are not changing the core, strategic function they perform, they are just implementing processes and tools that allow them to perform those core, strategic functions more efficiently and effectively.

Why? According to the article, which quotes Gartner, its due to the intersection of accelerating changes in risk management, ESG, and technology and the complexity and challenges of keeping up. The internal challenges — such as system complexity, a wide range of vendors and products, and compliance requirements — and the external challenges — rising costs, unexpected economic changes and CSR mandates, and changing digital procurement needs — are increasing by the day.

As a result, many Procurement departments have been going through transformations, sometimes two or three at a times, but not all are turning out as planned. This is because, as the article notes, most of these projects focus on implementation, and not the reason for; relies too heavy on staff(‘s lack of) experience and implementer inexperience; buys into the vendor’s “one size fits all” approach; and leaves workflows incomplete. Digital is not an option, but how you approach it is. The article emphasizes simplicity, quoting Gartner’s statistic that organizations that employ design simplicity have a 42% increase in success, but that’s just part of the picture.

As per our previous articles, it’s not just simplicity, it’s focus on what is needed, why, and vetting the platform and the vendor against both. It’s putting the real need first, not the technology, and selecting the right technology for the job. Sometimes it might be AI, but most of the time it will be classic tech that’s been on the market for 10, or 20, years that has been honed over the years by a vendor laser focused on solving a subset of Procurement problems in the best way possible for companies in the industries, market size, and geography the vendor is focussed on. As the article notes, there’s no AI roadmap and, as such, significant care should be taken with any AI initiative.

It’s more critical as the article notes, to focus on better data analysis, efficiency, and system (and data stream) interconnection. The more insight you get, the better decisions you can make on system selection.

In other words, the current state is a challenging one, but that’s no different than what Procurement has been going through since the first commercial telephone interchange began operations in 1878. Procurement has always had to deal with change, the only difference now is that it’s coming harder and faster than it ever has. But it’s not like Procurement hasn’t always had to deal with or adapt to change, and it’s not like the best Procurement departments haven’t always done so, it’s just that the challenge has reached a new height. But as long as Procurement employs the same best practices they’ve always employed and does the right due diligence on any solutions they are considering, they will do just fine.

The Future of Procurement is the Past … With Just a Dab More Modern Technology

A recent article in the SCMR asked what is the future of procurement after reviewing a benchmarking report (or at least a press release) from McKinsey & Company on “Where Procurement is Going Next”.

The article quoted a statistic that companies excelling in procurement had a digital capabilities maturity score 40% higher in strategy, digital and data analytics compared to average performers. They also noted that this tracks with the first Procurement benchmarking survey McKinsey launched two decades ago which uncovered a clear link between procurement maturity and higher business performance. (Today, top quartile procurement maturity companies have EBITDA margins at least 5% higher than less mature peers.)

According to SCMR, McKinsey found that the priorities for the next 6 to 12 months is end-to-end margin management; next generation technology, data, and analytics; and talent and resiliency. Translation: focus on sustained profitable growth, make sure you have the right technology to support it, and don’t forget that talent is key to resiliency (or at least not until the budget gets tight and the first thing to be cut is the training budget and the next the compensation budget).

First of all, isn’t that what Procurement’s always been about? Supporting the business in a manner that allows it to be sustainable and profitable, using the tools at its disposal (good negotiators and couriers, then phones and catalogs, then faxes, then emails, etc. etc. etc.), and the right people for the job.

Secondly, now that the time of global expansion and growth is over, inflation is back with a vengeance that was unseen for two decades, global trade is disrupted on a daily basis, capacity is low (thanks to ships scrapped during COVID) and lower thanks to Panamanian droughts and the conflict in the Red Sea (and the renewed need to make the long, and sometimes dangerous, voyage around the capes), sustainability is critical in many jurisdictions, and the marketing mad men can only take your company so far, companies are realizing that they need to get back to basics.

And those basics are good operations centered on what is most important. If we go back to Business 101 (which, unfortunately, many of today’s founders and CEOs didn’t take or forget), businesses survive on profit and profit equals revenue minus expenses. Revenue is not infinite, which means the key to growth is NOT just revenue growth, but expense management. And expense management is good old fashioned Procurement.

Which means the future is the past. The future is that Procurement will regain its importance in any organization that not only wants to survive the increasingly turbulent and troubled times ahead, but thrive.

Procurement is at least the world’s third oldest profession, depending on whether astronomy came first or third, and, as we’ve been repeatedly saying, the core, and importance, has never changed. Not since the first known modern manual was published in 1887. Not since The Royal Mint was founded in what is now the UK in 886. Not since someone was first hired in an ancient metropolis by a businessman to buy goods on his behalf thousands and thousands of years ago. Buy usable, quality, goods and services the business needs at a fair price so that the business can sustain its operation profitably. And that’s where Procurement’s focus, and importance, will return. That’s the future. And it’s the past. Brush up on your history. The “tools” may change but the job remains the same.

We just have to survive Everything Louder than Everything Else.

Digital Procurement Transformation Requires Strategy and Design …

… not just new technology! (As THE REVELATOR would say, an agent-first approach, not an equation-first approach.)

A recent article on Turner and Townsend noted that while effective digital-first procurement strategies are key to capturing the necessary data and providing the comprehensive visibility needed to manage complex and multi-faceted risks, a digital-first procurement strategy demands a strategic overhaul – it cannot only be about adding technology to existing processes.

Furthermore, it needs more than a cultural shift to integrate a digital golden thread that aligns the organization’s overarching commercial vision and the enterprise-wide digital ecosystem. It needs a technological shift, one that goes from looking at technology as a saviour to technology as what it always was, just a tool, and a tool that only works if

  • properly selected,
  • properly used, and
  • placed in the hands of an appropriately educated, trained, and skilled individual.

Furthermore, it doesn’t matter how modern the tool, how much “AI” inside, or what provider is offering it. Just like a power drill won’t screw in a nail, a Gen-AI solution won’t provide a strategy, won’t analyze generic data in a meaningful way to select a sourcing strategy, and won’t properly parse and automate that invoice. (That’s not what it’s for. It will summarize large supplier RFP submissions and crawl through your contracts for common clauses, or lack thereof, but that’s it … it’s just a huge document parser and summarizer.)

Only the right platform will solve your problems, and you’ll only be able to select one if

  • you analyze your processes and identify the data you need
  • you analyze where the data comes from
  • you analyze who has to create / enter any data that needs to be manually vetted …
  • you determine the TQ level of all those individuals who need to use the system
  • you analyze the potential systems with respect to their ability to store the data you need, collect it automatically from any data feeds it is available in, and collect it through manual submission in easy-to-use interfaces that minimizes the chance of error on data entry
  • and when you find ones that meet the data need, then you confirm they can support the process needs …
  • and then you do vendor diligence.

But without the right platform, no progress will be made and, in fact, if you consider the failure stats, chances are the wrong platform will worsen the situation. Technology is NOT an easy button. You still have to do the work of vetting it, implementing it, configuring it, and even when it can automate a task, verifying it on a regular basis (as well as identifying when an exceptional condition arises and dealing with that regularly). Technology can make your life (much) more efficient, and easier, but it’s not an easy button. Never forget that.

the doctor explains the Procurement Alphabet

I would say that you approach them with caution
You should not let them overwhelm you with cheer
Pays to know what you’ll find
To understand their kind
’round here

Drawing their lines,
they look so radical
Tracking their curves
I get so lacrimal
Something deep down reveals they’re tragical

I think I’ve had enough …

It’s a strange alphabet
That’s what I know
But it’s a strange alphabet
We’ve got to follow …

Seventeen years ago I explained the whole numbers. Steve Martin explained the alphabet (but not the Procurement alphabet), and who better to explain the whole numbers than a trained mathematician.

But lately I’m seeing a lot of glossaries and “complete sourcing/procurement guides” that are anything but … so I thought I’d fill in a few basics for you …

A is for Analyst, who pretends to understand
B is for Buyer, with cash in hand
C is for Contractor, lost in Legal land
D is for DEI, now on the witness stand

E is for Equity, where can it be found
F is for Finance, who pay by the pound
G is for Goods, which make the supply chain go round
H is for Hedge, on currencies sound

I is for Insight, desperately needed
J is for Jazz, the hope has been seeded
K is for Kanban, its use exceeded
L is for Legal, its advice unheeded

M is for MRP, technology ancient
N is for Negotiate, done in plainchant

O is for Onboard, suppliers aplenty
P is for Purchase, multiples of twenty
Q is for Quality, often absent-ee
R is for RFX, created by cognoscenti

S is for Supply, critical to success
T is for Tariff, always assessed
U is for UNSPSC, classification coalesced
V is for Vendor, marketing obsessed

W is for Warranty, never enough
X is for Xennial, weary and gruff
Y is for Yardmaster, full of chuff
Z is for Zealotry, Procurement tough

… just to make it clear that the depth and breadth of the space is well beyond what a short glossary or guide can ever hope to address. The Procurement alphabet is not a character alphabet, or even a phonetic or syllabic writing system, it’s a logographic one. One that takes years, if not decades to fully master with all of its global dialects.

But that doesn’t mean you shouldn’t try.