Category Archives: Sourcing Future

Ariba Vision 2020: Close, But No Cigar

This post addresses the four predictions that came close to the mark in Ariba’s Vision 2020 – The Future of Procurement report. For the most part, they were just a little too hopeful.

02. Intelligence moves into context

Intelligence will move into context, and be front and center in leading supply management organizations, but will not be a substitute for Supply Management Professionals with expertise in risk and economics and target markets. Just like a dashboard can only alert a user to a known issue, automated monitoring solutions can only alert a user to known risk indicators. Political uprisings, natural disasters, and financial failures (due to a loss of one or more major contracts when a supplier is operating on razor thin margins) can still come without any obvious warnings and only a sourcing professional who is carefully monitoring the country, the news, and the supplier will be able to detect a significant event before, or, in the worst case, as soon as it begins.

06. Prices go transparent

Price transparency will continue to increase to the point where most prices for most products and services will be known to within a few points most of the time, but there will be limitations in accuracy, just like there will be limitations in systems’ ability to predict risk and market changes. Unexpected natural disasters, political uprisings, enthusiastic traders, and government intervention will still create unexpected (artificial) supply shortages that materialize over night and wreak havoc on prices. In addition, shifts in consumer preference, organizational boycots, and new regulations will contribute to rapid demand decreases that will do the same.

11. SBUs absorb procurement

Strategic Business Lines will absorb most day to day Procurement and Supply Management functions, leaving the Supply Management organization to focus on strategic initiatives, long-term value generation, innovation, and business line consulting when and where it is needed. And tactical procurement functions might entirely disappear from procurement, being handled by service centers that support the various business lines. But Supply Management will still be needed to not only deal with strategic initiatives, but to handle special projects and unexpected situations when they arise. Since the strategic business lines will never by Supply Management experts, they will never truly absorb all of the Supply Management functions.

25. Early is the new black

Suppliers will be more heavily involved in NPD and will be involed earlier in the process, but it won’t always be on the ground floor. Suppliers have limited resources too and dragging them in to every project before the supply management professional has identified the value they can bring and the value they stand to receive will only result in strained relations. They’ll be brought in when the supply management organization feels the time is right, but it won’t always be early as that will be too speculative, and, in some cases, risky.

Close, But No Cigar

The next post will discuss the four predictions that were totally off base.

Ariba Vision 2020: Tomorrow’s Shoes (Part II)

This is the second of two posts that address the fourteen predictions that were dead on in Ariba’s Vision 2020 – The Future of Procurement report. Any Supply Management organization that recognizes the truth of these predictions is well on its way to formulating a plan to be a leading Supply Management organization in the decade ahead.

18. Offensive line takes the field

Supply Management professionals will increasingly use online communties and networks to discover, connect to, and collaborate with suppliers in a relentless pursuit of growth and expansion in line with the strategic goals of the company. Furthermore, the collaboration will be much more intensive and innovation focussed than it is today.

23. Buyer-seller lines blur

The focus will shift from the effective utilization of supplier functions to the effective integration of supplier functions to the point that integrated supplier functions will be almost indistinguishable from buyer functions. In leading organizations, the line will blur to the point where it is essentially nonexistent.

24. Innovation comes from without

As the paper says, the supply management role will be less about “person-who-brings-innovation-in” and more about “person-who-assembles-innovation-communities-and-gets-out-of-the-way”. Even at most companies that use innovation networks today, the innovation is still driven by the supply management professional that posts a problem in need of a solution. In the future, the networks will identify the problems and the solutions and then bring them to the supply management professional. Next generation web-based technology will bring the democratization of technology to new heights.

26. (Key) Suppliers gain power

Increasing reliance upon (key) suppliers is going to give them substantially more leverage in buyer-seller relationships, which is going to result in the supply management organization having to sell itself to the supplier as a customer of choice instead of the supplier having to sell itself to the supply management organization as the supplier of choice. And the more innovative the supplier, the harder the sell the Supply Management organization will have before it.

27. Firms share risks and rewards

The leading supply management organizations, that are incorporating incentives into their contracts today, will move to a shared risk and reward model where both parties share the rewards of a successful venture as well as the risks of the undertaking. No longer will contracts be lopsided in favor of the buyer that will be as reliant on the supplier as the supplier is on the buyer.

30. Risk info catches up

Risk management will take prominence in an average Supply Management organization which will have more access to readily available third party information (from networked communities where participants pool data for operational risk assessment) and be better poised to mesaure risk and formulate appropriate mitigations. Risk management will be embedded in every sourcing and contracting process and a key component in the calculation of expected value.

31. Profits replace cost savings

The shift in focus from cost to value will see most Supply Management organizations retire cost savings and instead institute profit generation as a primary measure of organizational success. Top line growth will be just as important as bottom line impact in an organization that wants to improve business outcomes overall.

The next post will address the predictions that came close to the mark, but did not hit it.

Ariba Vision 2020: Tomorrow’s Shoes (Part I)

This is the first of two posts that address the fourteen predictions that were dead on in Ariba’s Vision 2020 – The Future of Procurement report. Any Supply Management organization that recognizes the truth of these predictions is well on its way to formulating a plan to be a leading Supply Management organization in the decade ahead.

01. Everything is automated

This prediction is dead-on. Next Generation Supply Management shops are investing heavily in technology to automate all non-strategic and low-value supply management activities, leaving the sourcing professionals to focus on strategic and high-value categories where they can extract the most value for the organization.

07. Spend management shrinks

I’ve said it before, and I will say it again: Spend Matters Not. It’s not how much you spend, how you store it, how you cube it, or how you report on it — what ultimately matters is how much you get from it, profit from it, and derive value from it. Next Generation Supply Management organizations are focussed on improving business outcomes, not cutting costs until quality and stability of supply suffer. Spend Management will shrink as true Supply Management focussed on value takes its place.

09. Service providers excel

Given the increasing cost of outsourcing complex and strategic functions to emerging economies where labour rates are rising exponentially, in order to maintain cost competitiveness and deliver value, the service providers will provide service that constantly improves in efficiency and execution.

13. Let’s get financial

Since overall financial success will still be the ultimate measure of value generation in public enterprises, Supply Management will revolve around the financial supply chain and will be heavily involved in optimizing cash flows, working capital, and financing programs from NPD through return and disposal.

14. SM pros get sophisticated

Supply Management professionals will definitely be much more sophisticated in 2020 than they are today. As the secret agents that essentially drive all aspects of the business, their business savvy, analytical capabilities, relationship skills, and overall execution abilities will be, for the most part, a level above where they are today.

15. Supply pros expand expertise

This is the obvious result of a supply managmeent professional getting more sophisticated. It should not have been included as a separate prediction because it’s impossible to get more sophisticated in Supply Management without expanding depth of expertise in key areas.

16. Strategy scope widens

One does not get to the next level by maintaining a narrow focus, so it should also be obvious that the scope of strategy addressed by an average Supply Management organization is going to expand as well. The strategy will be more closely aligned with the needs of the organization’s end customers and be more cognizant of the needs of the current, and future, customer base. Supply Management will be increasingly called upon not only to analyze merger and acquisition possibilities, but to lead the initiative as success will depend upon succesfull integration of the end-to-end supply chains. And it will be involved in all NPD from day one to help identify customer needs and supplier capabilities before any decisions are made.

The next post will address the other seven predictions that were dead-on.

Ariba Vision 2020: Today’s Blues

The following six predictions from Vision 2020 – The Future of Procurement, which would have been good if made before 2005 for 2010, are outdated and clearly come from Procurement professionals in organizations that are still in the laggard category as they define situtations that should either now be, or be in the process of becoming, standard modus operandi for a leading Supply Management organization.

04. Communities collaborate

Not only have we had virtual communities since 1996 when Geocities (which launched as BHI in 1995) hit the scene, but we have had collaborating communities in the enterprise for over 10 years now. Even Innocentive has been around since 2001! And while it’s true that communities haven’t been around nearly as long in Supply Chain, with the help of Ariba (and the Ariba Exchange), Kinaxis (and the Supply Chain Expert Community), RollStream (and its social supply chain solution that was recently acquired by GXS), communities are now normal operating procedure in leading Supply Managment organizations.

17. Talent competition heats up

The Talent Competition is already at the boiling point. Now that the economy is recovering, the last of the baby boomers are about to recover in droves at a time when there aren’t enough Supply Management professionals to begin with (as there are no programs out there that mint new Supply Management professionals for your organization to hire, as per SI’s post on the derth of Supply Chain Education). In fact, by 2014, the problem will be so bad that it will be #1 on every CPO list. And any organization that is struggling that does not address the problem now will not be around by 2020 to deal with it.

19. Enter the extended enterprise

For many global multi-nationals and leading Supply Management organizations that have outsourced, offshored, and rightshored over the last few years, the extended enterprise is already here and part of daily operational life. And this holds true for a number of product and service companies in the Global 3000.

22. Bye products, hello solutions

The crunch of the last few years resulted in many suppliers adopting a solution focus as they attempted to retain what little business their was. They went beyond simply providing a product to providing a solution around that product, including repair and warranty services, training services, and, in some cases, even consulting services. They embraced not only VMI (Vendor Managed Inventory) but VMS (Vendor Managed Services) in an effort to make themselves indispensible to their clients.

28. Contracts motivate

Well designed contracts that offer the right incentives and allocate the risks appropriately already motivate top tier suppliers to perform better to get a larger slice of the pie. If a contract offers a supplier a 10% reward for a 3% increase in service level, then, as long as it doesn’t increase the supplier’s costs by 10% to achieve a 3% increase in service level, it happens. It might take a while, but motivated suppliers get the job done when monetary rewards are involved.

29. Firms wake up to supply risk

The recent volcanic eruptions of Eyjafjallajökull and Puyehue that have grounded flights across the better part of a continent, the recent tsunami that devastated Japan and resulted in nuclear disasters in addition to long term supply disruptions, and the recent increase in droughts, fires, and hurricanes (thanks to global warming) that have resulted in decreased crop levels and huge spikes in basic food commodity costs have already woken up any supply management professional that is still breathing to supply risk and the need to address it. And even though most firms may not yet have the answers, they know they need them.

The next post will address Tomorrow’s Shoes.

Ariba Vision 2020: Yesterday’s News

The following three predictions from Vision 2020 – The Future of Procurement were totally off the mark and, in SI’s view, could only have been made by someone living in a Procurement cave for the last 10 years as any organization that thinks these define a future state of Procurement has a lot of catching up to do.

03. Work goes mobile
Work has been mobile among the IT crowd for about a decade now and among the (management) consulting crowd for over five years. Just because some organizations are slow to catch on to the fact that modern technology allows you to work anywhere, anytime and keep in touch 24/7 through real-time video conferencing does not mean that it is visionary for an organization to finally latch on to this fact. Furthermore, any organization that takes another 10 years to latch on to this realization is probably not going to be in good shape in 10 years.

19. It’s complicated

Uhm, it’s been complicated for over a decade. It’s been complicated ever since the first Fortune 500’s first started to outsource critical manufacturing processes to India and China a couple of decades ago. And while the risks and complications will continue to change as the focus shifts to different emerging economies, it’s not going to get any riskier or complicated as a whole. There’ll be more awareness of the risks, which will appear to materialize more frequently as more operations are shifted global, but the risks and complications will be fundamentally no different than they were 20+ years ago.

20. It takes a network

Just like it’s been complicated since global sourcing started to materialize among the Supply Management leaders in the late 80s, it’s taken a network ever since the manufacturing giants (in automotive and consumer goods in particular) started outsourcing assemblies to tier 1 suppliers that integrated components from tier 2 suppliers. And the major Consumer Goods companies realized in the 90’s that in house was not enough. P&G laid the foundations for Innocentive in the 90s at the same time Unilever was focussed on developing better supplier networks across its global markets.

The next post will address Today’s Blues.