The rapid emergence of new technologies, the price opacity of major market players, the experts shortage in I.T procurement are all elements justifying an urging need to bring performance and professionalism to I.T Purchasing.
Here are 5 tips to make your I.T purchasing last:
#1 PROVIDE THE COMPANY WITH A PURCHASING POLICY SHARED AND VALIDATED BY ALL STAKEHOLDERS
In big companies, with multiple geographic locations, I.T purchasing is often managed directly by countries or business lines, without any real coordination. Each country, in connection with its own development, has been able to set up an IT Department that implicitly manages its expenses and many of them are therefore out of the Purchasing Department radar screens and are not covered by any coordinated policy.
In collaboration with the IT Department, I.T purchasing must therefore (1) define the policy to adopt on each segment in relation to the structure of each supplier market, - centralization (global or regional), coordination, 100% local, (2) stall a RACI matrix on each phase of the purchasing process (budget forecasting, purchasing, supply, expenditure control, SRM), (3) make this policy work through transversal animation of the different entities of the company (country and / or business lines).
The term "I.T spending" hides actually a real jungle: nothing in common between hardware, cloud, software or service expenses. It is in this jungle again that we meet unavoidable big names (Google, Oracle, Microsoft, and Salesforce, etc). It is also in this jungle that we face unscrupulous salespeople who leverage their expertise and the apparent complexity / uniqueness of their solutions to sell more and more.
It is therefore vital to put, in front of them, buyers who are experts in their field. This way, they can develop a peer-to-peer exchange by best piercing the sellers’ interests, sales cycles and emerging alternative evolutions. The I.T expert purchasing profile is a rare resource, with long training. It is illusory to rely on internal mobility to quickly acquire such skill. Only looking for external profiles in mature I.T purchasing organizations can meet the need.
The current period is more to budget restraint on indirect spending, of which I.T is mostly part, while the complexity of technologies is constantly changing. Salvation resides more in an adaptation of the offering to the real company needs than in the negotiation of a particular material or support. The principle is to switch from a purchasing model in silos (equipment, service...) to a full cost model based on usage (I.T as a service), thus limiting the expenditure to the necessary and especially putting it under condition of activity.
This approach makes it possible, on the one hand, to directly connect the cost of I.T to the actual use and, on the other hand, to make the cost distribution between the different internal customers, objective. This distribution is most often in the classical model carried out by means of more or less arbitrary keys.
In a context of constant increase in I.T spending (+ 4% per year on average, + 4.5% forecast for 2018) - especially due to digitalization -, many of these expenses are not managed by the purchasing department and being directly in the hands of internal customers (IT Department for an important part, but also trades which can have specific needs), the follow-up, that it is budgetary, contractual or functional is a real headache. In particular, having a consolidated overview of I.T costs is often a challenge.
Two points are particularly lacking: the budget monitoring itself - the vision of the adequacy between actual incurred expenses and the budget provided - and the control of billing before payment. The first point is to put in place a consistent and accurate expenditure classification so that allocations are clear, easy to achieve and aligned across entities. The second point may require the implementation of dedicated tools, which will never completely replace human control, as providers often show ingenuity (not always voluntary) in billing. In addition, the establishment of a contract library and a SAM (Software Asset Management) are two examples of control tools particularly relevant for I.T expenses.
The I.T ecosystem is made of a multitude of actors of a heterogeneous nature. Many purchasing procedures, processes, rules especially in risk management, evaluation criteria, are not adapted to this diversity.
For example, supplier qualification rules are often incompatible with working with start-ups: ability to present 3 years of balance sheets, potential level of dependency quickly important as the targeted company's activity is fledgling, lack of certification... Capturing innovation is then seen as a risky exercise that mature organizations may not be ready to take.
Agility goes through the definition of specific processes in order to be able to collaborate in a different way with companies with "exotic" configurations, even if it reinforces certain aspects to secure collaboration (co-development model, exclusivity, incubation, intellectual property...). Often, the effectiveness of this type of measure is increased tenfold by the establishment of a dedicated organization within the purchasing department, with specific skills, not only on new technologies, but also in the legal or financial field to better support these fragile start-ups.
Over the past 20 years, the Sourcing function has evolved from Cost Reduction To Total Cost Management To Risk Management gaining more and more strategic impact. However, Sourcing initiatives are still contained to bottom line impact. In this article, we will share real cases coming from various industry sectors (automotive, pharmaceutical, aerospace…), where Sourcing Organizations have generated Revenue Impact through specific initiatives or organization design.
This paper describes our 9 tips for Procurement to Generate Revenue Impact. They are broken into 3 categories...
How Procurement can generate revenue by influencing the new products that your company will launch
By influencing processes that can exist today in your company how procurement can generate revenue
Procurement can make profit by influencing, and participating in the dynamic nature of how the business world is likely to change, but how?
Click/Tap on each tip to read more
Sourcing organizations use more and more complex levers to generate savings opportunities, such as supply-chain optimization, supplier development or value engineering. These structural levers usually bring tremendous savings (> 15%). However, these initiatives are usually based on « Product Tear down » approaches which consist of removing all the over specified elements of a product or a service, such as: raw material change, specs tolerance adjustment, manufacturing process change, weight optimization, etc.… By doing this you optimize the cost of the product but you don’t impact the value for customers.
When adopting the “Design to Value” approach, you think in terms of functions and you constantly try to match the cost with the client perceived value. This is a 3-step cross-functional work (marketing, R&D, Sourcing…):
The Design to Value methodology aims to design or (re-design) products / services with optimized cost to value and consequently generate higher revenue and profit thanks to increased customer satisfaction.
Capturing and executing a fast implementation of supplier innovations is key for companies. However, in most companies Sourcing not involved early i in the advanced technology process. Consequently, Sourcing lacks visibility to the innovation roadmap and is not able to properly connect with the supplier innovation roadmap.
A leading Automotive Tier 1 supplier has recently set-up an Engineered Procurement Organization which combined R&D and Sourcing/Supplier Development & Quality resources with the following objectives:
This organization has been implemented for nearly 1 year and is starting delivering joined technology roadmaps on 3 main technology segments for increased value creation and value retention.
Traditional SRM (Supplier Relationship Management) models are not adapted to manage innovation with suppliers for many reasons.
The Sourcing function has an important role to play in the mapping and management of this innovation ecosystem, since it has a strong expertise in managing relationships with external stakeholders
The Business acquisition process usually contains a lot of waste for companies acting in the BtoB sector. Very few lessons learned and multiple resources are involved in the elaboration of the proposal: R&D, Finance, Manufacturing, Purchasing…and even suppliers who are requested to provide numerous quotations which are sometimes based on incomplete specifications. This process generates lots of rework (spec change, RFQ change…), over processing (to many drawings, suppliers RFQ…), over-engineered quality (non optimized specifications), waiting (for supplier answers). This waste strongly impacts the quality and reactivity of the proposal for the customer and, consequently the business win rate.
Best in class companies (especially in automotive business) have implemented sophisticated parametrical costing solutions which utilize existing data (technical & economical) to drastically reduce the time & resources to cost new product and drive design proposals towards best practices. New statistical methods like Random Forrest have created new horizons for parametrical cost estimation bringing more accuracy and consistency in comparison to traditional regression methods. EasyKost software (www.easy-kost.com) is a collaborative software that combines this new algorithm method with a unique graphic & dynamic interface.
A leading Automotive Tier1 supplier saved 15% resources and reduced response time by 50%to their customers by implementing this solution.
Utilize the richness of your data to increase your new business win rate!
Sourcing organizations are often involved too late in the company's international development, though they play an important role in the success of the new market penetration. Here are 3 examples where Sourcing can bring a strong added value:
Sourcing is a cornerstone for the success in growth markets.
Sourcing can drive a lot of value in M&A projects. Traditionally, Sourcing is mainly asked to deliver the sourcing synergies that are part of the deal equation, which is already a lot.
But Sourcing's role can go beyond that. In companies with intensive M&A activities (ex: pharmaceutical or Medical devices companies), Sourcing is involved very early in the identification and pre-assessment process of potential acquisition targets. An M&A Procurement Manager exists in some organizations. They represent Procurement in the M&A teams and liaise with the different organizations involved.
Procurement Organizations are fully part of the M&A process to generate and secure external growth opportunities.
The digital revolution will be characterized by:
This new landscape directly impacts Procurement but also creates new opportunities to generate revenue. Here are 3 of them:
Leverage the supplier base to create new products and/or services. Using the technology to develop better collaboration with suppliers leading to reinventing the way business is done
Develop new value sharing partnerships with suppliers. Number of different models exists which form the basis of a win-win relationship like co-branding, revenue sharing agreements, pay-as-you-grow etc
Generate additional revenue opportunities by leveraging existing ecosystem. Look for opportunities to create additional or new revenue streams from existing operations
Procurement 4.0 will place Procurement as a Business Partner!
We see Procurement evolving toward an increased synchronization with the overall business and a closer collaboration with the Sales organization. Traditional Category Management is expected to evolve toward a more value stream organized function allowing for breakthrough solutions to be quickly implemented Procurement will be more of a Business Partner contributing to the business model evolution by identifying and matching the internal and external opportunities. This will also impact the required skills of Sourcing professional: soft skills will take more importance than traditional functional skills.