For many companies, services procurement has become the new procurement. Companies are investing and prioritizing larger-scale services procurement programs to drive savings and compliance across broad-ranging categories, from temporary labor and finance/legal to aftermarket support. During this discussion, Spend Matters' Jason Busch will introduce the current state of services procurement from a broader buying and supply chain context, summarizing a range of topics including technology enablement fundamentals, the rise of project-based and SOW initiatives, globalization trends, supply risk and how some companies are building support for programs that require "selling up" internally. Following this introduction, Jason will share a number of insights and scenarios about where he believes the market will go next and how a range of technologies – from analytics to social networking – will play distinct and important roles in the services procurement organization of tomorrow.
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The team… • Former strategy and sourcing consultants • Former traders • Former heads of procurement
The sites… • www.spendmatters.com – First blog in sector, now much more • www.agmetalminer.com – <4 years old, largest metals pub. in N.A. • spendmatters.co.uk – Raising the PM’s eyebrow… • Coming soon: hcmatters.com (Healthcare Matters)
“A surreal mix of hardcore procurement and cerebral whimsy.”
• Even in manufacturing industries, companies are investing and prioritizing larger-scale services procurement programs to drive savings and compliance across broad-ranging categories, from temporary labor and finance/legal to aftermarket support
• We’ll examine the current state of services procurement from a broader buying and supply chain context, summarizing a range of topics
• We’ll also share number of insights and scenarios about where the market will go next and how a range of technologies – from analytics to social networking – will play distinct and important roles in the services procurement organizations of tomorrow
Even when it comes to services, we can’t talk about procurement today without touching on an economic outlook • Consensus suggests the global economy will
continue to grow (barring the fallout of the Japanese disaster)
– Both OECD and emerging economies to fuel growth
– U.S. to grow at a 2.5%+/- for 2011-2013 • International trade moves to the foreground • Certain markets will remain volatile
throughout 2011 but will stay on a rising price trajectory due to:
– Emerging market demand – Rising raw material costs – Small upticks in demand, creating
disproportionate price increases • Services become important not just as critical
business enablers during volatile times, but also a means to lock-in potential savings that we’re losing in other areas and to take advantage of Wave 2 of global sourcing
• Why is the interest in services procurement rising so quickly?
• Why now, why today? • Companies aren’t hiring full-time workers and contingent workers; third-party firms are
picking up the slack
• In a booming economy, many executives and shareholders did not look at managing SG&A expenses the same way as COGs – but they certainly do now
• Procurement was not necessarily ready for all of the challenges of holistically pursuing services spend until now and outside trends are forcing us get more involved
• Until recently, the great majority of companies defined services procurement in a limited way, focusing only on contingent labor
A number of converging factors are driving rising interest levels in services procurement – we’re clearly in the right place at the right time,
Services procurement can have a significant impact on increasing procurement’s overall stature in the business
• Ability to generate savings in new areas at a time when cost reduction is more needed than ever before (and other categories are increasingly more difficult to get results from)
• Requires procurement to lead a collaborative effort between functions (anything but a transactional, back-office type of approach)
• Reinforces the role of procurement as a services provider in and of itself (which exists to generate value to the business in new ways)
• Provides visibility and contact with influential areas of the business (e.g., finance, legal, IT)
• Looking at services/contingent spend as a component of talent/human capital management
• Concerned over non-price issues (e.g., co-employment) Human
Resources
• Want to avoid “rocking the relationship boat” with existing service providers
• Want their business requirements understood
Functional Spend Owners
• A liability or key to cost reduction? Or both? • Ability to quickly react to changing business conditions • Reducing unnecessary (and often unknown) liabilities
CFO/Legal
• Making the effort worthwhile – achieving cost reduction while improving service levels and reducing business risk
• Getting the most from centralized processes, business empathy, category/benchmark knowledge and technology
Procurement
To truly understand services procurement, you must be empathetic to different influencers/stakeholders in the business
• “Price is what you pay, value is what you get” – cost is only one factor
• Make sure technology can support specific enablement needs…
• Automated invoicing and reconciliation, blanket orders, bulk orders, hybrid orders (i.e., with low or high order mix), SKU and non-SKU based ordering
• Non-PO-based categories, complex category-specific collaboration capabilities, not-to-exceed terms, discount terms, split line items, and receipt-defined payment, etc.
• ...As well as rich category-based functionality where required (e.g., cross-channel reporting and collaboration for marketing spend)
Project-based and SOW approaches are gaining favor in top- performing organizations…
1. Engage executives outside of procurement and invite them to help guide and set an overall non-contingent services spending strategy
2. Educate the broader organization on services procurement -- show them that it is not just about driving to the lowest possible price, but that primary objectives are to maximize value, as defined by category
3. Consider alternative specialized services procurement solutions in addition to standard VMS platforms designed specifically for contingent spending
4. Invest in analytics capabilities (beyond those offered by procurement vendors) that can take a highly granular slice of services spending data—including performance and reporting—in key categories
5. Don’t underestimate the importance of investing in internal marketing, education, and compliance; focus on adoption and usage as much as strategy, tools selection, and deployment
6. Leverage the IP (e.g., heavily customized category/process templates) and experience of technology partners to help define optimal services category-sourcing and lifecycle-management processes
7. Don’t be afraid to engage niche category specialists that offer both software and/or combined software/service solutions in services categories (e.g., print) where significant domain knowledge can be critical to savings and value potential
8. Measure and manage “customer” satisfaction by taking the pulse of spend owners and stakeholders rather than just managing expectations, savings numbers and supplier performance
Eight tips we’ve observed from leaders in complex category and SOW procurement
Pulling out the Spend Matters Crystal Ball 5. New interfaces and technologies drive functional
interconnectivity and breakthrough collaboration and visibility
6. The successful management of complex services categories proves transformative for top performers
7. Buying and digesting companies once again becomes a core competency, but this time procurement gets in on the act and services becomes key
8. New talent enters procurement from the bottom – and changes things forever
1. Dealing with vast sums of information – and being able to act on it – becomes the defining characteristic of top performing services procurement teams
2. Finance takes over procurement – literally and Figuratively
3. After the Web 2.0 comet strikes – new types of business and social networks quickly separate out dinosaurs from mammals
4. Politics, philosophy and economics will play an unprecedented role in global procurement decisions
− Using analytics as a means to improve performance based on information that vendors don’t even think you have access to (e.g., churn in a project-based systems implementation or custom development initiative)
− Creating forward markets (and forward strategies) for contingent labor and even project-based assignments based on index data
1. Dealing with vast sums of information – and being able to act on it – becomes the defining characteristic of top- performing procurement organizations
2. Finance Takes Over Procurement – Literally and Figuratively
• Managing volatility (e.g., demand, commodity, currency) is job one for CFOs and treasury
• Forecasting earnings and mid-term cash flow is more difficult today than sales (only 33% and 22% vs. 49% of companies can do so within 5% accuracy respectively)
• Credit lines are still very tight and managing banking relationships (and understanding overall supply chain banking exposure) is a top priority for executives and CFOs
• P2P strikes back – working capital strategies working their way into procurement strategies – and services procurement tactics and technologies as well
§ New social networking tools and constructs (e.g., relationship mapping) will become an integral part of the procurement toolbox
− Some will rely on new platforms and standards (e.g., Twitter)
− Others will extend existing paradigms into specific business contexts
§ Dinosaurs – yeah you, in the back row – will be starved out of a place on the procurement planet unless they learn to rapidly adopt to the changing landscape
− If you don’t use social networks today, get familiar with them fast
− Try out new things that come along
3. After the Web 2.0 comet strikes – new types of business and social networks quickly separate dinosaurs from mammals
8. New talent enters procurement from the bottom – and changes things forever
§ New blood goes beyond new functional skills (e.g., engineering, lean/Six Sigma, accounting)
§ What we’re talking about here is how the entrance of …
– Highly analytical thinkers – Top-tier MBAs – Those with finance know-how – Individuals with deep technology appreciation – Highly ambitious leaders that want
to run companies
§ …into procurement will create a changed talent landscape
– Formation of new opportunities tangential to procurement (e.g., risk management leading to trading functions/companies)
– Greater expectations for reward and promotion (i.e., up or out tracks)
– Talent bifurcation: “Have” and “have not” environments