How to access innovation and expertise from your supplier relationships

August 20, 2020 Roy Anderson

Procurement professionals have spent the last 30 years talking about moving from the transactional to the strategic, but sometimes I wonder whether those three decades have been completely wasted. 

That’s how I feel when I see the popularity of procurement marketplaces that treat suppliers as a product rather than a relationship, rather like you’d buy an item on Amazon or eBay. 

That’s not to denigrate the increased choice these marketplaces bring. What’s fishy about them is rather the reek of short-termism, focusing as they do on marginal cost savings instead of tackling one of the biggest business strategy imperatives of our time—forging ever-stronger bonds between businesses and their suppliers. Bonds which would be an irreplaceable asset for many during our current period of turbulence. 

Procurement: more than just materials

Most of these procurement marketplaces sacrifice long-term, meaningful and mutually-advantageous supplier relationships at the altar of the daily balance sheet. That might still be a worthwhile sacrifice for businesses in highly-competitive, price-intensive industries—were it not for the fact that procurement is no longer just about sourcing raw materials and components. 

With enterprises now commonly outsourcing functions as diverse as IT, HR, logistics, legal and manufacturing to third parties, these formerly in-house operations now fall under the remit of procurement.

Procurement professionals have spent the last 30 years talking about moving from the transactional to the strategic, but sometimes I wonder whether those three decades have been completely wasted.

It’s not just that procurement now covers vastly more strategic scope than ever before. With upwards of half of revenue going to suppliers, there is a concomitant reduction in the amount of money going to in-house employees, who were once the engine of innovation within the business. If an enterprise can’t work with its suppliers to replicate this internally-lost innovation, this will inevitably lead to the business becoming a hollowed-out shell, with nothing to sustain its future growth and survival.

It might seem odd to think of suppliers as being the key to innovation and business strategy. But then again, we live in a topsy-turvy world where some of the world’s most famous manufacturers don’t actually make anything at all. Next time you slip on a pair of Nike trainers, do so in the knowledge that it took a global ecosystem of more than 1,500 suppliers to get those air-cushioned soles ready to wear. 

Building better supplier relationships

Whereas the old procurement model was fixated on aggregating supply chains to cut costs, the big question today is how a business can access the innovation and expertise of its ever-widening supplier base. 

The same is equally true when a business outsources its other line of business operations. After all, these functions don’t magically stop becoming strategically important once they are hived off to third-party providers. 

If businesses are to solve the most pressing problems they face, such as remaining competitive and innovative, reacting to rapid shifts in consumer expectations or changes to the law, or enhancing their sustainability, they will need to increase their supplier base while simultaneously strengthening each relationship. 

Whereas the old procurement model was fixated on aggregating supply chains to cut costs, the big question today is how a business can access the innovation and expertise of its ever-widening supplier base. 

To do this effectively, businesses need to reimagine their whole approach to procurement - starting with the people. Where once procurement was a matter for numbers people, tomorrow’s practitioner will need a portfolio of skills and experience that goes far beyond questions of profit and loss. The role of the CPO will be far more strategic, encompassing issues such as profitability, risk mitigation, revenue generation and innovation alongside traditional supplier management skills.

They will also need to be much better-acquainted with the actual value generated within the business. For example, if the business’ primary value lies in design (as it does with a “manufacturer” like Nike), then procurement leads will need to have a thorough understanding of that side of the business to wring full advantage out of supplier relationships. 

And this is where procurement marketplaces need to be focused if they are to retain any relevance for the future. Rather than being the B2B equivalent of, say, Amazon, they need to be closer to the App Store: providing the tools that businesses need to fulfil, finally, procurement’s long-awaited move to the heart of business strategy. 

Want to see how Tradeshift and IBM are transforming procurement? Check out our exclusive webinar and see why marketplaces aren't for the future, they're for today. 

About the Author

Roy Anderson

Roy Anderson is Tradeshift's CPO and Digital Transformation Officer. He's a senior Procurement Leader known for transforming procurement organizations into centres of innovation and excellence. Prior to joining Tradeshift, Roy led the procurement teams at State Street, MetLife, John Hancock and Fidelity Investments.

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