Editor’s Note: Procurement transformation will be a big topic at Ardent Partners’ CPO Rising 2016 executive symposium this spring. Join us in Boston on March 29-30 for what is shaping up to be the procurement event of the year. Register here!
Procurement transformation has become a familiar topic here on CPO Rising, particularly over the past couple of years when it has become increasingly clear that what got procurement departments where they are may not get them where they need to go. Ardent Partners believes that Chief Procurement Officers (CPOs) and other procurement leaders need to foster innovation at multiple levels in order to elevate the procurement organization and the enterprise as a whole to the next level of performance. Put another way, procurement transformation cannot and should not be attributed to any one particular factor; people, processes, technologies, stakeholder relationships, and knowledge management each need to be regarded as causal – and instrumental, really – in driving forward procurement transformation within an enterprise.
Each of these variables is significant in their own right, and their importance should not be understated. That is why procurement transformation needs to be broad-based – it needs to account for each of these aspects in order for a lasting and successful transformation to take root within an organization. Thus, this series examines each facet of procurement transformation in greater detail, and sheds further light on what CPOs and their teams need to do to successfully implement a holistic procurement transformation project. Today’s installment will focus on stakeholder engagement best practices to ensure that CPOs and their teams are engaging the right stakeholders at the right time so that all relevant stakeholders are on board with procurement transformation.
How to Transform Procurement in Five Steps – Step Five: External Stakeholder Engagement
For the modern CPO and procurement team, the term, “stakeholder engagement” can and should be applied to two different constituent groups. We covered internal stakeholders in our last installment of this series, so today’s installment will cover external stakeholders, namely an organization’s suppliers, and how to effectively engage with them to drive procurement transformation full circle. Supplier engagement is frequently the forgotten piece in strategic sourcing in general and procurement transformation in particular. But suppliers are vital to organizations and they should not be ignored.
In 2016 and beyond, the speed of business continues to accelerate: market expectations are higher, product development lifecycles are shorter, turnaround times are faster, and the risks are wider and deeper. In a globalized economy, enterprises are sourcing around the world for the optimal mix of goods and services to fuel their operations, production, and growth. But consumer markets shift, commodity prices rise and fall, man-made and natural disasters imperil supply chains, suppliers go in and out of business, and enterprise needs change.
Clearly, organizations are more reliant on their suppliers than ever to bring new and innovative products to their markets. Poor engagement with suppliers (or none at all) can put at risk an enterprise’s standing in the market. So how can CPOs and procurement teams more effectively engage their supplier base to mitigate market risks? There is an art and a science to it. Here are a few strategies and recommendations:
- Communicate: this is the first and perhaps the easiest step CPOs and organizations can and should take to engage their suppliers and transform their relationships. Pick up the phone, talk to a real person (not just through email or a supplier portal), and hold regular “check-ins” with suppliers to ensure that there is a clear avenue through which to discuss any issues that may arise that can be resolved before they become critical. Granted, this may be easier for organizations that have a smaller supplier base. But it is worth considering.
- Collaborate: CPOs need to drive tighter and more frequent collaboration between their teams and their supplier base. They need to put their heads together on consumer trends, market conditions, price fluctuation, market risks, regulatory compliance issues, and so on. Separately, procurement organizations and suppliers can do a fair job of keeping track of all of these variables and managing them. But together, their efforts and expertise can be greater than the sum of their parts. Collaborate and win together.
- Build trust: With greater communication and collaboration comes greater trust. Partners that trust each other look to each other for expertise, guidance, and solutions to problems that arise suddenly. If a supplier catches wind of an upcoming labor strike or a run on a commodity, they can provide “early warning” to a procurement organization that can use that intelligence to their advantage and make the right call. But if the CPO or procurement team does not trust their supplier, then they may not take action upon that intelligence. It could be a critical moment for both parties.
- Manage performance: If communicating, collaborating, and building trust are the “artful” means of engaging suppliers, managing their performance is the “scientific” part of the equation. Supplier performance management (SPM) can be a valuable and effective method of engaging suppliers and ensuring that they remain on track to deliver the value that the procurement team negotiated during the sourcing process. Supplier scorecards, surveys, performance benchmarks, and key performance indicators are all effective tools to monitor, track, and rate supplier performance. Incentivize and reward supplier performance; collaborate with low performing suppliers; and re-evaluate suppliers that cannot and will not improve.
Supplier engagement is a critical, final element of procurement transformation, and yet it is often overlooked in favor of “sexier” elements, like staff infusion and technology adoption. But CPOs and procurement teams that communicate regularly with their supplier base, collaborate closely with them to find market advantages and solutions, trust their suppliers’ intelligence and insight, and track and verify their performance, complete the procurement transformation process by ensuring that it is a holistic effort. Suppliers are increasingly being looked upon as trusted business partners, and failing to leverage them can stunt the growth of a procurement transformation project. But engaging suppliers early and often and ensuring that all parties are on track can propel procurement organizations (and enterprises) to the next level of performance.