Ardent Partners is pleased to welcome back to CPO Rising Bill Michels, CEO at Aripart Consulting and a longtime procurement practitioner. We had the chance to catch up with Bill recently to get his thoughts on supplier innovation. The following is a transcript of our interview, edited for brevity and clarity.
Andrew Bartolini: Bill, welcome back to CPO Rising! Let’s review quickly. What are you doing at Aripart Consulting? Do you go to market with anything specific?
Bill Michels: Thanks, Andrew! We conduct a lot of research into different fields. We’ve done a lot of research for a big consultancy on human trafficking, human rights, and building courses on forced labor in the supply chain. I’ve also been working with a private equity firm on transformational change; they’re looking to change their processes and develop their people and skills from the ground up. I’m also engaged in team development for the firm, so I’m working hard on developing their competencies, particularly category management and strategic sourcing. I’m building a team in micro-electronics; I’m also doing that in the home-building industry and some other industries, which are kind of exciting.
AB: That’s awesome. Sounds like you’re plenty busy and on the road all the time.
BM: Yes, that’s true.
AB: Let’s pivot to supplier innovation. Tell me at a high level why you think it can deliver a competitive advantage.
BM: Sure. One of the things that I see, Andrew, is that there are a lot of consolidating supply chains. We see a lot of mergers and acquisitions, and a lot of integration across supply chains. So, a lot of the clients that I work with are driving towards this integrated supply chain. And I think we’ll start to see competing supply chains in the future. Another thing that I see is that their customers are demanding more value. Their product lifecycles are also really short, so by the time they release a product, they’d better be working on the next generation (of that product). I also see a lot of companies that are focused on price; but I think that as we get more transparency and higher integration in the supply chain, they’re going to look more closely at how to drive value and incremental value.
Some of the CEOs I work for are starting to measure their organizations in terms of how they capture innovation and how that will translate into revenue generation. They want to know where those ideas originate, how (or if) they’re moving them across the chain, and how they’re integrating the chain. So, I’m seeing a lot of change, and I think that over time our supply chains will be really distributing [unintelligible]. So, there’s a big change, and innovation is a critical piece of managing an integrated supply chain, because if you don’t have any innovation and your supply chain is stagnant, then you’re going to lose competitive advantage and the game.
AB: Yes. This isn’t a new challenge for businesses, but it does require changing mindsets.
BM: You have to invest in the supply chain. What happens is, over time, if you get the profit to a sustainable level, you can’t continue to drive on the profit margins side just to get the price down. At some point, you’re going to reach equilibrium where that supplier will need to be sustainable – to have a sustainable margin and be able to invest. Then you have to change something: you have to change specifications, have joint investment, or supplier investment. You need to have these things in order to make the business and the supply chain profitable.
And then, as we start to integrate, I think there’s going to be a big impact from the digital disruption side. I don’t see a time where we’ll need to worry about demand planning or even transactional purchasing. I think when you look at integrating the supply chain and then tying the Internet of Things across that chain, you’ll see that the focus will be on supplier relationships, driving profitability, and driving value because you won’t have those transactions. I also see artificial intelligence taking over – searching the internet to find suppliers, driving that process, bringing back an RFI and sorting it out, sending to our people and making recommendations. And sourcing can really focus on getting the right chain, because right now when they begin to pick suppliers they are actually architecting the supply chain. So I think that’s a big change, and innovation is a big part of that because we can’t have suppliers that aren’t going to deliver innovation. You’re going to be at a competitive disadvantage if your competitors can (deliver innovation).
AB: Right, I think that’s absolutely true. So what are some recommendations for procurement, procurement teams, and procurement leaders?
BM: So, when we start to look at how to architect the supply chain, people are still chasing low-cost countries; but when you start thinking about automation and lights-out factories, they eliminate labor entirely as a component in the process. So I think they really need to know what kind of supply chain they need, which suppliers will deliver the most value and drive not only integration but innovation and really start to structure that chain. I told you earlier in this conversation that I’m doing some work in corporate social responsibility (CSR); that requires complete transparency of the supply chain because that’s a shared responsibility. So you still have people that aren’t able to map the supply chain but they’ve got to map it not only for CSR areas, but also for capabilities and to understand what’s happening. I work with one firm in the electronics industry, and when they mapped the supply chain three levels down, they found a supplier that was supplying everybody in the industry, and they had this huge risk. So, I think it’s critical that they start to think about when they make supplier selections, who’s in that chain, and how that chain’s going to deliver innovation. It’s got to move beyond Tier One, and companies have got to move beyond price. They’ve really got to move to “Who’s the lowest cost producer? How are they getting that? What are the changes that you have to make in terms of investment with suppliers and in staff capabilities?”
AB: Yes, so at last year’s CPO Rising summit, we had the discussion with NASA and a couple of their strategic suppliers; they talked about co-investment and collaborative meetings that are focused on goals and objectives of the business as opposed to “Here’s a an RFP for this type of stack.” So it dramatically changed the way that organizations are speaking to their strategic suppliers. To be clear to our readers, we’re not saying that this needs to be done up and down the supply chain. You have an understanding of where the innovation is likely to reside and make the largest impact. So, Bill, what do you think about that from a supplier segmentation standpoint? Or do you think that it’s pretty straight forward?
BM: I think from a supplier segmentation standpoint, you’re going to have the people that are in the leverage quadrant where there’s lots of market competition. They’re going to be able to sort that out with the market, but when you have strategic suppliers with unique capabilities, you can tap into that innovation. Those are the ones that you really need to focus on where you don’t have a lot of choices – you have to work together to drive change.
AB: Yeah, absolutely. Talk about the internal processes that need to be in place to harvest innovation in supply markets and actually bring it out through the front door.
BM: That’s really a good point. I often see in many organizations people that drive innovation. They bring in their suppliers, ask for innovation, and they get ideas. But a lot of them aren’t really equipped to manage what comes in. The worst thing they can do is work with their suppliers and generate all these things that are going to improve their bottom line and bring them a competitive advantage…but then not be able to handle them, not get the suppliers’ feedback. I’ve been in organizations where we’d done that – where we didn’t have a system. So if you’re going to ask for innovation – if you’re going to ask people to bring you ideas, you’ve got to have engineering and research committed to be able to look at those ideas and either apply them or not.
AB: I think this has been great. Thanks, Bill!
Post Script: In this Keynote address at CPO Rising 2017, Bill will help CPOs and other procurement leaders prepare for the future of procurement. He will cut through all of the buzzwords and hype surrounding the industry and show you the way forward. He will identify the Key Megatrends that will impact your organization and the procurement profession over the next decade, and how CPOs and their teams can reach the next level of performance.