“We don’t need any more savings. Our company is profitable enough.” Have you ever heard a CEO say that? I’m going to go out on a limb and suggest not.
Why? Because every successful business knows that there are always more savings to be had. The trick is to be continuously innovating.
Whatever you’re using to achieve cost savings today won’t be able to deliver the same return on investment indefinitely – the geo-political environment is changing, business operations are changing, values are changing and technology is changing. If everything outside an organisation is changing, it stands to reason that the organisation will have to change as well – but how?
Technology is not only a catalyst for change, it’s also enabling it. Looking at technology in the procurement department specifically, in recent years, e-sourcing tools have improved the way we source and communicate with suppliers; analytics have allowed us to more accurately track savings and performance; and increased data volumes permit better risk management.
So what’s next? There are a few procurement technology trends I’m seeing emerge. All have the same goal of delivering more, long-term, savings but each approach the problem from a different angle. These are the three innovations that I think are changing procurement for the better.
1. Predictive analytics. Companies have really only scratched the surface with analytics. Most of what’s available to procurement teams today relies on historic and retrospective analysis, limiting its ability to provide actionable insight from the start. The advancements with big data in recent years are enabling a move towards more predictive analytics and forecasting.
As the name suggests, predictive analytics provide the ability to predict, with a high degree of accuracy, the outcome of a certain action or the movement of the market, for example. The boundless potential of this technology has resulted in an onslaught of major investment and new business tools are coming to market every day.
Procurement no longer requires someone to bang their fists on the table and demand a better deal from suppliers. It can now be founded on intelligent forecasting, understanding the market trends and knowing when is the right time to take risks and seize opportunities. This ability to make better decisions is made possible by a combination of very insightful data and the ability to interrogate it.
2. Moving down the supply chain. Another area where we can see technology, specifically data, shifting the industry is with insight and support for suppliers - moving away from procurement and going much further down the supply chain. Companies are asking not only what suppliers can do for them, but also what they can do to help their suppliers, delivering more value for everyone.
At Xchanging some of our customers never purchase raw materials, their suppliers provide finished goods yet we often do research into commodities for other customers, manufacturing companies who require us to dig quite far down the supply chain. Where before these two activities would be separate, now companies are looking at ways where that in-depth commodities market insight can help their finished goods suppliers deal with their own vendors. Buyers will be doing a lot more data mining in the supply chain itself to help their suppliers and effectively find savings for them.
3. Support staff as a service. Rather than employing individuals to run procurement technology and understand that technology, we are seeing a move towards buying that expertise as a service, and the potential savings are incredible.
In addition to the impressive cost benefits, having support staff as a service also greatly increases a company’s competencies and know-how – which is where the real value lies. Where a company may only do one RFP above £1 million every two years, for example, the support staff do them all the time in a plethora of different markets, geographies and industries. Having genuine experts provide advice, insight and support empowers organisations to do better and deliver savings they never knew possible.
With procurement, it’s easy for companies to reach a stage where they just take the low-hanging fruit – stick with suppliers, processes and tools they know – but change is happening all around them. Procurement cannot operate in a vacuum. It affects too many parts of the business and is affected by too many global factors. It becomes very difficult to drive savings over time if you’re just doing the same things you’ve always done. Companies need to look at innovative ways of changing that. These are just three of the emerging innovations I’m seeing in my world but there are more out there. What are you seeing?
☛ Patricia Dreghorn is global technology and strategy director at Xchanging Procurement