Procurement Analytics: Hanging Out and Thinking About Value
I had an opportunity to go on a “Google Hangout” with Alex Zhong from IBM yesterday. We recorded the hangout discussion, and it gave me an opportunity to share some of my thoughts on how procurement needs to really step up and change. You see the video here. A lot of the discussion was focused on the new book I wrote with Gerard Chick on “Procurement’s Value Proposition”
A big part of our discussion focused on how procurement needs to become more commercially focused, as its new, highly strategic role requires that: 1) it understands the workings of the financial supply chains; and 2) that it stimulates good demand and increasing business value derived from spend (and supply markets) rather than simply reducing spend magnitude.
We also spent a lot of time talking about the concept of VALUE. Value-based procurement can take many forms. The benefit may be measured, for example, in an expanded set of services provided by one supplier’s solution over another. In other cases, gaining benefit may involve procuring a system with higher initial costs but lower lifecycle expenses and easier updating capabilities. Procurement’s problem is how to judge the value of competing proposals, a task that isn’t easy when dealing with large or complex bids.
Value-based procurement is about developing solution-oriented bids, where the bid articulates the problem to be solved and requires the supplier to use its expertise to propose a solution. Or perhaps [it is about] evaluating suppliers on factors such as total cost of ownership, the technical merit of the vendor’s proposal, the vendor’s past performance, and the probability of meeting your current and future business objectives rather than just cost.
Supply management mind and skill sets must change. Many business leaders have ambitions to improve profitability by reducing costs. But to do so, they must also reshape their supplier relationships, aligning their supply chain with a more progressive strategy and securing a competitive advantage