Unlock Strategic Value in Procurement: Empower Suppliers
The Procurement Outsourcing (PO) market is both fast-growing (about 12% year-over-year in 2014) and highly dynamic, with a large number of deal signings, as well as a comparatively high percentage of terminations. This scenario – elevated new deal activity coupled with elevated terminations – indicates that buyers have faith in the overall PO concept but they’re anxious to recognize more value from their outsourcing activity.
As a result, and as the market transitions from cost (savings) to cost+value, we are seeing a transformation in PO. As procurement functions are evolving from economical procurement (direct cost impact) to efficient procurement (process/business impact), and into next-generation procurement (strategic impact), the value proposition of PO has to change, as well – from reducing total cost, to driving business outcomes, and finally to offering strategic value to the organization, enhancing top-line growth.
A key to unlocking the strategic value of procurement is empowering suppliers. Fostering collaborative relationships with suppliers transitions them from transactional to strategic partners, transforming them from suppliers of goods and services to partners that help to drive business outcomes. This transformation is vital, because suppliers can affect important business results, such as cost, regulatory and compliance concerns, and speed-to-market of finished product. As market-facing entities, suppliers are also well-positioned to provide a wealth of information to the internal procurement team that goes well beyond simply goods and services provided.
Enterprises that make the effort to work closely with their suppliers to transform their relationships can reap significant benefits:
- Operational excellence – Empowering and aligning key suppliers minimizes supply-side disruptions
- Innovation – Suppliers can help to drive innovation by providing crucial market information on new products or innovative processes that add to top-line growth. Driving supplier-led innovation is emerging as one of the key discussions in procurement organizations
- Market Intelligence – By engaging in an ongoing dialogue with suppliers, organizations can understand the pulse of the market and gather useful field intelligence
- Risk and compliance – Collaborative remediation efforts can help to mitigate market risks. Furthermore, suppliers are more well informed about broad industry standards, helping to ensure compliance
Crucial to empowering suppliers is an effective Supplier Relationship Management (SRM) program that ensures greater collaboration with suppliers on various fronts, helping to build trust and garner goodwill. As they recognize their substantial benefits, organizations have are starting to pay greater attention to SRM programs, and many service providers are actively pursuing SRM initiatives to cater to buyer demands.
Enterprises generally take an incremental approach to implementing SRM programs, moving from less impactful tactical efforts to higher-impact strategic projects.
Faced with escalating demands to provide strategic value to their organizations, more and more procurement functions are successfully engaging suppliers to help meet their goals.
To learn more about the procurement landscape, see Everest Group’s recent report, Procurement Outsourcing (PO) Annual Report 2015 – The Dawn of a Transformational Era.