12 Game-Changing IT Sourcing And Procurement Trends

by Srikrishna Koneru, Infosys BPO    Jul 18, 2014

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Look around you. Change is everywhere. As it is said, change is the only constant. And the sourcing and procurement function will also change in an effort to deliver sustainable and quantifiable returns in the coming months. New technologies, new business models, new strategies and tactics will usher in all these for the function. Here’s a list of 12 game changing S&P trends which companies can into to stay on top and make your S&P function resilient.

Trend-1: Leading business transformation: Integrated sourcing and procurement technology solutions

Integrated S&P platform-based services will lead the way to business transformation as enterprises realize the value of bringing technology, strategic consulting and service delivery together. A technology-based ecosystem of best-of-breed, cloud-based, end-to-end source-to-pay platform solution is essential to realize step improvement in ’spend under management’ in a cost-effective and mass customized manner.

Trend-2: Market consolidations – bringing procurement to the centre stage

Cost reduction synergy and post merger integration are critical criteria on which M&A / JV deals are evaluated. And a broadening alignment of procurement metrics with shareholder metrics such as EBITDA, OIBDA RONA, ROIC, etc., increasing focus on total cost management, and a signing-off on baselines to measure returns and performance are bringing procurement to the centre stage during M&As / JVs to facilitate informed and analytical decision making. Procurement needs to be prepared during these important organizational transformations – not just from the strategic but also from the operational aspect. Post-merger integration of data related to suppliers, contracts, and users need to be planned upfront.

Trend-3: Strengthen procurement capabilities

As the procurement functions evolve from being reactive to proactive and increasingly become inclusive business partners in business transformation initiatives, expect a resource crunch to lead this evolution. Enterprises are now gearing up and investing in recruiting and retaining the right senior- and mid-level procurement professionals. This shift warrants devising an effective procurement talent management strategy that includes multi-tier succession planning to create lasting impact past the resource’s tenure and that of their reports, especially as they move up the ladder.

Trend-4: Innovation and creativity – New procurement deliverables

In the coming year(s), procurement performance will not just be measured with a yard stick of hard and soft savings it generates. Innovation and creativity along with other topline contributors will be part of the new Business Value Articulators (BVAs). As the function evolves, procurement will be expected to engage with stakeholders in new and innovative ways and create an impact on the “make vs. buy” decisions while evaluating capital investment, technology and generalized IP investment options with tier-1 suppliers and contract manufacturers. Procurement leaders will be expected to be market information clearing houses and a nexus of industry benchmarks is expected to help CXOs make vital investment decisions.

Trend-5: Working capital management enters the procurement turf

In the wake of the financial crisis that enterprises have endured, working capital management enters the procurement turf. Procurement will be looked on to devise ways and charter on the less-travelled road of supply chain financing (SCF) and days payable outstanding (DPO) increase for suppliers.

To balance the conflicting objectives of increasing cash at disposal and not stretching suppliers’ DSO to their detriment, enterprises will look to implement programs like SCF. The rationale behind implementing SCF is that such programs will entice banks to buy suppliers’ receivables at a very low discount rate securitized by the enterprise’s solid credit score and low cost of capital.

Trend-6: Tail spend management, no longer a tail-end activity

The often overlooked tail spend management is gaining prominence as enterprises find it hard to ignore the benefits of managing tail spend efficiently. When done right, tail spend management can be a source for incremental savings and it’s not only about savings. Tail spend management delivers benefits that are beyond the bottom line and influence user experience, efficiency of transactions processing, and more. This surging interest has lead to the emergence of new models such as the spend aggregator model, partner (or service provider) model with or without the add-on platform / systems to manage this ‘low-value, high-volume spend’.

Trend-7: Collaborate with finance for supplier and market risk management

Finance and procurement will work together to model and even predict supplier financial risk on a global basis. Other risk factors including supplier reputation and demand risk are loosely connected to the supplier risk management processes and programs but are rarely managed by procurement. However, the number of high profile supply chain failures recently is compelling enterprises to view supplier and market risk in new light. Supplier behavior, infractions and violations will be procurement’s responsibility, at a global level and especially where local practices and regulations are different from other markets. Procurement and finance are now expected to work together to facilitate supplier financial and broader multi-tier risk management considerations such as capacity planning, environmental / labor risk, geopolitical risk, geographic risk, commodity risk regulatory risk, and more.

Trend-8: Getting ready for the ‘touch world’

‘Touchless’ Amazon-like procurement experience for end users is rapidly gaining prominence. This trend is facilitated by seamless cataloguing integrated with back-end systems to increase user adoption of recommended buying channels. Enterprises stand to gain from the improved productivity and user satisfaction, automation and the resultant reduction in tasks, and the real-time visibility that these ‘touchless’ cloud-based solutions provide. Providers and integrators, in turn, are looking to embody these features in their platforms, offering them on end-to-end or modular basis.

Trend-9: Beyond source-to-pay

Enterprises will seek real-time comprehensive spend and procurement visibility within procurement systems with the help of ‘smart’ CPO dashboards and scorecards to gain actionable knowledge about spend. The underlying objective is to convert this knowledge to tangible savings by using it to drive plans and actions. And enterprises will expect more from their procurement systems. These systems will need to focus on compliance uplift by providing user analytical data and facilitate mandated workflows for all transactions.

Trend-10: All roads lead to capability optimization

As enterprises aim to cover more categories and areas within procurement and combine process, technology and people, availability of capable resources is a big challenge. To address this, there is a growing understanding of capabilities that needs to retained / developed in-house, outsourced (onshore or offshore), and technologies that can be leveraged. A blend of factors – cost arbitrage (off shoring), efficiency (technology) and value effectiveness (outsourced but onshore) – in the source-to-pay value chain are being considered while deciding on the model and technology that best fits the enterprise. In fact, enterprises are increasingly realizing value from identifying ‘low complexity’ categories within their procurement taxonomy and handing over its entire management to a partner.

Trend-11: The appeal for discrete services for the individual ‘seven step sourcing exercise’ in the source-to pay cycle will increase

Enterprises will engage different providers to provide service on the ‘seven step sourcing exercise’ such as market intelligence, supplier risk Management, spend analysis, etc instead of relying on one partner to provide complete support services or category management. The appeal of ‘fixed fee and single process’ engagements will increase. This indicates that enterprises are looking for more tailored models and flexibility from providers.

Trend-12: Should-cost modeling and benchmarking increasingly considered

Benchmarking and should-cost modeling will gather momentum. Across industries, enterprises are engaging in benchmarking to measure their performance against ‘best-in-class’ and ‘world-class’. Enterprises are looking to invest in this area of research and in benchmarking exercise either through a research partner or internally.

Another emerging area of focus is should-cost modeling. Increasingly, manufacturing firms are deploying tools and platform to ascertain should-costs for the commodity prices, a trend that is driven by today’s volatile economic scenario. A whole new set of capabilities will be needed for enterprises to evolve their procurement function.

(The writer is Geo Business Manager (UK & Europe) and Head – Solution Design, Sourcing and Procurement Practice, Infosys BPO)