The Hackett Group’s 2021 Key Issues; Frustratingly Accurate
At first glance, The Hackett Group’s 2021 Key Issues report, is quite frankly, frustrating.
Seeing reduced purchasing costs at the top of the list was disappointingly unsurprising.
After the year that should have taught us that there is more to life than the mighty dollar and that risk doesn’t always remain simply just a threat, but can, in reality, decimate your business; after all the screaming about increasing resiliency and the need to focus on sustainability, I was perhaps naively so, hoping for different. But of course, business is business, and money must be made.
So, reduce spend cost remains firmly at the top of the priority list. Right underneath it, however, “reducing supply risk to ensure supply continuity” hits a firm landing in second place. Although I’m happy to see it, the trending term “cognitive dissonance” comes to mind. This is where the problem often stems and where my frustrations lie; procurement professionals are often tasked with sometimes quite contradictory objectives. More on that later.
Regardless, leveraging technology can help get you there. And yet, companies seem slow to get onboard, often stalling out before even getting started. And when they do, they often fail.
The Hackett Group’s 2019 Procurement Transformation Poll showed that “fewer than one-half of procurement transformation initiatives consistently meet or exceed management expectations.”
So, what exactly is the problem? Do organisations simply not have the budget, or are they lacking in executive buy-in? I turned to Laura Gibbons, co-author of The Hackett Group's 2021 Procurement Key Issues research for the answer.
“Sometimes that's the case, yes. But what prevents organisations from transforming today is more commonly cultural resistance and organisational or process complexity. And interestingly, if you looked at this same question two or more years ago, you would see that inadequate funding and lack of commitment from enterprise executives were the top hurdles to procurement transformation. Today, however, they’re at the bottom, indicating that executives are now on board with transformations.” says Gibbons.
Gibbons expands, “But procurement isn't quite ready to do it from a tactical or logistical standpoint, and that's why the top two hurdles to procurement transformation are stakeholder resistance to change and procurement staff skills deficiency. It's not necessarily about having the wrong people on the team. In many cases, it's about not training them, not communicating with them or not bringing them along on that long-term, transformational journey.”
Supply chain and procurement’s has been long discussed. But to Gibbons’ point, this is more about doing better with the people we have. Transformations are a team effort. And as many offices are now made to rely on remote work, the challenges of remaining a unified, high-functioning unit aligned in values, mission, and action are greater than ever.
Despite procurement’s difficulty in quantifying its value proposition, we have made headway. Stakeholders and board members are now looking to procurement as a strategic advisor (third on the key issues list), and to deliver on value-adds through intelligent procurement strategies such as leveraging spend volumes with strategic sourcing and category management. Of course, after the disruptions faced and still to be faced by the global pandemic, increasing agility remains on the list, coming in at number five.
Improving analytical and reporting capabilities comes in at number eight and will help you to reduce costs and mitigate risks. And once again speaking to procurements lack of ability to quantify value, improving performance measurement capabilities comes in last on the list.
So, heading into 2021, and likely thereafter, the key themes for procurement are cost, risk, people, and digitisation. However, diversity and sustainability is not to be forgotten and should be part of every transformation agenda.
“Sustainability jumped up to number nine on the key issues list — it's never been on the top 10 before.” said Gibbons, “And then supplier diversity placed number 11, which is also the highest it has ever appeared. Particularly within the US, diversity is now a must-have. And it's on everyone's mind, even at the C-suite level, so it's something procurement has to get on board for. Sustainability is a bit bigger in Europe, but we're seeing it growing in the US as well. I would expect that to continue in the same direction, following the new administration in the US.”
The study also showed there is still room for improvements in extracting further value from areas such as category management, supplier relationship management, improved demand forecasting and planning and strategic sourcing. Luckily, all are areas where we can leverage today’s tech to achieve more rapid advancements.
Transformation is hard, however. The complexities and the challenges to be faced are rarely evident until you are deep into the process, far after commitments have been made.
Procurement technologies are still somewhat in their infancy. The path isn’t yet cleared, and the ones leading the charge and cutting down the brush, are perhaps the ones who will feel the deepest cuts. Implementing new technologies, designing new processes, smashing silos and creating information flows; these aren’t battles easily won. The efficacy rates of those daring to pave the way show the wounds.
Navigating Cost vs Risk
Back to my frustrations, or better stated, my concerns. Let’s be clear; my point here isn’t to lament about the woes of procurement. It is, in fact, quite the opposite.
We live in a marvellous age of deep tech and emerging technologies, and the wonderful new world of collaborative environments and real-time data exchange that they afford us. True procurement transformations really are possible. And yes, both cost reductions and risk mitigation can be achieved. Ambiguities, however, are often the death of success.
When it comes to risk management, most especially when looking at the area of availability of supply to ensure continuity of business, mitigation strategies often come at a cost. For instance, a common tactic, diversifying your supplier base could mean new asset requirements, as well as production trials, third-party testing and all their associated costs. Reducing risk may also mean moving to more local, often higher-cost suppliers. Other standard mitigation measures include increasing safety stocks and reverting to a ‘plan b’ such as less efficiently packaged material options.
The costs of minimising your risks can stack up quickly, and they must be evaluated against the likelihood of disruption and the level of impact on your organisation. But yes, with the right procurement framework, alignment on company values, and a full understanding and acceptance of trade-offs being made, all can be accomplished.
As I’m fond of saying, procurement is a tough gig meant for strong hearts and brave souls. May you go forth with strength in your step and make this year better than the last. And may The Hackett Group’s 2022 report reflect your efforts.
Coupa Launches US$50 Million Ventures Fund
Operational resilience and agility. Following the events of the last twelve months, companies have focused on these strategic areas like never before. Some, as we’ve noted, have started to wonder whether this trend will continue post-pandemic—or will we go back to the same old supply chain? Not if Coupa Software has its way.
Last week, the company launched Coupa Ventures, a global fund that will invest US$50mn in early- and growth-stage companies that target business spend inefficiencies. “Coupa Ventures enables us to invest in a future where businesses and their suppliers can harness the power of their spend to constantly adapt, transform, and innovate”, said Rob Bernshteyn, Coupa’s Chairman and CEO.
What’s Business Spend Management (BSM)?
Let’s be honest, it doesn’t sound particularly sexy—it sounds like a subsection of the finance department. But business spend management, together with ERP (enterprise resource planning), CRM (customer relationship management) and HCM (human capital management) make up the core operating process of any company out there. When companies spend money, sign contracts, analyse supplier costs, take inventory or budget for the future, that’s BSM. Overall, business spend management is made up of three main areas: procuring materials, managing invoice, and handling expenses. Essentially, it’s the engine of the entire operation.
Why Change It Up?
According to Coupa, the next wave of BSM is now. It wasn’t always this way: in March of 2016, advisory giant Gartner claimed that BSM was dead. At that time, the firm was partly right. Companies couldn’t handle trillions of bits of data by themselves—and they were sinking as the waves of big data swept over their heads.
But recent developments have meant that BSM isn’t fated to die just yet. “The key to optimisation is data—and not just any data”, Coupa stated. The company has supported community intelligence, in which machine learning uses anonymised data from hundreds or thousands of client companies to suggest better spend tactics. This way, companies can get better insight into their suppliers, track supply chain disruptions, and investigate procurement alternatives.
This network effect is part of what makes Coupa Ventures so exciting. Said Eric Christopher, co-founder and CEO of Zylo, “We’re excited to join an expansive ecosystem of customers, suppliers, and partners”.
First Companies in the Ventures Portfolio
- Zylo, a leading SaaS management platform that helps companies manage cloud-based applications, offers visibility into what software is being used, how much is present, and how a company can optimise its software investments.
- SourceDay, a leading supply chain performance solution, bridges the gap between a company’s enterprise resource planning (ERP) and its supply chain network.
At SourceDay, Coupa’s investment is heralded as a chance for the company to really take off. “The investment from Coupa Ventures will...enable our joint customers to save money and leverage supplier performance as a competitive edge”, said Tom Kieley, SourceDay CEO. “We’re honoured to expand our relationship with the Coupa ecosystem”.
Looking ahead, Coupa will capitalise on community intelligence to help its partners make smarter spending decisions. “[Organisations will] place bets on which investments will quickly pay off to accelerate their growth and resilience in the post-pandemic economy”, said J.J. Freitag, senior vice president of Corporate Development at Coupa. “[And] we’re looking to back the best ideas across Europe and beyond to help businesses build back even stronger”.