Procurement value – From cost and category management to value and relationship management

Centralizing, standardizing, and outsourcing transactional procurement activities is just the beginning of a more strategic procurement function. It offers procurement organizations more time and resources to focus on developing and maintaining relationships with strategic partners. But how do they engage with their suppliers in order to maximize value? Which suppliers provide a competitive advantage? Which offer the opportunity to really add value to both the business as well as external customers? New digital technology can play an important role to support companies in answering these questions and help organizations creating a competitive advantage through their supply base.

Becoming a partner of choice – What leading organizations do differently

Our research into the role of procurement in innovation[1] has revealed that leaders in supply chain innovation manage to change their procurement business model and maximize supplier value in innovation processes. These leaders are doing things significantly different, especially within four areas:

  • Knowing the supply market and successfully scout for technology capabilities;
  • Segmenting the supply base and implement supplier involvement strategies for each segment;
  • Adopting value and innovation driven KPIs in addition to cost and risk related KPI’s;
  • Ensuring the company is attractive to its most important supply sources of innovation.

For the procurement function, this requires a new way of thinking. It aims at developing and implementing these capabilities and moving beyond contract and transaction management towards true Supplier Relationship Management with strategic partners. The key is to find the right supply partners, jointly develop capabilities, control risks and manage performance to improve products and services collaboratively.

Time to change – Most companies are lagging behind on leaders

Capgemini’s Global CPO survey[2] shows that moving to supply management excellence is not an easy transition to make. Many organizations are still struggling to master the basics, focusing on closed loop procurement through spend visibility, sourcing and contract compliance.  Only 16% of the respondents have a corporate strategy and process in place to specifically manage supplier relationships. In these companies, the Supplier Relationship Management strategy is different per supplier segment and aligned between all business functions involved. While 30% of the respondents indicate that there is no process for Supplier Relationship Management at all and that Supplier Performance Management is done on a case-by-case basis.

Making it work – The ‘360 Degree Supplier View’

At Capgemini Consulting, we are able to use a series of methods and digital technologies to support organizations in creating and maintaining innovative, sustainable and value adding supplier relationships. Our approach is based on in-depth supplier understanding and it identifies the required capabilities and performance of the company to stand out from competition during crucial moments of supplier interaction. Through leveraging analytics, social media, cloud and mobile solutions for Supplier Relationship Management, procurement is able to support the business in such a way that value can be maximized in the upstream supply chain, whether it is in product innovation, delivery excellence or product transparency and sustainability.

In scouting for innovation capabilities of suppliers, we use advanced social network analysis and tooling to map the entire supply network around specific technologies and expertise. It gives the organization insights of capabilities on supplier, technology and inventor level. These market insights are complemented with business and supplier views. These views are then mapped in ‘supplier journeys’, which identify all touch points and activities with strategic suppliers. We focus on the interactions which are considered most crucial by the company’s strategic suppliers.

All information will finally be combined and used in our Supply Innovation Lab, where we organize interactive sessions with business, procurement and innovation leaders. In these sessions we will discuss the supply base potential and the role of procurement as the liaison between the business and their strategic suppliers. Leveraging the Capgemini ‘Accelerated Solutions Environment’ approach, we collaborate with our clients to combine all information into a scalable and client specific transformation roadmap towards Supply Management excellence.

Way Forward – Summary of the issue and next steps to take

In the years to come, maintaining and strengthening strategic relationships with suppliers will be of crucial importance to deal with the rapidly changing marketplace. The Digital Supply Management approach of Capgemini Consulting will support companies in developing these insights and capabilities, and ultimately to establish a business strategy driven, value delivering supply management function. A function with activities and responsibilities beyond the Procurement Department to effectively support the maximization of business and customer value.

[1] Penka, A. & Schipper, K: Innovation in Procurement, a new era of innovation in the procurement process, Capgemini, April 2012.

[2] Capgemini Consulting: 2015-2016 Global Chief Procurement Officer Survey