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Umesh Behera, Consultant of TCS's Global Consulting Practice, at Tata Consultancy Services Asia Pacific answers key questions that senior procurement leaders are asking about in the new digital age, and how nurturing relationships will be crucial.
Posted: January 2021
Embracing new digital platforms and traditional attitudes towards nurturing relationships will help shape the future for successful procurement leaders. This is part of the advice being given to Chief Procurement Officers (CPOs) and purchasing officers by Umesh Behera, a key member of TCS' Consulting practice.
“In a digital world, the procurement process is now being driven by the system with cloud platforms, automation and Artificial Intelligence,” says Umesh. “This is the biggest change we are seeing today.”
With a responsibility for executing process transformation projects at client organisations, Umesh has a long history working within various industries in North America, Europe and now Australia with a proven history in procurement and logistics, warehouse management and inventory management. Umesh shares the themes of his conversations with Chief Procurement Officers as part of the TCS big questions series.
Where have we come from, and where are we headed?
Procurement, like most other business functions, is being transformed by the rapid shift to digital platforms. Traditionally, procurement has mostly been process-driven, where a purchase manager or sourcing manager has had a sound understanding of the process and relied upon their contacts, knowledge and networks. They knew what needed to be done, everything from compliance to regulatory frameworks and all the way through the process’ lifecycle; for most, it was routine work.
Now in a digital world with cloud platforms, automation, analytics and Artificial Intelligence, system-driven procurement is the new mantra for an adaptive, efficient and agile procurement function. In the new procurement ecosystem, it is the procurement platform that guides users through the processes and enables informed choices while ensuring adherence to all compliance requirements. The system-driven procurement process is helping to ensure that nothing is overlooked, which can sometimes happen in a people-only-driven process, so we can now reduce the risk of potential issues and disputes that may arise along the line for industries.
Pain points and burning issues
There are questions coming from two sides of the procurement process, depending on whether we are talking about the upstream or downstream process. In the upstream process, the first question is always about how procurement teams can best find a good supplier to partner with, with the least amount of risk possible and the fastest access to the product. In addition, striking an optimal commercial construct is always a priority.
When it comes to the downstream process, which involves the people who raise procurement requisitions and purchase orders, the main question is about visibility of information and documents that exist within an organisation. Downstream can be a bottleneck as those responsible for this part of the process seek to access previous contracts and compare suppliers or item costs.
This visibility of the supplies network and current contract arrangements is the biggest challenge end-users face.
The question you should be asking
Analytics and the capability of data in warehouse management is something that CPOs should be asking more about.
A lot of the performance management is still very manual, and although businesses may have systems in place to calculate KPIs of their suppliers, they are usually not flexible. For example, a business might come up with KPIs that they want to track suppliers on, but after communicating this to their IT department, they learn that the systems are not capable of providing the data needed.
Using data warehousing capability and analytics can ensure that the data is captured at the source, such as when a product at a warehouse is scanned. This information can be updated across all systems to show the purchase order has been fulfilled; and the data can be used for further KPI analysis, or any other kind of analysis, and is very useful for business growth.
Why bigger isn’t always better
The cloud platform is solving some big issues around document control, including those at an accessibility, integrity and compliance level. The challenge that documents management poses is especially seen in bigger companies that span vast geographies. It is common to have different compliance requirements, especially for companies dealing with different government departments across different regions, so it is something that must be done right.
The cloud environment is helping align global systems and integrity systems and allowing the knowledge, data and information within documents to be retained, and accessed anywhere and at any time by the people who need it.
Our advice: stick close to the CFO, the purchasing team and suppliers
CPOs should know that the CFO is always watching the bottom line, so this is an important relationship built on communication and trust. Although the CFO may not be involved in the day-to-day areas of procurement, they will have their own take on how procurement is performing because it has a direct bottom-line impact on the company.
Moreover, CPOs need to clearly communicate with their purchasing VPs, senior officers and sourcing managers, as well as maintain regular contact with key supplier counterparts.
These are the areas and networks for CPOs to connect with to better understand the nuanced challenges being faced, both within the organisation, and externally on issues such as software.
Be strategic, you can grow bottom lines and reduce risks
The procurement department can often be viewed as a “spender” within an organisation, but we must learn to see it as a strategic part of the business. If something goes wrong with the demand forecasting or procurement planning of certain materials from a certain supplier, the consequences can be significant.
In simple terms, if there is an error in the procurement process it can mean product not ending up on shelves of a retail organisation, or spare parts not being available at a site for maintenance. This might not only impact business revenue side, but it can also have a negative impact on the company’s brand in the eyes of the consumers.
Supplier flexibility is an underrated measure of performance
The value of a supplier’s flexibility or the willingness to go the “extra mile” should not be underestimated when rating their performance. It’s common for organisations to rate suppliers on quantitative performance indicators such as on-time delivery, error rates and fulfilment rate metrics, all of which are important. But one measure that is often missed is qualitative performance, such as instances where a supplier goes out of their way to solve a big issue like a lack of product on the shelf due to high demand.
Suppliers who can prove flexible in delivering results to a business are real partners, and these are the relationships that will last over time. These over-and-above actions can also change a company’s perspective of who should be their preferred supplier.
The future CPO drives down a two-way street
Sourcing relationships and maintaining partnerships is a two-way street; and if done well, it is always a win-win for both the partner and the procuring organisation. This aspect should be a part of the futuristic thinking from CPOs and procurement teams within organisations on how to add value to their partners.
The focus should be on enriching the entire ecosystem. The sourcing relationship is not just about giving feedback or measuring outcomes on a case-by-case or contractual basis, it's a mutual relationship and one that can create overall value addition to both the organisations. In many offices we see procurement officers and sometimes CFOs getting more involved in supporting suppliers, a change that has been long-awaited. If there’s an investment in suppliers by making sure the supplier base is well established and that they are getting the product that they need, then it also reduces supply-side risk.
Some CPOs and CFOs will partner with suppliers, and if the buying company is a big company, they will have something like a supplier development program in place. This can allow them to rate the suppliers using a system such as SCAR (Supplies Corrective Action Rating) where they can figure out the areas the supplier may be lacking in, and how they can be supported and improved. They will try to nurture their suppliers, and provide tools and training, to make sure that the supply base is intact.
Thus, the real value added by nurturing a relationship and supporting suppliers must always be remembered.