Procurement is a business function that has undergone a lot of change in the last few years. This is due to globalization, growing consumer demands on transparency, the pertinence of sustainable development and technological advancements. Procurement and supply chain professionals are taking an integral role in their organizations.
The journey of procurement excellence in 2019 and beyond will be influenced largely by the following trends.
Practices surrounding sourcing have moved from traditional sourcing values of selecting suppliers based upon cost and have begun to take into account a larger scope of value like sustainability, environmental friendliness, quality and ability to innovate.
Responsible sourcing is a methodology rooted in choosing the right supplier from the start, based upon various parameters of ethicality and sustainability at a supplier and their sub-suppliers.
Total Value Ownership - TVO
Total Cost of Ownership (TCO) is an estimate of all direct costs and indirect costs associated with acquiring and operating an instrument throughout its lifetime.
TVO is an emerging ideology that complements the traditional Total cost of Ownership. TVO differs from TCO because it is not solely focused on cost, but several dimensions of ‘total value’, such as societal, environmental and also financial aspects.
“An exceptional procurement team focuses on driving total value of ownership (TVO) to reduce costs, increase revenue, improve operational efficiency, mitigate risk, enhance sustainability, and foster innovation” (accentureacademy.com).
Request for Solution (RFS)
Have you sent out an RFT, RFI, RFP or RFQ lately?
Of course you have because it’s an integral element when selecting and sourcing from suppliers.
But, have you sent out an RFS yet?
Request for Solution (RFS) is a new outlook on the traditional process of Request for a Proposal. RFS differs from an RFP mainly in the engagement on the part of the supplier.
An RFS is a far more collaborative process than that of an RFP. An RFP is typically sent with clearly set terms and is rather detailed within their questions and requirements. An RFS, on the other hand, is a looser proposition sent to a potential/existing supplier.
Why would one want to work with looser requirements?
RFSs are best utilized when you’re looking for the supplier to reply with an innovative proposal, or solution. It’s sometimes better to let the supplier, or marketplace, offer a solution rather than narrowing down the proposal to a list of specifications.
Supplier Enabled Innovation (SEI)
A 2017 report by Institute for Supply Management (ISM) found that suppliers account for 25%-45% of revenues coming from product innovation and up to 65% of innovations sourced externally through external partners and suppliers. There creates a huge opportunity in SEI!
Being that the majority of innovative products and services are sourced externally, there is a precedent for procurement teams to start investing resources in creating opportunities to facilitate supplier-enabled innovation.
SEI requires a procurement team to see a supplier as more than just a vendor, and view them as a partner.
An ideal circular economy would mean that the lifecycle of a product doesn’t end at the end-consumer, but instead takes on a ‘circular’ existence.
This puts a new demand on procurement teams to look to source and procure from suppliers providing recycled materials. Sometimes these materials or products have a higher price tag, because of the manufacturing costs, but their impact on an overall CSR initiative is invaluable.
The idea of a circular economy is larger than an end product. It traces back to aiding the restoration of natural resources.
Technology is the link between people and collaboration at scale.
This is a notion that has become widely accepted by procurement professionals, and therefore a movement for digitalization of procurement practices has been embraced at scale.
Procurement teams are interested in utilizing technology to support processes, optimize strategies and harmonize existing procurement solutions.
This support, together with the number of organizations building a business case for a digital procurement strategy proves that there is a motivation to move away from traditional paper trails on the journey towards a digital future within procurement systems.
The shift from traditional to digital procurement requires new talent, the millennial talent in procurement.
“Only 3% of procurement leaders believe their staff possesses all the skills required to maximize use of digital capabilities” (Deloitte 2018).
Hungry millennials are looking to make their mark professionally, and what a better way to leverage their technological competencies and interests in social and environmental impact than to let them run with transformation projects.