Exclusive: CIPS top 10 procurement strategies
Supply Chain Digital asked The Chartered Institute of Procurement and Supply to quiz its members as to the most important skills every successful CPO needs...
1. Develop commercial skills
Commercial capability is a tool that needs constant sharpening as it is an important consideration for procurement professionals, no matter which sector they work in. The public sector can make equal use of commercial skills by sharing best practice with stakeholders such as suppliers or partners and indeed, many governments are developing commercial capability so the value is recognised across all sectors.
To understand commerciality, the first step is to establish what ‘good’ looks like, which serves as a direction of travel, as well as highlighting capability gaps.
Take a look at the start of the procurement process and ensure that any specs are accepted on the basis of end-to-end cost-to-serve, with the customer fully in mind. Sometimes under or over-specification can drive waste further down the supply chain, or are incomplete which means the contract ends up not being fit for purpose.
Having commercial acumen also means understanding what needs to be measured. Procurement can still be process-driven and transactional and all about cost rather than strategic-based, which offers true value across the supply chain. ‘Being commercial’ is often perceived as cost-cutting and driven to take excess out of supply chains, but it also means measuring non-financial elements as well as creative, innovative thinking.
2. Get to grips with financial data
Regardless of the focus on true value in the supply chain, the supply chain professional still needs to understand figures, highlight efficiencies and cut costs. Those are the measures that CEOs, boards and leadership teams understand more readily.
3. Understand big data
Companies have a huge amount of data in their supply chains so managing it and using it effectively will give you great insight and intelligence to re-use in your business. This information gives businesses the opportunity to make more informed decisions and increase accountability for why certain decisions were made.
4. Supplier, stakeholder and management relationships
Think more about developing partnerships and being collaborative rather than beating down suppliers or kowtowing to needy stakeholders. Good suppliers can help you resolve problems and key stakeholders can offer good advice at crucial times, so having strong relationships with all key partners makes sense. Think of internal stakeholders as partners too. Harness opportunities to collaborate and share insight and staff to offer that level of support too.
5. Embrace ethics and sustainability
A robust supply chain will have ethics embedded in throughout, understanding the impact of decisions and offering transparency; an important aspect to modern day global trade. Reputations are built and sustained on good ethics. The Modern Slavery Act of 2015 is an important development in the protection of human rights, health and life itself. Strong ethics and the desire to go beyond the basics enhances reputation and ultimately protects corporate business. CIPS has an ethics test which takes a few hours to complete, but offers a detailed look and training around all aspects of ethics in the supply chain. As John Ruskin said: “There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man's lawful prey.”
6. Managing risk
The system of interconnected supply chains is becoming more complex and diverse and professionals are expected to be the experts driving the resilience in supply chains. Developing, crafting and managing markets and the security of a company’s supply chain is to mitigate against any failures to deliver goods and services, so there’s a big responsibility.
7. Search out the future of the profession and business
It doesn’t take the skills of a futurologist to know that supply chain management is likely to experience disruptive events over the next decade. Probably every profession will be affected by volatile trading environments, increasing complexity and the influence of digital technology. Product life cycles are getting shorter and skillsets are changing beyond recognition. Automation is reshaping the workforce and eliminating lower level roles. Buyers need to look to developing new skills or risk being left behind.
8. Develop more soft skills
This sits firmly under the relationship banner, but strong soft skills are an essential part of the negotiating process, whether you are an influencer with your CEO, board or even your team. Being a CPO means being a leader, so having a range of skills rather than pure procurement talent will become ever more important to gain the confidence of partners, colleagues and suppliers.
9. Digitisation of supply chains
There has already been a mini revolution in supply chains as metadata is being used to check the sell-by date of cargo, real time shipping progress and factory information regarding low stocks. Supply chains are now running on physical and digital networks and so get to grips with the latest advancements.
But before supply chain managers rush to embrace this technology wholeheartedly, it does come with a health warning: managers are exposing themselves to fraud, theft and cybercrime, so they need to develop new skills and knowledge to keep up and prosper in the digital age. Data travelling along the supply chain can be stolen at any point.
10. Artificial intelligence
Already adopted as a game changer in China, AI is transforming supply chains in a range of key sectors such as manufacturing, retail and healthcare.
For supermarkets, reliant on a fresh flow of food and other products, AI can help analyse purchasing and make predictions on future need at a really high level of accuracy. The value of this automation without human interference is that it can reduce food waste and boost consumer interest if food is plentiful and fresh.
For instance, Robin Li Yanhong, CEO of China’s largest search engine provider Baidu, has suggested that using AI in the mining industry for example, could improve health and safety by checking for product defects before the products get to steel mills.
EY and Harvard Law discuss barriers in Contract Management
Contract management is a crucial discussion for procurement professionals as negotiations require a more specific outcome. However, some organisations are experiencing significant barriers to developing their contracting processes. Ernst & Young and Harvard Law School Center have discussed survey results in relation to the current state of contracting and explain where the issues arise.
The Legal Profession survey (part of the 2021 EY Law Survey) highlights the perspectives of 1,000 professionals from across the globe in law, procurement, business development and commercial contracting.
Out of all the major companies surveyed, over half of them say they are experiencing significantly reduced revenue and are missing out on important opportunities due to poorly managed contracting processes.
Some of the key findings from the survey:
- 92% of organisations in the survey said they plan to transform their contract handling procedures.
- 98% of respondents said they face critical barriers in the process of developing contract management.
- 38% of organisations said they have tried and failed already to implement a better contract management procedure.
- 57% said they had experienced less positive revenue due to inefficient contracting systems.
- 50% of respondents said they had missed profitable business opportunities.
Kate Barton, Global Vice Chair, EY, has expressed her opinion on the survey, “Revenue growth is a fundamental goal for any commercial organisation and effective contracting processes play a crucial role in making that possible. Contracting teams around the world know the value they can bring, and they are making real efforts to transform, but the survey brings into sharp focus a whole range of obstacles that they must navigate if they are to make the improvements they are aiming for.”
What will organisations need to address to develop their contracting methods?
Many organisations are under pressure to reduce costs, specifically contracting professionals. This is something that nearly all of the survey respondents will be looking to do in the next two years, while a third of larger organisations aim to scale this to a 30% reduction in contracting costs.
There is a certain lack of clarity among organisations as to who is responsible for contract management. It is unclear to most how the contracting process should be managed; perhaps this could be because it involves an agreement between various stakeholders. Around 59% of legal departments believe they have the leading role, while a similar number of contracting staff also share this view. 39% of business developments professionals believe they are to hold the decision-making power.
Utilisation of Technology
There seems to be a lack of capability among organisations to analyse and manage contracts. According to the survey, around 70% of organisations have a technology strategy in place to manage contracts; the majority still lack the necessary data to utilise it to full capacity. This is likely caused by insufficient knowledge for implementation that is likely a direct result of a skills shortage, which 34% of organisations have reported as an issue that limits them.
Insufficient Contracting Processes
A lack of a defined contract drafting process will significantly limit how effective the contract will be. Global Legal Managed Services Leader at Ernst & Young, John Knox, explains, “the importance of getting contracting right cannot be underestimated.”
Around 49% of survey respondents say they don’t follow a defined procedure, and 78% say they do not have a system for monitoring contractual obligations.
Knox says, “with the right transformation efforts focused around people, process and technology, contracting can actually become a business enabler and differentiator. The survey shows that one way in which organisations aim to tackle these challenges is through working with subject matter leaders and external providers.”
Meanwhile, David B. Wilkins, Lester Kissel Professor of Law, Vice Dean for Global Initiatives on the Legal Profession, and Faculty Director of the Center on the Legal Profession, Harvard Law School, says, “Contracts are at the core of every business. They determine how growth happens and how risks are managed. It is therefore absolutely crucial that organisations have effective systems and processes to manage every aspect of the contracting process, from negotiation and execution to termination or renewal, as well as an accurate understanding of the obligations, benefits, and risks across the entire spectrum of their contracts.
For more procurement insights, check out Procurement magazine.