3 Ways Procurement Can Help Grow Revenues (Part 2)

by Alex Saric

In part 1 of this blog I looked at how procurement can actually create new revenue opportunities. Here I’ll take a look at two other ways that procurement can help support growth. These are less revolutionary than the first but not used to their potential at most organizations.

2. Unlocking Supplier-Led Innovation

Supplier-led innovation can help increase margins, accelerate time to market and differentiate products/services to capture market share. Even in indirect purchasing, giving suppliers more flexibility in how they meet requirements can increase savings and sustainability. As organizations become increasingly dependent on suppliers, the potential value continues to increase.

A great example is Meritor, who brought a unique approach to supplier collaboration and new product introductions to life, delivering more products at higher profit to support a board level initiative and multiply their stock price. Many other organizations have leveraged this strategy, but almost all can do so better to drive greater value. The following approach can help:

• Conduct a realistic assessment of your current supplier collaboration capabilities / shortcomings. Most organizations overestimate their capabilities here, with 83% of respondents to a recent Forrester survey on supporting growth indicating they had closer collaboration with suppliers than their competitors (and only 10% worse)
• Implement a structured framework to supplier-led innovation, including when to bring suppliers into the process, how to communicate with stakeholders and monitor progress
• Incentivize procurement w/performance goals & KPIs that encourage supplier collaboration to drive meaningful changes in behavior
• Increase supplier willingness by developing yourself as customer of choice. While some factors, such as company size and brand, are out of your control, the top factors according to a Forrester Consulting study on collaboration are. The top being visibility into and timeliness of payments. Effective P2P solutions support both
• Digitize to enable effective collaboration across more suppliers and categories. Efficient communication, the ability to securely share information and project manage efforts are all key to scaling collaboration across more processes, suppliers & categories

Ensuring Supply Chain Agility

Technically, this 3rd strategy does not itself drive revenue growth. It is, however, essential to preventing unexpected disruptions to sales. Analysis by McKinsey found that companies can now expect losses equal to almost 45 percent of one year’s profits over the course of a decade due to supply chain disruptions.

Agility is needed not just to avoid disruptions. Today’s active regulatory and legislative environment means companies will have to remain agile in their supply chain strategies to ensure compliance, or to support strategic objectives. For example, supply chains may have to be adjusted to support new company sustainability or other CSR policies. These can impact the brand and hence revenue. No wonder no other objective increased in importance more according to Forrester Consulting’s study on restoring growth, with 65% saying it increased.

Success requires the following:

• Gain control of enterprise supplier data. Effectively category management, including assessing and monitoring suppliers and your risk exposure, is not possible without quality data. Invest in MDM capabilities, ideally embedded in your S2P technology, to unify data across back end systems to enable a 360 degree view across the enterprise
• Manage categories like a financial portfolio. Too much risk management focuses on assessing individual supplier risk, with category assessments simply the sum of supplier assessments. It is critical to consider risk diversity in a category, with alternate sources of supply ideally being exposed to different risks. That can be more important than the level of risk of individual suppliers. Strategies such as China + 1 represent a step in this direction
• Extend visibility into sub-tiers. Extend that visibility in depth and map out the suppliers your suppliers depend on to provide you the goods/services purchased. A China +1 strategy won’t be very effective in mitigating risk (and may increase costs) if the +1 is dependent on Chinese suppliers. Technology can increasingly support this, giving you a dynamic map of your supply chain

Organizations’ spend and suppliers are often an untapped resource to drive growth. Procurement leaders must show the way, for the sake of the business and to show that procurement is as relevant when growth is in focus as when cost is.