Apr 27, 2017

Technology will transform procurement, but building good relationships will still make the crucial difference. POOL4TOOL expert Bertrand Maltaverne explains why.

A few weeks ago, POOL4TOOL organized an event, Digital Procurement Day, attended by more than hundred Procurement professionals. The focus of the day was the impact of new technologies on Procurement. Over lunch, I had an interesting conversation with Heiko Schwarz, CEO of Riskmethods, and a couple of practitioners. What we talked about illustrates that in a digital future, relationships will continue to matter.

The discussion was about Supply Chain Risk Management (SCRM). One of the practitioner stated that his organization was not looking into increasing its risk management capabilities because technology cannot help prevent events from happening. To reinforce his role theory, he told us what had recently happened to his company. The factory of one of his key suppliers was reduced to ashes by a fire. This led to disruptions that, according to him, technology could not have helped prevent or mitigated.

Even if it is true that SCRM technology cannot have a direct impact on the cause of incidents, it is not a reason to ignore potential threats and be like an ostrich. This story is one of the many examples demonstrating that organizations don't learn and make the same mistakes, again and again.

SCRM technology, together with SRM and Category Management, can have an impact on reducing exposure by, for example, highlighting sensitive areas (single sourcing of critical components, suppliers in dangerous zones, etc). They can also help companies react faster than the competition when problems occur. And there are many examples of this.

Being the customer of choice helps

Schwarz gave the example of a Riskmethods customer who had received a notification that an incident had happened at the factory of one of his suppliers. He was able to immediately contact the supplier to discuss it with him and to build a business continuity plan. The immediate action was to have the supplier produce the component in another factory that had some free capacity.

In addition to the speed advantage provided by the technology, the Riskmethods customer benefited from the good relationship he had built with the supplier. Because he was a customer of choice, he had access to possibilities that less preferential customers probably would never have had.

Get help from well-placed alliances

This reminds me of another story with a different twist. I heard it a few months ago at a Procurement conference in Czech Republic. A buyer (I will call him Peter) had a certain raw material in his portfolio. He was buying modest quantities of it but the material was critical nonetheless. Also, only a handful of suppliers were selling it. Peter knew that, if there was a peak in demand, he would never be the one served first. In order to prevent shortages, he developed a clever alliance strategy.

Peter attended a fair he knew that the major sellers and buyers of that raw material would be at. Using the research he had done before the event and his observation skills, he connected with the big players on the buy-side of the market because he knew they would have better contracts and conditions than his. Conditions that would most probably integrate capacity agreements.

Months later, when demand peaked Peter did not contact his supplier to try to convince him to deliver to him; he knew it would be in vain. Instead, Peter reached out to a buyer (let’s call him John) who he had met at the fair and who he had built a good relationship with. He explained his situation to John. After listening, John explained that he could help because he had a contract that stipulates that the supplier must cover his needs as long as they vary within a certain range. As Peter’s needs were small in comparison to his, adding them to his would remain in the contract’s terms. After agreeing on the condition of this deal, John called his supplier to inform him that he would need larger deliveries. The supplier agreed and delivered the requested quantities to John who then forwarded what Peter needed.

In a digital future, relationships will continue to matter

Peter's story has a particular resonance for me as I had experienced a relatively similar situation when I was a buyer. But, I hadn't done my homework like Peter, so I could not seek the help of a larger customer to help me. It took months and a lot of effort to recover.

These three stories illustrate that Procurement professionals have to prepare for the worst and hope for the best. It means having the people, process, and technology to:

  • Identify weaknesses and risks
  • Build contingency and mitigation plans
  • Constantly monitor risk sources

These are the conditions for being proactive and not passive when it comes to risk. Also, they should not forget the importance of nurturing relationships, as business is human-to-human, H2H, (and not B2B or B2C). At the end of the day, even if technology is a tremendous support and help, ultimately, it is people who will help you.

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 Tags: Future

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