Procurement as a differentiator – Part 3 (what kind of differentiation?)

In a previous post (Part 1) I explored an expanded definition of what Procurement is becoming and then how it can become the link between Customer Demand and Supplier Innovation.

Then (Part 2), how Procurement’s potential could reinforce the basic Strategies of Organizational differentiation.

In this post I will explore in more detail what this differentiation could look like.

C. PROCUREMENT AND DIFFERENTIATION

The argument that Procurement can become a key Differentiator is supported by the fact that Innovation is a key contributor of business growth and that Procurement can be a great curator and creator of Innovation.

Jimmy Anklesaria in his great book “Supply Chain Cost Management” posits that Procurement should:

“leverage [the] collective intelligence of the extended enterprise (your customers and their customers, your suppliers and their suppliers), and generate substantial results”.

and also that

the next generation of cost management is: “breakthrough solutions”.

C1. COST LEADERSHIP AS A DIFFERENTIATOR

Jimmy Anklesaria also highlights the fact that genuine cost management is different from cost cutting.

Indeed, genuine Cost Management does look at the business as a whole and asks questions like:

-Do we really need this service?

-What is the value this service provides to the business?

-Is there a better way of doing this?

Moreover, he stresses the importance for Procurement to move towards embracing a Strategic perspective as, according to him, successful Cost Management will be the key differentiator in the future:

“So, here we are in the twenty-first century. What will differentiate your firm from its competition? Will it be technology? Or maybe it’ll be quality and reliability? Perhaps speed of delivery? Or excellent customer service? Or do you think your firm is the onoly one in the industry doing e-business? The answer,…, is that nowadays, frequent technological breakthroughs, high quality, reliability, on time delivery, top customer service, and e-business are merely the prerequisites for being in the global race for market share. Today’s customer expects this from a supplier; rather, demands it. And there are enough firms around the world that have overcome the “preliminary rounds” of technology, quality, reliability, delivery, service and e-business.

So, why should they choose your firm?

In a few years the only differentiation will be cost. Companies that best manage their costs through the entire supply chain to bring you the latest technology, best quality with on-time delivery at a price lower than the others will take home the prize-your check. There is no prize for coming second”.

C2. INNOVATION AS A DIFFERENTIATOR

Now, reflecting on the power of Innovation to drive growth we find evidence in Kate Vitasek’s reminder of Solow’s Law that states that business growth is driven by innovation.

Specifically,

“The population and the labour supply grow at a constant rate and capital intensity (or capital per employee) can be regulated. But without technological progress, Solow continued, growth rates for capital, labour and total production would all be about the same. As a result, technological development would be the motor for economic growth over the long haul. In Solow’s model, if continuous technological progress can be assumed, growth in real incomes will be determined by technological progress”. (Kate Vitasek, outsourcemagazine)

But probably the most important contribution Solow demonstrated was that only a small proportion of annual growth could be explained by increased inputs of labour and capital. Just how small? Thirteen percent.

In other words technological growth makes the crucial difference when it comes to economic growth – a whopping 87 percent. Now keep in mind technological growth happens in two ways: product and process improvements.

For both these ways, Procurement can play a pivotal role.

This notion is also reinforced by the view of Cavinato and Kauffman when they detail Technology Advancement (e.g. Product and/or Process Improvement) and Supply Chain Synchronization (e.g. Process Improvement) among the four key trends that will most likely fundamentally shape tomorrow’s procurement practices (here). The other two key trends being Globalisation and Industry Consolidation.

CONCLUSION

I think that the above amounts to a strong argument for Procurement to be one of the primary differentiators for the organisations of tomorrow. Utilizing the Procurement function towards clever Cost Management and stimulating Innovation will mean that organizations will empower a yet not fully explored source of creativity and immense potential.

Where do you think Procurement will be and should be by 2020?

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Image courtesy of Anna Betts/ www.flickr.com