IT and Procurement: An Opportunity to Create Value
Once upon a time, “Purchasing” was viewed as a set of order takers who did little more than buy materials and ensure the vendors were paid. The technology needs were modest beyond, perhaps, an inventory and order tracking system.
As Procurement became more strategic and as the science of strategic Sourcing and Logistics developed, there was a void in IT enabling technologies. At that point, the profession was evolving faster than the technology, and buyers used what they could — often Excel on their individual desktops — with limited opportunity to look at the big picture, plan scenarios, or mine data. Chief Procurement Officers were just starting to recognize and value the strategic importance of data. Most people outside the Procurement organization did not yet understand the role that good data, access to that data, and the technology to manipulate the data could have on contributions to the bottom line by the Procurement organization. And even if they had, there weren’t many tech companies pursuing this segment of the market.
In the mid- to late-90s, technology products in the purchasing/supply chain space began to take shape. Today there are a proliferation of tools, and our dilemma is totally different: What tools should I use? For which problem? Does it really work? And today, a strong partnership between the CIO and the CPO presents great opportunity to accelerate the value creation and achieve success.
Developing a true partnership between the CPO and CIO makes the difference in maximizing the ROI of your technology investment
This article provides my viewpoint on a CPO’s thinking around how IT (and by extension, the CIO) can best enable data and technology as a strategic advantage for Procurement.
The Key to Success
The key to success is understanding the problem you’re trying to solve. Too many people say “Give me an IT solution” before they have identified their business need. Or, conversely, a vendor with a great story sells us a solution to a problem I’m not facing. A CPO absolutely must take the time to fully understand the problem, and the context we are operating in – including people and their long-held beliefs.
One Size Does Not Fit All
You also have to recognize that Procurement is far from monolithic in our needs. Saying “information and technology for Procurement” is not nearly specific enough. To illustrate, among the many roles within a Procurement function are category managers, logistics experts, supplier diversity, and finance professionals, and each area of expertise requires different data and different tools to deliver value.
The category manager needs accurate internal information on what, where, and how we spend. This role also requires access to the “big data” of the external market, our competitors, actual and potential suppliers, market trends, etc. and the ability to analyze this information in a meaningful way. Meanwhile, the logistics manager needs technology to manipulate internal data and create models to optimize routes, warehousing, and centers of gravity, while taking into account the storage and transport needs of the materials being shipped.
The supplier diversity manager struggles with supplier data accuracy, determining what we spend (and save) with certain types of suppliers; supplier data at the level needed and the ability to track second-tier spending has been hard to come by. The finance manager also need internal spend and savings data, but at a significant level of granularity, and the ability to organize that data by business unit and buy space and integrate it to bring visibility to Procurement’s impact into cost of goods sold.
Build or Buy?
Back when the need for Procurement-specific IT was first identified, many companies had to build their internal systems out of necessity – there were few external providers. Often built in silos, these homegrown systems (or add-ons and customizations to off-the-shelf products) have now become the dreaded “legacy” systems that no longer meet our needs. The Procurement organizations of many companies are now at the tipping point of asking “What’s next?”
Do we build something new, from scratch? Or buy existing external technology? This is a task that we cannot accomplish without the in-depth knowledge of our IT experts. We know what we need the data to do – they can tell us whether the proposed solution can actually do it.
The CIO/CPO Partnership
With such a breadth of needs, we can’t take this technology journey in isolation. Only by partnering with the CIO and the IT organization do we have a chance to optimize our data and make the right choices of the many tools now available.
Ideally, the Procurement organization truly understands its business needs, and the IT organization truly understands the options available to meet this needs. Developing a true partnership between the CPO and CIO makes the difference in maximizing the ROI of your technology investment.
So the challenge I leave you with is this: Do you understand the data and technology needs of your Procurement function? Do you know what tools and technology are out there to support their needs? And have you had that conversation with the CPO. If not, opportunity awaits!