Why Making It Easier For Vendors To Do Business With Your Organization Is A Vital Competitive Advantage

 
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Edmund Zagorin
CEO & Founder

Ask yourself this question: What is the difference in value between your organization’s best vendor relationships and average vendor relationships? Is it significant? 2x difference? 10x difference? What is the true value of reliable, consistent, trustworthy excellence in a supply or service partner?

During periods of rapid technological acceleration, most leaders will tell you that the difference in value between the best and the rest is more than 2x. In other words, the distribution of excellence in your vendor portfolio looks more like a ski slope down from your y-axis (e.g. a “long tail”) than a bell curve.

The reason for this phenomenon is profoundly connected to the acceleration and diffusion of digital technology that can reduce the cycle time of a business process by an order of magnitude. Some of your vendors are probably fast adopters, meaning that they are able to answer your questions quickly, adapt to changing market circumstances faster, respond to your emails and answer your questions in real time. Consider that the phenomenon of a greater than 2x difference is observable in many other parts of the enterprise, including:

-          departmental cycle time

-          sell-side product market share

-          employee talent & compensation

In other words, your organization’s best department has a cycle time more than 2x better than your organization’s average department. The market share of your organization’s best product or service has more than 2x greater than your organization’s average product or service. Your organization’s most compensated employee is paid more than 2x your organization’s average employee compensation, and is likely to have skills that are worth more than 2x your organization’s least skilled employee. In each of these cases, the difference between the best and the rest is more than double. What does this mean for your supply chain?

 
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After three decades of outsourcing, it is likely that some of your greatest levers of enterprise value work for your vendors. Consider that there may even be people who work in your office, side by side with your FTEs or on site in other locations across the globe who are actually employed by your vendors. They are helping your teams create and launch new products, they are making sure that your contracts are being sold, they are driving important commercial results for your organization. And they are part of your supply chain! This is why talent is only part of the value creation story: awesome vendor relationships will likely play a key role in company biggest outcomes, especially in technical and creative roles that are challenging to hire for.

The classic example in Silicon Valley is Uber and Twilio. Twilio enabled Uber’s ride-hailing service with the technical platform to create a phone number in any country to connect driver with rider, and to enable text messaging. The rest in Silicon Valley history. Would Uber have been able to grow as fast or spread as broadly if drivers and riders couldn’t call each other to ask where the other was? What would the market share versus Lyft look like if the vendor relationship had shaken out differently or was done on unfavorable terms?

This same dynamic is ultimately true of all globally integrated manufacturing supply chains over the next decade, particularly as 3D printing and CAD workflows become ubiquitous. We are already entering an era of extreme price volatility, where commodity prices in different parts of the world fundamentally alter what contract manufacturers will be competitive for the Bill of Materials (BOM). What happens when innovation itself begins to drive price volatility, as a companies prices are literally impacted by their speed of adoption of connected, distributed, autonomous machines? (Think: 3D printers but for everything and everywhere, from metals, plastics and even human tissue, from integrated circuits to nanoparticles). What happens when the use of new fully automated production affects bottom line revenue more than any other single factor? What happens when the disruption created by autonomous manufacturing makes the disruption from autonomous vehicles look like child’s play?

It is quite possible that over the next decade there will come a sudden, urgent tipping point where all manufacturing companies will have to rethink their approach to sourcing, contracting, transporting, assembling and managing all of the materials that go in all of their physical products. Ask yourself: how ready are my vendors for this tipping point? Who are my top vendor partners and my top relationship managers, and what are they doing to prepare for this? How many of them will have retired by 2025? Executives are already doing that math and realizing that if this tipping point for autonomous manufacturing has even 1% the force of what’s described above, then the speed of their procurement’s status quo digital transformation looks a lot more like the speed at which Blockbuster adapted to Netflix (by going bankrupt) than the speed at which Microsoft adapted to Dropbox (by launching Sharepoint). Microsoft has had an amazing turnaround and in some parts of the world Sharepoint is and will remain dominant. The story of the VHS rentals business model provides a cautionary tale.

The good news is that change is possible. The best insurance against the unknown investing in excellent talent is either in your team or in your supply chain partners.

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Bid Ops Webinar: Friends Don't Let Friends Run Bad Bids

Bid Ops CEO, Edmund Zagorin, discusses insights from the private and public sector on how to improve and develop efficiencies related to solicitation, vendor management and vendor negotiation. Click play below to watch the full webinar.

To view additional information and register for our next webinar, click here.

 

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Art of Procurement Podcast: Automating the Negotiation Process w/ Edmund Zagorin

 
 

During ProcureCon Indirect West in September Bid Ops CEO Edmund Zagorin sat down with Philip Ideson from the Art of Procurement Podcast to discuss the impact of emerging technologies in sourcing and their importance in the negotiation process. Listen as they discuss the opportunities automation unveils when introduced in complex sourcing events.

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Art of Procurement Podcast

THE FUTURE OF PROCUREMENT Q&A PANEL: HAL GOOD

THE FUTURE OF PROCUREMENT Q&A PANEL: HAL GOOD

I think one of the exciting things that's happening is the whole cognitive idea where we basically don't allow things to break down, but we basically rely on smart sensors to be able to do predictive analysis and to be able to sense when there's a problem and intervene with no downtime.

Bid Ops Interviews Brent Maas for #TheFutureofProcurement (Part 2)

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Edmund Zagorin: That’s terrific because I was going to ask about what you recommend for writing procurement job descriptions next.  You actually anticipated the next two questions that I had teed up here.  But to zero in a bit, I think what jumped out at me from your description is the term “cross-functional”. There are certainly times where one gets the sense that in procurement, along with local government and even corporate enterprise positions as well, the sense that people have their lane, have their channel, have their silo, and they’re very much encouraged not to look beyond their purview to build value and create opportunities for the organization. And the reason for that is that, if people have a clear understanding of what is and is not their responsibility, then there won't be conflicts over authority, or ambiguity over responsibility and accountability, which can cause frustration. Silos don't exist in a vacuum, after all -- they evolved to meet a need -- they help people have good interpersonal communication. But now, particularly as you look towards the adoption of technology platforms, a lot of times the value that is most delivered is beyond a single role or function, e.g. it is "cross-functional." I saw this in some of my work at Responsible Purchasing Network looking at sustainable procurement initiatives for local government. There the value is really to the organization, in some cases to leadership who have set aggressive targets, for example, for carbon reduction or waste reduction, etc.  But in some cases, when such an initiative it is one small part of too many people's jobs, then it fails to gain traction among people who are very focused on what is or is not their core area of responsibility. This might be a long way to a ham sandwich, but my question is how do you see procurement leadership working against these silos, working towards this "cross-functional" idea where everyone is part of a team that has strategic enterprise value and customer service as its North Star, and how do you hire for that kind of a team? 

Brent Maas: I tend to think in terms of outcomes.  Let’s talk about the hiring process itself, for example.  Having conversations where they talk about outcomes- how did what you did impact your staff, your teammate, your superiors, other departments, etc?  I think engaging in the conversation is really about hearing whether or not folks are relatively fluent or articulate in talking about their understanding of impacts and because of the job that they do, they are contributing in some manner to the organization.  If their experience is restricted to a particular category of product or service and they don't seem to indicate much awareness of any other attribute of organizational function, in fairness, you can ask some questions, probably reviewing to probe a little bit to find out whether they hadn't been given an opportunity to form much awareness and are therefore ignorant (I don’t mean that in the negative connotation), especially in an entry level type job.

But the more they could reflect the capacity to understand- “I recognize there’s multiple stakeholders across the organization and I can’t figure out why we can’t, to use your earlier example, seem to move the needle on carbon emissions related programs?  Why aren’t we doing that?" Well, there are a lot of reasons - not just within single organizations, but across communities we see problems like this, where getting groups of people to be motivated enough to take difficult actions and make tough choices is what leadership is all about. And I can come up with a bunch of reasons but I think part of it is having a conversation with folks to help facilitate their thinking to go beyond what their immediate task is or what their immediate charge may be. There are some folks that can’t go beyond the hypothetical or get into a creative mode where they are conceptualizing beyond the black and white, and that’s OK, you need people like that, too.  But in terms of looking for those you might develop into roles that could conceivably be formal leadership roles, you are looking for those who naturally drift into talking about problems and challenges from multiple perspectives, seeing a problem like an organization. And then cultivating that person and giving them opportunities to get more insight and understanding into the functionality and the processes and culture, the strategic goals throughout the organization. Then hopefully they express “Hey, I have an interest in pursuing this further or any opportunity for me to contribute, but I haven't been invited to participate.” And then you start getting into, what I think, are issues for organizational leaders to ensure that they are developing the culture that allows for that kind of development opportunities for his or her people. That may or may not exist, but asking: how can we create opportunities for people to own the outcomes of their own work? It’s not always the procurement piece at all, it’s really very much about management issues - how does the organization manage power?  How do organizational leaders influence the environment in which the work is being conducted? Are you helping your people perform in a highly effective manner? Do your people have the desire to go above and beyond?

Edmund Zagorin: That’s a pretty profound set of questions. And we're starting to see a shift in a lot of organizations, where it's about of a culture of opportunity discovery.  If people can find problems, brainstorm creative ways to solve them and then get the backing of leadership to execute, that's the sign of a great culture.  Because sometimes the best ideas in an organization come from people who are closest to the work. A true leader's realizing that suggestions from workers are not a challenge to their authority, and that these suggestions can actually be a source of tremendous value. Now, of course not all of those ideas are going to be that great, but some of them will. And having the patience to hear people throughout the organization on things that they want to try and even create,  in some organizations we're beginning to see the emergence of something like a Chief Innovation Officer or someone who is simply tasked with allowing the organization to execute on opportunities for value. What is that role if not: get some projects, define roles and responsibilities, brainstorm what success looks like, define metrics, define outcome scenarios and then once you've gotten decently close to clarity, then begin executing. I think that that is partly due to the rapid advances in certain sectors of technology, but I think it's also due to just a general recognition that people genuinely prefer to work for an organization that is willing to at least hear them out on an idea and potentially, that could be an area where they can see themselves in the organization as part of having launched an initiative.  Everyone ends up benefiting from that approach..

Brent Maas: Certainly the opportunity to meaningfully contribute to something new or to elevate an existing program is a very rewarding kind of experience.

Edmund Zagorin: Absolutely. I just looked at the time and realize that I want to try and stop close to the top of the hour here. To close out, I had two quick questions which are more take-aways from this larger picture that we're painting.  So the first question is what is one thing, it could be a device, machine, institution, process, really anything that exists in public procurement today that you think won't exist in 10 years?

Brent Mass: This is making my brain spin because, particularly in the public sector, the less well off agencies will hang on longer to legacy everything than would a bolder and well-funded and well-managed agency.  We know demographically there is a higher percentage of college grads than was 30 years ago anyway, look forward 10 years, the number of college grads in management roles will probably be a bit greater than it is today.  There are a number of things I wish would go away, in some manner. What should go away is making decisions in a vacuum - I think there’s no reason that any acquisition decision should be made without having ready access to comparative price data, at a minimum.  There is just so much latent data and should be sufficient to provide an expansive resource to make comparisons. The challenge is to bring together that data from the myriad of disconnected sources and being able to make that data available to whomever might be interested.  I think acquisition decision-making will be gone - people will set parameters but computation will do much of the rest. Anyone who continues to do that will be because they have stuck their head in the sand and refuse to pull it out.

Edmund Zagorin: To me, it seems almost counterintuitive to me that everyone doesn't already have access to at least some form of benchmark for that, but I hear you on that. Procurement that doesn't beat the market, at a minimum, I think will start to receive more scrutiny, especially in the context where it seems like there's an unfulfilled mandate for free and fair competition.  

Brent Mass: I’m speaking about making purchasing decisions with comparative data, whether you are "in procurement" or not.  Anybody might engage in the activity, specifically authorized or not. Overall I think people want to make more informed buying decisions, and I think that will involve a lot of changes.

Edmund Zagorin: Last question here - If you were to make a two or three point checklist for any procurement leader of things to make sure that you're either doing over the next couple of years or are doing regularly, what's on that checklist for you? It could be anything from a type of meeting or a type of administrative procedure to looking at a particular category. In other words, where are some low hanging fruit that you think potentially are no-brainers across some of the portfolio of change management initiatives?

Brent Mass: It really comes down to data.  What am I doing to aggregate the data to be most helpful for me to be able to assess performance. Outcome, as it relates to performance outcomes, as well as procurement specific, what is that data and how can I go about getting it?  And in particular, what I have in mind contextually, is that, at minimum, you should work regionally, whether that’s through local government or if you have to do direct outreach, work with multiple agencies share the data and extract from that data what would be most informative to you in helping your agency.  It’s about data analytics. Number two - How are you aligning your activities with the goals of the organization? Are you talking with your people about that regularly? Do they understand how what they do aligns with what you are trying to do? Number three - What are the ideal activities or things that “if only we could do” this would help us be closer to meeting those goals?

Edmund Zagorin: That last point was particularly helpful - asking: what if. Taking initiatives to look outside your department, lift your head up and see the bigger picture.  Incitements to do that are, in 2018, much needed and as we look towards the future, there's going to be more opportunities for folks who get good at doing that regularly and build a culture that honors and rewards seeing that bigger picture. So I want to just say a big thank you from the team at Bid Ops for your time today.  It's been a pleasure as always, getting to chat.