Procurement 2.0? Procurement is in beta

It is surprisingly hard to find a concrete definition of what is meant by “Procurement 2.0” but, given that it takes its name from the rise of Web 2.0, we can make some assumptions as to what was meant by the term.

Back in 2008 A.T Kearney’s “Assessment of Excellence in Procurement” Study, highlighted the growth in Web 2.0 based collaboration solution adoption and the trend has continued ever since. The rise of social networking, blogging, social tagging etc. has changed and will continue to change the way businesses and procurement carries out their day to day operations. This is an area I have covered in a previous blog post and is currently seeing an accelerated rate of development. Note for example the move towards more tightly linked P2P systems and the growth of cloud based offerings from the likes of Ariba and Coupa.

There is a real danger here though that Procurement 2.0 is seen as a technological, process and data driven nadir when actually in reality it should be a lot broader than that. Whilst no doubt the advancement and adoption of new web 2.0 solutions and the development of cloud based e-procurement solutions have a massive role to play, there has to be an appetite to look beyond the data / process and to consider advances in, amongst other things; people, technology, risk management, benefits realisation.

Procurement is, and will always be, first and foremost a people business. A function that rests solely on process will have fruitless relationships with their supply chain and no hope of developing their position as the customer of choice. Moreover a core skill of a procurement manager involves the ability to handle internal customers which involves subtle engagement and time. I would have thought it is exceptionally tempting to run functions such as procurement as lean as possible but, in a slight paradox, it would seem that as companies become more technologically driven and layered in their approach good people matter more than ever.  If these people can’t be recruited directly then consider working with a 3^rd party who is able to bring in such expertise…process and technology can only go so far.

Procurement is in a state of change however I’m not sure the 2.0 label is one that sits well. Technological and data driven change will continue at a pace for the foreseeable future but 2.0 mustn’t be seen as a surrogate offering to traditional procurement. A good, flexible process harnessed with talented people should be the base from which to deliver a true strategic sourcing solution.

PwC recently released an excellent piece related to all things digital called “the world is in beta” (https://www.youtube.com/watch?v=Fh3SSCK2rtE) and I think the tagline is one that fits here. Procurement isn’t moving towards 2.0, it is instead in beta.

The development of cryptocurrencies

Over the last few years it has been hard to escape news of the development of cryptocurrencies such as Bitcoin and Litecoin. Cryptocurrencies can be seen as one of the most disruptive trends in the world of payments and, according to Goldman Sachs at least, will help shape the future of finance.

What is a cryptocurrency? Cryptocurrencies (or digital currencies as they are also known) are essentially secured peer to peer currency and transaction networks but, unlike a traditional system, are decentralised. Their creation is not controlled by central banks and this allows direct payment to be made between payer and payee without an intermediary bank. “Money”, both physical and electronic, has to serve three main purposes to society.

• A store of value – The ability to buy goods or services with the currency at a future date
• A medium of exchange – with which to make payment
• A unit of account – to measure the value of an item for sale

In general, cryptocurrencies are designed to have a limited supply in order to keep the currency scarce and valuable but it is debatable as to the extent to which they currently satisfy all three of these points.  What isn’t in doubt though is that they have become more popular over recent years and with further proliferation of platforms and coverage their rise will probably endure. This is evidenced by the fact that Bitcoin recently took centre stage at Sibos, a traditional banking conference, and prominent articles on the subject from institutions such as the Bank of England.

So what are they benefits of using cryptocurrencies as opposed to traditional forms of money?

Well the obvious one would be low transaction fees. The money has to be “mined”, which does come with a fee, but the cost is still small in comparison with sending money through the banking system, especially when it involves sending money overseas. Tied to this cryptocurrencies also come with an element of freedom in that they allow you to send and receive money anywhere in the world at any time without the usual limitations (bank holidays for example).

They are also secure, hiding any personal information which protects the vendor and allows for an element of control not generally seen with traditional currencies. No extra fees can be charged for example without agreement with the consumer first. Taking this a step further it is possible to assign rules to the transaction such as the agreement of payment terms through a supply chain or the ability to spend money in the local area, which allow for a sphere of control not currently easily achieved. 

There are of course disadvantages to using cryptocurrencies as well, the main one being there is still a lack of awareness of them and how they may be used. Some businesses are adopting them (63,000 according to Informilo) but the list is still relatively small and it will take some time before adoption is widespread. Cryptocurrencies are also more inherently volatile than traditional currencies, which doesn’t help with their standing as either a “unit of account” or as a “store of value”. Over time this should settle down but price rises and falls of 20% in a day are not unheard of.

Cryptocurrencies are still developing and with that will come a sense of legitimacy. Previous exploitation, in the early days, from drug dealers and money launderers disguise the fact that any financial system can be abused. The fact that they are now being adopted to manage B2B transactions, albeit on a small scale, should be a guiding stick towards future acceptance. There are hurdles to overcome, such as establishing rules and regulations but the ability to transact openly and without burdensome cost implications has massive advantages and procurement teams would be wise to understand them before they miss the boat.

Adopting and applying a sustainable procurement approach

As we have already established there are substantial commercial benefits to be had from implementing a sustainable procurement approach as opposed to simply paying it lip service. How though would an organisation go about adopting and embedding sustainability into their day to day operations?

I think there are six simple steps a procurement organisation can follow to ensure sustainable sourcing becomes a core element of the purchasing process.

·         People

As with all change programs it is imperative that everyone’s role is totally clear and preferably that there is a singular point of contact, a “Sustainable Procurement Champion” if you will, who has the support and buy in from the senior management team and is on point to provide updates of progress, both internally and externally. Given the complexity associated with the topic Procurement will also require the appropriate level of training in sustainable procurement best practices and, to help steer everything in the right direction, be provided with clear goals and objectives for which they hold ultimate accountability.

·         A business case

Clear objectives as well as the stakeholder community and overall benefits need to be documented to provide a framework to the overall program. Ensuring that everyone is bought in to the overall goals of the project will give Procurement a mandate to help develop the overall policy, strategy, action plans and any projects that will ultimately fall under the sustainable procurement umbrella.

·         Policy, Strategy and Communication

Any objectives agreed should be embedded within every procurement strategy and policy developed by an organisation. This overall policy must be mandated by senior stakeholders and ultimately must be cascaded throughout the organisation and to the supply chain. The sustainable policy, which must interlink with the overall strategic plan, should ideally be endorsed by a 3^rd party and be reviewed on a regular basis to ensure that it is a) relevant and b) achievable.

·         Process

Everyone’s most exciting topic but it is imperative that processes are developed to ensure that sustainability is considered at all times when sourcing goods or services. As I mentioned previously the topic of sustainability is a large one but as a few examples such processes may consider the identification and reduction of supply chain risk, the material make up of products or whether a supplier can indeed support the contract for its life.

·         Suppliers

It is vital that the supply chain, through a mixture of supplier performance and relationship management, are bought in to the overall approach. Engaging them may result in sustainability targets being set for the provision of goods or services (carbon reduction, supply chain risk management, accreditation etc.) and these targets being managed through a series of KPI’s. The supply chain can also be a vital source of innovation in this area which can be used to accelerate the delivery of your own objectives or indeed other suppliers if a collaborative supplier management model is in place.

·         Benefits Realisation

At the start of the process it was important to set out a business case for sustainable procurement. It is just as important that there are various touch points at which you look to validate the benefits that have been achieved as well as identify and implement any other changes which may have a positive effect on sustainable procurement. This may involve reporting against the original goals or metrics, benchmarking against other organisations or identifying actions from feedback to improve the process.

Sustainable procurement isn’t easy and takes an enormous amount of time and effort to achieve but by identifying clear goals and objectives and by ensuring there is a high level of internal and external engagement there are extensive advantages to be had.