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Characterizing a supply chain as linear no longer captures the complexity of the relationships between a business and their suppliers. An ecosystem, with many interconnected points of activity, is a much better description, because it recognizes the network effect we often see as well as the diversity of the players in that network.
In order to compete sustainably, companies need to partner with suppliers and service providers that are both large and small, established and emerging, local and global. And while being exposed to a diverse collection of potential supply partners creates huge opportunities for innovation, differentiation and competitive advantage, it must alter how each company manages its spend and third party relationships.
An ecosystem approach has the power to transform the typical enterprise supply base. Such a transformation has implications for innovative potential and risk, but it also shines a light on the responsibilities an enterprise has towards its smaller suppliers.
Is it possible for larger companies to benefit from the disruptive potential of smaller partners while also meeting the investment and growth needs of those suppliers? In other words, is it possible for everyone to win?
Not only is it possible for everyone to win, it is a necessity. Everyone in the network has to benefit from their participation in a supply ecosystem for it to work.
Fueling the Supply Ecosystem with Data
An ecosystem approach elevates procurement’s requirements of their data and systems because they must seamlessly support efforts to comprehensively manage and mine all vendor-related spend. This means that all data from all third parties created by all functional perspectives and uses has to be centralized. Full technology enablement is the only way to ensure full spend intelligence conservation as well as actionability.
Enterprises need to take a ‘closed loop’ approach to gathering and managing data. They need a platform that can prevent the loss of knowledge and context while also meeting their need for speed and flexibility. In other words, enterprises are no longer dependent on monolithic systems. Effective technology needs to provide scale and support agility.
Network ecosystems include third party service integrations and supplier networks. By enriching data through AI and machine learning, the supply ecosystem is enriched or infused with valuable intelligence. Data is the fuel that technology runs on. Massive and refined, data feeds intelligence by aggregating trends across suppliers, categories and industries. It is an unmatched source of ideas and strategy.
Procurement’s Role in the Ecosystem
Today, the majority of procurement professionals are focused on sourcing rather than buying. Buying is being pushed out to distributed buyers via technology. As a result, procurement’s job needs to be less about managing the technology itself and more about providing user or category specific support: guided buying catalogs, travel management and contingent workforce access. By meeting these needs through technology, procurement has the opportunity to build compliance and policy into the buying experience.
Just as there are multiple types of spend that need to be supported, procurement has multiple stakeholder groups inside and outside of the company. They are among the groups that need to ‘win’ for the ecosystem to be considered a success.
Internal users must find it easier to fulfill their own demand.
Bad buying habits result when people cannot easily access the things they need because their choices are too limited. Procurement needs to understand the drive behind their demand and also communicate business parameters. Procurement should strive to make the buying sandbox as big as possible but govern it with simple, clearly stated rules.
Suppliers have to view the end to end experience as win/win.
By providing increased visibility and eliminating the black box of traditional payment, procurement technology should allow for easier back and forth with suppliers. Cash flow is important, as are payments and convenient in-system approvals. Early pay discounting for suppliers has the net effective of making their business stickier throughout the ecosystem, an additional benefit for companies of all sizes.
Ecosystems Reduce the Risks of the Past
Spend management can not be considered comprehensive unless it addresses services spend and contingent workforce as well as product and materials spend. According to services procurement research led by Oxford Economics, 42% of the typical company’s workforce is now external, meaning that talent and personnel management are no longer the exclusive domain of human resources. Procurement can only claim to have provided full ‘delivery’ in the case of services demand when a person is put in the right place at the right time with the right skills for the right price.
Another past risk that can be addressed through an ecosystem approach is supplier over-consolidation. Technology is able to manage as many suppliers as a company has, but the question remains: how many is too many? Procurement should not always assume that a large number of suppliers indicates a problem. Looking at supplier fragmentation by category, or considering the business drivers behind the size of the supply base makes it possible to have the right number of suppliers and also to provide those suppliers with the relationship they need in order to succeed.
Business ecosystems can help transform a business:
- Innovation in the ecosystem delivers lasting benefits.
- Increased buyer-supplier synergy naturally creates more value.
- Larger customers need to make it easier for smaller suppliers to engage with them.
Despite the scale and complexity of the task faced by ecosystem platforms, simplicity is the key. It must be easy for users to navigate within the system. Internal stakeholder have to be able to easily meet their needs. Suppliers must find it easy to be discovered, bid on opportunities and track the status of contracts and payments.
The true value of an ecosystem is that it makes it possible to transact business quickly and easily so that everyone can win.