The Next Big Thing

The future of procurement has arrived, and it’s all about innovation and results

Cost savings. Process efficiencies. They’re synonymous with procurement and among the terms most used to describe its role within the enterprise. And with good reason. Over the last decade, procurement transformed itself from a backroom function to a strategic capability by delivering them. But a new term entered the lexicon: innovation.

There’s no doubt that procurement today is a different game. It’s more connected and informed, and some may even say more social than ever. Just as consumers tap into personal networks to learn, share and shop better, procurement is beginning to tap into the intelligence from business networks to drive new levels of collaboration and insight.

“A paradigm shift in the way trading partners communicate, transact and collaborate is under way, and business networks are at the core of this shift,” says Andrew Bartolini, chief research officer, Ardent Partners.

According to “Selecting the Right Network: Collaboration and Networks for a New Economy,” a recent study conducted by Bartolini, 85 percent of enterprises use business networks to support purchase orders, 76 percent to manage invoices and 79 percent to handle payments. And Bartolini predicts these numbers are going to continue to grow.

“In today’s business climate, a clear plan that includes more collaboration, better technology, and superior communication and connectivity is what is needed to succeed,” he says. “Business networks continue to play an important role in driving this.”

In their initial phase, business networks were all about connecting companies more efficiently to perform a discreet process, such as buying, selling and invoicing. Today’s networks are smarter, faster and more global than ever. And companies are harnessing the connectivity and insights they provide not only to optimize these processes, but to also enable new ones that drive innovation and value across the entire enterprise.

Processes like dynamic discounting allow companies to secure discounts that can be reinvested in research and development and funding to expand their business. Through contingent workforce management, they can identify and manage highly specialized resources needed to develop that next-generation product.

Social tools much like those used to manage our personal lives infiltrated the enterprise, and this, too, is changing procurement. Case in point: There are officially more mobile devices than people in the world. More than a billion of us participate in social networks. Over 15 billion web-enabled devices connect us to the people and information we need to manage our daily lives. And data is exploding—doubling about every 18 months.

“We are mobile, and apps on our phones and tablets give us new ways to discover and collaborate with our peers and trading partners,” says Rachel Spasser, senior vice president and chief marketing officer, Ariba, an SAP company. “Consumers tap into social networks to keep tabs on their relatives and friends, and companies are now leveraging business networks to manage their trading relationships and activities.”

As Spasser points out, we live in an “always on” culture in which everyone is digitally empowered. And while business networks were initially about connecting buyers and sellers, today, they’re all about making them smarter.

Business networks sparked an explosion of a new class of “unstructured” data—texts , tweets, blog posts, web-based videos and other social postings. And it is this data—along with all the interactions, transactions and commentary—that is going to drive the next wave of procurement transformation.

“Traditional structured data, such as information on production, marketing, sales and pricing, human resources (HR), finance, facilities and operations, and transaction-level data from supplier, customer and partner relationships may serve as the foundation for analytic efforts,” says Spasser. “But by combining it with this unstructured information, companies can gain additional insights that enable them to make better business decisions.”

And procurement can lead the way. Leveraging the hundreds of billions of dollars of financial transactions and transactional data, along with relationship history, that resides in business networks, buyers and sellers can make more informed decisions by detecting changes in buying patterns or pricing trends, and provide confidence and qualifying information on a potential, yet unfamiliar, trading partner. And, when combined with community-generated ratings and content, they can glean not only real-time insights, but also recommended strategies for moving their businesses forward.

This is exactly what MSC Industrial Supply Co. is using business networks to do. One of the nation’s largest maintenance, repair and operations (MRO) distributors, MSC signed on to the Ariba Network more than a decade ago, primarily to provide its customers with an accessible and reliable way to identify, order, and receive products quickly and efficiently. In the process, it boosted its sales by more than 100 percent.

Now, CEO Erik Gershwind says that the company is leveraging the intelligence within the community to help fuel innovation across its operations and that of its customers.

“We are experiencing pockets of resurgence in manufacturing in North America driven by a shift in focus from finding the cheapest source of goods to leaning out the supply chain to become more efficient and decrease the time to market,” Gershwind says. “The key to achieving more efficiency and quicker time to market is flexibility and speed on the part of suppliers, and business networks are at the heart of this.” Through the Ariba Network, MSC is able to access detailed customer purchase data. Using this data, he adds, the company was able to make recommendations on how its customers can streamline their operations to achieve these goals.

“We are able to engage our customers in completely new ways through the network and that gives us a significant advantage over our competitors,” Gershwind says.

Like MSC, many companies are beginning to recognize that they can gain new insights by being connected to a community of their partners and peers. And they are using this information to anticipate trends and risks in their supply chain, and adapt their processes to act in ways that create market advantage.

It’s called the predictive business. And while it may sound like a pipe dream, it is fast becoming a reality. Fueled by business networks, innovative procurement organizations around the world are seizing the future and creating advantage they never thought possible.

At pharmaceutical firm Ratiopharm, for instance, breakdowns in its supply chain were often uncovered only after customers complained about overdue orders. To remedy the problem, the company introduced collaboration software that allowed it to detect issues first in weeks, then days, and ultimately, hours. And on-time fulfillment rose from 82 percent to 98 percent.

Plenty of companies remain on the sidelines watching as business networks continue to take hold. But enticed by the outcomes like this, more are going to surely join the game. Led by procurement, they can exploit the insights and intelligence of entire communities to break down the barriers to collaboration. They can forge new ways of operating that drive innovation and competitive advantage. And they can transform business in ways never thought possible.

Companies in this article