Supplier Utopia

Nearly five hundred years ago, Sir Thomas More wrote one of the most influential books of the modern era, Utopia. In fact, More coined the term “utopia” by designating it the name of an island where everything was just about perfect. According to Wikipedia, it was a world where “the evils of society, (e.g., poverty and misery), are all removed. It has few laws, no lawyers and rarely sends its citizens to war … the society encourages tolerance of all religions.” Yes, you read that line about attorneys correctly. Even five hundred years ago, lawyers were universally scorned and mocked by much of society, and a world without them was considered a dream. But the purpose of this story is not to make fun of lawyers, but rather to extend Thomas More’s vision to supplier utopia. Indeed, if the function of procurement and supply management existed on his fictional island, what would it have looked liked?

Parts of this question are easy to answer. For one, suppliers would never go out of business (or if they did, you’d have adequate warning), they would drive innovation for their customers, they would always meet their on-time delivery and performance requirements, and they’d offer their most competitive pricing from the get-go (and invoice at contracted levels). Reading this, you might suggest that it sounds like a dream world. And it is, of course. But what would some of the enablers look like to achieve this supply management nirvana?

Based on our observations on what world-class procurement organizations do differently, we’d argue that content and visibility—not just spend visibility, but the broader concept of visibility into all spend and supplier related information—would be front and center. Consider the following type of future scenario and you’ll see why insight is the key to utopian procurement:

A supply manager comes to work every day without knowing necessarily exactly what she’ll be tasked to do. Her supplier management cockpit—which most likely involves different computing devices including a cell phone and some type of desktop computing interface—notifies her by exception what she needs to focus her activities on. Because of this, she’s most likely managing 4x to 5x the level of spend as her predecessors in the decades past. But she’s not necessarily working harder. The intersection of technology, internal supplier and spend information and outside content give her the power to do more on a daily basis. For example, when it comes to supplier performance and risk, she has access to an automated early warning system based about her facilities own reporting data (e.g., quality, on-time performance, scorecarding) as well as information that third party sources aggregate for her, from other companies who agree to share information in the aggregate as well as ratings authorities (e.g., Morningstar for suppliers).

Rather than manually check to see how individual suppliers are performing, the system works like an early warning system on a commercial aircraft that can detect impending obstacles and collisions before they occur. This system might also recommend new suppliers based upon corporate goals and objectives (e.g., diversity) as well as current supply markets information. Perhaps the cost of a particular commodity or labor is rising in one country in disproportion to another—the system might very well suggest shifting spend to another supplier in the network to reduce the dependence on the other. Or it might automatically hedge a global sourcing decision through automated financial options that lock-in downside risk for currency, commodities and even risk itself (through new insurance-driven instruments).

In this utopian world the need for core platform technology will never go away. But IT’s favorite ERP vendors—not to mention IT itself—will begin to look more like physical infrastructure providers such as Ma Bell, the electric company, trash removal, a rapid transportation system, etc. In other words, they will be essential to keep the proverbial lights-on; but outside of the back-office, they’ll do little to provider competitive advantage or differentiation for companies.

Coming up with scenarios for supplier utopia is easy. But making them a reality is not. In the coming months at CVM Solutions, we look forward to exploring this issue further, digging deeper into the types of technology and insight that will be necessary for all of us to get closer to Sir Thomas More’s vision.