Going Beyond Best-in-Class: How Procurement can Drive Innovation and Create Strategic Advantage

The practice of striving for and benchmarking against best-in-class (BIC) is increasingly common among business leaders. This is particularly true within the procurement and supply chain functions, where a broad range of metrics are frequently tracked. Higher level metrics include savings achieved and percent of spend managed. More tactical metrics track details such as requisition to order time or invoices per headcount. Analysts publish studies showing laggard, average and BIC results for such metrics and business leaders set targets and associated initiatives to close the gap between current and BIC performance.

Ironically, this approach is leading many organizations into a cul-de-sac of mediocrity rather than excellence. Make no mistake, I highly recommend efforts to quantify and benchmark performance. That is not the issue. However, there are two problems with the BIC approach taken at most organizations.

The first is not a problem with the concept, but in how it has increasingly come to be interpreted. Too many organizations view BIC as a one-size-fits-all approach. This is an indirect result of the shift towards SaaS software, which has played a key role in enabling procurement transformation at many organizations. SaaS offers tremendous benefits, most notably faster time to value, easier upgrades and lower total cost of ownership (TCO).

But the tradeoff most solutions require is a loss of flexibility and too many leaders have come to accept this blindly, at great cost. Companies are stuck within the limited configuration that solutions offer. When requirements are not met being, the only recourse is to pressure the vendor to add their requirements to the roadmap. Vendors naturally build in best practices to their software to minimize the need for customization, and promote this as an advantage with clever marketing. Simply change your processes to fit our software and you will quickly achieve BIC. This is especially appealing to less mature procurement and supply chain organizations as they can quickly make rapid improvements. But once they evolve or the market changes, they find themselves unable to adapt their systems. What seemed like an easy path to success is in reality a dead-end.

The problem is that one size does not fit all when it comes to procurement and supply chain processes. The majority of processes certainly can be standard across organizations, but for the minority of requirements that are truly different, the loss of value can be very significant. And given the highly dynamic market we face today, no one can be sure of tomorrow’s requirements.

For a sense of the unique nature of requirements, compare the speakers at the recent Ivalua NOW conference in New York. Fannie Mae’s CPO spoke about the unique and dynamic regulatory requirements she faces and how she needed flexible processes to quickly assess and address compliance of her suppliers with new regulations. As a high risk target for cyber security threats, Fannie Mae is better positioned to understand new risks than its suppliers so configured its system to allow it to proactively notify suppliers of risks, rather than passively collect information from suppliers as most organizations do.

Contrast this with Meritor’s presentation. As a global automotive supplier, Meritor’s priority is unlocking innovation from its own supply base and the company accomplished this through close collaboration on new product introductions. The Deputy CPO of the City of New York also presented, explaining the need to work across over 200 mayoral and non-mayoral agencies faced with 238 regulatory requirements, many unique to the city.

Each of these organizations is working towards a very different definition of BIC with very different processes. Certainly many are common, but the differences are the secret sauce to their success. Be weary of anyone touting a generic BIC approach to your organization’s procurement and supply chain challenges.

The second problem is more fundamental. The objective of most organizations seems to be to ultimately achieve BIC performance, and therein lies the fatal flaw. Look at it from the context of the recent World Cup tournament (or any other sport championship series for that matter). Every team in the World Cup earned its spot by being the best in their region. Hence, each team can be said to be BIC. Yet only one is the champion and that team doesn’t win by playing at the same level as the others but by playing better, differently. BIC is not a competitive advantage in sports, nor in business. It is a stepping stone on the path to greatness.

Then why, when planning transformation journeys, do company’s set the objective as being BIC? That result is, at best, keeping up with the Jones’. It may work for the few firms that are part of an oligopoly, but in today’s increasingly winner-takes all market, it is a recipe for failure.

If leaders are to build competitive advantage and truly drive strategic value, they have to think beyond BIC and view that as an interim objective on the journey to greatness. Even when taking that step, realize that BIC is not one-size-fits all. Adopt common best practices when relevant to accelerate value. But carefully assess which requirements are truly unique and ensure that software empowers you to meet those and any future requirements.

Then think about what you can do differently and better than BIC competitors. Attracting and retaining talent is regularly highlighted as the top challenge of procurement leaders. What better way to do so than to empower your teams with technology that lets them bring their creative ideas to life?

Meritor presents a great example. In 2014 they launched a 3-year initiative to drive massive value by transforming their supply chain in what can be thought of as a drive to achieve BIC. They then followed that with a new initiative to unlock massive innovation through a unique approach. They had a great team with great ideas. So when deploying software, they took embedded best practices but ensured they had the power to greatly configure once they were ready for that next phase. This empowered them to realize a unique and innovative approach to collaborating on new product introductions.  The result? Their stock price rose from $4.45 to $13.30 at the end of 2016 and is now over $21.

A great example of the importance of going beyond BIC and building a competitive advantage. It certainly is not easy, but in today’s hyper-competitive and dynamic market that is the way leaders must approach driving value. Find great people and empower them not only with tailored best practices, but technology that lets them bring their unique ideas to life. That’s what will ultimately determine whether you simply make the tournament or win it.

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