Supply chain management within the financial sector: A ... · Leading global excellence in procurement and supply Everything starts with an E! The procurement world is automated -

Leading global excellence in procurement and supply

Supply chain management within the financial sector:

A Vision for the future

© Gerard Chick CIPS 2012


Back-casting as visioning… Forecasting as visioning… Or…

“The only way to predict the future is by helping to shape it.”


How do people vision change?


The 4 steps of visual thinking

What is out there? What am I looking at? What are the limits? Which way is up?

What do I see? Have I seen this before? What patterns emerge? What stands out? What seems to be missing?

How can I manipulate these patterns? Can I fill the gaps? Have I seen enough – or do I need to go back and look at more?

This is what I saw and this is what I think it means? Is this what I expected… or not? When you look at this, do you see the same things?

Adapted from Dan Roam The Back of a Napkin 2008



Let’s think about what we need to take into account …

From global trends to corporate strategy



Trend Potential for Impact

Increasing focus on impacts of Corporate Social Responsibility

Corporate Social Responsibility will grow in importance for all

organisations. Changes in demographics and global consumption

patterns will impact the triple bottom line and have significant impact

on green, social and financial strategies

Burgeoning Technological advances Technological innovations will continue to grow and at an ever

quickening rate impacting all that we do in society and business

Global geo-political and macro-economic change There has already been a shift in global markets. These market changes

alter demand and consumption which in turn creates increased pressure

on the availability of raw materials and other resources

Changing Demographics Changes in demographics – be they declining birth rates, aging

populations or migration patterns they will have high level impact on

the availability of skilled and/or affordable labour

Shift in the Economic centre of gravity Demand in the mature markets in the developed economies of the

world is slowing down whilst in developing markets and economies it is

quickening pace and strong growth is being created

5 key global trends: how much does this stuff matter?



So what are we looking at, what do we need to think about what do you need to take into account?


Leading global excellence in procurement and supply © Gerard Chick CIPS 2012

Business and Procurement have changed enormously in the last 30 years - Supply Chain Management, unheard of in the 1970s, core to today’s organisation; as a

concept it was born at the beginning of the 1980s. So why is that… well predominantly due to the rise of professional managers (from the 1960s on) and the focus on annularity as a consequence of the principle of Shareholder Value Maximisation in the 1980s Looking back the trends this created are easy to spot:

•The 1980s was about the demands of just-in-time

•The 1990s it was all about outsourcing and offshoring

•The 2000s it was the emergence of IT solutions •The 2010s thus far has been all about risk – which was built in the previous 3 decades

But what we really need to focus on for the future is the sustainability of the business - 100 cents in every € and this is a very inefficient way of working… something has to change!


Let’s do some thinking:

How might the Purchasing & Supply Management function evolve/devolve? Will a new Supply Management emerge? How might Supply Professional skill sets change/develop? What kind of business intelligence will we need in the future- what might it look like? How might we work with the supply base in the future – who calls the shots? Will risk management become everybody’s business?


How do these changes impact P&SM?


Spend management shrinks - as the strategic impact of procurement really comes to the fore, organisations will still care about managing their spending , they just won’t have large, discrete, enterprise-level organisations dedicated to doing it.

Profits replace cost savings - today’s focus on cost savings (the “goalkeeper” mind-set) will give way to a broader, more balanced emphasis on profitability, leaving open the question as to whether supply management concentrates on cost savings or revenue growth to get there (the doer –v- enabler argument).

Budget fuss fizzles out - there is plenty of effort today around trying to drive sourcing cost savings into budgets. But that is also a function of having discrete enterprise spend management organisations and heavy emphasis on cost savings; I predict that both will go as they are not enablers.

Good bye to the sourcing geeks - maybe they are valued highly in today’s marketplace, people who excel at (sourcing) processes or at being big time users of procurement and sourcing automation technologies – the “doers” will find themselves working for third-party services firms — or not at all! The enablers, value-adders will rule!

SBUs absorb procurement - will the future bring a loose network or a tight function? One of supplier-facing professionals embedded into strategic business lines, communities, and processes wherever needed, constantly moving and reinventing their roles as needs shift.

The Procurement Function evolves



Outsourcing explodes - many current procurement and sourcing activities — the ones that do not get redistributed to internal end users of goods and services — will be outsourced by the end of the decade.

Service providers call the shots - with fast-growing demand for procurement outsourcing, both the quantity and quality of third-party procurement services will increase dramatically; their performance in many spend categories will surpass what can be achieved in house.

Strategy scope widens - much has been achieved in the past several decades to transform procurement from tactical to strategic. But the idea of ‘strategic’ remains hemmed inside the function, the process, or the spend category. With a cultured understanding of the (strategic) value-adding capability of procurement - the meaning of strategic gets much bigger.

Procurement gets financial - we will continue our focus on physical supply chains, but procurement will also become more strongly linked to financial supply chains, optimising cash flow and working capital, implementing dynamic discounting and supply chain financing.

A New Supply Management emerges



Prices go transparent - market pricing for goods and services will become so transparent — due to e-sourcing, global trading networks, online communities, and procurement's intrepid scrutiny into still-cloaked categories — that negotiation might well become a lost art.

Risk information catches up - as the general awakening around supply-related risk comes into sharper focus we will see consensus develop around how to measure risk, as well as more standardised, more readily available third-party information and networked communities where people pool data for operational risk assessment.

Data predicting the future - procurement has spent the last decade looking backward— at money spent last year, supplier performance in the past week, month or quarter. The coming decade will bring information and models that look forward.

Procurement intelligence moves into context - full visibility regarding spend, risk, performance — will be available by the end of this decade. Ready access to accurate, timely, structured internal and external business intelligence will create unprecedented abilities to synthesize information in support of decision making.


Instantaneous business intelligence arrives


Innovation from the supply base - since the 1990s the move from closed to open innovation models has facilitated innovation-oriented cost saving strategies. This decade will see a major emphasis on driving and taking innovation from the supply base. However, the supply role will be less ‘person-who-brings-innovation-in’ and more ‘person-who-assembles-innovation-communities-and-gets-out-of-the-way’.

The dawn of the extended enterprise - manufacturing has been on a ‘buy-more, make-less’ path for many years – creating what is known as shallow depth of manufacture ; the manufacturers intend to stay there, while services organisations will join the outsourcing fray. The expanding trend to extended enterprises promises exciting times for supply professional in the very near future.

Goodbye products, hello solutions - suppliers in this decade will continue to take on bigger chunks of things they already do for their customers. Think of it as ‘turbo-charged integrated supply’ where suppliers step out of their comfort zones to drive customer performance.

Early is the new black - timing of customer-supplier collaboration will shift this decade; today, suppliers may be asked to contribute ideas to existing designs or to help fix existing processes. In the next ten years they will be more consistently in on the ground floor.


Collaboration - The “new normal”


Buyer-seller lines blur - supply management professionals will look to extract more value from suppliers in 2020. But it won't always be about improving processes. Rather, it will be about leveraging supplier resources and integrating supplier functions 1-to-1 with their own.

It’s all about networks - instead of enterprises charting their own courses in innovation, a transition from ‘buyers and suppliers’ to ‘integrated supplier networks’ will enable greater coordination of innovation roadmaps across connected businesses and industries.

Suppliers gain power - the growth of outsourcing, tighter integration, and heavier reliance upon supplier’s means that they are gaining more leverage in buyer-supplier relationships. Instead of them selling to you, it may be you selling to them - procurement has a new challenge… to remain attractive to key suppliers.

Organisations share risks and rewards - as supply management professionals get better at segmenting, defining, and measuring value, they will begin to incorporate both gain- and risk-sharing into commercial relationships with suppliers.

Motivational contracting - as well as sharing risks and rewards in contracts, supply management professionals will accept greater risk in commercial relationships with critical suppliers by leaving out all the classic kinds of legal protections that might de-motivate suppliers.


Collaboration - The “new normal” (cont.)


Everything starts with an E! The procurement world is automated - (P2P), sourcing, contract management and other automation engines will be de rigueur by the end of the decade; they will be integrated up and down supply chains, fully adopted, providing full transparency and real-time insight.

Work goes mobile - smart phones, tablets, embedded chips, and other not-yet-imagined devices will create a massively mobile work environment for procurement professionals and suppliers alike. We are seeing it now; it will only get bigger and faster.

Communities collaborate - Richard Lamming’s world of the dog, the black box and the caretaker comes of age! Buyers and sellers will increasingly rely upon digital trading networks and communities that allow them to quickly and easily discover each other, connect, and collaborate.

Goal poachers rule! - the last 10 -15 years have seen intense inward cost focus it’s been all about saving; procurement as the eponymous “goalkeeper”. The coming 10 years will see attention turn to growth via digitally connected networks that empower supply management professionals to discover, qualify, connect, and collaborate with suppliers, peers and partners.

It’s all about complexity- as emerging economies place successful, fast-growing, and culturally different companies onto the global playing field in the coming decade, the process of selecting suppliers will carry more risk, more complexity, and become more fluid.

Everybody wakes up to supply risk – converging trends will make supply relationships even riskier as the decade progresses than they are today - big increases in companies’ awareness around supply risk and also an expansion in their perceptions of where risk lies.

Risk Management is everybody’s business



Procurement professionals get savvy - professional; polished; intelligent; respected; influential; persuasive; visionary; strategic; sharp; global; collaborative; executive and business savvy. All are terms used by those we spoke to in our “7 Habits” research and they are what procurement and business leaders will expect of the future supply professional.

A new definition of ‘expert’ - a significant characteristic of the new supply professional is the extent and depth of his or her knowledge; they will become “students of their industry”. They will know everything, from the science, economics, law and politics of their supply markets on a global scale.

Talent competition heats up - there is considerable opinion regarding the talent pipeline. Is it too sparsely populated to meet the demand for strategic supplier-facing professionals that will develop this decade? The outcome will be intense competition to attract the best and brightest but on their terms.


Supply Professional Skill Sets must change


Value Proposition Role of Supply Management In

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… and at the right price and quality; Purchase Cost Reduction

Negotiations

Total Cost of Ownership Reduction

… and by reducing total supply costs. Cost modelling; supplier/market analysis; supplier management; SRM; supply planning; project management; risk management.

Achieving

Supply Assurance

Site-level tactical sourcing, ordering and expediting

Right stuff, right place, right time; Lagging

Demand Management

Reduction of unneeded demand activity, complexity, immediacy and variability;

Customer relationship management; money management; demand/specification influence Exceeding

… ultimately stimulating good demand and increasing business value derived from spend (and supply markets) rather than simply reducing spend magnitude.

Value Management

Safely harnessing the power of supply markets for competitive advantage Leading

Procurement’s accepted role

Value Add Procurement

World Class Procurement

Procurement the journey from “doer” to “enabler”.



The trinity - Aspiration, Capability and Execution

Capability : How good are the people and processes you have today what do you need to bring about change?

Execution : What performance level is required for efficiency and effectiveness?

Aspiration : What do you want Supply Side Management to be?

Implementing Change

Readiness for

Change

Planning

Leadership & Direction

Processes

Organisation & Resources

Behaviours

Systems & Controls

Need for Change

External/internal drivers of change

Planning

Leadership & Direction

Processes

Organisation & Resources

Behaviours

Systems & Controls

Need for Change



Su

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Effort (Investment/Time/Resource)

MATURE SUPPLY CAPABILITY

NEXT GENERATION SUPPLY CAPABILITY

PAST FUTURE

Time discontinuity

Capability discontinuity

How scary/risky is the leap?

This is about embracing change… … the fork in the road!



A self-diagnostic tool: Three Steps to Heaven

2020 Target

Activities

ACE activities What will Heaven

look like?

Measures of

Success

Achiever

Value-Adder

Leader

This simple dashboard can help you map your trajectory in making your organisation fit for the future. Set against where you put your organisation’s procurement maturity on the ladder you should be able to figure out how close you are to procurement heaven


Innovation Debate: we are going to split up into groups and focus on:

One of the 6 thematics which fall out of the global trends;

Use the “three steps to heaven” model to contemplate how you might develop P&SM in your organisation.

What are you going to do next?


Thank you

[email protected]


Documents

Supply chain management within the financial sector: A ... · Leading global excellence in procurement and supply Everything starts with an E! The procurement world is automated -