Long tail strategy is also about corporate responsibility, the SME agenda, supply chain risk and social value.
Jonjo Hobbs, Managing Director of Capita Procurement Solutions, was interviewed by Procurement Trailblazers about the core priorities for procurement teams today, including the rise of AI, the approach to buying software tools and how procurement can drive social value.
What are you seeing in the market as the top priority goals for procurement teams at the moment?
The core priorities and focus that that we are seeing for procurement teams currently are; supply chain risk, good data and forecasting and spending carefully – these are probably pretty common for most companies at the moment. So we’ve worked with a number of our clients on these, helping them understand themselves, data, their commercial terms, ensuring contracts with the right suppliers, contract databases etc, and delivering savings.
We are seeing many companies assessing their technology landscape so I think in the next two years many organisations are going to question whether they’re getting the best from their technology, recognising that the right platform can mitigate a good deal of the challenges that have been faced recently due to Covid-19, so there’s probably going to be a renewed push for investment in technology.
Given Covid-19’s impact on supply chains, what steps are you seeing your clients/the industry taking to adjust their procurement strategy?
Supply chain risk; Covid-19 has raised visibility to a wider community within our clients of their sensitivity to their supply base, particularly the quantity of suppliers clients have. We had clients whose finance departments understood this when they tried to collaborate with their supplier community on a multitude of issues due to Covid-19. They realised just how big their supplier base was, how fragmented with disparate commercial terms and were looking for a solution to manage that. The other big change was being able to support businesses to work remotely - there was a focus on continuity of service and helping clients go from thousands of people in offices to a completely remote workforce.
When we think about technology within procurement, it’s about improving what is already there - like adding app-based (or cloud-based), easy-to-access, system interfaces. Procurement has long had access to a technology backbone. It’s just not always been used or optimised. Fundamentally the ability to access technology which enables businesses to operate is going to be a focus because it's now seen as a big risk area.
We’re also seeing that AI (artificial intelligence) is coming to the fore in the purchase-to-pay cycle - for example in the interface between stock management in a warehouse all the way through to automated ordering to a pre-defined stock level that effectively handles almost all elements of the contracting and commercial processes that enable that to happen. Those are going to be quite dynamic changes for our industry - it's exciting, and it is going to be quite interesting to watch.
What are the different attitudes to long-tail suppliers you are seeing?
Long tail strategy is not just about savings and efficiency, it’s also about corporate responsibility, the SME agenda (a requirement to have a certain number of small vendors), as well as social value. Overlay those considerations onto the challenge of having 10-15k suppliers, and it becomes increasingly complex. We are seeing more segmentation of purchasing activity, where you have to consider which elements of your buying can be done on a local or a global basis and whether that’s with the SME pool or larger partners.
With our manufacturing clients, if they have multiple manufacturing plants around the globe, they can’t have a single provider for all of those locations. The alternative supply chain has to be able to service them on a local basis in order to deal with issues like we have at the moment with Covid-19 and Brexit. So what we’re seeing there is component-based alternative supply chains or a change in the profile of what percentage of supply the suppliers are getting as part of a more segmented de-risked buying strategy.
Within the long tail we also see a desire amongst our clients to consolidate. In categories like marketing or facilities management there is often a huge proliferation of suppliers that doesn’t necessarily make sense. We are seeing clients continue to try to consolidate suppliers in those areas.
Servicing the tail is quite different - for example, if there isn’t the same office presence, I think the throughput for the tail might reduce. However, I think single provider or one-stop purchasing solutions for the tail, e.g. the likes of Amazon for Business, are going to see a step-up in the next few years as well. We are seeing a desire for a ‘nice black box’ that deals with long tail purchasing. We’re also seeing companies looking at handing off the commercial ownership of the tail activity (goods) - they want a provider to own it, transact it, stock it and to pay them when they need it. But, for the provider, doing that is very complicated so it remains to be seen whether this shift in commercial model will really happen.
You’ve mentioned in the past that “technology will see a rapid evolution in the next 10 years.” How do you think this evolution will look?
I think many procurement processes will benefit from AI - some are concerned this will change the job and the experience, but I don’t think that’s the case. I think it will mean an individual will be able to focus on higher value activity rather than handle-turning. AI isn’t just relevant in procurement, it will be able to support processes, such as customer contract management, which is at the forefront of that interface between client and supplier.
Technology will also be able to impact buying - automated processes can target commoditised product procurement which comes with a specification, although the system does still need some decision-making to come from a human, such as what stock levels you need, what the patterns are around a calendar year, do you slow down in summer, are you a seasonal business, and so on.
But if you move to the services side, it’s hard for AI to define the specification or output. Take implementation of systems, for example. There’s a vast breadth of company departments that need to be involved in implementing a P2P system - analytics, procurement, finance and IT departments as well as the user community and wider business as well - all requiring human inputs. So in the short term I’m not sure AI will be able to handle the services side as effectively as people would like.
There’s a proliferation of start-ups in procurement technology and it’s pretty difficult to see who the winners will be in the various areas. Clients looking to track ESG; components such as modern slavery, environmental, cyber, GDPR etc creates many opportunities but the simple solutions are not there yet. There will be someone who finds a way to approach this and it’s going to be interesting to watch who breaks out as a leader.
What are the key ways you see to add social value within procurement as a function, and how does digitisation play a role in facilitating it?
There have already been - particularly amongst local government and authorities - socially aware procurement strategies. Ten years ago or more I remember having discussions with a local authority on a ‘spend it locally’ agenda where they wanted to make sure where they spent their money was benefiting the local community. That’s a social value programme aligned with the SME agenda.
What’s happening at the moment is that everything is coming together - environmental, diversity and inclusion, regeneration etc - as one coordinated effort. Procurement is a huge part of that effort, as it needs to be. Focusing on the sort of provider that you are collaborating with, and ensuring they stand for the social values your enterprise has, is vital. Many companies haven’t defined their social value agenda and priorities, and we are supporting some clients to understand what they can and can’t optimise within the social value conditions they have.
We’ve been incredibly lucky to have two phenomenal people through the Kickstart scheme for getting young people into work, and they have been fantastic. It’s a real positive to be able to get people back to work in what has been a very challenging environment.
From an environmental point of view, we’re seeing quite a lot of fleet activity that deals with some of the carbon challenges some companies have, such as carbon offsetting, migration to electricity or looming conversations around hybrid vehicles, all exciting discussions about environmental progress. And of course, it is incredibly important to ensure that the employees and suppliers you have represent the communities we live in. We are working on all of these things actively. I don’t think any company is perfect, but we are moving towards being far better at all of those things.
What are the core priorities for procurement teams today? And what role will technology and social value play in the new approach to buying?
Read Procurement Trailblazers’ interview with Jonjo Hobbs, Managing Director of Capita Procurement Solutions, where he takes a look at what lies ahead for procurement, including:
- long tail strategy and the part it plays not just in terms of efficiency, but also corporate responsibility, the SME agenda and social value
- the role of artificial intelligence (AI) in procurement processes to free people to focus on higher value activity
- the importance of considering whether providers have the same values as you to support your social value agenda
- flexing procurement to ensure your employees and suppliers represent the communities we live in
Read the full interview with Procurement Trailblazers