“Long tail strategy is not just about efficiency, it’s also about corporate responsibility, the SME…

mediumThis post was originally published by Natasha Foster at Medium [AI]

Jonjo Hobbs, Managing Director at Capita Procurement Solutions, on the core priorities for procurement teams today, the rise of AI as a tool for procurement and business operations, the new approach to buying software tools, and how procurement can drive the social value agenda.

In our next Q&A of the series, we talk with Jonjo Hobbs, Managing Director at Capita Procurement Solutions. TL;DR? Scroll to the bottom.

Can you describe for us the role that you and Capita Procurement Solutions play for both Capita as a business and also your clients?

Capita Procurement Solutions is the client-facing procurement consultancy within Capita so we don’t deliver the internal procurement requirements of the business, we do the market-facing activity, as well as supporting — indirectly — those clients who aren’t necessarily directly clients of the consultancy practice. For example, for a partnership deal with local government or a joint venture that we are part of — we would go into those and support the procurement and commercial activity that is required.

What are you seeing in the market as the top priority goals for procurement teams at the moment? Where are they focussing your energies and resources?

Although we are predominantly market-facing, we do also on occasion help the internal procurement team, and I think there is no real difference from what Capita are doing with its own procurement function to what other companies are doing with their procurement function and certainly what we are seeing with our clients.

We saw a number of clients pause a lot of activity as a result of COVID, such as the implementation of procure-to-pay systems which were seen as discretionary and could wait until the uncertainty was over. But the core priorities and focus that remain top of mind for procurement teams — namely, supply chain risk, being aware of your supplier base (who you need to be sensitive towards and collaborate with during difficult times), and spending carefully — have been common across everything. Amongst certain clients there was a pivot to activity which perhaps hadn’t been prioritised before. So we did quite a lot of work with a number of our clients who had been talking for a long time about contracts — do we understand the commercial terms, do we have contracts in place with the right suppliers, are those contracts the right ones — around contract databases and making sure clients were set up better.

I think in the next two years you are going to see a lot happening with technology — a lot of companies are realising that they are not getting the best from the platforms that they have got and that the platforms can mitigate a lot of the challenges that have been faced during COVID, so you are probably going to see a renewed push for investment in technology.

Given COVID’s’s impact on supply chains, what steps are you seeing your clients/the industry taking to adjust their procurement strategy?

One thing COVID has certainly done is put a higher visibility amongst some of our clients around sensitivity to suppliers. For example, the number of suppliers they have. We had certain clients whose finance departments, when they tried to go into the supplier community to collaborate and manage costs because of COVID, had realised just how big their supplier base was. So there is quite a bit of work around the fact the business in practice has too many suppliers and looking for a solution to manage that.

The other big change we saw from COVID was being able to support the business to work remotely. As consultants, we literally had no interruption at all — people either stopped travelling or just took their laptop home, and it was instant — most consultancy firms would say the same thing. But for our clients, that wasn’t the case, so there was a sense of nervousness around how it would actually work to migrate to doing all work from home. As a result there was a lot of focus on continuity of service and helping clients go from thousands of people in offices to a completely remote workforce.

When we’re thinking about technology coming to the forefront as a result of COVID, it’s not just procurement technology. Procurement has long had a technology backbone — the purchase-to-pay cycle has been supported by tech for decades. What’s coming is improvement of those pieces, things like app-based (or cloud-based), easy-to-access, system interfaces. Fundamentally the ability to access, not just in procurement, technology that enables businesses to operate, is going to be a focus because it’s now seen as a big risk area.

We are also seeing that AI (artificial intelligence) is coming to the fore in the purchase-to-pay cycle — we are beginning to see AI being used 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, but it is going to be quite interesting to watch.

Talking of new technology and AI, what do you think of the debate between on the one hand using one system for the whole purchasing process, and on the other hand using different ‘best in breed’ solutions?

That’s an interesting question — I think the market buys slightly differently now. There is more willingness to have an ecosystem that answers all the questions you need, built of many different providers. Excellence in one area is better than a provider theoretically being able to provide an add-on service through a workaround. Companies are more willing to build those best in breed ecosystems, and they should be because there is enough capability out there to do that well.

As for technology, that is going to be a big part of the next five years: companies assessing what they’ve got, how they do things, how they go about servicing their needs and whether their infrastructure is right and suitable for purpose.

What are the different attitudes to long-tail suppliers you are seeing post-COVID?

Long tail strategy is not just about economy or efficiency, it’s also about corporate responsibility and 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.

I think what you will end up with is segmentation of purchasing — you are going to have to consider which elements of your buying can be done on a local or a global basis.

If you think of manufacturing — we have a few manufacturing clients — if you have multiple manufacturing plants around the globe, you can’t have a single provider for all of those locations, your 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. So what we’re seeing is component-based alternative supply chains, or a change in the profile of what percentage of supply suppliers are getting as part of a more segmented 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.

I think servicing the tail is a different one altogether. The tail has fundamentally changed under COVID. For example, if there isn’t the same office presence post-COVID, 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 purchases of stuff — people just want a one-stop solution that deals with it. We are 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 — if you were doing it before COVID, you would have seen tail volumes drop in a lot of categories by 50% so as a provider you would have been really struggling. 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 a lot of the processes that sit within procurement are going to benefit from AI. That’s going to be one of the biggest areas of change. Some people are concerned that AI is going to change the job and the experience, but I don’t think that is necessarily the case. I think that AI will mean that an individual within procurement will be able to focus on higher value activity rather than handle-turning. AI is not just relevant in procurement, it will be able to do lots to support processes, such as customer contract management which is at the forefront of that interface between client and supplier. AI is the one I would be watching.

We can also consider the difference in how technology will impact buying as between services procurement and commoditised product procurement. Automated processes can absolutely target commoditised product procurement which comes with a specification, although the system does still need some decision-making to come from a human brain, 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. A lot of those decisions are largely human-driven and is there a reason the system can’t detect or drive that decision-making.

But if you move to the services side — and most companies exist with a vast amount of services — it is very hard to have AI define the specification or output around services, so you have an awful lot of services that drive a vast amount of value that need to be dealt with manually. Just take implementation of systems for example — there is a vast breadth of departments within a company 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. If you look at the promise of IBM’s Watson contract builder, where you were meant to get 80% of the contract built automatically, it hasn’t taken off as well as expected, and I think that’s a lesson that for services it may take a while for automation to really have an impact.

There is such a proliferation of start-ups in procurement, which is a very saturated space, so it is quite difficult to see who the winner will be. If we consider supply chain risk as a tool, buyers looking to track modern slavery, environmental, cyber, GDPR, DNB, and more means managing the risk of your suppliers is becoming increasingly complicated. Just in that area, there are so many companies trying to break into it and there will be someone who finds a way to approach it to be the best in breed, but I don’t think we’re there yet. I think it’s going to be very interesting to watch who breaks out as a leader over the next few years.

You’ve referred to the importance of social value in procurement. 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?

Social value is not a new topic, although it has a new terminology and is a big theme at the moment for lots of very good reasons.

But it would be disingenuous to say that there haven’t 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 were trying 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 is happening at the moment is that everything is coming together — environmental, diversity and inclusion, regeneration — as one coordinated effort. Procurement is a huge part of that effort, as it needs to be as it is where you are spending your money. Focusing on the sorts of providers that you are collaborating with and ensuring they stand for the social values you as an enterprise have is vital.

It is very difficult as a lot of 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.

What procurement does is ensure that many of the components of executing a social value agenda are met, be that understanding who the suppliers are and making sure they are adhering to modern slavery, environmental and other practices that you stand by, or ensuring that the contracts you have created give a clear view of what the suppliers need to be adhering to.

We’ve been incredibly lucky to have two phenomenal people through Kickstart’s campaign 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 as well, it has been nice to be experimenting with options — we are doing 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.

TL;DR

  • Although some discretionary activities were put on pause during COVID, core priorities and focus such as supply chain risk, knowing your supplier, and spending carefully, remain top of mind for procurement.
  • Artificial intelligence (AI) is coming to the fore in the purchase-to-pay cycle; the more immediate application will be within commoditised purchasing, while for services there is still some way to go.
  • Procurement technology is not a new space but the race for best in breed in new innovative software providers within procurement is still to be won.
  • The market buys differently now — companies are more willing to build best in breed ecosystems of lots of different suppliers — and they should be, because there is enough capability out there to do that well.
  • Long tail strategy is not just about economy or efficiency, it’s also about corporate responsibility and the SME agenda (a requirement to have a certain number of small vendors), as well as social value.
  • At the moment all the different threads of social value are coming together — environmental, diversity and inclusion, regeneration — as one coordinated effort. Procurement is a huge part of that effort, as it needs to be as it is where you are spending your money.

About Jonjo Hobbs

Jonjo has been the MD of Capita Procurement Solutions for nearly 5 years. He has worked within the procurement industry all his career with stints abroad living in Europe working with clients on complex global supply chain and procurement initiatives. Outside of work, reading, travel, a little bit of cricket and a lot of family (father of 3 girls) takes up most of his time.

About Capita

Capita Procurement Solutions is the client facing procurement consulting business within the large Capita Group. CPS delivers a wide range of market-leading procurement solutions, from short-term strategic advice and tactical projects through to fully-managed procurement services; it could be a week’s work, it could be a 10 year relationship! They have an exceptional team of more than 100 procurement and commercial experts who specialise in opportunity assessments, procurement diagnostics, savings delivery, strategic sourcing, procurement transformation and contract management. CPS works across both the private sector globally and the UK public sector working with different government departments and multiple sectors in the private space.

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This post was originally published by Natasha Foster at Medium [AI]

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