Arbitrage-first Procurement is (or should be) Dead…Long Live Digital Procurement: How Using Technology in Buying Decisions Can Add Greater Value
By: Katrina Menzigian, Vice President, Everest Group
Reducing spend with third-party suppliers. Driving down the cost of procurement. Managing supply-led risk. Harnessing true innovation from the supply base. These are the key challenges chief procurement officers (CPOs) have faced for the past five to 10 years. While most CPOs have tackled these decade-old obstacles with tried-and-true methods – there are new, better ways that deliver greater value.
In most cases, they’ve used an arbitrage-first approach to address these issues. They’ve focused on reducing manpower requirements, achieving efficiency by streamlining processes, SLA reporting, and achieving savings by reducing spend, cost of operations, labor arbitrage and spend visibility.
However, this strong emphasis on cost savings reinforces procurement’s designation as little more than an operative, administrative cost center. And it counters enterprises’ expectations of today’s procurement organization as a strategic partner with the capabilities to enable and support business outcomes through various types of value including:
- Improvements to the bottom line
- Operational excellence through supplier innovation and market intelligence
- Reduced total cost of ownership through productivity improvements and minimized tail-end spend
- Enhanced business metrics
Digital-first Procurement to Generate Value
A digital-first, or technology-enabled, procurement model allows CPOs to meet these new expectations. The model centers around three key pillars. First, a focus on more strategic, differentiating activities. Second, a smaller decision-making team augmented by advanced technologies like cognitive computing and advanced analytics.
About the Author: Katrina Menzigian, Vice President, Everest Group, leads the firm’s research practices on Customer Experience Management Services (CXM) and Contact Center Outsourcing (CCO), Finance and Accounting Outsourcing (FAO), and Procurement Outsourcing (PO) services. She also is a frequent participant and presenter at industry forums, webinars and client sessions. Menzigian has 20 years of experience in conducting market research, developing competitive intelligence, and advising service providers and buyers on a wide range of outsourcing, offshoring and BPS issues.