The following commentary is a Supply Chain Matters guest posting authored by Jim Barnes, Services Managing Director, Institute for Supply Management (ISM).
One of the biggest challenges in our industry is gaining recognition of the value procurement and supply chain management brings to the corporate bottom line. We know supply management increases shareholder value by making business more competitive and more profitable, yet it’s hard to tell the story. The perception is we’re not very strategic but are overly tactical: processing paper, comparing one price against another and policing what other departments order.
To change this perception many in supply management are exploring the option of automating some functions to move away from tactical processing and focus more on strategic interactions with suppliers. Generally speaking, automation can help reduce the number of people doing tactical work; reduce the amount of money needed to do that work; and provide supply management professionals with more time to develop better relationships with suppliers.
There are several factors to keep in mind when considering the option of automation:
- Know which processes can be automated and which cannot;
- Recognize your human resources may not be interchangeable; and
- Realize if you automate a bad process, you’ll just get bad stuff quicker.
Most transaction processes lend themselves well to automation, and there are tools to automate the bidding and RFP processes, too. However, it’s very hard to automate the human interactions in supplier relationships like strategic sourcing and negotiating.
As you automate processes and free up supply management professionals, don’t assume everyone has the ability to move into a more strategic, interactive role with suppliers. At ISM Services, we offer clients the opportunity to survey their supply management professionals to determine if they tend to be more tactical or more strategic. Then we put them through a negotiation exercise where they can learn the difference between the skill sets, the value of both and determine where their strengths lie. Participants learn that many times it makes sense to negotiate as a team with the best combination of negotiating styles to suit the objective.
It’s important to remember that automation on its own is not the answer; you still need to have a good process in place. One of our clients had a highly manual, time consuming process for receiving goods and verifying documentation. When they first automated the process they merely replicated their manual process, and it yielded the same result, a very high exception rate. After spending significant effort to re-engineer the process, they learned to rework and reset the rules to get much better results from the process.
Another problem can arise when departments are automated and outsourced at the same time, or at a later date. For example, supply management professionals who automate their accounts payable and outsource it can run into problems because the new people managing it don’t have the important knowledge of the inner workings of the company. The result, according to an experienced practitioner-friend of mine, is “your mess for less.”
So how do you decide which automation strategy is best for your company and avoid some of the pitfalls? First, determine what you want to accomplish in which departments and then establish the metrics to measure your progress and accomplishments. For example, do you want to take work out of a process? Do you want to eliminate onerous authorizations or unnecessary three-way match requirements? In the end you want to eliminate work of lesser value to the company and instill more strategic practices with your suppliers.
Second, take time to explore your options because there are quite a few available. Talk to your peers to find out what is working for them. Attend conferences and visit the vendors there and try their tools. ISM Services does not recommend nor endorse automation software but we are available to help you evaluate it against your goals.
When managed well, automation can be a game changer in the supply management industry. It can result in more efficient and cost-effective processes and give supply management professionals more time to collaborate and innovate with suppliers. It can shift the perception of procurement and supply chain management from tactical order processor to strategic partner in the C-suite.