The focus of supply chain management is shifting from limiting and controlling spending to looking at how to build better relationships with customers and suppliers
Every week, via tablet, smartphone or laptop, a group of procurement specialists join an online informal meeting to discuss best practice. Known as the Hackett Café, it is an opportunity to chat through the problems they have encountered and suggest solutions.
It’s a far cry from the traditional cut and thrust of procurement, but it is a sign of how the industry is shifting, says Nic Walden, senior adviser in The Hackett Group’s Procurement Advisory. “Emotional intelligence is absolutely a game-changer in procurement,” says Walden, who works with top executives at large multinationals with £1 billion in procurement spend.
Suppliers will prioritise supply continuity to those customers they have a more collaborative relationship with
“In the banking crisis it was very different; it was all about extended payment terms and driving price reductions. Now good companies are looking after their micro and small suppliers. Some are paying suppliers immediately. Suppliers will remember how they are being treated right now and that will set the tone for the relationships of the future.”
Tim Burt, customer insights manager at Procurement Leaders, the world’s largest and valued procurement network and intelligence platform, says it is crucial procurement works to improve the organisation’s status as a customer, and perhaps even a partner, of choice to its suppliers, especially during the COVID-19 crisis.
“Suppliers will prioritise supply continuity to those customers they have a more collaborative relationship with,” he says. To do this, procurement needs to communicate to key suppliers how they fit into the organisation’s strategic roadmap during this time of difficulty, leverage the organisation’s brand value to demonstrate how the relationship will benefit the supplier and involve senior stakeholders during communications to strengthen the partnership further.
Artificial intelligence versus the human
Applied futurist Tom Cheesewright, who has advised major companies such as Accenture, LG, Nikon, and Sony Pictures on strategy, says in a world where machines take many of the decisions and much of the competition might look very similar, it is the human factor that will differentiate.
“Trust, loyalty, added value; the rise of automation in procurement isn’t a threat to more human decision-making, it is what makes space for it,” he says.
Simon Geale, senior vice president of client solutions at Proxima, says it is the creative and consultative skills that will make the difference in the long term. We subconsciously value emotional connectivity over logical connectivity and, by using our emotional intelligence, we start to understand the customer better. The average business buys in goods and services to the value of 70 to 80 per cent of revenues and negotiations are not just about price.
“An organisation sets its own strategy, but how it gets there is significantly reliant on how well it works with its suppliers,” he explains. “The better those relationships, the more likely a positive outcome, be that speed, innovation, revenue or cost optimisation. You can’t just call a supplier a partner and expect things to change.”
Driving a cultural change
At its heart, emotional intelligence is about seeing the business transaction from the point of view of your customer or supplier, says Jason Kay, chief executive at LiveLead. The mission to “be the best customer you can be” makes commercial sense in this new world, he says.
“When there is a limit in the supply of anything, someone has to make the decision of who gets what is available and who misses out,” says Kay. “It stands to reason that those customers who always pay on time, who haven’t screwed the price down to the bare minimum and aren’t always calling with emergency orders will most often get preference in these situations.”
For those that understand this, the opportunities are great, says Lucy Harding, head of the procurement and supply chain practice at Odgers Berndtson. She predicts that collaboration throughout the industry will be accelerated as a result of COVID-19.
“There will be a greater number of joint ventures to ensure customers receive products on time, payment in advance will be offered by larger players and delayed payment schemes will be available to trusted partners,” she says.
This is about true partnership, rather than lip service and is a very different approach to the hard-line price negotiations of the past.
Business strategists in a complex world
So how might we build these important relationships? Sergii Dovgalenko, chief procurement officer at Ukrainian Railways and author of The Technology Procurement Handbook, says there is no “rocket science” in developing valuable relations with suppliers. “Usually, it is based on trust, fairness, collaboration and the balance of needs,” he says.
Traditionally, procurement has been seen as a restrictive function, with an inherent degree of conflict, where professionals are rewarded by senior-level stakeholders for driving a hard bargain.
“Today, employers seek to recruit procurement professionals with strong emotional intelligence, recognising the benefits they can bring to their organisations,” says Julien Brunel, automotive sector specialist at consultancy Vendigital. “By collaborating more closely, it might be possible to accelerate innovation processes, enhance key services, reduce risk or improve operational efficiency.”
Strong partnerships will be more important as we work through the global economic downturn, says Martin Rand, chief executive at Pactum, an artificial intelligence-based system that helps global companies scale up negotiations.
“Procurement will be a key contributor in the business planning process moving forward and will act as a broker to products, skills and sources of innovation to solve the business’s problems,” he says.
The main driver of change will be the shift in power between buyers and suppliers. “There is no doubt that more interaction between procurement and suppliers unlocks new product and process innovation,” Procurement Leaders’ Burt concludes. “After years of cost-saving negotiations, businesses are starting to see the value procurement can add outside simple savings.”
Keeping supply chains alive
Steve Malone, managing director of Procurement for Housing, which provides services to UK housing associations and local authorities, explains why emotional intelligence is so important.
“Traditionally, procurement professionals earned their stripes by beating suppliers down on price and policing rogue spend. But today, it’s empathy, collaborative skills and the ability to think beyond short-term cost-savings that are top of my criteria for new hires,” he says.
“COVID-19 has shone a light on this, revealing that compassion and consultation are just as important as number crunching when it comes to keeping supply chains responsive and competitive.
“In my sector, housing and construction, large numbers of suppliers have furloughed workers, many are mothballing and some may soon go bust. The reaction from buyers has been mixed. Some are offering payment relief, but others are trying to terminate contracts or enforce even tougher pricing controls.
“This is the perfect example of why emotional intelligence is key to long-term, sustainable procurement. Those buyers that adopt a supportive, partnership approach, communicating openly and equally, will keep their supply chains alive and will be first in the queue to suppliers once lockdown is lifted.
“COVID-19 will teach many buyers a valuable lesson about the importance of relationship building and how the old ‘command-and-control’ brand of procurement just isn’t relevant anymore.”