Procurement is on the verge of experiencing its next major transformation. During the past 10 years, the emphasis has been on optimization: leveraging spend, improving the sourcing process, and becoming more efficient across all aspects of the P2P and Order-to-Cash value stream.
As a result of these improvements, companies now rely on suppliers, outsourcers, and other third parties more than ever—a fact now recognized by C-level executives, boards of directors, and regulators. Why? The increased reliance on these third parties has occurred without implementing the same level of control or having the same level of visibility that was in place when the work was performed internally. The result is increased risk to company performance and brand reputation.
Consequently, forward-looking procurement leaders are transforming their organizations while maintaining their obligations to keep costs down. They are now continuously assessing risk pre- and post-awards, and introducing integrated processes and controls to mitigate risk by working closely with other functional areas, business lines, and geographies. During the next few years, procurement will be looked upon to provide important guidance on how key external contributors to their companies' value chains are managed.
This is why more and more procurement executives are introducing a consistent method for managing providers across a wider breadth of their extended enterprise. These executives recognize that just because the contract assigns responsibility/liability for almost "everything," this does not absolve their companies from the responsibility of ensuring each provider is fulfilling its contractual obligations. This requires implementing management control programs that actively monitor both performance and compliance to help ensure suppliers are meeting all their obligations.
This is an enormous responsibility that requires consolidating requirements across a large number of stakeholders, communicating expectations to all providers, collecting information and documentation about current status, and collaborating with providers to remedy issues when shortfalls are identified.
To be successful requires a new attitude, a thoughtful approach, buy-in from key stakeholders, and the appropriate technology. Despite the best of efforts, responsibility or risk cannot be entirely outsourced.
So, when you consider the consequences of suppliers failing to meet their obligations, regulators handing out fines for poor oversight of third parties, and investors losing confidence in your brand, it is not surprising to see real action taking place. The past few years have made it abundantly clear, it is not a good strategy to expect that a great contract will get you great results, ensure that providers follow the law, or prevent them from acting unethically. Therefore, it is imperative to have the appropriate level of controls to mitigate to an acceptable level of risk. This has not been the traditional way of thinking, but that is rapidly changing.
Want to learn more? Attend SIG’s Regional Roundtable in Pittsburgh. David Furth is scheduled to present, Procurement and Supply Base Management – A Profession in Transition, during which he will take a close look at leading companies embracing the challenge of transition. SIG is coming to Pittsburgh on March 2, 2011 for a Regional Roundtable meeting that will have discussions on topics which are timely and relevant. PNC has graciously offered to host our event. A wonderful program has been developed, beginning at 9:00 am and concluding at 3:00 pm. During the day we will have three presenters, including David Furth, speak to you about trends and innovation within outsourcing and sourcing. We will have three Roundtable Breakout sessions (each with a different hot topic) where you can participate in all three discussions and share with your colleagues. We will end the day with the Grand Roundtable where we will discuss findings from earlier in the day, as well as cover additional topics of your choice.
Click here to register or contact Stephani McGarry for more details. Stephani McGarry, Director, Regional Events, Direct 650.766.9710, email@example.com.