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Network Economy: an extended enterprise

The Inside Track (Ep6) | An extended enterprise

The Network Economy has brought about significant changes in the way businesses operate. In this economy, companies are not isolated entities, but rather part of a larger ecosystem of suppliers, partners, and logistic providers. In order to thrive in this environment, businesses must embrace collaborations and integration with their suppliers to form an extended enterprise.

Companies need to make a shift towards not only monitoring their own operation, but also those of their direct suppliers. Making collaboration, transparency, and trust within the whole supply chain a key for success.

Pierre Laurent, Director Deloitte Supply Chain Procurement Transformation, explains the major trends in procurement:

For a long time, CPOs (Chief Procurement Officers) in the Procurement sphere were driven by cost savings, category management optimization and sourcing organization efficiency, which still remain important topics.

However, the following key topics are crucial to succeed:

1. Risk Management

  • How to evaluate the risk within your supply chain?
  • What are the different pillars that need to be evaluated, such as the financial risks or the environmental risks?
  • How often do you need to evaluate those risks, depending on the supplier importance for your organization?
  • What strategy needs to be put in place in case a risk is identified & quantified?

2. Sustainability

  • How to implement & enforce green procurement policies?
  • How to decrease your organization’s carbon footprint within your supply chain?
  • How to increase collaboration with eco-friendly suppliers & products.

3. Digitalization

  • How to further streamline, control, and automate your processes to increase efficiently, reduce manual errors, and increase visibility on your end-to-end organization?
  • How to connect all stakeholders within your organization and provide all data required to allow an efficient & effective decision-making process?

4. Collaboration

  • How to increase the collaboration within an organization by evolving all required stakeholders and departments in the decision-making process?
  • How to increase collaboration outside your own organization boundaries, including your suppliers, partners, logistic providers, etc. in order to increase the value in the end-to-end value chain?

The worldwide crisis of Covid-19 reinforced the active collaboration within the entire supply chain, which has become a burning factor and challenge in all industries.However, different speeds in different industries are being identified: there is, for example, a big gap in maturity regarding the collaboration aspect between the automotive sector and the banking industry.

Still, no business is an island in any industry. Developing more transparency and collaboration between the actors of a whole supply chain can even be further reinforced by local laws. For example: the German Government introduced the ‘Supply Chain Due Diligence Act’, which requires large companies to monitor their own operations as well as the operations of their direct suppliers regarding social and environmental standards.Nevertheless, the goal should be to select the supply chain suite that covers most of the foundational end-to-end processes.

Maybe the TMS that comes as part of a particular supply chain suite doesn’t offer the company the best capabilities. As a consequence, the company should choose another TMS to obtain the strategic goal to implement a cohesive supply chain execution ecosystem. Of course this comes with a cost.

To achieve the collaboration shift towards a Network Economy, there are three main key elements:

  • Digitalization of your own processes
  • Leveraging broad networks
  • Embarking suppliers in the best way

It is obviously difficult to collaborate electronically with your suppliers and other partners without digital solutions. However, there is no need to create your own ecosystems from scratch. Leverage what exists on the market and what has proven to connect business to business efficiently. Moreover, your suppliers are already connected and exchanging in a standard and structured way with other partners. Join those networks, adopt those standards and boost your ecosystems digitally.

Furthermore, it crucial to define a clear roadmap and business case that is accepted as win-win for all parties involved. Standardization, easy to use, and easy to adopt are the key elements to keep in mind.

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The importance of Change Management

Change management is definitely not to be taken lightly when undergoing a business transformation because it is a real transformation for people within the organization that will change their ways of working. At some point you may even have a disconnect with some internal or external stakeholders.

What is important here is to acknowledge this from the start and to set yourself up correctly from day one, with a dedicated change management team that is fully prepared when these disconnects or resistance occur.

This requires strategic alignment internally: key sponsors and stakeholders need to communicate with one voice towards internal and external stakeholders. It is important to identify internal key people who will support this change and who will help carry the voice of your program within the organization.

Centrally, the enablement strategy has to be defined and determined into a wave planning, making sure that all communication templates, training materials, process tracking, reporting, etc. are available.

Furthermore  you need to involve your key suppliers along the way by keeping them informed of the benefits they will get and make it clear that, without them, this transformation cannot work. You will need to convince your suppliers by coming up with a clear value proposition; ‘what is in it for them?’. Joining the same network can result in customer retention and loyalty, growth in new business relationships, faster payment of invoices, etc.

Next to that, it is also very important to realize that supplier enablement requires time and effort. It’s not uncommon that the most advanced integration takes up to half a year to complete.

Stéphanie Noujeim, Senior Supply Chain Procurement Transformation, provides some examples:

In direct procurement, there is a shift in terms of proactive instead of reactive procurement where the buying companies and suppliers collaborate on planning, execution, and quality of their supply chain.

  • Planning: buying companies share forecasts with suppliers who are then able to take commitments via real-time collaborative platforms.
  • Execution: exchanging purchase orders, confirmations, advance ship notices, invoices to manufacturing visibility, or consignment inventory statuses.
  • Quality: ensuring end-to-end visibility, which allows to have a win-win platform where buying companies and suppliers gain in efficiency across this process.
For indirect procurement, companies are buying based on a list of negotiated items including specifications, terms and conditions. This is materialized into a shared electronic catalogue that buyers can autonomously maintain while customers keep control by approving the prices. For many customers, around 60% of their indirect spend can be managed via these electronic catalogues. Some suppliers even propose discounts on purchasing prices in order to encourage their clients to move to such cloud solutions.

Stéphanie Noujeim, Senior Supply Chain Procurement Transformation

Kristof Persoons, Director Sourcing and Procurement, and Stéphanie Noujeim explain how to address the three main priorities:

  1. Enhancing Corporate Social Responsibility
  2. Driving Operational Efficiency
  3. Digital Transformation

Supplier collaboration and enabling greater visibility into the supply chain is the CPO’s most effective weapon to address these challenges. The more mature purchasing organizations are investing in these collaboration networks and linking with other providers like Ecovadis , D&B, etc.

The ‘Know your customer’-efforts are being leveraged to the supply base by connecting and knowing your suppliers, qualifying, certifying, and classifying to drive differentiated risk assessment.

Regarding Digitalization, we observe step-by-step transformations and big bang transformations where organizations “jump into” the change at once. It all depends on the company culture and its readiness to change.

In practice, this translates into starting your transformation based on integrated solutions that are scalable and future-proof:

Move to cloud

Keep it simple

Stick to standard

Think about your end users

Keep your objectives in mind along the way

  • The major trends in procurement involve Risk Management, Sustainability, Digitalization, and Collaboration
  • New procurement paradigm applicable to all industries
  • To achieve the collaboration shift towards a Network Economy, there are three main key elements: Digitalization of your own processes, leveraging broad networks, and embarking suppliers in the best way
  • Thorough change management is indispensable

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