1 Leap Ahead Procurement Goes Social
2 In the past five years, social media has become an integral part of the lives of people everywhere. In response, companies have been embracing social media with equal pace to more effectively engage with their customers and promote their brands and offerings. Social media has in many ways transformed companies sales, marketing and customer service organizations. Pioneering companies now increasingly recognize social media s power to improve procurement productivity, enable lower risk, more accurate decision making, and foster more robust innovation. This paper explores how the use of social media can benefit the procurement organization and offers a framework for deploying such tools to support key purchasing activities. It also examines how companies can more effectively apply social media to procurement while minimizing the inherent risks in its use.
3 Procurement, Meet Social Media Social media has already revolutionized the way people interact around the globe. Is it now positioned to dramatically change the way how the procurement function operates? We think it is, and for three key reasons: First, social media enhances the value generated by the procurement organization by making the function more productive and efficient. Second, it leads to more effective sourcing by mitigating risk and improving decision making. Finally, social media supports supplier innovation by fostering greater collaboration, crowdsourcing and transparency. Despite these benefits, few procurement divisions have adopted social media tools as an integral part of their procurement processes. That s not to say that procurement professionals are unaware of the technology. Many are sure to be active participants on Facebook, LinkedIn or Twitter and understand the power these tools have to connect people and spur collaboration. But few companies, if any, have taken the leap to make social media the de facto platform through which they manage, learn about, and interact with internal stakeholders and their company s suppliers. We at Accenture believe that social media will play a significant role in procurement What is Social Media? Social media technologies help people communicate interactively by creating, sharing, broadcasting and exchanging information in online communities and networks. Communication takes place on mobile and web-based platforms. Shared data can be analyzed to reveal previously unseen patterns about relationships and opinions, for instance. Using social media, information can be targeted toward individuals and groups with particular attributes. Social media represents a fundamental change in communication style for individuals, organizations and communities because it occurs in real-time, involves multimedia and is highly interactive. 3
4 Ways in which procurement can benefit from social media Because of its inherent ability to foster greater collaboration and facilitate the exchange of information among individuals and groups, social media has significant potential to improve the performance of the procurement organization. As illustrated in Figure 1, such improvement generally falls into three main categories: Greater productivity and more effective sourcing More robust innovation Lower-risk and more accurate decision making Boosting Productivity through Collaboration Rooms One of the biggest advantages of social media is its ability to enable people especially those who are geographically dispersed to easily make and maintain connections and exchange information with each other. In practice, this translates into a substantial reduction of the time it takes to communicate which, in turn, means much higher productivity. People spend less energy and time chasing down each other and more time actually having meaningful conversations. A Category Room is an area on the social media platform in which all relevant stakeholders and procurement professionals gather to develop a common profile for a category. By having access to ideas and information shared in a Category Room, procurement professionals no longer have to track down stakeholders for critical requirements they need to do their jobs. At the same time, stakeholders learn more quickly how to make their needs more transparent. A Category Room is also an especially effective (and inexpensive) way for distributed procurement organizations to connect their category experts to one another. It becomes much simpler to share best practices, choose common suppliers, exchange procurement strategies and discuss key contracts. Figure 1: Procurement can benefit from social media in three key ways. Social media enhances productivity through the use of online collaboration rooms. Such rooms help break down traditional organizational silos by fostering the creation of internal communities that bring together relevant participants from across the globe to discuss certain topics or address particular concerns. In a procurement setting, for instance, collaboration rooms include those dedicated to specific procurement categories ( Category Rooms, ) such as suppliers ( Supplier Rooms ) (Figure 2). Productivity Improvement Accenture Research, Innovation Performance Decision Improvement & Risk Mitigation Collaboration Rooms Open Supplier Innovation Intelligence / Analytics 4
5 Figure 2: Collaboration rooms supported by social media can dramatically enhance productivity. Social Collaboration Rooms Procurement Stakeholders Supplier A Supplier A Social Category Rooms Category 1 Supplier B Supplier X Supplier C Social Supplier Rooms Category 2 Supplier X Supplier B Supplier X Supplier Y Geography I Geography II Accenture Research, Similarly, a Supplier Room is an online location where procurement professionals can meet to discuss specific suppliers. Doing so enables procurement to determine the total volume of business (including all transactions) the company does with a supplier, review the various contracts with and discounts provided by the supplier, and identify any operational issues that need to be addressed. This helps the organization to formulate the right strategy how category managers will work with the supplier. As traditional item category borders begin to disappear, the discussions held in a Supplier Room can enable procurement to negotiate holistically with suppliers. As a side benefit, Supplier Rooms may also be used to connect directly with supplier personnel (which we describe in more detail in the following pages). Fostering Open Innovation by Engaging Suppliers Innovation has a major impact on a company s ability to achieve top-line growth and should be a concern to all procurement professionals. A key to successful innovation is bringing suppliers into the innovation process as early as possible. Social media can be a strong enabler of such integration by serving as an open innovation platform for suppliers that enables a company to manage information flows more effectively. With better information flow throughout the innovation process, collaborating partners come closer together. This platform is especially valuable in the case of complex products that require engineering from both company and supplier, as it enables product owners from both parties to jointly steer development. A social media-based open innovation platform can also streamline the overall innovation process. It can house documents and other important information so they are centrally available for easy access by innovation team members. It also can make prototype development and refinement much more efficient. For instance, important suppliers of new prototype materials can use the platform to connect with the company, and designers can monitor and change design and production processes in real time. In addition to supporting collaboration between company and supplier on company-initiated projects, social media can give suppliers a channel for posting their own innovation ideas. For example, the procurement organization could establish a crowdsourcing funnel in which suppliers could directly input their own ideas or technological innovations, as well as ideas they may jointly develop with other suppliers. Or, procurement could hold idea contests in which all suppliers are invited to post their innovative solutions to a specific problem the company faces. Participants including suppliers and other stakeholders can then evaluate these ideas and determine their viability. Since numerous stakeholders collaborate in such efforts, social media offers a way to work together more effectively. 5
6 Enhancing Decision Making with Greater Intelligence and Insight An important part of every procurement professional s job is staying up to date on relevant suppliers and their offerings. Therefore, procurement should take greater advantage of public social media networks to hear what suppliers themselves (not to mention suppliers other customers) are doing and saying. You are likely to find information and user reviews of specific products on social media, such as Twitter, Facebook, LinkedIn and the like (although subjective user ratings and perspectives should be considered supplementary information). Likewise, more and more suppliers now use social channels to highlight their perspectives on relevant industry issues, announce new capabilities, inform the community of market expansion plans and communicate special deals and promotions. Such information can be particularly helpful to a company that is examining and auditing complex supplier networks and supply chains. It can be integrated with traditional data gleaned from commodity and raw materials price indexes to provide a more complete picture of supply markets. By using social media in this way, procurement professionals can not only reduce the risk in purchasing decisions but also lower the cost of goods sold. The information generated, collected and stored on social media platforms is a gold mine of insights that can enable procurement to vastly improve demand planning. By using analytics to tap into that gold mine, procurement professionals can discover previously unseen patterns of behavior, expertise, performance and demand and respond accordingly. For instance, analysis can reveal actual demand or more accurately predict future demand so procurement can make informed decisions about what to buy, how much, and from which suppliers. The Procurement Social Analytics Portal We imagine all of these social media collaboration innovations to become accessible through a single point of entry, which we call the Social Analytics portal. Accenture research anticipates that within a few years the foundation of this portal will be one focal cloud-based tool in which transactions among various suppliers and buyers are handled. Each participating user will have a Facebooklike profile through which he or she provides job-relevant information and interacts with other users (via such activities as chatting and video conferencing). Similar to some retail shopping sites, the portal will make available product reviews, feedback and comments for each product, as well as information on what buyers have purchased and recommend, and supplier ratings and likes. Because the entire purchasing process will be executed via the portal, payment and dispute management will also be conducted in the system using social components. 6
7 The Social Analytics portal brings together traditional purchasing with social media and analytics. 7
8 Composite Case Study: Applying Social Media to Procurement at Sportive Inc. To illustrate how social media can become an integral part of a procurement strategy, we present the experience of a composite case-study company. Let s call this medium-sized maker of sporting goods Sportive Inc. Sportive has three business units: heritage, leisure and performance. Each of those units markets shoes, clothing and accessories, among other things, and each has its own independent purchasing function. The company purchases semifinished products from a variety of suppliers, choosing to only make custom-fit products onsite. Under the critical public eye, Sportive has to pay close attention to working conditions at all of its suppliers. To improve the efficiency and overall performance of its procurements operations, Sportive decided to adopt a procurement social media platform. It did so in three phases (Figure 3). Phase 1 Social Engagement In the social engagement phase, the company focused on opening up new ways for its three procurement organizations to communicate with one another and with external experts to share knowledge and cooperate on various activities. It established Category Rooms where purchasers formed expert groups and internal communities on various product categories. In those rooms, they exchanged ideas on frame contracts, pricing, discounts and general knowledge about substitute products. In addition, Supplier Rooms were dedicated to specific suppliers so that business units that had negotiated separately came together. Groups participating in Supplier Rooms discussed topics ranging from pricing and supplier promotions to the performance of various suppliers. Through the discussions, the company found out that prices in the three business units for the same items were different. Such intelligence ultimately enabled the company to standardize its prices and products and to more easily add new product categories. Phase 2 Social Intelligence As Sportive s social media procurement platform matured, the company increasingly gathered external information on suppliers, products and demand. This led to Phase 2 of the initiative, which we call the social intelligence phase. In this phase, strategic purchasers were given a search tool that enabled them to see relevant information about suppliers on a given topic derived from social media sources such as Twitter, Tumblr and Facebook. Called a social supplier intelligence crawler tool, the crawler helped Sportive keep effective controls on suppliers. The company did not want to face a tarnished reputation due to problems in its suppliers factories, such as attempts to falsify compliance with established working conditions. As it searches conversations across social channels, the crawler highlights negative feedback and mentions of problems with suppliers and their own suppliers. If an issue arises, Sportive can now take action much faster. The crawler also uncovers publicly known disruptions in the supply chain, such as riots in a supplying country or a volcano eruption making deliveries impossible. This information can be fed into the planning process and reviewed in light of promotions that suppliers were offering. To complement the supplierintelligence crawler, Sportive introduced a new social product intelligence tool to gather qualitative product information from social media channels. This information included feedback from other procurement professionals on specific products, comments on product quality and communications about special deals and promotions. With these two tools, Sportive achieved greater transparency into its supply network as well as a reduction in procurement spend primarily due to fewer purchases of items with quality issues. The final capability developed in Phase 2 was social demand management, which used an analytics crawler that monitors social media channels for any internal company feedback on a product that could alter demand. For instance, with the help of the company s internal social media platforms, procurement professionals can learn that R&D is requiring a new type of material for a new product. This intelligence enables procurement to proactively identify suppliers, analyze the supplier market, and prepare for supplier ratings and requests for information well before R&D officially 8
9 requests the material. By helping professionals anticipate what will be needed, the analytics tool has increased the time to market for new products and significantly boosted sales at Sportive. Phase 3 The final step in Sportive s adoption of social media, Phase 3, was designed to integrate external partners into the company s social media approach to both improve the negotiation process as well as boost Sportive s innovation efforts. To that end, the company first established a social-aided tender room in which the company and suppliers handled proposals. This room helped eliminate some of the common challenges that arose during proposal development. For example, when creating a proposal, suppliers usually have many of the same questions. Often, those questions had to be forwarded to experts, which led to delays. Sometimes, questions might not be answered comprehensively or sufficiently, and as a result, the quality and completeness of proposals could vary from supplier to supplier, depending on how its questions were answered. In some cases, only a few proposals were good enough for consideration. With the socialaided tender session room, all questions are posted to the chat board for every involved supplier to see, and all suppliers remained anonymous to each other throughout the process. Similarly, experts who participate in the session post their answers to the questions for the whole group, so all suppliers are getting the same answer to common questions. With the help of social media, Sportive has increased the transparency of negotiations, improved the efficiency of the tender process, boosted the number of quality proposals and achieved significant cost savings. The final piece of the puzzle was the implementation of Sportive s social open supplier innovation platform. The company used this platform to help develop a new product that connected mobile phones to a sensor in a person s clothing. The success of the product depended on deeply involving several key suppliers in the innovation process. Using the social-based platform, Sportive and its suppliers could easily share documentation, interface descriptions and design proposals, as well as share ideas online. They also used the platform to jointly solve problems despite being located in different parts of the world. In addition, the prototyping process, which is typically time-consuming, was streamlined by having all relevant information and contacts (in the form of social media profiles) on the platform and connecting all stakeholders to the process via dedicated groups and product rooms. Figure 3: The vision: Applying social media to procurement. Integrated Environment Analytics Portal Open Supplier Innovation Phase 3: Social Innovation Category Rooms Social-aided tenders Phase 1: Social Engagement Demand Intelligence Supplier Rooms Phase 2: Social Intelligence Production Intelligence Supplier Intelligence Accenture Research,
10 Moving Forward: Keys to Success The Sportive example illustrates the tremendous potential social media has to improve the performance of the procurement organization. But it also shows how social media represents a massive change in how procurement professionals work. These changes mean companies should keep a few key points in mind to enhance their chances for success: Right Strategy Social media in procurement should always be a part of a larger digital strategy. At the most basic level, the digital strategy must explain which social media tools and platforms the company will use in its processes and internal communication and how the company will use them. Because the greatest benefit from social media is gained when as many people as possible use the same or compatible platforms, procurement should adopt the same tools and platforms the wider organization is employing. Right Change Agenda Some employees might not be familiar with social media, or at least with its more robust capabilities beyond liking and friending on Facebook. Thus, companies must communicate to all employees on how their jobs will change, train them on new ways of working and provide proper incentives for them to adopt the desired behavior. Importantly, training should cover common rules, guidelines and communication risks associated with social media. Right Technology and Platforms Procurement must be closely interlinked with those in the company responsible for maintaining the corporation s social media tools and platforms. This may include the marketing organization, human resources, IT, or some combination of the three. In particular, procurement should keep close ties with IT to encourage technical developers to innovate continuously, in line with procurement s needs. They must also ensure that data and information flows are 100 percent secure. Right Training and Awareness Users need to understand the advantages and risks of using social networks and need to know how to work and behave in such an environment. Social media makes information available to large groups of people instantly, so the risk of employees publishing incorrect, confidential or inappropriate information and materials must be addressed through comprehensive training, communication and clear policies and guidelines. This risk will likely diminish as people become more comfortable with the tools and learn how to navigate social media as part of their daily routines. 10
11 Conclusion Procurement will undoubtedly benefit from the social media revolution. It will enable companies to reduce overhead costs through enhanced productivity and efficiency, reduce COGS and overhead from better decision making, and achieve greater topline growth via more robust innovation. Putting the concepts discussed into practice will not happen overnight, of course. Just as with any disruptive innovation, companies are bound to experience initial obstacles with the technology, regulations and with user acceptance. However, addressing these obstacles through the right strategy, approach and commitment will lead to vastly expanded capabilities in the procurement domain and in turn a procurement organization that is well positioned for helping the enterprise reach its digital potential.
12 About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 293,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, Its home page is This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative. About the Authors Daniel Vollath Managing Director Accenture Strategy Sourcing & Procurement Vincent Gressieker Manager Accenture Strategy Sourcing & Procurement Robert Hartmann Consultant Accenture Strategy Sourcing & Procurement Copyright 2014 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.