Why Digitization Will (And Won’t) Displace In-Person Supplier Negotiations – What Does The Future Of Procurement Negotiation Hold?
Contribution Post from Edmund Zagorin
CEO & Founder
Negotiation is fundamentally a human act, between one or more humans. When two servers “talk to each other” to determine the optimal load-balance, we probably would not say that they are “negotiating”. However, the procurement profession is changing rapidly and globally, and negotiation is part of that profession. So what does the future of procurement negotiation hold?
People
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- Ubiquity of Retirements: a double-digit percentage of the current procurement workforce will reach retirement age and either leave the workforce or remain as consultative relationship brokers
- Ubiquity of Millennials: many of the executives that will replace the current leaders grew up using delightful digital apps, have an extreme aversion to inconvenience and demand user-friendly business processes, and have a high degree of comfort eliminating broken processes
- Changing Talent Profile: procurement job descriptions in 5-10 years will look substantially different than they do today, and the demand for advanced data analysis and business strategy will increase
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Technology
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- Ubiquity of Procure-to-Pay Digitization: the vast majority of procurement departments will require that their suppliers send invoices and receive purchase orders in fully digitized and machine readable formats in order to get paid
- Ubiquity of Cloud-driven Solution Unbundling: successful procurement departments will use many different digital apps from different providers rather than having one centrally integrated platform
- Adoption of Fully Integrated OR Outsourced Data Cleansing & Unification: most enterprises will give up trying cleanse, integrate and unify their data with a central directory, and instead will either hire and support a staff of very experienced data scientists or outsource the task entirely to automated third party solution providers
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Process
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- Ubiquity of Tenders, Bids & Auctions: in order to counter-balance the rise in captive contracts brought on by the sell-side’s global ubiquity of CRM solutions such as Salesforce, buyers will enforce tendering processes even with preferred suppliers to benefit from market competition
- Adoption of Automated Supplier Compliance / Management: chasing down stray documents from supplier for compliance purposes is not a good use of anyone’s time, and anyone with the ability to automate those profoundly tedious document collection tasks will do so
- Adoption of Third Party Risk Management SLAs: procurement negotiation teams sick of putting out fires will prefer both processes and technology that helps them identify red flags and opportunities with their strategic supplier partners in advance, rather than reacting to surprises under sub-optimal conditions
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Now, some readers will already rolling their eyes either because they think that these projections are way too conservative (“these things *already* exist) and others may find them outlandish (“that will *never* become mainstream”). But the truth is actually more complicated than either/or.
Recently, I had a fascinating discussion with an executive at one of our European customers who stated unequivocally that certain procurement negotiation activities will always be done via in-person meetings between buyers and suppliers. Actually, I quite agree with this statement. Consider that for the people participating in these organizations, it is quite likely that their companies are booking their travel through a web app that aggregates and discounts airline tickets, book their hotel or Airbnb through a similar service that is also delivered via a digital app, hail a ride to the negotiation meeting via a digital app, and that even the sign-in to the building and the physical dashboard for a meeting room will be an app. Thus, the technology stack that supports this “in-person meeting” is most likely already mediated by at least 5-10 digital apps.
Now, the interesting question becomes: is the company that is relying on apps to get their person to the negotiation going to accept in perpetuity that the best tools for the job are a legal pad, an email account, a smartphone and a spreadsheet?
Given that apps are used to deliver services that are changing the business process of every other enterprise department, it would be shocking to me if the critically important role that procurement teams must play to negotiate supplier contracts were the sole exception to the present wave of innovation. But that doesn’t mean that in-person negotiations will end. It just means they will happen differently, and hopefully better.
Remember what it was like to have factual disputes with someone? I remember being in the Second Grade and arguing with my best friend about what the capital of Russia was (yes, I am a huge nerd). My friend said it was Moscow, I said it was St. Petersburg. He stormed off and said he was going to the library to look it up. A full 24 hours later, he proved me wrong, I admitted defeat and we resumed being friends. Now, there’s Wikipedia, there’s Google. If people have a factual dispute, it is so trivially easy to look up the correct answer. What if looking up how much money your company spent on a supplier was as easy as looking up the capital of Russia on Wikipedia? How would having that type of information at your fingertips change the game?
There is simply too much enterprise value in making this type of data accessible to procurement managers for someone not to do it sooner or later. And making that info available doesn’t mean eliminating in-person negotiations (or the relationships they sustain) any more than eliminating my Second Grade best friend’s trip to the library to find a World Atlas gets in the way of friendship. In fact, getting the facts quickly makes it easier for us to resolve our adversarial positions and then get onto the next thing. This is the role that data will likely play in supplier negotiations, rather than fully displacing the need for in-person relationships between buyers and suppliers.