Transforming Procurement for the Digital Economy
Interview with Zalando's Alejandro Basterrechea
Alejandro Basterrechea is the Head of Procurement Excellence at Zalando, Europe's leading online fashion platform, where he is responsible for indirect procurement excellence. DPW sat down with Basterrechea to obtain his perspective on how procurement organisations in the fast-emerging Digital Economy can thrive and deliver new business value.
First off, can you help us understand what you mean by the Digital Economy?
Basterrechea: Using commonly available definitions and put simply, the digital economy is a maturation of society and threads through all aspects of daily life from how we interact with one another to what job skill are needed. For businesses this means they have access to new channels to reach existing clients as well as new opportunities to expand market share with a competitive digital offering. Companies such as Amazon, Google, Apple, Facebook and Zalando are seen as the earliest adopters and successes of the digital economy. Their business model is mostly based on digital technologies.
What are the similarities and differences for procurement organizations in the Digital Economy vs traditional companies?
Basterrechea: There are certain aspects of procurement that are similar regardless of the industry or type of company. The core procurement processes such as demand management, sourcing, contract- and supplier relationship management are also applicable in digital economy. At the end of the day, there will always be a need by an internal customer that requires to be procured in the market. However, some of the difference lies in the scope, approach and mindset. Many of the digital economy companies are digital- or internet-based and therefore new procurement categories are becoming increasingly important, for example, SEO marketing, online payment providers or cloud services. In addition, it is expected from a procurement organization to provide simpler, user-friendly and self-explanatory tools and processes, instead of bureaucratic, control-based and complicated ones.
What are the top priorities for procurement organisation operating in the Digital Economy?
Basterrechea: Depending on where a company is currently in their journey, procurement will face different challenges. If a company it’s still on a start-up pre-IPO face, the main priority is to enable hyper-growth. Procuring goods and services for fast growth companies, doubling revenue and workforce every couple of months, requires a high level of flexibility and agility to ensure procurement can accompany the growth rate. If a company has reached certain level post-IPO, then it requires a balance between ensuring certain level of governance and transparency required by public companies, while supporting continues growth. Once the company has reached a maturity level, procurement needs to provide its value by ensuring a) state-of-the-art P2P systems, b) deliver best value for money, c) manage supplier risk and d) remain flexible and agile to be able to adapt to business needs.
What are the advantages and challenges of building a procurement organization in the Digital Economy?
Basterrechea: The main advantage is the lack of legacy systems which gives the opportunity to digitize from scratch and leapfrog. Technology and data are at the heart of these companies, and therefore access to state-of-the-art tools, centralized information and data analytics its less burdensome.
Procurement is uniquely positioned to becoming the company’s central hub for insights using its immense data resources to guide the business through opportunities and risks.
Additionally, the workforce tends to be digital natives, which makes a digital transformation easier and quicker. However, the main challenge remains that is expected from procurement to keep with the pace of business growth, flexible for adaptation and provide the most user centric tools and process. The expectation is that procurement is a business enabler rather than a business controller.
What can traditional procurement organizations learn from the Digital Economy as they are building their next-generation operating models?
Basterrechea: For me, the biggest lesson learned moving from more traditional companies to the digital economy were:
- Digitization is not a project, it’s a way of working to improve the experience for our customers
- Procurement can be agile. It’s a matter of trying and experimenting
- Focusing on customer needs, user experience and enabling business to grow while managing supply chain risks, providing spend transparency and delivering best value for money can be led by procurement
- Customer centricity mindset. Don’t be the bureaucrat, be the enabler of growth