Has the procurement function just been disrupted without even realizing it?
In July 2019, Deliveroo, the internationally operating food delivery company based in London, announced it would start offering a centrally managed procurement service for food ingredients and restaurant supplies. An exclusive offer to its many partner restaurants, casual dining concepts and fast-food outlets.
Deliveroo’s core activities up to that point were focused primarily on the consumer side of the value chain, acting as sales channel and last mile delivery provider.
The company’s announcement was hence to venture into a polar opposite activity to its existing business services, adding supply to its demand management. What the announcement hence actually meant was that Deliveroo intends to disrupt existing food supply chains, established procurement processes and, more interestingly, rattling the Procurement as a Service (PaaS) market.
I was surprised how little note the procurement community took of this announcement despite its groundbreaking effect it has for the buying discipline and especially for PaaS providers.
Deliveroo starts to offer what PaaS always failed to deliver – true customer centricity in procurement.
Deliveroo brings in the customer centric credibility that normal PaaS providers lack and hence closes a void that traditional PaaS providers always struggled to fill properly. Namely to deliver an outsourced, customer-centric and industry knowledgeable, as well as end consumer aware procurement service. To establish an intrinsic self-interest to buy materials and services in the best way possible to drive value for its clients. Deliveroo can exactly offer that.
The established PaaS providers such as IBM, Accenture, WNS/Denali, Xchanging and others manage an incredible amount of spend, 530 billion USD (2016), for many companies around the world. The sector is expected to further grow at a rate of 7-8% year on year. These organizations generally offer deep procurement process expertise, combined with enterprise procurement software technology, and readily available buying resources, all to relieve their clients from managing complex, time consuming and diverse spend portfolios on their own. They take ownership of their client’s outsourced spend and manage the complete procurement process from A to Z. The focus lies on optimizing processes though, driving economies of scale and hence mostly on tangible, short term quantifiable outcomes. A holistic view of their clients’ value chain is mostly missing, which makes their interactions with the supply base rather transactional and one dimensional. Meaning, the focus lies on cost savings. Why is that? Well, their pricing models to a large extent are linked to gain share agreements (the provider receives a certain percentage of the savings realized for the client) combined with a flat management fee. Incentives to do the right thing for the end consumer through investing into the supply base, and the quality of ingredients? Missing! Incentives to drive sales and enable growth for their clients? Non-existent.
And this is where the PaaS approach by Deliveroo could be fundamentally different. Here you have an industry expert, with valuable and close relationships into the restaurant trade becoming the buying intermediary, consolidating spend and reducing the transaction cost for suppliers and restaurants. A provider that understands the challenges and requirements of its customers and more importantly of their end consumers, able to communicate needs clearly to suppliers and to identify added value with their partners across the value chain.
Deliveroo has a self-interest to increase sales and profitability for their partner restaurants since their revenue on the sales side grows with the increased restaurant trade of their clients. It is hence a much more credible contender compared to a classical PaaS provider in doing the right thing, the right thing an inhouse procurement team would do. Deliveroo disrupts the PaaS industry by being a hospitality expert, and not as procurement excellence partner. It positions itself as a provider that has an extreme granular insight of the hospitality sector, its customer and end consumers, food trends and market developments and hence adds value to the supply base and its partner restaurants above and beyond cost savings.
New players in PaaS
Deliveroo is not the only new player in this customer centric PaaS market in my view. Other providers, less known and less vocal, push the agenda on customer centric procurement services as well and offer an alternative to established PaaS providers.
One of these players, for instance, is Havi Packaging Solutions. Havi, originating from being McDonald’s core logistics and packaging supply chain provider, has branched out its food service packaging operations, offering a packaging procurement service for companies in the QSR (quick service restaurants) and “away from home” market. It covers the conceptualization through to the sourcing of the packing items. Havi consolidates spend and provides restaurant businesses with the scale and insight into the packaging industry that lack or struggle to establish on their own. A procurement and project management service provided by a hospitality expert that focuses on customer experience rather than optimizing the procurement process to the “nth” degree. How do they grow their business? By showcasing how much value they have created for their existing clients.
Another example is Ingenuity, a small London based marketing services agency. They support brands in the procurement of marketing agency services. Ingenuity assesses its client’s needs, finds and matches the client to the right agency, aspiring to meet their customer requirements much better than the client could do on their own. Even if this is not a full fletched procurement process followed by the rule book, it offers companies the opportunity to outsource elements of their marketing spend management to an external provider that knows their marketing needs inside out. The emphasis here again is on customer centricity over procurement best practice. Of course do cost control and efficiencies play a role here as well but the clear focus is with value and compatibility between client and agency.
These new PaaS solutions clearly represent a new model of outsourced procurement activities. Solutions that are truly customer centric, since the providers are either genuinely intertwined with the success of their customers, or else true experts on customer and end consumer needs and expectations. This is a clear move away from the original PaaS model that is supplier and process focused, to a service model that puts the customer and its end-consumer first.
So, what is next?
Uber centrally buying car spare parts (preferably for Toyota Prius)? AirBnB buying furniture? Ebay centrally buying accounting and parcel delivery services for its many platform traders? Who knows?
What I do know is that we should take two learnings out of Deliveroo’s announcement. First the PaaS model is changing and has gained another dimension that can offer certain companies a more enriched, outsourced procurement service that is truly customer centric. This can have significant implications on the established PaaS providers.
Second, the move by Deliveroo should show us as procurement professionals what great value we can bring to the table. Deliveroo’s decision to invest in procurement should remind us of the amazing value proposition our function provides. We are that value creator, revenue enabler and business differentiator. Let’s celebrate that companies such as Deliveroo have understood that through professional, customer centric procurement, businesses can drive their growth, drive sales and differentiate themselves from competition!
What a great announcement that is!
Written by Jens Hentschel, Founder & CEO of THE FIVIS PARTNERSHIP. The Consultancy That Gets You Your Oomph back! www.fivis.io
