Win-Win-Win, The Importance of Collaborative Procurement to Support the Digital Metamorphosis
Eric Dulin, Director of Procurement, Digital & Technology, Yum! Brands
Eric Dulin, Director of Procurement, Digital & Technology, Yum! Brands
A major global restaurant brand achieved record-breaking industry development, opened over 3,000 net-new units in 110 countries, beating their industry record set in 2021. At the same time, they reached a new high of $24 billion in digital sales – doubling their digital business since 2019… this focus on digital occurring while managing through a pandemic is not a transformation, it’s a metamorphosis.
Every year the pace of technology innovation has been increasing and the evolution of the restaurant industry through COVID is an interesting case study. My cousin owns a small Mom and Pop, Dulin’s Café, located in Vancouver, Washington. Looking back at his experience highlights the industry challenges… “In the earliest days of COVID, the government forced restaurants to close. Then when we could open, our customers could not come into our lobby to eat. I have no room to build a drive thru and had no website to speak of so I had to create a website and then offer carry out and delivery through delivery services. My kitchen was set up to do walk in traffic so when the volume of orders were too much for us to handle we just had to stop answering the phone”. Now imagine that challenge at global scale.
Chance of that magnitude requires a deep understanding of the new customer needs and the options to meet those needs as well as the effective execution of the digital metamorphosis. The sudden inability to serve customers created new requirements. First and foremost, how does a restaurant engage with a customer who cannot come into the store to order? Many restaurant concepts rely on carry out, delivery or drive-thru, however in my cousin’s case, he did not. He had to immediately implement new customer engagement channels including a website, carry out and “call center” if you could call it that simply to take orders from his customers.
Additionally, he added a pick-up awning and made his menu available through delivery aggregators so that he could get the food to his customers. He did not want to take on his own delivery fleet so the aggregator websites offered both another ordering channel and an ability to deliver food to customers.
Labor also became an issue across the industry. My cousin was fortunate enough to have long term staff and focused heavily on keeping them employed while in other concepts, labor became a challenge. The labor shortage that impacted the country forced the industry to look at options to replace labor with automation. My local Walmart is a great example. They changed from a handful of checkout lines to almost 90 percent self-checkout and a guest service member.
As the changes in behavior drove new requirements to meet customer and employee needs, the requirements placed on CIOs and IT departments increased while the ability to work from home exacerbated a technology talent shortage. CIOs had to balance the competing needs of multiple stakeholders to define and execute the most critical priorities. The good news is that the speed of technological advancement and the ability to expand new concepts using cloud infrastructure and readily available capital created a vortex of new technology companies.
Another interesting consequence of this new digital metamorphosis is the fact that a start-up’s strategic advantages decrease rapidly over time as other companies copy their business model and leverage improved technology infrastructure to launch competing firms.
This gives CIOs the ability to evaluate the current demands, skills and capacity of their team to apply a Build and/or Buy strategy to define which products they build themselves and which ones they collaborate with supplier partners to create. As we look at the major technology advancements sweeping the industry from Automation, Kiosks, Back of House, Front of House, Point of Sale and Drive Thru technology as well as Loyalty, Customer Data Platforms and the ability to better understand and market to the customer, there is an even greater need to collaborate effectively with critical suppliers to create competitive advantage.
When negotiating with vendors, it’s a good idea to take a Win-Win-Win approach to the overall negotiation. The first Win is to understand and meet the critical business requirements. From a Procurement standpoint, I define success for the business as “right requirements, right supplier, right price and right timeframe”. This is especially critical when Procurement is running an RFP on behalf of the business, the goal of the RFP is to provide the stakeholders with the information required to make the right decision. A key callout on price is that “right” price is not always the best price but instead a market competitive price. If price parity can be obtained through negotiation, then price no longer becomes a factor in the decision making.
The next Win is for the supplier or strategic partner. Their Win is defined initially as being selected by the business to meet their specific need but ideally expanding the initial relationship with other business units in the company, with other businesses in the industry. This can be through increased spend on the original product, increased use of other products, competitive displacement and/or co-development of new products.
The third Win is to unlock new markets. The goal of developing strategic relationships to reduce prices as the volume of spend increases. This is incredibly important in diverse global organizations due to the difference in market dynamics and price sensitivity. As the relationship grows, spend volume increases and unit costs decrease, the decrease in unit costs may “unlock” other more price sensitive markets. This creates what I call the Vicious Circle of Happiness which essentially repeats this cycle to unlock more and more global markets.
Today’s Market Leader may not Exist Tomorrow, And Tomorrow’s Market Leader may not Exist Today
One other thing to consider the ultimate buyer of the supplier’s product. If the company is creating a product to market to franchisees. The franchisee relationship creates an inability to “commit spend” at the time of purchase. This can prevent leveraging and growing the Win-Win-Win unless the appropriate contract structure is created that allows pricing decreases over time. I call this the “Field of Dreams”. By structuring a tiered pricing contract that allows increased spend volume to reduce pricing over time, once the field is “built” and more and more franchisees “play ball” by purchasing the solution, the price decreases and ideally more franchisees can adopt. These Field of Dream contracts must be structured properly to prevent “overcharging” the early adopters and to mitigate potential revenue recognition for the suppliers when pricing tiers are met, however they are a great tool to accomplish the Win- Win-Win.
If this makes sense but leaves you wondering how to develop strategic Supplier relationships, there are several things to consider. The first is which who are the strategic suppliers that you want to establish these relationships with? To answer that question, look at the suppliers you work with today. Which of those suppliers are providing a key capability that creates a critical competitive advantage in the marketplace? Which supplier would be irreplaceable if they were no longer there? What are the current and future state capabilities that make them critical, and could those be provided by another supplier? If the answer is no, then those are the suppliers that you want to build this Win-Win-Win relationship with.
Once you identify the strategic suppliers, create a Win-Win-Win strategy by looking for opportunities to expand that relationship. The easiest way is to look to expand the current products and services to other business units, however, if that is not possible, there are other options. Look for opportunities to codevelop or purchase new products or services that expand upon the relationship, look to expand the product portfolio, and look for opportunities for competitive displacement.
By working with your procurement team to identify strategic suppliers and establish the Win-Win-Win approach, you become a strategic client to your suppliers and mutually benefit from growing your strategic relationship.
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