Telematics and Strategic Sourcing
Telematics
New technologies create new challenges for the purchasing function. This is undoubtedly the case when the functional solution is a combination of products and services from different industries and markets.
Telematics is such an example. It is a combination of appliances that capture data (hardware), transmit data (telecommunication), centralize and process these (software and data hosting). Data processing typically runs in real-time or at least on a frequent basis. Telematics is closely linked to IoT (Internet of Things). IoT refers to a network of connected and smart objects – these share information that leads to more transparency and can initiate specific actions.
The combination of telematics and IoT offers new opportunities to enterprises to further optimize their internal operations and logistics. Real-time information and an improved user experience create new possibilities to attract new customers. For the procurement department this is also a “new kind of spend” because it combines different supply markets.
It is important to make use of these new technologies and innovations in the most optimal way. Additionally, the procurement function needs to rethink how to cope with the new ‘multi-supplier market’ situation. A key question is often how to deal with long-term monopolistic situations and how to break those situations.
Telemetry Project
Hudicor successfully executed a strategic sourcing project on telemetry for a global fuel provider. Fuel levels in the customer’s fuel tanks are remotely measured with the use of telematics. These measurements offer the advantage that fuel can be replenished proactively to never run empty. Another advantage is that the replenishment, the so-called milk rounds, can be optimised. This would lead to lower logistical costs.
Historically, several subsidiaries of the company in a number of companies had already embraced this new technology at an early stage. The advantages of telematics were already proven to be relevant for the end customer. The disadvantage was that the pioneer (device) supplier was able to create a virtual monopoly that he was further expanding. The software was integrated in the ERP system and there was also already a large base of installed devices.
Our Approach: Strategic Sourcing
Hudicor accompanied the global telemetry category team throughout the whole project by applying the strategic sourcing methodology. The goal was to identify possible synergies and realize significant savings, supported by a clear long-term category strategy.
Important building blocks of the strategic sourcing approach are cross-functional teams, deep internal and external analysis, to identify the internal requirements and discover market opportunities, Total Cost of Ownership and fact-based analysis. All these elements enabled the team to define a best-in-class category strategy and to identify all sort of possible levers to realize these improvements in a sustainable way, resulting in improvement that are supported by the organization. Frequent communication throughout the organization is key for success.
Analysis Phase
Telemetry is in fact an ecosystem of different products and services: hardware, telecom, software, on-site installation, maintenance of devices and client apps.
Although most business units had the same supplier, it quickly became clear that there was a large variety of price levels and costs per country for the same functional need. Our team also noticed a clear push from the incumbent suppliers towards monopolisation by only offering an integrated solution. Thus, creating a large threshold against the introduction of alternative suppliers for the devices or services, and also against alternative telematic solutions. Why would you replace something that works? Dealing with monopolistic suppliers and niche players is not that straightforward. On the other hand, the deep dive market analysis also clearly showed that the current solution for the telemetry all-in service was too expensive.
The telematics market is an interesting market with multiple groups of suppliers. These groups are linked to different industries. On the one hand, there are hardware manufacturers, often pioneers in this niche market. For this segment, it is very attractive to also offer related telecom and software solutions, to compose a total package. On the other hand, the software data platform suppliers are both niche players and large-scale global software players that are becoming interested in this market. They too like to get a larger piece of the pie by bringing integrated solutions. This also applies to the telecom suppliers who see the IoT hype as a large growth potential for their business. There are many different starting points and several interested supplier segments who want to offer integrated solutions. However, is this also advantageous for us? The positive aspect is that many companies were interested to become a strategic supplier. This interest was also strongly encouraged during the analysis phase.
Strategy and Go-To-Market Approach
First, we encountered sufficient competition and opportunities in the market. This is an interesting playing field for procurement. Second, telemetry has a direct impact on internal costs and client relations which makes it critical and important for the future success of the company. In conclusion: the most essential element is the software. Software is paramount as it stands at the center of the overall solution. A good or a bad choice of software defines the future flexibility and development possibilities. Therefore, the decision was taken to maximally standardize and centrally manage the software to provide maximum flexibility in this quickly changing environment (IoT, devices). And to source the telecom and devices separately.
The logical next step was to go to market and launch a competitive bid. It was a labor intensive phase in the project but it was extremely interesting with rewarding results. It allowed to realize savings for all the different cost components (TCO) within a range of 40-70%. Not to forget, and important for procurement: it has embedded future commercial flexibility.
Lessons Learned:
- Before going to market, conduct a deep internal and external market analysis as part of the strategic sourcing project. This makes a difference and it is crucial to realize maximum benefits;
- Work cross-functional: the co-operation between Procurement, Operations, IT and the business units was key;
- Define a clear category strategy;
- Concerning the RFX: ask for detailed cost breakdown of TCO components but maintain the holistic perspective and think about the long-term strategy;
- Avoid monopoly situations as much as possible;
- Frequently communicate with the internal customers.
Conclusion
The introduction and use of strategic sourcing in this complex telemetry project enabled the company to optimise its sourcing and overall category strategy from a closed and expensive solution towards an open and market competitive solution. Thus, saving a substantial amount of money. Now, the company is able to maximally use IoT innovations and the related added value, at an optimised total cost, which is the goal for a procurement function.
This is insight was provided by Dimitri Huyghe (Partner) and Dennis Cleopater (Senior Manager).
Interested to discover more? Feel free to contact Dimitri at dimitri.huyghe@hudicor.com or Dennis at dennis.cleopater@hudicor.com
