I recently read an article about the “future of procurement,” in which the authors highlighted how the procurement function will evolve from one exclusively focused on cost control to one that plays a vital role in the organization. Words such as “total value generators” and “solution developers” were used to describe what was set to be the new role of procurement professionals. As I read this, it felt like déjà vu: you know, when you experience something that you’re sure you’ve experienced before
Why are we still talking about “value beyond cost” as the future of procurement? The same narrative has been around for at least a decade.
Capgemini’s CPO survey from 2010 highlights how procurement leaders shared their vision for using the economic crisis as a springboard to elevate the function’s role. Back then, there was a similar vision for “the future of procurement.” It used slightly different words, but overall carried the same message: Procurement is set to do much more than deliver savings. Fast forward to 2019 — a Gartner survey ranks supplier relationships and responsible sourcing as higher priorities than merely delivering cost savings.
Why do we keep hearing the same story over and over again? The answer is simple: in most cases, procurement as a function has failed to evolve. Of course, there are exceptions, where a handful of procurement organizations are regarded as a source of innovation and key to their organization’s competitive advantage. But based on hundreds of client conversations and endless articles highlighting how procurement is set to evolve, the critical mass of procurement organizations is still lagging.
A Second Opportunity for Procurement
Almost a decade ago, procurement played a leading role in helping organizations survive the 2009 economic crisis by supporting recovery and fueling growth. Some procurement leaders used the limelight the crisis offered to evolve their role in the organizations, but many of them quietly faded into the background once again and failed to capitalize on the opportunity.
The COVID pandemic has given procurement a second chance to play a leading role. What started as a “supplier issue” quickly became an end-to-end supply chain issue, where procurement had to play an active role in planning for customer demand shifts, understanding business product strategy to prioritize supplier capacity and anticipating supplier financial failure. All of this with a relentless focus on securing supply availability, controlling costs and protecting cash. Once again, as we see procurement in the limelight, the question is: will it capitalize on this opportunity or will it fail — yet again — to evolve its value proposition?
The Road Ahead
COVID will undoubtedly have a profound impact on how companies operate and how they win over customers’ hearts and minds. Priorities and business strategies will change. When things are in flux, people’s minds open up and everything is possible. It’s time to shape procurement’s role once and for all.
Procurement organizations that have evolved in the last decade share three common themes. These are: a willingness to experiment with digital technologies to drive efficiency; a fundamental shift in how they collaborate and innovate with their supply base; taking a lead role in enabling the sustainability of their supply chains through responsible sourcing.
- Going digital. While most still focus on gaining spend visibility, leaders are experimenting with advanced use cases. For example, cases include using analytics in high tech to identify the best time to replace a component based on its life cycle analysis or anticipating supplier performance given an increase in demand. The Danish shipping company Maersk has taken robotic process automation as a key enabler of efficiency, deploying its “Holger” robots to automate repetitive tasks, and in some cases, handle parts of the requisitioning process.
- Redefining supplier collaboration. Much has been written on this topic for over a decade, using a slew of terms to describe it such as supplier relationship management (SRM), supplier collaboration and innovation (SC&I) or even TrueSRM. These are different terms used for the same desired outcome. The real difference lies in whether companies are truly able to evolve their approach to how they create value with their suppliers. And it’s not just about finding a handful of strategic suppliers to partner with. It’s about ensuring that a critical mass of suppliers regards your organization as a preferred customer. This means launching a holistic approach to strengthening such relationships, whether it’s recognizing suppliers for their contributions as General Motors does or enabling established suppliers and startups to innovate on your behalf, like AkzoNobel’s “Paint the Future” supplier innovation ecosystem.
- Taking sustainability in the supply chain beyond compliance. For some, responsible sourcing efforts mainly focus on managing risks by ensuring supplier compliance to minimum requirements. For leaders, responsible sourcing is an opportunity to enhance their brand’s value proposition and win customers over. Procurement teams at Intel and Unilever are going much further than compliance and dedicating resources to upskill their supply base where needed to ensure sustainable practices. BMW recently announced it will include suppliers’ carbon footprints as a decision criterion in its contract award processes. Other companies like Mars, Diageo and ABInBev have taken this even further, establishing the role of chief procurement and sustainability officers.
Procurement missed the opportunity 10 years ago. Today, it has a second chance. The question is: will procurement use this opportunity to stay relevant, or will it quietly fade into insignificance once again?
Gartner Supply Chain