Wake up. New era of Procurement is already here!
What is ‘Procurement’ anyway? How do we define Procurement? Is it a function, a profession, a calling maybe? It is definitely not related to ONLY ONE of the terms mentioned.
According to Merriam Webster dictionary ‘to procure’ means: ‘to obtain (something) by particular care and effort’ (1).
Let’s focus on two keywords, ‘Care’ and ‘Effort’. Care in Procurement usually means Best Value for Money, i.e buying the right item for the right price, from a right place at a right time and in the right quantity or amount. Is it only that? Think again. In today’s world supply chains can be very complex, especially when dealing with multi-tier suppliers. Transparency of the materials your organization is buying is not always available, which means you could end up supporting modern slavery and child labour within your value chains. I think this can also relate to the ‘Care’ part, don’t you?
And what about ‘Effort’? Only professionals working every day in procurement organisations are aware of how much effort they engage to get the job done! But the real question here is; on which activities do they usually spend most of their efforts on? In the end nobody is asking how much effort you spend on your task, but what is the result? What did you achieve? Did you consolidate your supplier base on certain categories for the current year? Did you achieve target savings on your regional tender? What alternative product solutions did you provide for your internal stakeholders with your strategic sourcing exercise?
The point is that usually Procurement team efforts in many organisations are being used for heavy transactional, manual, one-way negotiation and administrative tasks. Yet in today’s world these tasks are already automated and done in a smart way by using available technology which frees up much of the time needed to get the real job done i.e. to obtain value for your stakeholders by particular care and effort!
There is no real value added in traditional operational and tactical procurement tasks. This reminds me to refresh my mind on how I ended up in Procurement.
Of course I always wanted to work in procurement as soon as I finished my studies as that was always portrayed as being the best possible career for a young inexperienced business graduate. Right? No. Of course not. During my undergraduate studies professors did not mention procurement once. As with most of the procurement professionals today I actually ended up doing it by chance. I literally never envisioned myself working in Procurement.
After all this, an obvious questions is; should I stay in the Procurement profession? You can bet I WILL! Why? Do you know that up to 65% of the value of a company’s products or services is derived from its suppliers? (2) How important is that? You can be sure, new times are coming and this is the most interesting time to be involved in procurement. The key is in education! As in any profession you need to keep up with market developments to stay in the game. Why should Procurement be the exception?
Procurement needs to re-invent itself. As always, there is still a big push from business to treat it as only a support function without real value generation to the core business of the organisations. There are a few points indicating that the Procurement function is going through an identity crisis, which I will try to address here.
A lot of successful organisations today are considering outsourcing internal Procurement Units support to ‘Shared Procurement Service Centres’. which take over all operational and tactical procurement responsibilities of an organisation. These centers are becoming highly automated and will need much less (or none) traditional buyer and procurement specialist roles to operate properly.
Some large corporations do operational procurement in a decentralized way, not benefiting from scalability optimization that such projects can bring. This is also about to change very soon. It is only a matter of time before future and local business units will be left out of the Procurement workforce. This is not bad news after all, but it will bring a definitive disruption to the procurement professionals’ marketplace. In fact, this is opening a new space for Procurement professionals, enabling them to focus their efforts on new areas and to extract more value from supplier collaboration in their supply chains. This will also enable new, more efficient experience of business-to-business commerce for internal stakeholders and create new forms of procurement, such as self-procurement. Business owners will be raising purchase requisitions with already available consumer-grade experience existing in cloud and e-marketplace technologies. This will minimize the impact of maverick buying with incorporated internal approval workflows fully compliant with the organisation’s internal spending policies.
What does this all mean? Procurement professionals will have more time to focus on obtaining real value for business by particular care and effort by using new skills and knowledge outside of the traditional procurement toolbox. 52% of the procurement organisation’s time currently is spent on transactional activities (3). With automatized Shared Procurement Centers and emergence of self-procurement, this will no longer be the case. Procurement professionals will be closer than ever to business and their internal customers.
What makes this procurement transformation possible, and which simply cannot be left out is the procurement digitalization process. Today business operations are changing very fast and new markets are created every day. Given the tremendous speed of change, there is no time for old procurement processes.
Big pressure is on for the creation of consumer-like procurement processes to mirror the customer experience of business–to-consumer e-commerce (e.g. Amazon), with built-in automated control workflows to drive compliance. Let’s not forget that Cloud technology is actually allowing this already! Recent huge growth of e-procurement markets (the compound annual growth rate is 10% per year to 2023!!) (4), Cloud technology, Blockchain, IoT (Internet Of Things), AI, Robotic Process Automation (RPA), Big Data, Machine Learning, Predictive Analytics, Data Visualization Tools and Infographics and other digital technologies are having a huge impact on higher accessibility to technology by business.
This also drives more competition in the procurement technology market with consequences on lower technology adoption costs. Deployment of Software-as-a-Service solution available for Source-to-Settle processes is also much quicker, easier and costs much less for organisations today than it was to deploy Purchasing modules in back-end ERP systems. Businesses will also be concerned not to be left behind and overrun by competition, which will happen if they don’t optimize their procurement with digitization of their processes.
So, what is left for Procurement? What will current Procurement professionals need to focus on in future if they are to survive?
First of all, focus should be on data quality and decision making based on well-structured data, not on pushing suppliers to fulfill your needs in every situation. Do you have data analysis skills or have the inclination toward data science? Yes? A new world of opportunities will be opened for procurement data scientists. Procurement data scientists will become the professionals that are able to successfully extract and present relevant data in a way that empowers procurement leadership and C-level executives to make valid decisions about their businesses. Modern data visualization tools will enable procurement teams to create and present procurement and sourcing strategies to product design teams, which will involve them in the the opening stages of every project in the organisation.
In order to Revitalize Procurement organisations innovatively and stay on top of the value chain, procurement professionals need to refocus their skills and acquire knowledge and perspective on a much wider horizon than in the past. Besides analytical skills, procurement professionals of the future need to gain marketing and business acumen, educate themselves in Internal Control, Corporate governance and Risk Management areas. The Biggest challenge will be to get the stakeholder’s trust that Procurement still CAN bring value to the supply chain and get closer to customer’s needs.
I believe it CAN! Do you?
Stay tuned for our next chapter on Procurement Revitalization Process on our AICP LinkedIn group!
- An SAP Perspective Procurement 2025, January 2018
- SAP Performance Benchmarking