Procurement is likely to evolve significantly over the next 20 years. Many challenges will transform Procurement, challenges which have the potential to disrupt the dynamics of current supply chains. The Procurement profession needs a constructive debate about where we want to be heading during the next decade.
Aligning not just of goals but also thinking about where the profession can add value is potentially the biggest challenge ahead. The procurement leaders of tomorrow will have to adapt to the rapid evolution and change we foresee for years to come:
1. Procurement teams will need to attract category managers with backgrounds in education and professional services, who can develop next generation approaches to supply risk management. The new supply professionals will be ‘students of their own industry’; they will know everything about it, from the science, economics, law and politics of their supply markets on a global scale. There will be intense competition to attract the best and the brightest into the profession. This shift in finding tomorrow’s procurement leaders will mirror the overall transformation for all procurement teams.
2. CPOs will have to handle globalisation capably to start developing expertise in local emerging market sourcing, and in other developing economies, where true competition in global markets lies, and, at the same time, other lower-cost sourcing opportunities will emerge. Professionals have to work in an age where the global centre of gravity has shifted from west to east. The role of the procurement professional will be to secure supply into, as well as from, those nations. Organisational requirements for global sourcing and managing a network of international suppliers, as well as a growing need for diverse teams to be based on the ground in far-flung locations, means that the CPOs will be affected by this trend more keenly than most.
3. CPOs will begin to play a critical role in sharing information about internal and external costs throughout the organisation; they will need to broaden the skill sets of their procurement and financial teams; help their organisations adapt to the complex challenges of managing the global supply base; develop financial insight that rivals those of their finance counterparts, and will need to start tightening the relationship between finance and procurement. Procurement teams need to broaden their skills sets; they will need to develop financial acumen.
4. CPOs will serve as a primary channel for finding new ways to create value from the global supply base; they will need to gain a better understanding of the role outside entities play in driving innovation and expanding their expertise in engineering, design and new product development. The increase in possibilities brought about by technological developments will free up procurement professionals to focus on more strategic tasks. The coming decades will bring information and models that look forward as procurement intelligence moves into context, with full visibility of spend, risk and performance available by the end of this decade. Ready access to accurate, timely, structured internal and external business intelligence will create unprecedented capability to synthesise information in support of decision.
5. There will be the need to orchestrate complex outsourcing and service management arrangements, moving toward establishing collaborative outsourcing. As procurement and supplier communities collaborate, buyers and sellers will increasingly rely upon digital trading networks and communities that allow them to connect quickly. Companies should learn as much about their potential partners as they need to carefully consider the risks, such as poor environmental practices, risk mitigation, transportation delays, language barriers and corruption. Manufacturers often lack sufficient monitoring of suppliers when setting up sourcing halfway around the globe, with resulting risks for product quality, intellectual property protection and corporate reputation.
6. The increasing acceptance of information transparency will amplify the degree of scrutiny on procurement organisations. Doing business in a more transparent society will require to go far beyond “corporate social responsibility” and actively participate in a wholesale revaluation of the corporate-social relationship.
7. The wider political and economic environment will become even more relevant to global organisations in this context. Risk management across all procurement organisations has to become far more focused. It needs to work more closely with the corporate risk unit and across other business units to understand all risks. With teams spread around the globe, procurement will increasingly find itself managing virtual networks of suppliers, stakeholders and internal customers, drawing on powerful new social media channels to communicate. The scope of risk analysis must include financial, operational, strategic and environmental risk. Converging trends will make supply relationships even riskier. Risk information must improve, as the awakening around supply risk demands a sharper focus. Risk mitigation has to be measured by appropriate KPIs integrated within the overall procurement approach to risk. The ultimate goal of an effective and comprehensive supply chain risk management strategy is to embed risk awareness into all the core elements of the organization. Ideally, this goal can be accomplished through the construction of a formal, cross-functional supply chain risk management team that offers a full “cash-to-cash” view of the supply chain’s internal and external constituents.
8. Buyer/seller lines will blur, as supply management professionals seek to extract more value from suppliers by leveraging supplier resources and integrating supplier functions with their own. Tighter integration and heavier reliance upon suppliers means that the latter are gaining more leverage in the buyer/ supplier relationship. A transition from ‘buyers and suppliers’ to ‘integrated supplier networks’ will enable greater co-ordination of innovation across connected businesses and industries. Suppliers will gain power.
9. As big data is increasingly intertwined into corporate decision-making, quantity and quality of third-party procurement services will increase dramatically. Processes, best-in-class procurement organizations will need to become more comfortable with advanced data mining and analysis techniques. CPO will live in a vastly different data-driven world, one in which they will have access to real-time updates on transactions and financial activities across a wide spectrum of the organization. Leading companies need to begin assessing their master data, data management and analytical capabilities and ask how those skills and technologies need to evolve in the coming decade. Data analysiswill make market pricing transparent via e-sourcing, global trading networks and online communities”. With this will come full visibility regarding spend, risk and performance, providing ready access to accurate, timely, structured, internal and external business intelligence.
10. Increasingly, too, we are seeing organisations share risks and rewards. As managers get better at segmenting, defining and measuring value, they will start to incorporate both gain- and risk-sharing into commercial relationships with suppliers. CPO will accept greater risks in commercial relationships with critical suppliers.
11. Proximity to the supply base will become the ‘new normal’. Companies may put so much emphasis on low-cost sourcing that they ignore the business environment into which they are moving. Legal contract enforcement, shipping barriers, infrastructure, labour and environmental practices, and degree of control they will have over what goes into the products they are buying. None of these issues may be deal-breakers in and of themselves, but they have helped to fuel renewed interest in nearshoring, a hybrid offshoring strategy that brings some production closer to home. It’s been reported that manufacturing and retail executives expected to increase their nearshoring sourcing and manufacturing activities by a factor of 5 to 1.
12. Volatility in consumer demand is one key reason for considering nearshoring. Offshoring may require longer lead times for product delivery and in some cases result in the risk that companies will be unable to react to spikes in product demand. Understanding how infrastructure—roads, ports, telecommunications, export rules and bureaucracy—can impact how long it takes to move products from manufacturing sites to assembly or customer destinations, a choice on nearshoring dependent on the careful consideration of cost, logistics and quality.
11. Sustainability will drive innovation for smart organisations, either through engaging small businesses or ‘green’ applications where there are advantages to be gained. The US considers itself as the ‘differentiator’ in all matters CSR and will define tomorrow’s standards. Supplier diversity has long been part of business, encapsulated in law, and an aspect of procurement’s role. Social inclusion has equal weighting to environmental considerations. Europe leads the world in ‘green’ supply chains. In the UK, legislation including the Carbon Bill, the Equalities Act and the Remedies Act will all directly affect supply chains.
12. Social media applications for business will radically change how business is done. Leveraging these tools will maximise the benefits to be derived from open innovation.
What are you doing to prepare for these marketplace drivers - where you will be able to gain first move advantage.
Would love to hear your thoughts
Dave Food