CEOs are looking to the procurement function to take on a broader and deeper set of strategic responsibilities than ever before. Organizations are facing unprecedented change and disruptions that threaten their future viability. Consumerization, expanding regulatory requirements, pricing pressures, an ever-evolving industry landscape due to M&A activity, and shifts to outcome based pricing are all key forces compelling procurement leaders to reevaluate strategies. In the midst of continuous disruption, one thing is certain. Procurement must disrupt itself to grow and stay in front of change.
What is driving this shift in procurement? One word—digitization.
In a world where most purchasing experiences are available at the touch of a button, customers and employees alike are no longer willing to accept a cumbersome process and extensive delays. The procurement organization of tomorrow will need to evolve from purchasing and sourcing, to enabling a seamless digital experience.
Suppliers, customers, and your organization will need to seamlessly integrate and be enabled through digital platforms, extreme analytics, leading workforce capabilities,and an agile working model to compete in the future.
How should CPOs respond? Leading procurement organizations have developed an agenda to deal with disruption. They are moving into the future with a focus on innovation, supplier and customer relationships, and a decentralized operating model to support the business.
Supplier centricity focuses on integrated relationships. Today’s supplier interactions are largely tactical and lack any real insight or platform integration. That’s why the future of procurement is dependent on creating a new operating model to support supplier centricity; one which drives supplier performance and relationships to a new level while fostering innovation and mitigating risk.
It is not just how a supplier is doing against its contracted service level agreements (SLAs), but also making sure a company’s best suppliers have the ability to bring innovations to the account, resulting in better and more fruitful relationships. In this environment, procurement becomes the relationship broker managing performance and driving innovation, including clearly defined roles for supplier management, procurement, front-line business units, and second-line risk functions. In addition, supplier sentiment helps track how the parties “feel” about each other and fosters deeper and tighter economic and process integration that can be enabled by technology.
An organization can benefit from a supplier that treats its customer as a true business partner, but procurement must open that door for suppliers. Are your suppliers in tune with your business objectives? Are you getting what you paid for? Those are both critical questions, and ones in which analytics and data play a role by providing a means for measuring performance, identifying opportunities, mitigating risk, and helping move the organization from being reactive to one that is proactively engaged with both the business and its suppliers. When your supplier conversations are based on facts, you are able to drive extra value.
Supplier centricity focuses on driving supplier performance and relationships to a new level while fostering innovation and mitigating risks. It includes:
1. Extreme integration
2. Supplier innovation
3. Optimized performance
4. Perfect compliance
What does category management do for you today? Probably not much. Being a leader in category innovation is about supporting the organization to deliver the most optimal commercial model for the organization, and acting ahead of the market as opposed to reacting to the market.
In the procurement organization of the future, the emergence of big data and analytics allows insights for category managers that have not been available before. The organization must have the right systems, processes, and people in place to know how to maximize the value. Only then can intelligent automation provide on-demand insights that will assist with forecasting, demand planning, and should-cost modeling.
Category innovation is needed to unlock untapped value through:
How would your internal customers rate their experience with procurement? If yours is like most, it’s not even a three star rating; procurement is blamed for having outdated non-integrated technology, hard to understand policies and procedures, limited insights on purchases being made, and overall contributing to frustration versus alleviating it.
Customer expectations have fundamentally changed in recent years and this is now making its way from the home into the business world. In the procurement function of the future, customer centricity will likely be a focus in all aspects of procurement including systems, processes, and people. Procurement will be a true business partner, not a spend gatekeeper, and business partners will recognize the value add from procurement and want to work with them.
Customer-centric procurement will likely transform both procurement’s role and behavior through:
Today’s leading procurement organizations recognize that technology and automation will continue to improve all aspects of the procurement operating model, driving efficiency and effectiveness. Manually intensive and administrative tasks must be replaced by new technology which enables self-service, allowing procurement professionals to focus on higher value activities that focus on suppliers and customers.
Technology will serve as the link between data and automation to enable integrated processes and create meaningful insights that will enable procurement to make better, well-informed decisions and guide the business. In the procurement function of the future, intelligent assistants will support everyday activities, key data points will be used to enrich discussions and negotiations, and information will be available in real-time.
The digital procurement platform will enable modernization through:
Data and analytics are one of the cornerstones of the future of procurement and a key foundation for enabling supplier-centricity, customer-centricity, and category innovation. In the procurement organization of the future, previously disparate and fragmented data sources will be seamlessly integrated to deliver easily digestible and accurate data points. Procurement professionals will be the resident data scientists, delivering powerful, real-time, and accurate insights. Integration among functional silos will pave the way toward rich analytics, allowing the organization to shift from:
Category managers will utilize on-demand category insights and real-time supplier risk segmentation based on internal and external (social media, news feeds, etc.) intelligence will be employed. Further, embedding of subscription services will help drive data accuracy and richness.
An augmented set of skills is needed for the future of procurement. Commercial acumen will always be a staple, but being empathetic, technology conversant, and analytically fluency will become minimum requirements. The next generation of procurement will be expected to engage in category strategy, category innovation, and top of the value chain activities that allow the employee to see the results of their work—well beyond the cost savings metrics.
Procurement, like most other functions, is dealing with future workforce challenges and needs, including:
Every organization and function knows that the future requires different and flexible operating models to keep pace with the changing landscape. Technology disruptors will naturally drive the automation of low value tasks, moving the workforce to higher value activities such as category innovation. However, even these higher-value activities will require a high degree of cross-skilling to allow the workforce to flex based on current priorities. In other words, having category managers managing one category in an endless loop will become rare. Rather, implementing flexible models may include the ramp up and ramp down of specialist resources, who take advantage of external insights and will help to execute more with less.
For procurement, the effectiveness and measurement of operating model value will no longer be linked to only “how much have you saved” feedback from suppliers, customers, and other stakeholders, but rather, how they “feel” about procurement will likely be a key measurement.
An agile operating models ties it all together, and includes:
Structure—procurement’s role, size, shape, automation, and delivery model; the procurement organization structure will be lean, right-sized, and focused on higher-value services
Decisions—methods, decision making, and governance; strong continued importance on simplifying the governance and decision authority frameworks with cross-functional alignment
Culture—behaviors within the organization; more proactive focus on defining the right culture needed to support the procurement strategy and sustain long term value
Capacity for change—ability to undertake and manage changes; continuous improvement, Kaizen, innovation, and future proofing to be agile and continuously improve
Performance management—process and measurement of organizational performance; procurement effectiveness at the enterprise level will be a key indicator for success along with a clear line of sight into what drives value for the organization
Leadership—strategy, direction, support, and communication; cross-functional and cross-business-unit leadership involvement will be more prominent; procurement leadership sets the stage and drives accountability
It’s no longer business as usual for procurement. The scale and speed of transformation required to address the mix of disruptors impacting procurement is unprecedented. The key to success is to proactively develop a blueprint for how your procurement organization can turn these disruptors into opportunity for competitive advantage and growth. This is what the future requires of procurement, and this is where it starts. Contact us today to learn how we can help.
Questions to consider:
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