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Future of Procurement – Innovation

Recently we had the opportunity to get our VP of network growth, James Marland, in the same room with Andrew Bartolini, who is Managing Partner and Chief Research Officer at Ardent Partners. This resulted in four interesting conversations around the topic, “The future of procurement.” The first conversation revolved around procurement innovation, which can be listened to in its entirety here:

James and Andrew discuss how procurement is changing, and some of the driving factors behind this change. This is a  topic that I also covered in the article: ‘The End of Procurement’. The article is from the perspective of DSM, a leading life sciences company where one of the main drivers to innovate procurement was an expected future scarcity of resources.

Changing markets
Andrew points to another driving force that requires procurement to change; the increasing pace of innovation in the marketplace. This increase also causes procurement to take a leading role.

“We’ve seen innovation in industries like consumer electronics where market leaders shift to market laggards in a matter of 2 or 3 cycles, over the course of just 1 or 2 product releases, this puts procurement at the front of business as we think about the relationship it must manage on the supply side in particular.”

The technology sector is not the only place where the ability to take advantage of innovation in the supplier base has become critical for long term survival.

Andrew says, “What this has done is that no company can afford to go at it alone anymore. Companies have become much more reliant on their supply chains to drive business value.”

On the role of technology

Technology has traditionally played an important role in the development of the profession, partially because of the visibility it provided. This enabled procurement to showcase the potential for savings and the potential impact on profitability.

Andrew stated, “To be able to grab and aggregate data, the spend that provides visibility really became the catalyst to this next move where you have a Chief Procurement Officer, key point of contact, leader of the procurement organization in about 90% of organizations, a role that simply didn’t exist for most companies a decade ago.”

Now, the role of suppliers is being reevaluated and suppliers are seen more and more as assets that warrant regular investments, and not just a source of cost. Technology is helping to bring in the next phase of innovation. For instance,  removing obstacles that hinder a productive cooperation with suppliers.

“Remove all of that noise and that allows you to then get into more proactive conversations that are about business goals and objectives that you and your organization have over the next 3 to 5 years and getting the alignment from your suppliers and getting them vested into those goals and objectives.”

How Procurement is taking on extra responsibilities

Removing those obstacles and automating the basics has become a requirement also demonstrated by procurement taking on additional initiatives. This development is putting even more pressure on procurement departments to essentially do more with less.

“With procurement being tasked with other initiatives like supplier risk, like accounts payable, broader initiatives like contingent workforce management, like business travel. All of these area’s require business resources. With these responsibilities doesn’t come a full headcount, you have to be efficient, you have to be smart and automating something like the sourcing process and capturing that information so that when the contract is due you are starting 70-80% down the road.” -Andrew

Understaffed departments are the new normal. This means that organizations have to work smarter and have to be more agile. There is an opportunity cost for every project that they take on.

A changing workforce will impact procurement

To make matters even more challenging businesses  are facing a new workforce at the same time. According to Andrew, talent acquisition and retention is one of the biggest challenges that CPO’s are facing right now. As employees have become more mobile, day to day sourcing practices are directly influenced.

I read a statistic recently that the average tenure is 3.8 years, the average procurement contract may be 3 to 5 years. So it’s quite likely that every time I am resourcing a category, the guy who originally sourced it is no longer with the company,” said James Marland

Which is why according to Andrew, “You can’t afford to reinvent the wheel with procurement organizations being tasked with doing more with less.

I think James and Andrew have raised some very interesting points here. How do you see procurement dealing with some of these new challenges? How is your organization handling them? What opportunities does it offer to procurement?

Please stay with me for the next podcast which discusses the role of Risk within procurement.

In the meantime you can listen to the webinar replay where Andrew Bartolini discusses the current state of procurement and future strategies for success. Registrants get access to Ardent’s CPO rising 2015 report that is based on the responses of 318 CPO’s and procurement executives.

Or you can register and join hundreds of peers live at Ariba Live in Munich, June 8-10. You can see the current line-up here.

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