Current State of Procurement
Working with some of the world’s best companies has given me a good view of procurement and supply chain over the years. As we exit 2019, we’ve made much progress, elevating the importance and status of our profession. Many firms have clearly articulated strategies that deliver year on year price reductions, restructured operations to separate transactional activity from strategic activity, and have designed multiple supply networks to meet the needs of specific market segments.
Overall, as procurement professionals, we have failed to progress developing rigorous category strategies, planning, and fail to optimize the opportunities available from detailed plans and well-executed cross-business/cross-functional business category strategies. Many of the firms I have visited in the last three years are just now embarking on developing a category planning approach. Many companies are still working with a centric, functional approach rather than recognizing that procurement is a business-wide process. Many businesses tend to have an annual, sometimes even quarter by quarter, business horizon rather than a forward-looking multi-year strategy. Many firms have not sufficiently invested to leverage technology to manage the current state and are in no position to look to the future state where data analytics and digital disruption will be a way of life. With robotic process automation, the internet of things, and automation with Artificial Intelligence are considered futuristic, and the reality is that they are here now. Data scientists are in high demand among progressive procurement, and supply chain-oriented companies.
The most surprising thing to me is that most companies do not have detailed maps of the suppliers in the supply chain. For me, this is some of the most critical intel a procurement or supply chain executive must have. It is impossible to have social responsibility, anti-slavery/forced labor, environmental or risk management programs without knowing all the suppliers in the supply chain. Knowing just the suppliers in tier one is not enough.
While we have made significant progress in the past decade, the challenges of a rapidly changing environment will force our firms to have renewed strategies that are forward-looking. The days where we chased low-cost labor around the globe are in our rear view. Far too often found out too late that our source of low labor costs put us at risk from natural disasters, political regulation and was temporary at best as standards of living are on the rise. In all cases, automation offsets low-cost labor. Robots work 24 hours a day, 24/7, never get tired or sick, and quality and productivity are consistent. Another lesson is that many organizations are building facilities close to the markets they serve in smaller footprints, making the supply chains more secure, agile, and flexible.
Strategies for the next decade
- Enhance category management and develop robust strategies that are forward-thinking
- Redesign the procurement process with the understanding that is a business-wide process with many owners, not a functional activity
- Invest in bringing the technology up to manage the current state. Many companies are reluctant to invest in technology. Failure to do so will put the company at a competitive disadvantage and perhaps extinct
- Build a TCO approach focused on total value. You could be getting low prices but higher production or management costs
- Develop full supply chain maps of the supply chain along with real social responsibility and risk management programs
- Provide the procurement teams with a comprehensive business orientation; in the past decade some organizations have compartmentalized jobs. When this is the case, individuals and groups fail to understand the business, company, and business strategies.
- Manage succession planning and develop bench strength and a continuous recruiting
- Develop a supplier relationship management program that rewards innovation, speed to market, business alignment and value contribution
- Develop the individuals and teams in your business. Many groups need a program that goes back to basics and develops the population to build, drive and execute well-planned category strategies
- Develop and train procurement leaders to look forward and create new processes, systems, and comprehensive business programs to cope with digitization, disruption, rapid product change, and supply chain agility
The changes I have seen in procurement have been challenging, exciting, and thought-provoking. The reality is that we are at the crossroads of change. While you may not agree with the current state of procurement and strategies for the future, I urge you to assess your organization and make a strategic commitment for the decade ahead.
Are you ready for the 2020s?