Some provocative thoughts on the future of the supply / procurement profession
“The function must re-invent itself or it will not survive”.That was what I said in France last week – and the audience –primarily current or former Chief Procurement Officers –appeared to agree. Indeed, one made an analogy with thePony Express, put out of existence almost overnight by thefinal link being made in a new technology, the telegraph.It was in this context that we wrestled to address questionsover the future role and purpose of the Procurement function.They did not doubt the need to buy things; they simplywondered what need there would be for ‘a profession’ tooversee the process.While it is certainly possible to redefine and extend the rolethat today’s Procurement practitioners could play, there areat least two major challenges. One, of course, is the nature ofthe skills or knowledge required, relative to those held by theincumbent community. The other is the openness of others inthe business to the expanded or altered role that is envisaged.In this context, the issue is not only whether they feel theactivities need to be undertaken, but also whether they viewProcurement as the right place for them to be done. Giventhat many other functional groups are also busily redefiningtheir future role, there is potentially a lot of competition.
It appears to not offer a comforting message. Specifically,even in those areas where Procurement executives believethere is potential for the function to expand, there appearedlittle receptivity by other parts of the business to allowingthem to do so. Indeed, the best hope was in shifting to a moreholistic role in determining total business cost associated withpurchasing decisions, yet even here there was resistance bythe Finance executives.Another catalyst for change and re-evaluation ofprocurement’s effectiveness and worth seems to come froman unlikely source. Will the European horsemeat scandal atlast lead to a rebalance in procurement measurements?Yesterday the debate turned to whether the food chain isbeing threatened by a focus on price. According to the head ofone major retailer, it is the only basis on which business canbe won.Over the last couple of years, the voices calling for less focuson price and more on value and outcomes have increased inintensity. Many – including those within the Procurementprofession – have grasped the negative effects of anunrelenting focus on input costs. This focus simply does not
generate long-term cost reductions – and it results in manyunwanted outcomes.The European horsemeat crisis would be a rather ironiccatalyst for change, but certainly welcome. The constant pushfor lower price as the only way to win contracts inevitablydrives unscrupulous behavior. But which side truly lacksmorality in this situation and how should we altermeasurements to secure better results?A second aspect of the horsemeat affair is that we areimmediately into the blame game. This is also typical of poorlymanaged procurement systems, in which performancemanagement is often a post-mortem rather than an activeand collaborative discipline.So let’s take 2020 as our notional year for our predictions.Let’s start the discussion with a brief look back, to helpunderstand how our profession and the procurementprofessional have developed over time. That helps to givesome context as we look into the future.1960s – Procurement grows in importance, particularly inmanufacturing. People need skills in planning and stock
management – getting the right materials to the right place atthe right time is key.1970s – Commodity price volatility and inflation emphasisecommodity buying and trading . Trading and negotiating skillscome into their own as those procurement skills are needed ina challenging economic environment.1980s – Procurement expands its reach - services firms andthe public sector take an interest, ERP is invented A widerrange of general management skills is needed, with the abilityfor procurement to work internally as well as externallybecoming more important.1990s – Globalisation, outsourcing, and technology advancesadd to the procurement scope and the growth of tools such ascategory management Procurement people need to be moreprofessional and analytical, with an understanding oftechniques, processes, technology and systems.2000s – The Internet revolution impacts procurement: moredata becomes available whilst strategic sourcing, partnershipworking and corporate social responsibility come to the fore.From a corporate employment perspective, the one role thattypically has been safe, is strategic sourcing.
My epiphany regarding macro-economic change andtransformation occurred during this time period, the early2000’s, while working for a management consultingorganization. After leading the offshoring of a client’s datastorage capability to Guadalahara, I had the unfortunateexperience of having to make 12 of 18 jobs redundant –effectively sending these jobs from the United states, abroad.This was my introduction to the world of outsourcing andoffshoring, and it’s a trend that continues, even isaccelerating, today. From my part, I moved on to lead a teamof 175 procurement professionals at France Telecom. Today,those jobs don’t exist anymore because they sit in Cairo andRio, under the leadership of an outsourced service provider.Good news is, if your job isn’t outsourced to an offshoreprovider, there is a future in supply and procurement. Theroles will change, and skillsets will change.The ability to workcollaboratively with colleagues and suppliers and thinkbeyond cost into wider business and social values is vital.Identification of supply and supplier risk – risks beyond purelyfinancial risk issues. , effective supplier relationshipmanagement, leveraging supplier-driven innovation… all arebecoming into focus and will be key differentiators for thosefirms wishing to optimise their value creation through supplymanagement.
But will outsourcing survive?Take Boeing.I am sure the analysis into Boeing’s problemswith the Dreamliner will continue for some time. At present,there seems to be a growing consensus that ‘outsourcing’ wasto blame.My understanding is that management in the 1990′ s wasreluctant to commit funding to new aircraft development –especially on the scale needed for a concept such asDreamliner. This resistance was overcome through a creativesuggestion – to outsource almost 60% of the work to externalparties and thereby slash the investment required fromBoeing.For the finance executives, this was an attractive solution.However, it seems that there was inadequate thought given tothe implications of managing a portfolio of outsourcedsuppliers. This model was not the same as traditionalprocurement or project management. It required anorganization capable of managing commercial relationships,equipped with the skills and tools to integrate across multiplestakeholders and ensure alignment of performance.My suspicion is that Boeing did not make the investmentsneeded to manage this complex network of relationships. It
most likely relied instead on traditional skills that lacked theinsights or the flexibility needed to succeed. This was probablya classic case of failed ‘commercial assurance’, driven by over-reliance on technical and financial skills, coupled with contractmanagers trained in standard administration procedures.In the end, I doubt that outsourcing itself was the problemwith Dreamliner. It is more likely that senior managementsimply did not grasp the organizational and operationalconsequences of an outsourced development model andtherefore lacked the skills, tools, insights and managementsystem needed to achieve success. If that is the case, they willcertainly not be the first to learn this lesson.So will Dreamliner kill outsourcing? I think not. There truly areeconomic and commercial benefits to be gained fromoutsourced relationships – but they can be secured only whenthere is organizational adjustment capable of overseeing thisbusiness model.Looking beyond the 2000’s, it is evident that the degree ofchange, complexity, speed and access to intelligence willcontinue to accelerate. Given this degree of change, agilityand adaptability will be key traits for you to cultivate if youhope to keep up with the accelerated pace of change. Staticand slow-moving procurement organizations will completely
lose their value propositions and be rendered either obsoleteor shifted offshore to some low-cost country for efficiencypurposes. If that happens, what are the implications for futureprocurement organizational design?I t is also clear that technology has impacted procurementconsiderably, and that we’ve moved away from a focus onphysical supply to much wider questions around value.It is likely that many organisations will face economic and geo-political uncertainty, maybe even turmoil.One prediction I can make with some confidence is that thepace of procurement technology development isn’t suddenlygoing to slow. The increased opportunities to use technologyfor the benefit of the organisation will become even morevital than today for most functions and professionals.So, what will it take to survive and shine in the new supply andprocurement universe? From a skillset perspective, supplyprofessionals will need to blend an effective internal andexternal focus; and a combination of relationship andtechnical or analytical skills.You will need to be:
A DIPLOMAT - worldly, sophisticated, connected but tough.Success for many organisations will depend on access toscarce resources, and for larger firms in particular, an ability towork successfully within organizations, as well as suppliers orsupplier communities. As a point of rer=ference, one bank inCanada is now hiring resources to work within the sourcingdepartment whereby the primary focus on skillset isn’t thesourcing process, it’s selling sourcing’s benefits to thebusiness and spend owners at large. They realize that withoutalignment, the procurement department would be less thaneffective.I see this understanding of what we might call “responsibleprocurement” as being key for the procurement person in2020. And yet, responsible procurement must be allied with ahard headed, practical and pragmatic understanding of how tooperate in a global environment. That also needs strongnegotiation skills – but not a simple power based, “beat thesupplier across the head” approach! We will need subtletyand sophistication.Being a Diplomat will require toughness as well as charm. Itcan be a dangerous world.You’ll need to be an ANALYST – understanding global trends,data, markets and suppliers. While the Diplomat focuses on
relationships and direct personal contact, the Analyst isimmersed in primarily external date, information, and news.Their job is to turn that into actionable insight which enablestheir organisations to gain competitive advantage. That couldbe analysing commodity markets. It might be gaining an earlyunderstanding of supply chain risks or actual risk events. Oridentifying new suppliers who have cost or innovationadvantages that the organization can exploit. In a connectedand on-line world, there is already more data available thanwe can visualise or, in most cases, use effectively. Technologydevelopments – such as “big data” products and initiatives –will make it easier to handle this overload, but only for thoseindividuals and organisations that embrace the opportunitiesand put the effort into becoming appropriately skilled. Andour Analyst will be at the forefront of making sense of all thisdata for the benefit of the organisation.You’ll also will need to be an INVESTIGATOR – using internallygenerated data to drive value opportunitiesWhilst the analyst focuses externally, this face is internallyorientated. Procurement professionals will not, I believe, needto be deep technology experts in 2020. Indeed, the strongtrend I’ve seen in the last couple of years around usability as akey factor for systems will continue as software becomesmore intuitive and even business solutions have a consumer-type look and feel. However, procurement executives must
be comfortable with the use of technology, and mostimportantly, have the capability to exploit that within theorganisation. This means being able to understand, work with,manipulate and interrogate the increasing amounts of internaldata that will be available via the technology. Whether it is inthe context of the information available from ERP systems,spend analytics, supplier information and risk managementsystems or wider market and supplier data, the skill for theprocurement professional will lie in; knowing what the mass of data means; understanding how to use it, drawing conclusions anddeveloping actions based on it; and developing the next level of questions to interrogate thedata or the systems further (for instance, going back with theright “what if…” questions in advanced sourcing scenarios).The focus will be on identifying further value opportunitiesfrom the data. Where could the organisation usefullyaggregate spend further? Are there compliance issues incertain departments? What usage trends need watching tomanage costs or stockholding? Numerical analysis, reasoning,and problem solving skills will be enhanced, in the very bestInvestigators, by a streak of creativity – the ability to take thedata and make a leap to an extraordinary idea or conclusion.
And finally, yes, you’ll need to work on your LEADERSHIP skills– working with internal colleagues to deliver organisationalvalue It is ironic that whilst technology becomes more andmore powerful, and data more prevalent, we realise that themost successful procurement people are those who caninfluence, persuade, and motivate colleagues and keystakeholders within their organisations. That requires a rangeof skills that can be called on at the right time. Factors such asthe ability to listen well, persuasion, empathy, independence,judgement, presentational skills, even charisma (which isimpossible to teach) come into play here. This role forProcurement is sometimes described as acting as a “businesspartner” within the organization.“Consultant”, or “Adviser”,are other terms that capture some of what I am talking about.But all of these in some way suggest procurement issupporting something separate that is “the business”. Myvision is that procurement must be seen as an intrinsic part ofthe organisation, with a vital role to play, not standing outsidethe core business merely as a support function.So I don’t see procurement disappearing. But I do think itneeds to change. It needs to move away from the dominantfocus on unit cost reduction that still prevails in manyorganisations, to playing a wider and more fundamental“enabler” role in the organisation. I see the procurement roleas “managing the value the organisation gains from its
dealings with the external world of suppliers and potentialsuppliers, and understanding the underlying business driversand requirements of the business”.An anonymous procurement executive at a Fortune 500software company relays this scenario: "Anything thats notstrategic is being put on the discussion block for outsourcingand offshoring. We divided tactical and strategic procurementinto two parts and offshored the tactical component. Now,were even segmenting strategic procurement anddetermining what needs to be retained and co-located withthe lines of business, and what work can be centralized inlower-cost locations."He went on to describe a future scenario wherein a new rolemight be born: the procurement business relationshipexecutive. These individuals would interface with the businessat a very strategic level and then feed sourcing activities backto the centralized sourcing operations teams. When askedwhat skill sets these business relationship managers will need,he replied, "Theyll look much like todays sourcing managers,but theyll be the cream of the crop — strategic thinkers andgreat communicators."In conclusion: there are things you might want to think aboutdoing tomorrow to position for the future:
1. Align with the BusinessA major issue that continues to play havoc within manyorganizations is the mis- or non-alignment of procurementwith the lines of business or the spend owners. In one bank,un-named to protect the innocent, sourcing is nothing morethan the tail end of contract management – running contractsthrough legal, ensuring that the right contract language isembedded into the contracts – that’s it. And they callthemselves sourcing! My vision for the future sees a loosenetwork — vs. tight function — of supplier-facingprofessionals embedded into strategic business lines,communities, and processes wherever needed, constantlymoving and reinventing their roles as needs shift.One outcome of the emerging procurement vision is that thefunctional ‘procurement’ label fades from the corporatelexicon over the coming decade. Procurement may no longerbe called procurement in the future. ‘Embedded’ in thiscontext can mean either physically or virtually with thecentral idea being that the new spend managementprofessionals get involved only where they are needed andmove on once the right supplier relationships, processes,
information flows, KPIs and performance metrics, technologytools, and so forth are in place and running both smoothlyand predictably.It won’t be about sticking to that seven- or eight-step strategicsourcing process in the future. It will be about thinking outsideof the box to do things much differently as the business itselftransforms. Tools, strategies, and information sources thatmake sourcing organizations incredibly nimble are going to beimportant in the future. Frankly, I see procurementprofessionals working more in a ‘design-to-value’ concept,participating as one part of a much bigger thing the business istrying to achieve, which is innovation.2. Top and Bottom Line ContributionsToday’s focus on savings will give way to a broader, morebalanced emphasis on profitability, leaving open the questionof whether supply management concentrates on cost savingsor revenue growth to get there.I think it would be safe to say that there will be two generalpoints of consensus around performance management forsupply and spend management in 2023:
• Money — be it savings, revenue, or profitability — willalways be a piece of the performance picture, and• Metrics - will direct supply and spend managementprofessionals to focus their efforts on both the top andbottom lines.There will still be overall metrics in place in 2020, but it will beless focused on savings. I see metrics around things like spendcoverage — as an indicator the company is staying focusedon the right things — but also around things like innovation,risk, collaboration, supplier relationship effectiveness, internaland external stakeholder satisfaction, and competitiveadvantage, which includesgetting to new markets andbringing out new products.3. Win the War for TalentThis is arguably the most important activity – that’s why I’llspend some time illustrating my thoughts.While valued highly in today’s marketplace, people who excelat sourcing processes, or at being power users ofprocurement and sourcing automation technologies, will findthemselves working for third-party services firms — or not atall. As supply chains become more collaborative and complex,
the roles and responsibilities of middle managers willincrease. The role of an omnipotent CPO/CEO will diminish. Interms of general skill sets, procurement professionals arerealizing that procurement is not a profession for one-trickponies.Even in the 1990’s, being a strategic procurement professionaloften meant simply being a good negotiator to many people.That’s not the case today.Today, procurement professionals know that they need abroad range of skills to be successful. Yes, that includesmastering procurement processes and negotiation like it did inthe 90’s. But today’s broad skill sets involve being excellent atthings like managing risk, using the technology tools that areout there, being able to conduct sophisticated analyses,collaborating with suppliers, understanding risk factors,looking globally for sources of supply, hedging againstcommodity volatility, using best practices for managingprojects, and so much more.Procurement professionals are expected to know and showhow their work affects EBITDA, working capital, earnings pershare, and other lines on financial statements.
Financial statements are what C-level executives live and dieby. If procurement departments want to hang with thiscrowd, they need to speak the language and evaluate businessperformance the way the CEO does.Yet, with all of these new skills that procurementprofessionals will need in the future, it is important to notoverlook those core, foundational procurement skills likesourcing, contract writing, negotiation, and so forth. While alot of people think that they have high levels of these skills,we still see plenty of procurement professionals with gaps inthese critical areas.4. Outsourcing explodesOutsourcing procurementI used to be not a great advocate of outsourcing. I hope thatthe process becomes more thoughtful in the coming decade.I can’t help but notice how outsourcing providers are gearingup for the next step in their cycle.
And what I see is that procurement outsourcing providers areinvesting in more training for their procurement professionalsthan Fortune 500 companies – the very customers they wantto land.I expect to see even more procurement outsourcing, includingthe outsourcing of roles that we consider strategic today. Willwe ever get to the point where a procurement departmentstaffed with 200 people in 2020 will be reduced to one personwhose job it is to manage a procurement outsourcingprovider? That’s a stretch for the next few years, but it is thegeneral direction we’re headed. But, regardless of whetherprocurement is kept in-house or outsourced, the bar has beenraised for the skills and training needed by procurementprofessionals. The procurement professionals in non-BPOcompanies today may be seeking work in BPO’s in the future.And, if they fail to raise their skill levels, they may findthemselves being unqualified to join a BPO!5. Strategy scope widensMuch has been done in the past decade to transformprocurement from tactical to strategic. But the idea of
‘strategic’ remains hemmed inside the function, the process,or spend category. In the near future, I think that the meaningof strategic will get much bigger. Think “fringe edge ofprocurement”. Think risk management – beyond financial risk– to include reputation and impact on brand risk, third partyrisks, geo-political risks, regulatory risks. Environmental risks,bribery risks… commodity volatility risks. Relationshipmanagement. Innovation management. Internal consultantsto the business or spend owners.In essence, all strategy will tie directly to an enterprise’s endcustomers and it will be more cognizant of the diversity ofdesires and requirements within the internal business clientbase. And why develop competencies to manage processesthat essentially generate no value to the business?Segmenting the supply base, focusing on the handful of trulystrategic suppliers, putting effective performance andgovernance frameworks surrounds that core group – andoutsource everything else. It will happen, I think.6. Collaboration Reigns - VRMCollaboration will be the new ‘normal’. The coming decadeswill see a major emphasis on taking innovation from thesupply base. We may well be witnessing the dawn of the
extended enterprise – this trend promises exciting times forsupply professionals.Early involvement is also newly fashionable as the timings ofcustomer/supplier collaboration shifts. Today, suppliers maybe asked to contribute ideas to existing designs, or to help fixexisting processes. In the coming years, they will be on theground floor more consistently.Buyer/seller lines will blur, as supply managementprofessionals seek to extract more value from suppliers byleveraging supplier resources and integrating supplierfunctions with their own.Increasingly, too, the profession will focus on networks. Whileorganisations once charted their own courses in innovation, atransition from ‘buyers and suppliers’ to ‘integrated suppliernetworks’ will enable greater co-ordination of innovationacross connected businesses and industries.Suppliers will gain power. My predictions regardingoutsourcing, tighter integration and heavier reliance uponsuppliers means that the latter are gaining more leverage inthe buyer/ supplier relationship. Instead of them selling toyou, you will be selling to them. Procurement has a newchallenge – to remain attractive to key suppliers.
Increasingly, too, I am seeing organisations share risks andrewards. As supply management professionals get better atsegmenting, defining and measuring value, they will start toincorporate both gain- and risk-sharing into commercialrelationships with suppliers.7. Wake up to supply riskConverging trends will make supply relationships even riskierin 2023 than they are today. I expect to see big increases incompanies’ awareness around supply risk and also anexpansion in their perceptions of where risks lurk. Riskmanagement will become everybody’s business as capacityand demand soar. Today, when supply managementorganizations are challenged on risks in their supply chains,they generally look at suppliers’ financial stability, which isonly one element and not a very significant one compared tocontinuity of supply.What is more, many companies treat all suppliers on equalfooting, which is unacceptable from a risk point of view. Somesuppliers are truly critical to the continuity of your business,while most are not. Those critical suppliers need to be treatedvery differently.”
There will be a big expansion in the kinds of risks companiesaddress in their supply chains, considering, for example, suchthings as suppliers’ sustainability, brand and reputationimpact, social responsibility, physical and information securitypractices, to name just a few.A particular challenge will be for supply management totransition from generic to more dedicated and customizablerisk management approaches, depending on spend category,region of the world, and so forth.Everybody will have to wake up to the pervasive problem ofsupply risk – converging trends will make supply relationshipseven riskier as the decade progresses than they are today.SRM and VRM will be mandatory – No successful company willbe without a supplier risk or a supplier relationshipmanagement strategy. We expect VRM and SRM to drive upto 40% of procurement’s value-add. I am not talking onlyabout today’s SRM and VRM activities – those focused onreducing total cost of ownership – I also mean bigger andbroader activities such as increasing resource utilization andmaintaining flexibility in the supply chain. Supply management
organizations and their strategic suppliers will be at theforefront of innovationPeople will have to be razor sharp – as procurement becomesmore cross-functional, procurement professionals will have tohave business smarts. Technical skills in specific disciplines willbe the price of admission, but success will depend onexpertise in collaboration, risk management, relationshipmanagement, change management, and stakeholderengagement.And lastly, business intelligence.In order to gain traction within the organization, access tointernal and external business intelligence will be essential.Understanding pricing and process benchmarks and baselines,options and possibilities of supply and supplier base,understanding internal spend data – this is the key thatprocurement professionals need to engage the lines ofbusiness in effective, business focused conversations. Thebusiness will still chose whom they would want to do businesswith; procurement will help them securing much moreeffective and advantageous supplier commitments
Thank you for your time and endurance. My colleague and Iwill be pleased to answer any questions you might have at ourbooth, especially ifyou buy us a drink.