- The document discusses the evolution of procurement from a transactional function focused on cost reduction to a more strategic function focused on value creation through supplier collaboration and innovation. - It argues that procurement must transform again to deliver strategic value beyond cost reduction by using strategic supplier relationship management to facilitate benefits like access to new technologies and risk management. This requires shifting from confrontational negotiations to collaboration both internally and with suppliers. - Turning supplier collaboration into a core competency through analytics, structured initiatives, and setting strategic objectives over multiple years around growth, risk reduction, optimizing the value chain, and developing new capabilities is key for procurement to become a strategic contributor that drives competitive advantage.

1. Materials Management Review 29December 2016
TIME TO LOOK INTO THE FUTURE OF
PROCUREMENT
MR. MILAN VYAS-DIRECTOR- SUPPLY CHAIN
FORMICA LAMINATES (INDIA) PVT. LTD., AHMEDABAD
milanv78@yahoo.com
A
Paradigm Shift in Procurement Function: There has been transformation in Procurement function over the
past decade. From the starting point of the traditional buy-sell, transaction-based purchasing, the practice has
moved through stages of change that redefines most aspect of the business.
Transaction Oriented
Individual Buying
Knowledge based Buying Integrated Procurement
"Typical Purchasing": "Strategic Procurement": "Value Procurement":
• Negotiation based buying
• Total Cost of Ownership (TCO)
based Buying
• Win-Win Relationship
• Prime Focus: Cost Reduction &
Avoid Stock-outs
• Consolidate and leaverage volume
buy
• Value Creation via Innovation &
Integrated Supplier Networks
• Skills: Commercial, Follow-up
• Skills: Professional & Team
Building
• Skills: Interpersonal, Coaching
• Style: Individualistic • Style: Cross-fnctional • Style: Collaborative Working
• Prime Focus: Reduction in Cost &
Specific Consumption through
effective Spend Analysis
• Gaining Competitive Advantage
THE EVOLUTION OF PROCUREMENT FUNCTION
A typical Purchasing Function is limited to transactional
job of collecting information about the requirements of
user department and carrying out commercial checks
and balances to finally procure the product & service
based on Cost reduction only and focused on supply
continuity.
The strategy is to shift the company’s focus from the
current “transaction” oriented independent buying of
goods and services to a “product” oriented strategic
approach.
As companies seek to discover ways to increase overall
excellence and competitiveness, a new source of value
has emerged – Strategic Sourcing. Strategic Sourcing is
a proven approach to understanding and delivering
significant cost reduction based on Total Cost of
Ownership (TCO), building a sustained value - creating
relationship with the suppliers and category spend
reduction in order to create and sustain a competitive
advantage.
What is Strategic Sourcing? :
The fundamental objective of any organization is
lowering the cost of goods manufactured. This can be
achieved through reduction in prices of purchased
products & services and reduction in their specific
consumption. Strategic Sourcing does exactly the same
by addressing the total cost.
Strategic Sourcing is a comprehensive process aimed at
obtaining maximum advantage on cost, technology,
process and quality, by leveraging the company’s buying
power with select suppliers, conducting best price
evaluations, sourcing globally and conducting company/
supplier joint process improvements.
It is defined as: “A disciplined, systematic process for
reducing the total costs of externally purchased
materials, products and services while maintaining or
improving levels of quality, service and technology”.
The Strategic Sourcing approach is designed to:
Drive reduction in total cost of acquisition of goods
and services
Drive a thorough understanding of both the supply
market and internal company requirements
Developing in-depth understanding for knowledge
based buying
Building sustained value creating relationships with
suppliers
Deliver significant earnings to bottom line

2. Materials Management Review30 December 2016
The process of strategic sourcing starts with spends
analysis and category management, which identifies,
consolidates and standardizes information from a wide
range of data sources.
The Evolution of Procurement’s Value Proposition: Are
we witnessing the dawn of a big shift in the way
strategic procurement is done? Category management
has been the only credible procurement strategy since
the late 1990s, and that may be about to change. The
techniques devised in strategic sourcing and category
management strategies to choose suppliers and build
strategic partnerships are due for an overhaul.
Today’s uncertain and volatile markets make agility and
change inevitable as well as essential.
Many business leaders have ambitions to improve
profitability by reducing costs. But to do so, they must
also reshape their supplier relationships, aligning their
supply chain with a more progressive strategy and
securing a competitive advantage. So what are the new
realities?
Procurement professionals need to get savvy. Their
professional credentials will be measured by their ability
to influence, persuade, and provide vision. Their mindset
must be strategic, global, collaborative, and, above all,
commercial.
Today reducing cost is no longer enough. Successful
companies must seek high-impact performance
improvements. According to A.T. Kearney’s latest
Assessment of Excellence in Procurement (AEP) study,
more senior executives are asking their procurement
functions, and specifically their Chief Procurement
Officers (CPOs), to deliver value well beyond cost
reductions. Indeed, the AEP finds that the importance
of value creation in procurement is growing twice as fast
as the importance of cost reduction.
Today procurement professionals are under considerable
pressure to deliver value-adding business performance,
and it is no longer enough to build a supply management
capability that is efficient, demand-driven, or even
transparent. Procurement must offer the organization
something that is value adding: a new supply
management where the strategic scope of procurement’s
value is delivered via innovation, a networked function,
and focus.
This demands full alignment with the corporate strategy,
and integration internally with stakeholders and
externally with the supply base. Procurement must be
the function that is continually challenging ways of
working. It must look to ensure that it helps its internal
business stakeholders to achieve their goals and targets
while, at the same time, taking the opportunity to
challenge total cost and facilitate “customer of choice”
benefits, such as access to innovation and, of course,
the management of risk. Most critical of all is that
procurement must be aligned to the corporate focus,
addressing the key question for any business: “What is
value to the customer?”
The customer never buys a product. By definition the
customer buys the satisfaction of a want, which in
economics is defined as value. In essence, value is
utility; that is, the total satisfaction derived from a good
or service.
Value management relies on multiple streams of
information from inside and outside the organization -
both internal and external perspectives are necessary.
Today procurement holds information regarding
customers, competitors, demand, offers, costs, and
production constraints. These data are all used in value
management, and this places procurement in a strong
position to make this aspect of business their own.
Procurement was once a transactional function focused
on supply continuity. Strategic sourcing transformed
CPOs into credible business contributors. Now, CPOs
have the chance to transform again - to use strategic
supplier relationship management (SSRM) to deliver
something more than cost reduction, something that
drives competitive advantage - strategic value. Yet
delivering strategic value across the supply chain will
require a change in mindset: from confrontational, one-

3. Materials Management Review 31December 2016
on-one negotiations on cost reduction to collaboration
- both internal and external.
What and Where Is Strategic Value?
Many CPOs have rightly concluded that the key to
unlocking the next level of value is to complement their
category-focused strategic sourcing efforts with a
supplier-focused approach.
The above figure illustrates models of supplier
interaction that form a pyramid because they rely on a
solid base in category-driven transactions. With some
suppliers, it’s also possible to use strategic sourcing
projects to optimize total cost of ownership. An even
smaller subset of suppliers deserves SSRM value projects
that use more intense supplier cooperation to gain more
substantial advantages for a specific business unit or
product. Lastly, the top of the pyramid represents those
few cross-enterprise relationships that interact across
many business units or products and multiple
dimensions - you may buy from, sell to, innovate with,
and sometimes even compete with these suppliers.
Turning Supplier Collaboration into a Core Competency
To drive strategic value creation systematically, your
procurement organization needs to develop a key
competency in supplier collaboration.
Indeed, the first step for CPOs is to lead the function
through an understanding of how a collaborative
approach compares and contrasts with traditional
sourcing (see below figure). What happens when you
move from transactional to relationship-based
philosophies? Which traditional strategic sourcing
success principles can help you in the move? Many CPOs,
for example, enforce the use of deep analytics to inform
the process before engaging a supplier. Good. The
analytics are important in developing a structured
approach to identify value creation opportunities.
Turning supplier collaboration into a core competency
will not be easy. But when properly structured as an
initiative to develop a key capability, it will not be
insurmountable (no more so than developing strategic
sourcing capabilities was 20 years ago).
Now Is the Time: Now is the time to push your CPO to
become a strategic contributor to your team,
accountable for tapping the supply base’s energy to help
achieve your company’s strategic objectives. Obviously,
these objectives go well beyond cost reductions. As key
industries continue to consolidate, the first-mover
advantage of learning to collaborate with winning
suppliers will be crucial to success. The CEO’s job here is
to understand and articulate the vision—and task the
CPO with specific strategic objectives over the next two
to three years. These objectives may include:
Growth. Create incremental revenue growth
Risk. Demonstrate a significant reduction in
enterprise risk, covering all potential relevant risk
categories such as brand, catastrophes and
commodity pricing
Value chain. Optimize the value chain around the
corporation’s core, differentiating capabilities, using
supplier relationships to maximize benefits for all
involved
Structural capabilities. Demonstrate advances in
select areas, such as a sustainable competitive cost
advantage, improved agility or responsiveness, gains
in corporate social responsibility, or other structural
capabilities essential to the future strategy.
Clearly, the objectives will vary depending on your
strategy, position, and industry. The suppliers you
collaborate with, and the results you achieve, will also
be unique. What must not vary, however, is the
philosophy of collaboration. In the past few decades, the
procurement function has grown from a function of
lesser importance to one important enough to a have a
chief officer. The next step in the quest for value creation
is collaboration. And the time to take that step is now…