Friday Rant: Ten Elements of Future Procurement

I had some good thinking time this week on a long flight. It's a rare moment that I have a spare hour to myself, not booked up with writing a presentation, article or paper to a deadline. During this time, I really wanted to put some thoughts down on paper about what the top elements of tomorrow's procurement might look like. These are not in any particular order, nor are the ideas fleshed out. I'm also holding many more other themes and elements in reserve. But here are ten future elements of procurement that I'm willing to put my name to at this point:

  1. Procurement's future boldness will come in many different flavors but in all cases, it will transform the organization rather than just propping up the bottom line by targeting savings as a primary objective
  2. Tactical procurement will center its role on maximizing the value of spending rather than just achieving savings or other types of process, contractual or automation efficiency (alone); we believe the historic role of the function focused on ensuring supplier and organizational compliance against prices, terms and other contract elements will always factor into a buying process, and acknowledge this as a foundation
  3. There will never be a "one-size-fits-all" approach to future procurement, even within a given industry. The concept of benchmarks and best practice have damaged the function to such a degree as to take away the focus from what it could be; we must get away from this mindset
  4. Procurement will look to the world outside for information as much as internally (e.g., market analysis, not just spend analysis)
  5. Procurement will acknowledge a continuum of how to treat and manage suppliers rather than fitting them into a segmented two-by-two box
  6. Procurement will be risk management
  7. Procurement will create internal and market transparency and visibility -- situational awareness. For example, price discovery, as a component of procurement, will always be centered on driving to a market price for goods and services, yet not in the way we think of it today. For negotiations, acknowledging that there is never a single market clearing price where anything but a basic commodity is concerned will be essential in setting up environments to optimize for a market price of one, for our specific needs
  8. Procurement must exploit information asymmetry -- knowing more than external parties and surfacing and exploiting information advantage
  9. Procurement will serve as a means of maximizing corporate (and constituent) outcomes based on policy, trade, tax, legal and related changes outside a corporation (taking advantage of government legislation, trade policy, etc., including entering new supply and customer markets before others when they open up)
  10. Procurement technology in top performing companies will be used first and foremost for transformation, not automation by procurement itself (90%+ P2P spend penetration, for example, should be a given, not a goal); further to this parenthetical statement, if operational excellence and automation is not a core competence of procurement, this aspect should be taken on by another function (e.g., finance or IT) or an external third party

Thoughts, comments are welcome. We have a lot more up our sleeve on these topics and look forward to refining our thoughts and ideas with the input of the Spend Matters community.

- Jason Busch

Voices (3)

  1. Matt McCarrick:

    Love it. Two words jumped out at me in # 7 that could really describe all 10 points I think. "Situational Awareness". Its the Holy Grail and, I think, a key driver of almost every objective. Looking forward to seeing what else is up the SM sleeve on this topic!

  2. Jason Busch:

    Tony,

    Thanks for the note … what I find most curious, to a point you hint at in your first sentence, is procurement leaders working closely with supply chain today. I think the skill set / competence required to excel where procurement must go needs to come from those who understand so many fundamental business, finance and economic elements. This is why only true top performers have gotten the supply chain connection and interplay. Unfortunately, I believe that for supply chain practitioners to make the transition to an ideal "future procurement" state as I’ve introduced, will be just as hard as for the current generation of procurement laggards (maybe 50-60% of companies we look at) — including those who are still really buyers but have been upgraded to sourcing or supply management in their title.

    Your question (re: points 1 and 10) is a great one … I am personally of the belief that top procurement executives will need to play a core part in the leading of business transformations at the highest possible level. For this to happen, especially in organizations where procurement has so clearly failed to deliver what is possible in practice vs. just theory or identified savings and opportunities, I think it makes sense to jettison what so many teams have failed to deliver in terms of transaction, contract and related compliance to finance or IT.

    The more I think about P2P, the more I believe a combination of finance (inclusive of AP and treasury) and IT leadership are appropriate to lead the charge in the majority of cases. How many companies do you know where procurement has more than a few Black Belts in circulation on the team and/or runs operational excellence programs for a company? I can count less than ten that come to mind immediately …

  3. Tony Colwell:

    Jason, I am broadly in agreement with the 10 elements. Indeed, some of us (who view procurement as an integral part of the overall supply chain) have been pursuing these aims for years, whilst the mainstream of the profession has focused on cost rather than value.

    My points of contention are in Element #1 and #10. Is Procurement to lead, facilitate or support business transformation? If operational excellence and automation are not a core competence of procurement, then procurement has to grow its capabilities in these areas if it is to go beyond a support role and the provision of a narrow commercial service.

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