Procurement in 2020: Evolving External Forces – Financial Metrics and Customers

If procurement organizations were a type of IT hardware, they would certainly be classified as advanced firewalls, filtering external inputs and managing an outbound stream of requirements and communications – and protecting the enterprise in both directions. In Deloitte’s paper, Charting the course: Why procurement must transform itself by 2020, the authors suggest that procurement’s role as a type of firewall, filtering the internal and the external, will only increase by 2020, as the function “will need to respond to external forces across a number of dimensions.” Two of these dimensions that the paper explores are financial metrics/bottom line value and customers, and how these will evolve between today and 2020.

Today, for example, Deloitte suggests that when it comes to financial metrics/bottom line value, “aligning finance/procurement metrics [is] an increasing focus, but [the] majority of organizations are not aligned on how to measure financial impact, financial performance and true bottom line impact of activities.” Contrast this with 2020, when “financial metrics are procurement measurement metrics; all KPIs [will be] tied to EBITDA, ROIC, etc. and mapped to all initiatives; metrics [will] extend and link with sell-side such as balance of trade and two-way margin management to enhance partner relations.” It’s a huge change, no doubt, but one that is already starting to take shape as finance expects more from procurement in quantifying value in real terms.

Just as interesting is the role customers will play in procurement in 2020. Deloitte suggests that in 2013, typical “customer interactions [are] driven by compulsory requirements (e.g., traceability, reporting).” Yet, by 2020 procurement will be much more closely engaged with customers, forming “an integral part of sales efforts (B2B) and sales/marketing (B2C).” In this world, “tight buy/sell linkages with global supply including end-to-end visibility/traceability [will confer] a sales advantage; suppliers provide predictive regulatory and enforcement insight to customers.”

These two shifts in inputs and outputs are suggestive of a greatly expanded responsibility for the function. But is procurement ready? Clearly, as Deloitte suggests elsewhere in their analysis, there’s an awful lot of work to do in the interim to get the general purchasing house in order first. And this must happen as soon as possible.

This post is based in part on content from Charting the course: Why procurement must transform itself by 2020

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