Procurement and supply chain have always been strange bedfellows in manufacturing organizations. There’s a rather arbitrary dividing line between activities, which, academically speaking, should not exist in the first place (e.g., balancing inventory/order size with cost and risk). I read the case that Deloitte makes in their paper, Charting the course: Why procurement must transform itself by 2020, as one in which an even greater coming together of the two functions most occur when it comes to a variety of supply base and operations activities.
Consider Deloitte’s argument that increasing expectations are leading to “procurement stewardship with suppliers and internal finance, legal and operations teams [to create] implemented compliance strategies with zero tolerance for non-compliance (e.g., conflict minerals, FCPA, anti-bribery act, etc.)” Moreover, sourcing is expanding into the supply chain realm in advanced organizations, with “decisions (incorporating price and non-price variables) and scenario-based optimization that quantifies the cost of business constraints (e.g., split of business to reduce risk, higher up-front capital investment to improve the overall NPV of a multi-year contract, etc.)” leading to supply chain inclusive outcomes.
But by 2020, this coordination will have evolved further. Deloitte offers the following glimpses as to what might happen:
- Market leaders across all industries (not just retail/high-tech) set up supply chain standards for industries beyond regulatory bodies.
- Sourcing and commodity management enter the “program trading” world of Wall Street.
- Weekly sales and operations planning processes feed what we might call an automated “sourcing bot” with information based on market demand, specifications, geographies, locations, and working capital. Humans approve and systems act.
The concept of the “program trading” and “bot” elements sounds like a sci-fi extension of advanced sales and operations planning (S&OP) programs in place today. Yet this quantitative side of integrated buying and planning is precisely where procurement must go to improve supply chain outcomes.
This post is based in part on content from Charting the course: Why procurement must transform itself by 2020. If you’re interested in learning more about how analysts see the future of procurement and supply chain, register for our upcoming conference, Commodity/PROcurement EDGE.