How Current and Future Leaders are Managing a Changing Procurement Function: ISM 2018 Roundup

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The future of procurement will be agile, digital and strategically focused. Regular readers of Spend Matters are familiar with these trends, of course, but how exactly organizations will realize those projections is often less clear.

Clarifying this path forward was a top focus for attendees at ISM 2018 last week in Nashville, particularly for procurement’s current and future leaders. During a series of roundtable talks on the second day of the conference, CPOs from household-name companies and winners of the ISM/Thomas 30 Under 30 Rising Supply Chain Star awards convened to discuss how they’re approaching digital strategy, the increasing trend toward externalization and ways they’re preparing for risks both in the near term and on the horizon.

Digital Gains Momentum, Albeit Slowly 

Procurement is not facing questions of whether it will fully embrace new digital tools but rather when and how quickly. All of the CPOs participating in the first roundtable saw executing on a digital strategy as essential to the future of their organizations, although their stated goals focused more on incremental improvements than chasing the next big innovation.

For example, Camille Batiste, vice president of global procurement at Archer Daniels Midland, views her organization’s digital goals in a five-year time frame. By 2023 she wants to centralize more of her company’s sourcing and purchasing operations, complementing this with increased automation of transactional activities, so her team can spend more time nurturing supplier relationships.

Batiste is not overly concerned, however, with emerging technology opportunities. Her own bosses doesn’t yet fully understand the value of such technologies, so Batiste instead wants to focus on where she can win funding support.

“It’s unclear what so many of these technologies actually are,” she said of hot topics like blockchain and the internet of things, especially in the eyes of the rest of the c-suite.

Craig Reed, CPO for the agricultural division of DowDuPont, agreed, saying it’s still “way too early” for most companies to start using most bleeding edge capabilities.

The primary barrier to doing so, Reed said, is that implementing a blockchain network or real-time analytics powered by the IoT requires the coordination of multiple functions in addition to procurement. Adding more internal complexity on top of technological complexity — to say nothing of the complexity introduced between procurement and suppliers, as well — makes chasing the latest technological fad seem more like a potential headache than a revolution.

Yet that doesn’t preclude the possibility of using today’s emerging technologies in the more distant future. In fact, the focus on transactional automation today may be essential to adopting more advanced systems farther down the digital road.

This is especially true when it comes to gaining buy-in from management, explained Stacey Taylor, vice president and CPO at MGM Resorts. “We may need to lay the groundwork today and push them to prepare for things they don’t know they need yet,” she said.

That groundwork may be the beginning of a digital strategy executed by the 30 Under 30 winners, who spoke after the CPO panel.

For nearly everyone in the younger group, the prospect of a digital revolution within the supply chain was a key attribute that attracted them to careers in the field. What’s more, they saw supply chain as a field that was either untouched territory or one that was only beginning to tap its digital potential, a feature they said could both ensure the security of long-term employment and give them the opportunity make their mark as they progressed.

‘Lights Out Procurement’ 

Along with this focus on laying an automation groundwork came a debate about what the procurement function of the future would look like. The consensus among the CPOs was that, in addition to increased transactional automation, procurement groups would become leaner and more project-focused.

Many of those currently in leadership positions were either looking to embark on or have recently completed procurement transformation projects focused on those goals. Chae-Ung Um, corporate senior vice president of global procurement strategy at LG Electronics, who fell into the latter group, said the reasoning behind doing so was to bring procurement’s strategic objectives more in line with the rest of the business.

“Spend size not the thing I value,” Um said, noting that earlier in his career he considered a larger amount of spend under management a metric for success. “Now there’s an evolution toward process improvement, optimizing to remove non-value-added work.”

To obtain those process improvements, procurement organizations likely do need a lot people to create, manage and measure those changes. But afterward, those resources will likely make themselves redundant.

“What do you need 300 people for?” Um asked. The better approach, he said, is “having enough to make a difference for the organization.”

How many practitioners that is may again come down to technology. Taylor went as far as suggesting that a “lights out” approach could become prevalent in the next decade or so, where, for example, an AI-enabled system could run the sourcing process from creating the RFP all the way through supplier selection and up to negotiation.

The 30 Under 30 winners, however, pushed back against this concept. While they had expressed enthusiasm for increased use of technology earlier, their vision for procurement placed technology in an augmenting role rather than as a potential replacement.

“I don’t think that’s going to happen,” Elizabeth Richter, chief of staff to the CPSCO at Flex Inc., said of “lights out” procurement. Companies and technology can’t do business together, she countered, but people can.

Leah Williams, supply chain planning analyst at Northrop Grumman, agreed, adding that machines “can’t make decisions” in murky social situations. Even in a fully digital future, there will still be “plenty of things that need to talked about over the phone,” and that’s not going to go away any time soon.

Risks Near and Far

Differing visions aside, both groups agreed that while procurement has significant opportunities to change for the better by 2020 and beyond, there are also obstacles that the function will need to overcome to do so.

One challenge the CPOs emphasized was the persistent communication problems procurement has when explaining its roadmap to the rest of the business. They felt that while functions such as sales and marketing had succeeded in both securing and effectively using new technology systems, procurement had historically struggled to win the same levels of support.

“My big fear is that all of this great technology that’s out here today goes away because we aren’t able to use it,” DowDuPont’s Reed said. To win support for future initiatives, “we have to start communicating these opportunities in a fundamentally different way,” he said.

ADM’s Batiste suggested one interesting solution. To help procurement explain the value it contributes and how it can help the business do more, she has considered hiring a marketing professional to manage internal communications for procurement.

“Procurement organizations need to be very vocal” about what they want, she said. “We’re very humble.”

Looking past recurring challenges, the CPO panel also said their organizations were starting to plan for the end of the current economic expansion. When exactly a recession will begin is notoriously difficult to predict, of course, but just as forecasters are coming to the consensus that the global economy will likely begin to overheat by 2020 or 2021, the procurement leaders present all agreed that starting the discussion around contingency plans had become increasingly important.

“It’s all conversation now and no impact yet,” MGM’s Taylor said. “But now we’re asking, ‘What is my backup strategy?’ and preparing for that what-if scenario.”

Reed saw the situation similarly, saying his organization is examining new areas of higher risk such as country-specific regulations. To prepare for a more constrained business environment, Reed is now reviewing his supply base to figure out where he needs dual sources and where he needs to explore the implications of a potential disruption.

As for the younger generation, five years from now was not as clearly defined on their roadmaps. Many expressed an interest in keeping their options open, saying their industries were changing so fast that new opportunities could soon arise they had never considered. Some even expressed interest in moving out of supply chain roles, perhaps taking the helm not as CPO but CEO instead.

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