Ariba 2020 Vision – will ‘procurement’ survive?

Here’s out next instalment from the Ariba “Vision 2020” report, which looks at the future of procurement 10 years on.  Today we’ll look at what it has to say about the role and future of procurement , including outsourcing and related issues.

There is general agreement in the report that the split of responsibilities between procurement functions / professionals and end users (budget holders)will fundamentally change over the next 10 years. And one predicted result is that the function will shrink in terms of direct headcount - at the more extreme end of the predictions, it may go altogether.

"End users will execute their own bids. Procurement’s role will be to set the automation engines up, then monitor and manage to make sure they continue to run.”

“The spend management function will be very small by 2020”

"Functional procurement is something that should disappear by 2020 ..  However, enterprises will need to think very carefully and thoroughly about how to embed the disciplines of procurement into business processes..”

Or maybe rather than disappearing, procurement will become somehow re-defined .

One outcome of the emerging 2020 vision is that the functional 'procurement' label fades from the corporate lexicon over the coming decade. "My personal point of view,” says AXA's Dr. Heinz Schaeffer, "is that procurement will no longer be called procurement in 2020."

At the same time, there’s a view in the report that procurement outsourcing is going to increase significantly.

Donald Ferguson, Head of Procurement Operational Excellence at AstraZeneca, suggests that, "By 2020, procurement of the more traditional commodity, leverage-type categories will exit the company and be sourced by people who specialize in sourcing them. The skills that go outside will be around creation of standards, specifications, performance management, and cost reduction. The skills we retain will be more focused around strategic influence and business acumen."

So what do we think? Procurement disappearing? Or becoming a radically different function?

I’m not sure – there seem to be a few contradictions here. I can see what Ferguson is saying, but if you’re relying purely on ‘strategic influence and business acumen’, then my fear is that procurement will disappear, because other business and functional leaders will see that as very much part of their role. Procurement has to carve out a role that is more than that, but fortunately I think we can.

It’s not that I disagree with much of the above. It’s more that it seems to miss some key responsibilities that will I believe still sit within our area, because I can’t see who else would or could take then on. For instance, a key role for the procurement senior team will to work out the best blend of internal and external procurement service provision (outsourcing) to provide the optimal balance that delivers value.  That probably will include more outsourcing then we currently see – but that will be carefully selected elements of the overall workload, not the whole lot.  And someone of course has to manage the outsourced service providers.

Similarly, I have no doubt we will see budget holders and line management take on more of the work we might define as procurement, aided by better and easier to use technology.  But again, someone has to define and manage the overall P2P and Sourcing processes. Someone has to make sure the budget holders have the right commercial skills.  I’d suggest that there are elements of sourcing that require deep expertise – even if there is more automation – and budget holders won’t have the time or inclination to develop that themselves.  There’s a spend governance role as well; and I can’t see how an organisation can get the best results without strong management of suppliers and categories that cut across multiple budget holders. Someone has to look at the organisational big picture.

So all of that seems to define a pretty meaty role still for “procurement”.  Yes, less day to day low value processing or even contracting work; but the Vision 2020 report, while thought provoking, does seem off-beam here.

As someone once (might have) said:

“The reports of procurement’s death have been greatly exaggerated”!

 

Voices (8)

  1. Abdi Azimi:

    The ‘Vision 2020’ report is clearly a well researched and insightful piece of analysis by Ariba, but what does the future hold for procurement professionals?

    I read the following quote from Larry Welch with interest “The spend management function will be very small by 2020, you will see a strong central core that does horizontal work – ensuring that all the right processes and tools, skills, relationships, templates, and performance metrics are in place across business lines and functions.” However, most organisations simply don’t plan for a 10 year horizon and in today’s economic circumstances are hungry for results right now.

    I believe that procurement as a capability has some way to evolve in most organisations to understand and align to the core business objectives. To understand what value means to the organisation and ultimately how procurement can enable the acceleration to achieving this value. Silo mentalities should be abandoned for a more pragmatic approach that identifies what are the value generating activities and where the activity should sit, whether it is internal or with an external procurement provider.

    The capability to support this vision from an external perspective exists today across a small number of specialist outsourcing firms – there is now a critical mass of high profile organisations that have taken the step to the next generation of procurement outsourcing. “Outsourcing”, however not should be mistaken for the traditional transfer of business processes from one party to another. Outsourcing in this context is an integrated set of people, processes and tools that are specifically configured to meet the needs of the business.

    Ultimately, as articulated in the report, we have an exciting journey ahead of us. The collective challenge is how much of this vision can manifest in a short, medium and long term?

  2. bitter and twisted:

    A few things

    – Have the 2010 visions from 2000 come true ?

    – Pricing is a dark art.

    – Sales is not going to sit on its thumbs for the next decade.

    1. Final Furlong:

      I agree with Rob (and Peter of course). Many of the visions articulated a decade ago are similar to the ones being articulated today – it’s just that more folk seem to be supporting them (and the internet is enabling the sharing of such concepts at a faster rate).

      Primarily, I believe that this is probably due to the maturity (in terms of broader scope) and penetration (ERP evolving into e-solutions and therefore implemented into MRO-based organisations not just manufacturing) of ‘procurement’ technology as a result of the overall evolution of web-based solutions (and new entrants/e-solutions attempting to overtake the original ERP providers….)

      Also, let’s face it, CPOs today are more receptive to these ‘new’ concepts, whereas the older generation tend to want to centralise and own everything.

      I recall sitting amongst the well known great and good in early 1997 and asking the question “so what sort of impact do you think Ariba might make?” (I’d seen a beta version) and most of them, if not all, shook their heads wondering what I was talking about.

      Technology (e) is certainly making a big impact – shaping opinion in many ways – but you still need a high performance driver to get the most out of a high performance car, or “garbage in, garbage out”. So, then we’re back to starting grid.

  3. Rob:

    I’m sure that if any one of us was to develop a vision for what procurement might look like in a decade, we would all generate similar ones based upon fairly similar hypotheses.

    Notably, similar concepts were developed a decade ago for what procurement might look like today. Ditto, two decades ago. (I can actually recall some of these ‘visions’ and the visionaries that generated them.)

    Similar concepts have also been developed for HR, and Finance, and ICT, and so on.

    But I always remember two things: firstly that, broadly, most ‘developments’, especially within large corporates, are ‘cyclical’. I recently visited a very large global bank and they proudly announced a new ‘never-been-done-before’ (for them) pan-European deal on FM. It looked almost identical to the deal they implemented over a decade ago – by a different team within the same function. Secondly, for procurement to operate at its optimum level, other related functions (and the business which it supports) and the related supply markets, must also be at the same level of maturity. And in my experience, over the last two decades, they never have been.

    As ever, am always happy to be challenged.

  4. john mardle:

    Procurement as a function may morph into the supply chain finance function where suppliers will be forced to complete scorings, benchmark reports etc before being accepted onto major customers books as a ‘preferred supplier’. These scorings will now require credit ratings taht have cash KPI drivers as key attributes so that procurement know they are dealing with ‘financially stable’ suppliers.

  5. Tim Leaver:

    As somebody who has spent their career in procurement, I have certainly seen the function regionalised, centralised, devolved, deceased and then reinvented (and that was in one industry over a 20 year span!).
    Now in the public sector I see it developing very much as Peter describes. In my current organisation we are outsourcing activities and a large part of my role as CPO is ensuring the budget holders have the skills to manage the bought-in services. We provide the specialist support to let the contracts in the first place and then manage any commercial/performance issues that arise through its life. Relationship management (both inside and outside the organisation) is becomeing a key skill!

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