Procurement role and strategy for super-fast-moving supply markets

How can procurement contribute when supply markets are moving incredibly quickly and are critical to the success of the buying organisation’s business?  That question came up when I was preparing for our  recent webinar with SciQuest about procurement in the Financial Services industry  (“A sector in turmoil”).

Talking to a couple of friends who have recent experience in that sector, we got onto the subject of how firms -- in any industry, not just financial services – can acquire innovation from their suppliers and supply markets. And the issue we identified is this.

There are some areas of innovation which are so critical to the success of large Financial Services  organisations, that whole teams of people are dedicated to searching out useful innovation and innovative (usually small) potential suppliers. But these teams of people don’t sit in the procurement function. They are so important to the future of the organisation’s business, inevitably they will be part of the core business organisation. And then, by definition, speed of action is essential if the organisation is going to take advantage of real innovation and get ahead of the competition.

So put those two factors together, and we come to the difficult question. What useful role can procurement play in these situations? Procurement is not going to lead on supplier discovery or initial negotiations, in all likelihood. There certainly isn’t time to run traditional and formal competitive supplier selection processes, lengthy tenders and the like. No-one with any sense is going to suggest a reverse auction if you’ve just found the most exciting new  mobile banking app in the world.

Where can procurement add value? Is there still a governance role – should procurement “approve”  the supplier in some sense, or have the right of veto over contractual terms?  But remember, these suppliers might hold the future of the entire FS organisation within their innovative hands, so there is an obvious danger if procurement becomes seen as a business blocker here.

Or does procurement develop very particular skills, such as becoming deep exerts on patents and  intellectual property, structuring of joint ventures or licensing arrangements? Then those specific skills can be offered to business colleagues, to help them navigate to the best arrangements with the innovative suppliers. Perhaps procurement can become truly expert at defining and managing the overall processes through which innovation can be captured from supply markets – something few firms have yet cracked.

For what it is worth, my procurement friend and I came to the conclusion that some very light touch governance role might be feasible, but would have to be judged in the context of the organisation’s working style. And we did conclude that there is something procurement can offer in that ‘expert’ field – but it will have to be genuine and deep expertise, and we may find some overlap here with colleagues from the Legal function trying to define their role in a similar manner.

As the pace of change in most industries continues to increase, there is one thing for certain. Amongst their many challenges, procurement leaders will need to face this dilemma, or will simply find they are shut out of many key business and sourcing issues.

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