The Future of Procurement and Supply Chain

Artificial Intelligence, robotics, digitisation of tools and systems will replace the procurement and supply chain functions within many organisations over the next decade or so. There has been gloom and doom touted over the past few years for a profession that has not always been seen as a significant function within organisations.

The 2018  Deloitte  CPO survey One in 5 CPO’S thought that cost reduction what is important,  54% new product development and 58% risk management.

So what has changed in the past 35 years?

Peter Kraljic developed  the portfolio purchasing model (Kraljic matrix) where financial impact and supply risk were mapped into a 2 by 2 matrix articulated in 1983;  “Threats of resource depletion and raw materials scarcity, political turbulence and intervention in supply markets, intensified competition and accelerating technological  change have ended the days  of no surprises. As dozens of companies have learned, supply and demand patterns can be upset virtually overnight.”

Looking at our world today, has this changed or are the above issues more prevalent now?

Traditionally procurement has been seen as a cost cutting and savings function in the organisation by CEOs and CFOs. 

However procurement should always be seen as adding value – simply not a process or transactional function.

Letting technology do what technology does best – managing repetitive, standardised tasks is the same outcome that challenged HR, Finance and IT functions. – CPOs must create time to listen to internal / external stakeholders, be they suppliers, customers or internal peers and managers.

Paul Blake, associate director, product marketing at GEP highlighted that the Deloitte survey suggests they certainly need to make time as fewer than one in four respondents thought they were excellent business partners to their suppliers, although 86% aspired to be.

Visibility in the supply chain has also raised as a key issue. A 2017, a survey of 623 supply chain professionals across 17 countries found that achieving full visibility was a top priority – however only 6% believed their organisation had achieved it.

6%  highlights a major risk lying dormant in most organisations! This presents an opportunity to turn supply chains into a proactive network where information is shared in trust for mutual benefit.

Trust requires relationship management and open and transparent supplier relationships -building trust and collaborative partnerships even with past competitors (co-opertition ) is paramount for future success and risk mitigation.

Blake stated that in the world of procurement, there is a real opportunity for CPOs to collaborate in an ecosystem of partners.

Strategically working with internal stakeholders ( customers ) is key to procurements future success. Customising value propositions, alignment to the vision, strategy , operational plans,  tracking levels of satisfaction and setting targets for satisfaction”  is always what procurement has been in visionary led organisations.

Centre-led not centralised ! Centre-led doesn’t infer that you can’t centralise key strategic procurement functions especially around governance, policy, standards and strategy. Embedding resources within the organisation enhances the trust and partnership of the internal relationship.

User and Customer experience “making it easy to do the right thing” is procurement’s future role and function. Tools and systems will enable delivery in simple environments. The “Procurement Value” is enabled in complex and difficult environments.

Talent, skills and competencies are key to developing a procurement function (or functions) that become the trusted advisor in our businesses.

EY in their document Infinite possibilities Procurement in 2025 stated:  “Bottom line: By 2025, procurement risk management will undergo a major evolution, moving from discrete/ qualitative approaches focused on disruptions to a continuous/quantitative function integral to all sourcing and supplier management decisions”.

Most organisations have a spend of between 50-70% attributed to third party suppliers

How do you determine value form a supplier when you have no ownership?  This is usually achieved in some instances through prescriptive and onerous contracts. On these occasions how often is innovation delivered?

“By 2025, the leading procurement organizations will serve as a primary channel for driving innovation ideas to/from a global supply base, and procurement professionals will play a critical role in driving new product development and evolution”  EY

How do you know if the supplier has a propensity to deliver value? This is a key factor when you have never had a previous relationship with that supplier

After 4.5 years of research across New Zealand and Australia, Mike Blanchard has developed a methodology and model to help determine value characteristics from suppliers. 28 factors through research and regression testing were reduced into 6 key areas:

• Sustainable Partnership Value
• Shared Vision & Intelligent Information
• Trusted Relationship & Quality
• Aligned Value Innovation & Culture
• Skilled & Specialist Resources
• Flexible Organisation driving continuous improvement

Paul Blake at GEP highlights all of the above in a simple statement “CPOs who embrace openness, modularity and the quality and ease of user experience – freeing  up time and resource to manage the strategic challenges facing their organisation – are much  better positioned to succeed”

As a CPO where are you on the continuum? Are you still dealing with too many transactional business challenges or are you really helping with the Organisations strategic plan?

Much of the inspiration for this article was taken from the Supply Management Insider and GEP paper the 5 steps to ensure that procurement has a viable future and EY’s Infinite possibilities Procurement in 2025.

Written by Mike Blanchard Chartered FCIPS, Masters in Supply Chain Management and Member of the Australian Institute of Company Directors  linkedin.com/in/mike-blanchard-fcips-chartered-mscm-maicd-8734661