Procurement's evolution from function to strategy

The classification and execution of procurement are lightyears removed from how they were conceptualized a generation ago. It was in the not-so-distant past that procurement tasks were routinely performed within departments that were not even branded as “procurement,” and in some cases, each department within an organization might have been responsible for brainstorming and executing its own purchasing decisions.

Ultimately, the digitalization of business led to an increase in interdepartmental transparency and created an opportunity for departments to strategically align themselves with procurement. This was only the first in a progressive series of developments that have elevated procurement to a technological art form, and an integral component of an organization’s strategy for resource control.

This gave rise to circumstances where every element of procurement was being viewed through a strategic lens by the middle of the last decade. Internal analyses, needs assessments, and plan implementation became standard check-off boxes on the agendas of employees who began their careers simply hoping to locate and purchase the essential items their companies required.

Moreover, the benefits of cyclically evaluating each of an organization’s departments through the lens of procurement, and then reversing the procedure to evaluate procurement processes from the standpoint of each department, have become so obvious that there are customized strategic procurement methods in place that are designed to fulfill the needs of any institution, even if it’s a public utility company.

As early as 2006, the Harvard Business Review was promoting the concept of procurement as a strategy. They drew attention to “procurement coups,” like Adidas’ development of a flexible supply chain capable of delivering near-instantaneous jersey deliveries to the fans of European championship football teams at very low risk, and how such coups were “helping to elevate supply management from an operational function to an integral part of company strategy.”

This reflected a three-year shift beginning shortly after the turn of the century, where procurement leaders were being asked to perform new duties, including shortening cycle times, taking the lead in product innovation, enhancing the quality of products, improving business outcomes, and occasionally generating incremental revenue through closer collaboration with sales teams.

“Fifteen, maybe twenty years ago was the first wave,” says Greg Tennyson, Head of Global Corporate Services at VSP Global, the largest vision insurance company in the U.S. “And it started with enabling the business to create a digital requisition—as opposed to one on a piece of paper. Five to 10 years ago [the biggest development] was in spend analytics. More recently, it’s been the robotic process automation (RPA), artificial intelligence, machine learning, where the system is doing a lot of the heavy lifting and providing actionable insights to the talent.”

These technological advancements have been accompanied by a new reliance on advanced analytical skills and procedures for optimizing procurement results. As a result, effectively acting out the role of a procurement professional requires an advanced level of skill and knowledge, to such an extent that these professionals are now greeted with a heightened degree of respect compared to a decade ago. As a result, David Latten of Logitech believes the fundamental function of procurement has changed within most organizations.

“I think what procurement teams have become are quite an efficient strategic sourcing tool,” said Latten. “People pick [us] up when they need to.”

While Latten is correct, procurement teams acting in an official strategic advisory role within their organizations is a relatively new concept. According to another Gartner report, “In 2018, 76% of procurement leaders had a formalized strategic plan, and most updated it annually. Digitization and diminishing ROI from cost-cutting make tactical work less important than before and more likely to be automated. Procurement must, therefore, transition from tactical to strategic work, and strategic planning plays a crucial role in navigating that transition. Moving forward, procurement leaders must better prioritize strategic planning. Having a good strategic plan to guide its efforts allows procurement to continue to prove its value.”[2]

The Gartner report further states, “despite its growing importance, however, most procurement teams struggle with strategic planning. Executives believe their organizations waste 56% of the time they spend planning,” and “according to our research, 67% of key functions are not aligned with corporate strategies.”[2] Our research indicates that aligning strategic goals with business goals and priorities will be crucial to procurement initiatives gaining wider acceptance in organizations.

Understandably, through evaluating the meaningful benefits that a large contingent of companies have yielded through focusing on the strategic aspects of procurement, executives have learned to expect lofty results out of their procurement teams, including the potential those teams have to drive innovation, even if it’s simply a byproduct of identifying how to extract every last drop of efficiency and savings from the supply chain, and then reinvesting those savings into the organization.

Moving forward, of the characteristics now considered to be essential for you to become a productive contributor to your procurement team, many of them are soft skills and deep work skills that involve abilities like time management and stress management, along with the capability to draw from relevant recesses of knowledge to enact substantive changes. The executive expectation that procurement teams possess these traits will be accompanied by the notion that these teams will be obliged to learn how to plan and execute their jobs from a stance that favors the ultimate objectives of their organizations above all else.

[2] Gartner “Overcoming Common Strategic Planning Challenges for Procurement,” Procurement Research Team, 21 May 2019 (https://www.gartner.com/document/3913786?ref=solrAll&refval=234584527). (Gartner subscription required)

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