As part of our annual conference – Proactis ReThink – we welcomed Peter Smith, Managing Director at Procurement Excellence Ltd. and former Managing Editor at Spend Matters UK/Europe, to share his views and visions on procurement.
In his session – “Are you ready for the future of procurement?” – Peter discussed how, in his opinion, procurement has been successful over the last 20 years (citing CIPS’ success as evidence), and he felt it was important to focus on why this was – what has happened and what has driven that. This is a summary of key points covered during his thought-provoking session:
Major external factors which have helped procurement grow:
However, these factors won’t favour procurement forever:
- Most organisations have got more spend coverage and Procurement functions are more interested in areas such as marketing, IT and facilities management, that perhaps weren’t considered 20 years ago.
- The general increase in business complexity, linked to globalisation, has seen organisations becoming more complex, increasing outsourcing, and relying more on their resources – thus creating more work for Procurement departments and almost redefining how procurement is viewed.
- Supply chain risk. This factor has increasingly come into our sphere in the last 20 years, with companies being far more careful about where their money goes.
Focus on wider value
- An evident trend of moving away from outsourcing. For example, Councils and Central Government organisations are bringing services, such as IT, back in-house.
- Globalisation may have gone as far as it can, and there are clear moves towards using more local suppliers – whether as part of a cost saving strategy, or in response to recent changes (COVID-19 being a prime example).
- Technology. This has, is, and will, continue to have a huge effect on procurement. Many organisations are moving towards automation, with budget holders and end users doing more themselves – something Peter felt will only increase.
Core principles of procurement
- Going forwards there will be a stronger focus in procurement on wider value. Procurement needs to understand how that value is defined and measured. Increasingly they are being asked to help increase revenue in ways that go beyond traditionally reducing costs and driving savings. For example, buying products in a way that actually reduces factory costs, even if upfront payments are a bit higher, or exploring/developing new ways of delivering things. Managing supplier and market risk, monitoring working capital, and managing payment and assets were also discussed.
- “Wider value” will also include what people are calling sustainable procurement, procurement with purpose, or even purposeful procurement – from climate change and plastic reduction, to the fight against modern slavery.
- There also needs to be a focus on what the less visible or indirect aspects of value Procurement can deliver – such as employee motivation. Employees who are provided access to good accommodation on work trips, up-to-date technology, clean and modern office spaces with good catering facilities, etc., will likely be more motivated that those who are not.
- At a strategic level, a lot of CEOs don’t actually realise how much suppliers contribute to their organisation, so getting senior people to understand is key. This should then be taken category level, thinking about how the individual categories and things purchased contribute to those value drivers. The key for CEOs is to get Procurement aligned with the strategic goals of the organisation and understand where they can gain or maintain competitive advantage.
- Good data is crucial, everyone should recognise that, but many organisations still don’t have it.
- We will still need overarching governance of third party spend in our organisations, with compliance, risk management, etc., but good procurement processes need to be driven throughout the organisation – it cannot rest with the Procurement team alone.
- Every stakeholder needs to understand their buying role in the organisation and the process to do that – it needs to include stakeholders, suppliers, accounts, even those at senior and board levels. It’s important to target operating models to ensure defined methods of purchasing.
- Organisations then need policies in place to support the procurement processes, e.g. GDPR, CSR, Modern Slavery, conflict of interest, fraud, etc. to ensure vital issues are addressed and to de-risk supply chains.
- Supplier and Contract Management also needs addressing – if you don’t know who your suppliers are, or don’t have information about them, how can you get strategic value from them or manage risk?
- Lack of competition due to a monopoly, or companies becoming dependent on one particular supplier, can result in complacency, higher levels of risk and a lack of competitive pricing – another issue that needs addressing strategically.
Procurement professionals should be thinking really hard about what makes them unique. And perhaps most importantly, where they add value. Their contribution is not going to be processing six-part purchase orders anymore – it’s going to be around collaboration and innovation.
In addition to his session at ReThink, Peter also created two articles for us which you can read here: Are you really aligned with your organization?
and Should you really aim for “world-class” procurement?