Procurement is the function that manages the 70-80% of the external value add that most companies are looking for to stay competitive. Digitization should not be viewed as an enabler but as a driver of the changing environment and today, we have not yet experienced the procurement digital transformation as it needs the function to redefine itself in terms of its role as a business entity or even regarding its reason for being. In such uncertain and fuzzy times, it can be helpful to stop for a moment and freeze the status quo.
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Procurement is about to reach new heights as an end-to-end solutions provider
Procurement is without a doubt at an important turning point and might have to redefine itself in terms of its role as a business function or even regarding its reason for being. In such uncertain and fuzzy times, it can be helpful to stop for a moment and freeze the status quo.
I would like to try to address the huge challenges procurement will have to face. There will not be fewer tasks, but definitely different ones in terms of what we buy and how we buy.
'Digital' is only a small aspect of Procurement transformation even more challenges lie, for example, in the organizations we need to design for tomorrow or the people we need to choose, leveraging the supply base while creating winning value chains.
We are living through an intense and unprecedented period of change, the pace of change and scale of challenge that we are faced will demand a new approach to how we do business. Call it what you will; but in simple terms it demands gaining a greater understanding of our world through advanced data analytics, being quick to react to situations as they arise and being more open to collaboration with third parties to help solve those challenges.
Speed is of the essence, the same thinking can be extended to agility and the benefits that come from being able to react to market conditions and opportunities. Being able to easily ramp up or slow down production to take advantage of peaks and troughs in consumer demand without holding large quantities of inventory is a growing differentiator in corporate performance and, ultimately, shareholder return. A good example is digital dashboards that offer a real-time view of a supply chain and suppliers, and how wider political and economic issues are affecting them, can help drive faster, more effective decisions.
But while focused on cost control, companies today are looking to break down corporate barriers to access new technologies, new solutions and new product developments. This is different and new, and procurement has the opportunity to manage and facilitate the process with suppliers, and potentially other third parties.
Because procurement sits in the privileged position of having visibility of relationships with thousands of suppliers, as well as connections with the entire business, we are perfectly placed to manage the processes that enable advanced collaboration between otherwise autonomous organizations. Rather than having a conversation with suppliers on price, or even total cost, procurement should be facilitating a wider discussion around opportunity and capability. Rather than viewing third-party spend as a cost that needs to be reduced, we should be looking at it as an investment that demands a return.
This means handing your company the keys to the expertise, collective brainpower and R&D budgets of the supply base
But if you were to ask me what the biggest impact is that CPOs can make to their organizations over the next 20 years, my answer would be straightforward - to provide the means by which their companies can work with leading suppliers collaboratively and benefit from their expertise, capabilities and solutions.
Procurement is the function that manages the 70-80% of the external value add that most companies are looking for and in today's business dynamics and end customer shifting demands, customization beats standard product lines and generally there is a shift from plain products and services to whole ecosystems.
As such internal and external collaboration models will have to be redefined, digitization should not be viewed as an enabler but as a driver of the changing environment
It's about designing competitive and reliable supplier networks or, in other words, value chains. Disruptive technologies and shorter life cycles of products pose a severe challenge to many companies to staying competitive. It's about getting technology from the outside in, especially if intellectual property (IP) is with suppliers or internal know-how is limited to mechanical engineering. Additionally, many business models are undergoing dramatic changes from products, services and ecosystems to performance-oriented contracting and pay-per-use models.
Procurement transformation needs to be approached holistically
Procurement plays the lead role in identifying innovative suppliers and integrating them into the company's product development process and lifting them up to a co-creational setting. The aim of strategic networking is to be the preferred customer and, as the favorite customer, to have exclusive rights to supplier innovations.
AGILE LEADERSHIP
Time-to-market innovation and localization needs are turning organizations into an agile working environment. Functions are dissolving towards FLUID organizations. The technical possibilities of data analytics, especially big data and the Internet of Things, go far beyond data introduced by e-catalog, eRfx or e-auctions. This vital period of development for purchasing to take us into Procurement 4.0 is one of the key managerial tasks for CPOs.
If procurement is not to miss the boat, it now has to take its first steps.
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