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Procurement
Transformation

The next step
in procurement evolution

Innovation, Sustainablility and Risk Management
Driving businesss forward with agile procurement

Procurement has seen massive changes in the last 20 years, and it doesn’t seem to be stopping there. So, where is procurement headed, and how will priorities change in the future?

The chameleon is the master of change. Few other animals can adapt so well to its environment as these reptiles, which can grow up to 80 cm (nearly 3 feet) long. Depending on vegetation or light conditions, they can control how bright or intense their skin color is. Their agility not only ensures their survival, but also helps them to defend their territory against rivals and to attract a mate.

Being agile is also considered one of the most important skills to have for successful procurement departments. They also need to adapt to changing circumstances and requirements, just like chameleons, and constantly realign their procurement strategies. Change happens very dynamically in this day and age – both within a company and in the world around it – and companies may need to shift their focus at short notice.

By contrast, managing external value creation was barely given a thought 20 years ago. Procurement was merely an executive service department, rarely considered as part of corporate strategy. Specialist departments ordered new parts, and procurement staff compared special offers and issued purchase orders. The aim was to make order processing as smooth as possible and get a competitive price; strategic cooperation with selected suppliers was practically unheard of. But things have dramatically changed since then.

Agility

Agility is a characteristic of the management of an organization to be flexible and, in addition, to act proactively and anticipatively to introduce necessary changes. Wikipedia

As procurement has become more relevant, organizations are redesigning how they work internally and how they collaborate with customers.

Strategic requirements come to the fore

Now, more than 20 years later, procurement is rightly considered to be a vital competitive factor. Gone are the days of buyers searching through catalogs and ordering via fax machines; strategic experts now manage procurement through automated platforms, in cooperation with internal and external stakeholders.

As a result, procurement can add more value through innovation and sustainability, acting more flexibly, andstabilizing supply chains – even in difficult times – making it a key tool in crisis management.

Rethinking corporate goals: A boost for procurement

As procurement has become more relevant, organizations are redesigning how they work internally and how they collaborate with customers. Rethinking the company’s raison d’être often leads to setting specific procurement goals and redefining its function.

Our latest Procurement Transformation Study reveals that a large number of procurement departments have already defined their role in line with new corporate goals. Cost savings remain a top priority, with 72 % of respondents stating this is a core focus of their work. 36% cite risk prevention as the most important procurement objective, followed by ensuring effective collaboration at 28 % and guaranteeing the quality of the products and services procured at 27 %.

Clear guidelines go a long way towards motivation: 74 % of respondents who are familiar with their department’s purpose say they are motivated in their work. However, this is not true at all levels: only 28 % of buyers without management responsibility are inspired by a clearly defined role and their department’s contribution.

This shows just how important it is to really justify the reason for change. The vision for a modern and agile procurement department should be conveyed through intensive one-to-one discussions. Coaching or joint training sessions can also help to communicate specific new ways of working. The only way to achieve sustained change is through positive, personal experiences with new processes in day-to-day business.

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New skills for procurement’s new role

The procurement department of the future is developing its capabilities by using building blocks. Procurement managers see tomorrow’s focus falling on strategy and cultural change, the development of employee and skills, the use of supplier innovations, and developments in sustainability and responsibility. This expands to current priorities, such as internal collaboration, systematic sourcing, product group management and, above all, analytics, data transparency, and data management. The fact that procurement can work across all these areas is the most convincing argument of all for the department to position itself within the company as the go-to partner that knows the market, supplies the relevant data, and works flexibly in agile teams. Supplier management remains a crucial task for procurement, ensuring stability for supply chains and providing input for innovation, where necessary. Building these blocks up even further is essential for a sustainable supply chain. But existing core competencies are still important, of course; they are just handled differently. Digitization makes operational processes so much simpler, freeing up resources for strategic work.

A glance into the future
Challenges facing procurement

Looking ahead, transformation in procurement is set to be a major topic. In addition to the need to develop teams and staff, there are three challenges at play:

1. Building more agile, responsive procurement teams:

The business environment is changing more rapidly than ever before. Alongside digitization, issues including the COVID-19 crisis and trends toward more protectionism in trade are causing value creation and supply chains to be reassessed. Trade disputes now threaten supply chains long considered secure and product costs are sure to rise. On the other hand, real-time information often enables real-time action, and the coronavirus pandemic has shown us that we can still work efficiently outside of the office. For the first time, staff were forced to work at home for long periods, and to use new tools to communicate with colleagues.

2. Taking sustainability into consideration:

It’s no longer enough to simply rely on the cheapest suppliers. Ensuring your company’s long term supply involves incorporating environmental and climate-related factors into your supply chain planning and evaluation. Leading companies also need to keep an eye on their suppliers’ working conditions to prevent compliance cases or short-term shutdowns. In addition, procurement must evaluate the stability of critical supply chains and have a back-up plan in place for emergencies. Risk management will remain one of the major challenges over the coming years, along with a targeted strategic reassessment of critical product groups.

3. Going digital for maximum impact:

Real-time information provides wide-ranging transparency in the supply chain when critical partners are involved. More accurate forecasting models can identify early on what internal customers will need in the near future. Procurement can also help by turning suppliers into partners that are part of their network. In addition to delivering relevant data, routine tasks such as placing orders can be more or less fully automated. Depending on the capacity freed up, further procurement tasks in data analysis or harnessing technical expertise can be arranged.

Procurement staff are aware of the importance of digital transformation, with 86 % of study respondents citing this as a key trend. But that alone is not enough. Respondents also rightly consider collaborating with suppliers to drive innovation to be another important trend, since major innovations nowadays tend only to be possible with the support of key partners. For example, electrical vehicles have primarily been developed as a result of innovations that look beyond traditional vehicle architecture, completely rethinking the whole system. It is strategically crucial for the entire company to maintain close contact with suppliers throughout critical product groups and innovation fields.

And who better to do that than the procurement department?

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Procurement teams need to understand why the change makes sense for them personally, which opportunities it unlocks, and how they can prepare for their new tasks.

Steps towards the procurement department of the future

Before you can bring the procurement department into the future, you need to clarify several questions about the status quo: What position is your procurement in right now? Which tasks are the result of changing your corporate objectives? And where is the department currently in the transformation process? The answers to these questions depend on the individual company, its culture, industry, and starting point. The key to success is involving everyone in the process, so internal communication is crucial. According to our study, this is also where the gap lies: procurement teams need to understand why the change makes sense for them personally, which opportunities it unlocks, and how they can prepare for their new tasks. How effective the change is will depend on how well you cooperate with other departments. As one of the company`s central interfaces, procurement can also support many other departments with their strategic issues, for example, by getting involved early on in the manufacturing process for new products and giving input. Working closely with supply chain management and logistics is also essential for the restructuring and risk management of supply chains.

At the same time, procurement’s supporters are more focused on cost and closely networked with the operating business. The CFO is the most important contact person for 60 % of those surveyed, along with COOs and the heads of the operating units. Procurement departments looking to improve their risk management need to work effectively with the head of the supply chain. Close coordination is also required within the company itself, not only to streamline entire supply processes, but also to make them more secure. Procurement needs staff who can make strategic decisions, even in a changing environment. Liaising closely with HR will help to identify the right talent and the proper training for existing employees. Recruiters must also expand their evaluation of new procurement talent; creativity, digital and analytical skills, teamwork, and change management skills are vital skills, on top of specialist knowledge and practical procurement expertise.

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Conclusion

Transforming procurement into a department of the future takes its role beyond that of merely a purchasing agent. Over the past 20 years and more, procurement has significantly expanded its traditional purpose of simply obtaining products and services cheaply and reliably. It is now evolving into the company’s innovation and strategic manager: staff work closely with strategic partners and, in doing so, try to keep one step ahead of the competition. Digitization supports buyers in this process and creates more breathing scope – drawing on transparent data, tools for automating processes, and highly developed risk management and early warning systems. The most significant shift in focus from the present to the future will be in terms of strategy and culture, people and skills, and innovation and collaboration management with suppliers. Transformation, the wider spectrum of procurement tasks in the future, and the ever-emerging challenges show that responsiveness will remain the most important factor on all counts. Whether because of redefined corporate goals or changes within the supply chain or to strategic contacts with business partners, the procurement department of the future will have to adapt constantly – just like the chameleon.

Ihre Ansprechpartner

Dr. Stefan Benett

is a Managing Director of INVERTO’s Munich office. He has over 20 years’ professional experience in the fields of procurement and operational excellence. As an expert in procurement transformation, he develops future-oriented procurement strategies for manufacturing companies.

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Jonathan Sing

is a senior project manager at INVERTO in the UK. He supports customers with cost reduction, transformation, and supplier partnerships programs. As a member of the Procurement Management Competence Center, he co-authored the Procurement Transformation Study

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Skills, digitization and collaboration
What does the future hold
for procurement professionals

Innovation partnerships, digitization, and staff with excellent skills. These are the critical success factors revealed in our study on the future of procurement. Our experts explain how buyers should prepare for the future.

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