20 YEARS
INVERTO
The next step in procurement evolution
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.
Cost savings
Risk prevention
Effective collaboration
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, and stabilizing 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.
As procurement has become more relevant, organizations are redesigning how they work internally and how they collaborate with customers.
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.
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:
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.
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.
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?
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.
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.
is a Managing Director at INVERTO based in the Munich office with more than 20 years of professional experience in Procurement and Operational Excellence. As an expert in procurement transformation, he develops future-oriented procurement strategies and delivers results for Industrial, Technology and Energy companies.
is a Managing Director in INVERTO’s Cologne office and mainly supports customers from the health sector. He has extensive experience of transformation projects and is responsible for this issue in the Competence Center for Procurement Management.
Digitization has been a core focus for INVERTO from an early stage. It was clear to our founders that the technologies emerging back then would create considerable potential, especially for procurement and the supply chain.
Philipp Mall, Managing Director and Head of the Competence Center for Procurement Management, who is also responsible for the Digital Solution Navigator (DSN), explains how
companies can successfully digitize their procurement, and what benefits this will deliver..
Digitization has long been a focal point for procurement experts. Which areas in procurement have already been digitized?
Digitization in procurement has its roots in the operational procurement process (Procure-2-Pay), which connects
suppliers electronically and automates processes. Then came the tools to support strategic procurement, such as
tendering programs, eAuctions, and spend analytics. Such tools are relatively common nowadays.
But why are so many companies still reluctant to implement these solutions?
There is a multitude of tools out there right now; the market is a real minefield. What’s more, we often see a reluctance
to try to overcome the hurdles that you typically encounter in IT projects: high investments required and long, drawn-out projects, with lots of uncertainties due to the high complexity, plus the need for internal and external coordination – to create interfaces, for example.
The first step should be to take stock of your situation and evaluate potential opportunities. Ask yourself what can offer
the best possible support to achieve your corporate and procurement goals. Companies need to put together realistic
business cases and a market overview before making any decisions.
How does digitizing procurement actually benefit companies?
Significant efficiency gains! Strategic procurement delivers higher savings because it seizes price fluctuations, and
because there is generally greater market transparency. Using a catalog system, for example, also helps to minimize
maverick buying. Buyers can work together globally, so they can respond more rapidly to changing circumstances.
Routine tasks are also automated, leaving more room to act as innovation drivers and strategic partners.
Innovation partnerships with suppliers will be a decisive factor in the future, offering clients exceptional, intelligently manufactured products. Environmentally friendly and fair production will also come into play. The coronavirus crisis has shown, however, that buyers must look beyond pure costs and focus on risk management as well. Patrick Lepperhoff, Principal and Head of the Competence Center for Supply Chain Management & Resilience, talks to us about what makes
a good partnership, how companies can find suitable suppliers for innovation projects, and how to combine this with intelligent risk management.
Why should procurement play a more prominent role in innovation management?
As companies have already implemented and exhausted many of the usual cost reduction measures, we believe opportunities along the supply chains offer great potential. Collaborating with suppliers can produce solutions
that are attractive to clients while also boosting efficiency for both partners. Strategic procurement plays a key role in this since it can act as a matchmaker between the R&D department on one hand and suppliers on the other. But you need to have in-depth knowledge of the client’s needs to spot new trends early on and incorporate them internally.
And how do suppliers benefit from an innovation partnership?
Suppliers put themselves in an excellent position, as they gain detailed insights into trends and developments, as well as an early opportunity to get involved in market development and grow their business. It’s a classic win-win situation.
Which suppliers would be suitable for this kind of model?
Essentially: suppliers who work proactively and intensively to develop their products, who have already demonstrated that they are committed to cooperating, and that they are prepared to invest in joint projects. This kind of partnership only works if both partners are engaged in it, openly share knowledge, and adopt the same mindset.
What do buyers need to do to qualify suppliers as innovation partners?
Buyers must be closely involved in the internal product development process. They should be kept up to date with plans for new developments early on, to use their knowledge of the market and to identify potential partners. They need to have a
But what do you do if a partner suddenly can’t deliver anymore?
Then there is no way to cover demand elsewhere. That’s where risk management comes in. This involves creating complete transparency in the supply chain, including knowing who your potential innovation partner suppliers
are. It makes sense to build up networks to identify and qualify alternative suppliers so that you aren’t reliant on a
single supplier or a single world region. Equally, you should be prepared to support strategically important suppliers in times of crisis. After all, the damage would be much worse if your partner were to go under. However, as our COVID study revealed, a mere 10% actually helped their suppliers, while 20% were unsure, and 70 % ruled out helping at all. Perhaps this is where we need a rethink.
Can’t that prove costly?
Strategic risk management is the art of putting a price on risk and then deciding how much you want to pay for greater
security. In recent years, this hasn’t been a significant factor in many companies because everything was generally running smoothly, save for a few instances of bad weather. However, the coronavirus pandemic has shown how quickly
global commodity flows can be disrupted and how even healthy companies can be hit hard by events they couldn’t
have foreseen. If you know your supply chain inside out, you could work with your suppliers to find solutions when
things like that happen.
To successfully master future tasks, tomorrow’s buyers need skills such as agility, strategic thinking, and the ability to work together. Targeted, professional training helps staff to develop those skills. Frank Albrecht, Principal and Head of the INVERTO Training Center (ITC), explains what it comes down to.
What skills do buyers need to shape procurement successfully in the future?
Generally speaking, buyers need to be willing to work together and cope with agile working, whether they’re in a management position or not. Managers should always be open to new ideas and be highly self-motivated. One typical example is remote working, which required a lot of managers to learn how to manage cooperation virtually, both within a team and with external parties.
The ITC has trained more than 5,000 procurement managers over the years. What subjects do the training courses cover?
There’s a total of around 30 individual topics in procurement, which we can use to put together training courses, workshops, and coaching sessions to meet individual customer needs, e.g. negotiation training, data analysis, and risk management. In fact, traditional negotiation training and product group strategy development are the most topics
in demand.
What is a typical training course?
There’s no such thing! We develop each training course according to individual customer requirements. We come up with training scenarios so that attendees can apply them directly
Are you already seeing this reflected in training needs right now?
Absolutely, especially within the product group strategies that need to be developed, or when working in cross-functional teams. This also includes topics like presenting and advising, which buyers aren’t used to doing. But if they are to introduce new market expertise in a team made up of different departments, they need to do it confidently. That said, the basis for these skills remains the same: buyers need to know their markets and suppliers like the back of their hand.
