The Supply Chain Management Review recently ran an article on The Drivers of Procurement Excellence that discussed seven megatrends that are currently exerting their impact on the global procurement function. More specifically:
- Managing Extreme Competition and Pressures for Deep Cost Reduction
There’s a widespread sense of incessant urgency to take steps that help reduce prices for end consumers. This is challenging in an era of rising energy and commodity prices. Oil and certain metals categories (that had reached ridiculous highs) may have dropped recently, but energy production costs from non-renewable sources have increased across-the-board and many commodity categories are still climbing.
- Addressing the Accelerating Pace of Globalization
Globalization has multiple impacts. It drives some organizations to expand markets, others to move closer to their customers, and others to improve their global sourcing capabilities.
- Addressing the Proliferation of Unique & Dynamic Relationships with Customers, Supplies, and Outsource Partners
Profound shifts are happening with respect to supply. Some suppliers are customers while others are strategic suppliers for direct competitors, and in both cases the supplier might be strategic or critical. It’s not enough to consider a supplier just as a source of supply anymore.
- Coping with the Rapid Advance of Technology in Products and Services and (in) Procurement Operations
Technological advancements arrive now so quickly that the right technology for any given product or service may change dramatically nearly overnight. Procurement organizations have to constantly deal with the obvious technology-driven dichotomy: a strategically focused sourcing function must simultaneously pursue both closer collaboration/partnership and yet maintain greater flexibility.
- Assisting with Revenue Growth and Innovation
New products and services, key drivers of revenue growth and innovation, directly relate to technological innovation and similarly, companies are pursuing revenue growth through globalization and new markets. Procurement is smack-dab in the middle of both of these trends.
- Managing Constantly Changing Customer Demand
Customers want the newest and most effective products possible and customers want companies whose products and services seem responsive to their individual needs.
- Dealing with Complex Regulatory, Environmental, and Ethical Requirements
Procurement functions take the lead in helping their organizations navigate an ever more complex web of issues such as corporate responsibility.
In response to these challenges, the article notes that many procurement departments are:
- beginning to rethink their business and organizational models to deliver organizational break-throughs, including center-led procurement.
- considering outsourcing or off-shoring non-critical procurements, or transactional processes (which free staff up to focus on more strategic initiatives that offer greater savings opportunities)
- rethinking global sourcing strategy and global supply chain structure
- brushing up on current, and upcoming, global regulatory requirements and refining product lines for global acceptance
- considering innovative supply configurations to simplify production, distribution, and supplier relationships
- thinking differently about materials, commodities, components and/or services that they’re buying and throwing sustainability, green, and CSR requirements into the mix
- realigning with business strategy with a focus on product/service development and IT
- streamlining processes on a channel-by-channel basis, optimizing the mix of methods by category, and not relying on too few or too many options for sourcing, buying, and paying
- implementing well-defined balanced scorecard for the internal procurement organization
- partnering with the business at-large to find relevant sources of supply to enable these growth strategies
- spending more time identifying who their current and likely future customers are and what they are most likely to buy
- collaborating with engineering and suppliers to optimize packaging, reduce shipping weight and size, use low-environmental impact materials, and design for sustainability
- beginning to develop the talent they’ll need internally using formal training, rotational assignments, and international appointments
This is because, as the article points out, the era of incremental improvement is passed and companies need to focus on the megatrends of global procurement to identify and extract breakthrough performance. The game is no longer simply about better sourcing strategies or merely greater efficiency in transaction processes. Today, the goal is an end-to-end approach featuring optimized business models, metrics, people, and organizational structures — a program of strategic transformation.
And at the heart of such a transformation is, according to the article:
- Attaining closer alignment between procurement and overall business strategy.
- Where necessary, redefining operating and business models.
- Improving policies and procedures, methods, and controls.
- Improving technology, data collection and interpretation.
- Developing and leveraging talent.
But are these truly the drivers of procurement excellence? That’s the topic of tomorrow’s post.