Initially posted on the e-Sourcing Forum [WayBackMachine] on Sunday, 10 September 2006

On Friday we reviewed our series to date and indicated the importance of purchasing to new product development (NPD) and innovation and yesterday we reviewed some recent research from Aberdeen Group that qualified and quantified the importance of procurement to NPD and innovation and the benefits it produced. We then introduced the concept of “design for sourcing” and indicated its key role in reducing costs, increasing revenue, reducing the innovation cycle, and combating a slew of risks before they become relevant. Today we are going to review purchasing’s evolving role in the organization and the role I see it playing in the future and why.

Simply put, in the future I see every unit in the business having a dotted line to procurement and every non CXO manager having a dotted line to the CPO (or CSCO). And I’m not alone. Jason Busch, co-founder of Azul Partners and blogger extraordinaire of Spend Matters made the same point in a recent presentation entitled “The Future of Spend Management”.

I firmly believe that any company that continues to keep procurement in the closet will go the way of the dinosaurs. As the global market place heats up, companies will have to push innovation to the max just to survive. But even those companies will have a limited lifespan if they don’t source for success. After all, when their competitors will be producing products at 80% of their cost and reaping revenues 20% higher, it won’t be long before they just can’t compete.

To see how vital procurement will become, let’s review the best practices of the best-in-class companies identified by Aberdeen: dedicated leadership, centralized control, standardized processes to capture and leverage results, employment of technology to facilitate the process, and constant measurement.

Who else besides the CPO is going to be able to lead these innovation processes? Considering that innovation cross-cuts every unit of the business, you need someone who is used to working with every unit of the business on a regular basis. What other division in the business regularly deals with every other business unit? What other senior manager interacts with every other manager on an almost daily business? Only finance and the CFO. But finance is only about controlling and tracking costs, not managing value and leading innovation. And the CFO is there to see that funds get used wisely, not lead new innovation initiatives.

Where else are you going to centralize control? Only a best-in-class procurement organization constantly looks at buys from cost and risk perspectives – only a best-in-class procurement organization understands how to calculate the total value of a purchase. Furthermore, only procurement regularly interacts with partners up and down the supply chain.

What business unit besides engineering needs such a refined focus on standardized processes to succeed? Where has the recent evolution in center led operations been taking place? Procurement. Sourcing best practices rely on standardized processes. Procurement Centers of Excellence have been transforming operations at best in class companies and increasing EPS (Earnings Per Share) across the board.

New integrated, collaborative, workflow-driven e-Sourcing systems have been transforming not only sourcing processes but sourcing teams into efficient networked-person communities that can effectively interoperate locally and globally. Who better to lead the transition to PLM (Product Lifecycle Management) technologies then someone intimately familiar with SLM (Sourcing Lifecycle Management) technologies that are built on the same precepts and processes?

Finally, sourcing professionals are used to measuring everything they do. How else can they quantify success? They don’t produce physical products. They don’t make material sales. They don’t cut the final contracts. Their only achievement is savings, an intangible meaningless concept until quantified and measured.

Furthermore, I believe that the best-in-class companies will be those that embrace new innovation processes, such as TRIZ and the Verifier approach, that require coordinated team efforts across the board. Those teams will need to be led by an interdisciplinary team well-versed in all of the business’ operations. Only one team makes the cut. Procurement.

As companies continue to outsource and go global, even more of a company’s spend will flow through procurement. Procurement will not only become the center of operations in a company, but the difference between a successful profitable company and a company on the brink of bankruptcy. And I am predicting that this future will happen a lot sooner then you think. The best-in-class companies are embracing procurement today in preparation for a market shake-up that could happen any time with the rampant rise in energy and raw material costs and global stock markets that literally rise and fall overnight thanks to rapid advances in e-trading.

And if you haven’t figured it out yet, as suggested by the recent cross-blog “Sourcing Innovation Series”, The Purchasing Evolution is Here! Vive La Evolution!