Theory of Evolution

For businesses to thrive, and even survive, in the next decade, procurement must undergo drastic changes


Procurement professionals constantly look for ways to cut costs and raise the bottom line. Whether it’s following discussions on business social media sites such as LinkedIn, discussing business pains and best practices at conferences, or brainstorming for out-of-the-box ideas, the process is never-ending. In fact, according to one study, the changes required in the next decade must be revolutionary compared to today’s procurement practices.

 

Procurement Today

No business can afford to manage its money inefficiently. While procurement and e-procurement strategies have been around for more than 20 years, companies today are faced with a new set of challenges in a continuously—and rapidly—evolving world. Political instability, natural disasters, tough market conditions, business risks, strict financial regiments, contract globalization, demanding work environments with limited resources—the list goes on. Add to that the implementation of new business strategies and their annual review for efficiency and performance, the alignment of new processes and solutions for effective spend management, and realigning supplier contracts for added gain—the CPO’s responsibilities are endless.

But today, procurement is at a new level. Most companies using today’s sourcing and procurement functions are not struggling with what to do or even how to do it. The next evolution of spend management will go beyond traditional procurement or purchasing—and definitely beyond that of sourcing—to drive further value to business lines. In fact, according to the Aberdeen Group’s “The CPO’s Agenda for 2012 … and Beyond” study, “people management [has] trumped spend management on the priority scale” of organizations.

CPOs today have an opportunity to address their company’s spend management and uncover new value in a way that has not been done before. Aggregation and further leveraging will spur the next evolution in sourcing and procurement innovation.

This model takes advantage of modern-day social infrastructure to facilitate greater aggregation. Pioneered in the ‘90s, these business-to-business social networks had been the vision before the days of such crowd-sourced, consumer-leveraged networks as Facebook, LinkedIn or Twitter. Now, these networks allow aggregated sourcing and procurement processes to take place to increase an organization’s ability to save while simultaneously boosting value.

A global networked view of spend analysis, supplier geo-location risk assessment, performance benchmarking, buy-side leveraged categories, syndicated sourcing events for increased market exploration, supplier enablement—these are just a few examples of how old marketplaces have evolved to leverage existing investments in technology and in-house talent—which will further enable the next evolution in sourcing and procurement impact.

But organizations and their strategies must evolve. The business climate evolves and forces one to do things differently from a process perspective. And CPOs must be aware of that to fundamentally continue challenging themselves to uncover new value within a business—even when they may think they have exhausted every possible way to cut costs and add value.

The first step in identifying whether you are at the next phase of procurement evolution is to take a frank assessment of your organization and ask, “Am I doing everything for my supply base or am I just thinking about the bottom line?”

 

Procurement Tomorrow

One procurement objective has not changed throughout the years: A top-down directive to identify savings and cut costs. But to prepare for the next procurement evolution, companies must understand that there is no one solution that can solve their problems or get all of a company’s spend handled efficiently. For example, cutting headcount, a common practice in recessionary times, is often one of the fastest ways to cut costs. However, it does not always benefit the company in the long term.

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