Redefining Modern Procurement

Moving past conventional spend management practices can deliver more value.

William Dorn 2016 Headshot sm 5a0ca3685c072

Take a minute and think back to the early 90s. For many of you reading this, those days were filled with Beanie Babies, Tamagotchis, cartoons or grunge music. But for those of us experienced (old) enough to be exposed to the working world at that time, our world was filled with the rise of enterprise resource planning (ERP) tools; the enactment of NAFTA; Y2K; and the economic boom that came with the commercial launch of the World Wide Web, leading to a tech bubble collapse.

Most importantly, the standardization of work efforts, business process and data into ERP platforms, coupled with the advancements in inter-network communications, helped create an interesting time for supply chain management. The world seemed to get a little smaller and much more accessible in terms of being able to reach new customers across the globe, find new sources of supply, and ultimately make smarter business decisions. Further, the efficiencies gained in production, collaboration and manufacturing led to proven return on investment, and helped prove the model of investing in your own company to increase growth.

At that time, procurement, or more commonly known then as purchasing, was a tactical unit in the business, responsible for processing purchase orders and identifying ways to cut costs.  Their primary focus often was to make sure the shop floor had the inventory it needed, or that the front office had its closets stocked with reams of paper and toner ribbons for dot-matrix printers. Procurement was purchasing, and not much else. Sure, it dabbled in forecasting and inventory management, and might even help plan out where the next warehouse or shipment would go, but in-depth focus of functions such as strategic sourcing, diversity spending and risk modeling were all but unheard of.

It was around that time (1992 to be exact) that Source One was established as a professional services provider solely dedicated to helping buyers drive cost reduction through strategic sourcing. “Getting spend under management” was emerging and companies sought to track savings and establish a routine for procurement’s involvement in the supplier identification and negotiation process. Twenty-five years, countless procurement tools and patented processes later, I would argue that not much has changed. Most companies are comfortable going through the motions of a hollow sourcing process in the form of a three-bid-and-buy, with the slight traction gained within categories like IT and marketing and their set spend thresholds.

But in 2017, that comfortability is far from state of the art. When we look to the future and see how technological advances can revolutionize supply management practices, procurement leaders must ask themselves: Is my organization prepared to capitalize?

Take for example, the ways in which blockchain is driving the future of contract management in delivering higher efficiency and greater security, or how 3D printing is impacting manufacturing processes. Those procurement groups who are truly “best-in-class” understand what it means to own supplier relationships and act as a catalyst for innovation through strategic collaboration with both internal and external teams.

When you consider the value that is delivered by your procurement organization,

  • Is it still defined by the savings delivered year-over-year?
  • Are you still comparing your organization to the same arbitrary metrics?
  • Do you still follow a three-bid-and-buy process?  
  • When you think you’re not following a three-bid-and-buy, are you still limiting yourself to the same old qualifying and negotiating tactics?
  • Do you still think your e-sourcing tools and procure-to-pay system is doing the work for you?
  • Are you providing your suppliers opportunities to introduce innovative approaches or products?

It may feel as though the 90s were just yesterday, but sticking to purchasing as usual is a vulnerability. Changing the way procurement is approached within your organization doesn't happen overnight and requires leaders to navigate the obstacles. There are plenty of ways for you to get help enhancing, or even transforming, your procurement organization. Whether you seek support going to market, deciding on the right tools for your team, establishing stronger category management practices, or improving supplier innovation, don’t make it a simple transaction. Look for support that is aligned to your company culture and is a long-term fit for sustainable success. Make it a conversation. Make it about value.