Posted On 29 Gennaio 2021 By In Parola alla Community With 469 Views

Procurement then and now. How ‘risk’ has become the new ‘savings’

In 2012, (which seems like a thousand years ago now) we conducted some groundbreaking research done with procurement teams wherein we asked them where they thought their future lay. We asked about the capabilities and mandates that they wanted most and then we asked which of those capabilities would their employers empower them to do. This capability – versus – feasibility approach was meant to provide insights into where most procurement teams believed the evolution of the function would occur. The survey and report eventually covered over 400 respondents.

At the time, the two main avenues where procurement teams saw their future have since been the topic of endless debate. These two directions were: to lead the search for sourced innovation and to extend Supplier Relationship management beyond its original confines of performance management. While these topics are still vital to the value proposition of procurement, and recognising that huge amounts of work still remain in these arenas, the initial findings from that report have aged and no longer represent where procurement teams see themselves going.

 

 

Riportiamo l’articolo di Giles Breault, Co-founder – The Beyond Group AG, Basel, Switzerland, pubblicato su The Procurement Magazine “Risk & Procurement. Risk Based Thinking, dalla reazione alla prevenzione” , anno 5 n.5 Novembre – Dicembre 2019.

 

 

 

The evolving role of procurement

Much has evolved in the procurement world since that initial report. Most importantly, digitalisation and its affect on the procurement function was not contemplated in 2012. The fact that digitalisation has been an all-consuming topic in the last couple of years is both good and bad.

While the promise of a digitally enabled future is a bright one, we have seen procurement organisations zealously embrace digital technologies that have gone nowhere, provided no increased insight and created a miasma of poorly integrated partial solutions. Digitalisation is not an objective; digitalisation is a means to an objective. Other things have changed as well in the procurement landscape.

We see a continuing trend to obtain value (however defined) that benefits the enterprise and a move away from annual ‘savings’. A deeper understanding of collaborative value has largely supplanted the notion of stand-alone company islands within a supply chain. Nonetheless, we must recognise the historical importance of ‘savings’ on the function. The notion that merely having a procurement function equals cost savings is strongly embedded in most corporate cultures.

While the savings mandate has been energetically endorsed by some Excom stakeholders, it has ‘tuned out’ all the other areas where procurement can contribute. Simply put, executives only hear the savings number when procurement reports its results. While procurement has been trying to prove its worth as a business partner, it has only a singular KPI by which it is evaluated. In my view, (and the collective view of our Think Tank); the time has come for procurement to abandon savings as a principle objective.

Capturing all these changes and trying to forecast the next evolutionary step is an educated guess at best. Nonetheless, with help from our Think Tank community, we created a graphic, that seeks to describe the evolutionary changes that have affected procurement over the past years and where they are heading over the next five years. The matrix is pretty self-explanatory but there are a couple of things that are important.

Firstly, it focuses on just some of the major trends and processes that procurement is held accountable for and is meant to be a series of signposts (but not full definitions) of where we have been and where we are likely to go. Secondly, there are a lot of imperatives on the table for the procurement teams of the future. But among these, what will be most important and why? We studied this question with senior leaders of procurement and have some good news for the profession.

Happily, procurement teams intend to abandon savings as a valid measure of procurement effectiveness. While this will take time, not one leader in our group thought that measuring savings is a useful future metric and felt their leadership was also collectively coming to this conclusion. But what replaces savings? Two things. Overwhelmingly, our group felt that risk management and sustainability will be their prime objectives and that it was critical that they begin to respond to these new demands with metrics, processes and talent. But why are these relatively new topics so critical to procurement’s future? Risk is no longer something that is defined at the supplier level.

There was a time when it was possible to claim supply security by carefully interviewing suppliers and based on their assurances, feel confident that the risk of business interruption was well managed. Today, risk comes in many different forms. Natural disasters (e.g. The Japanese Tsunami), political unrest (e.g. Honk Kong riots), political instability (e.g. Brexit), reputational risk (e.g. instant social media impact) all point to the fact that risk in a connected world can come from virtually anywhere.

No matter what the root cause of the shortage, business interruption, or social media embarrassment (when it applies to the supply chain), the responsibility of assessing and mitigating these risks or suffering the consequences thereof falls squarely on today’s procurement leader. Who knew many years ago that our simple back-office function of quietly acquiring the goods and services that make our businesses run would somehow propel us into being supply watch dogs, guardians against every malfeasance, real or imagined, that our suppliers could thrust upon us? The notion of risk is also very closely bound with the other major imperative of procurement teams.

Sustainability, compliance to global standards and legislation, and our personal ethical framework have brought this into the forefront of our activities. Sustainability is no longer an effort to ‘do no wrong’ and ensuring that a complete paper trail covers all corporate activity but is now part of virtually every company’s mission to visibly and actually contribute to improving our environment, human conditions (whether or not they are employees), and impact of what we do upon an increasingly fragile planet. Procurement has a lot to do in the future and a lot more to offer than just saving money. The challenge will be to build an effective organisation to manage these new imperatives.

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