Research: The changing face of procurement

The biggest barriers to procurement making a more substantial impact to their organisation's performance are a lack of interest from other areas of the business and a lack of engagement with the procurement function when making purchasing decisions, writes David Rae.

The alarming findings come from exclusive research among readers of Procurement Leaders magazine, carried out in conjunction with consultancy, 4C. More than 66% of respondents said they are not engaged early enough, while 65% said other functions' lack of interest holds them back. More than one-third claim senior management either lack interest in, or understanding of how procurement expertise can be used strategically.

However, this should not be seen as the fault of other departments, but rather a wake-up call to procurement to raise its level of engagement with the rest of the business.
The research, The changing face of procurement: The impact of technology, globalisation and outsourcing offers a glimpse into the impact sourcing has on the wider organisation and how it is set to evolve in the near future.

Change for the better
Procurement executives are concerned that the organisation as a whole is resistant to change (29%) and that the procurement function is under financed and overstretched (34%).

Procurement, however, is changing. The proportion of spend on both direct and indirect goods and services, as well as capital expenditure, being controlled centrally, is set to increase over the next three years, with direct services and capital expenditure the two areas seeing the biggest shifts. In summary, 65% of respondents think procurement is becoming more centralised.

This is combined with a significant, but subtle shift to outsourcing (see figure 1 at the bottom of this page), with the sourcing of indirect goods and services the two areas most likely to be contracted out. The reluctance to let go of the potential competitive advantage that can be gained from direct goods procurement was clear in the survey results, with 67% of respondents saying it would never be outsourced. This is compared to 54% of direct services, 31% of indirect goods, 28% of indirect services and 57% of capital expenditure.

The two areas where procurement has been most affected over the past decade have been the increased adoption of technology processes and the increasing globalisation of corporate supply chains.

Technology
Perhaps the biggest trend is the increasing market share enjoyed by enterprise-level software providers such as SAP and Oracle. In all technology categories, enterprise systems are expected to gain prominence (see figures 2 and 3).

This could have several implications, not least increased pressure on the ?best-of-breed software companies. While procurement, sourcing and spend analysis tools have remained largely under the remit of the procurement function, this autonomy could be lost in favour of a centralised technology and systems strategy. Procurement professionals must ensure they keep on top of the developments and maintain their position of ownership over the systems.

The main reasons behind the current choice of technology solution is to drive efficiencies within the organisation followed closely by the opportunity to drive more savings through the procurement activity. Risk management was seen as the next most important issue, followed by the opportunity to reduce headcount. However, procurement professionals must increasingly look at technology as a way of creating value.

Globalisation
Procurement leaders will be the first to admit to how globalisation has improved the nature of their roles, as well as increased the value they are able to bring to the organisation. But it has also brought some huge challenges.

Respondents to the survey had a diverse view of what those challenges are: "transparency on ethics and quality," said one. "Understanding the markets, governance and specific country requirements," said another. "Processes and systems," cited a third.

Empire-building was also a cause for concern. "The reluctance of colleagues to move from a silo-structured procurement organisation, focusing on 'my site, my region, my division', to a global organisation encompassing all divisions in order to leverage spend," was how one respondent described his major globalisation challenge.

So, how is procurement overcoming these challenges? The most popular approach is to increase communication with all players within the global supply chain and to get more involved. "Regular communication and setting out strategic priorities around sourcing as well as guidelines and education," said another respondent.

Other popular methods for overcoming the challenges were training local resources, restructuring, implementing new systems, third-party audits, better market research and even the redefining of strategies.

When asked which were the three most important factors in moving their sourcing organisation towards future value-creation, the results were telling. Shared procurement and operational goals proved the most popular, followed by close engagement with the wider business and having the right people. Other important considerations included making sure the organisation has a clear, agreed definition and measurement of baseline and benefits, effective governance and reporting, having the appropriate technology and tools and effective change-management skills.

The report provides an insight into the state of the current procurement function and how the impact of globalisation and the uptake of technology has helped and hindered its strategic growth in recent years. More importantly, it provides a glimpse of the future as these impacts continue to take hold and drive change through the procurement function and the wider business.

There are some major challenges to overcome first and procurement executives must ensure they are the champions of change for their organisations.