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In this latest in a series of posts, Procurement Leaders once again invites Ernst & Young's Carlos Alvarenga to evaluate what might be some of the key levers for the function, a decade in the future.
The second half of the 20th century saw an explosion in the use of outsourcing for engineering, manufacturing and even product design. Today, it is quite common in certain consumer industries for a "brand" to limit itself to managing sales, marketing and "directional" design activities, while leaving detailed design, manufacturing and other operational activities to others.
In this environment, the sourcing of these operational functions can often mean the difference between success and failure. Likewise, for example, in telecommunications companies in emerging markets, most infrastructure and network services are outsourced, not built, which means that the procurement teams at these companies spend as much of their time monitoring operational performance as they do negotiating or running sourcing events.
This phenomenon — procurement as the source of operational skill and innovation — will increase dramatically in the coming decade, because the use of outsourcing and specialized partnering will continue to increase. The implication of this trend is that the best procurement teams will be seen increasingly as the experts in the leading technological and operational innovations in the global supplier community.
Indeed, in 2014, some leading procurement teams have in-house venture capital funds that invest in promising suppliers and technologies. As noted, this is already the case in industries such as auto, high-tech and fashion, but it will also become commonplace in other sectors such as healthcare, analytics and life sciences.
The globalization issue discussed earlier will also drive the innovation trend. As more and more markets demand specialized products tailored to their particular needs, it will be increasingly difficult for one firm to research and develop all the innovations needed to meet the needs of diverse regional and local markets.
Consequently, global firms will have to continuously partner with outside specialists, and many procurement teams will have to transform their current role from passive buying agents to proactive innovation sourcing agents.
Carlos Alvarenga is a principal in Ernst & Young LLP's Advisory practice, a senior research fellow at the Robert H. Smith School of Business at the University of Maryland, and the author of a blog on economics and risk (reconnomics.com). He is based in Washington, DC.
The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP.