This guest post is an extract from a column written for Procurement Leaders Magazine Issue 50 by Electrolux CPO Gregoire Letort.
The 50th issue of Procurement Leaders is a good occasion to reflect on what has shaped the purchasing function in the last decade and consider what could lie in store for us over the next ten years.
First, we have seen a dramatic improvement in the professionalism and calibre of people working in purchasing. They have helped move the function from something of a shadow function to one that is now considered primary in many businesses.
This is good news for both the business and the function because of the fact that purchasing manages and negotiates between 50% to 80% of a company's costs.
The quality of the people, their training in advanced negotiations, cost modelling, their interaction with other key functions within the company and the external world made this possible.
But, on top of this, it is important to remember that the profit and loss impact of cost savings that could be validated by finance also added to the credibility of the function. All of these factors have contributed to the rise in the profile and influence of the function within the C-suite and in executive teams.
China was already well established on the global sourcing map ten years ago. The opportunities it offers means that it is now one of the dominant sourcing destinations, despite the particular challenges that come with it. The rise of China redefined the competitive landscape in a massive way and helped put corporate social responsibility (CSR) on the agenda of most purchasing executives.
Many countries also established themselves as a competitive industrial base: Mexico, the Philippines, Vietnam, Romania, Turkey and Morocco, and this forced many US and European suppliers to rethink their footprint and automation. This virtuous circle continues to benefit product costs.
CSR and supply chain risks have moved very quickly on to the to-do lists of many of us.
Anyone who has been impacted by one of the many events to hit businesses in the last ten years (the global financial meltdown, floods in Thailand, the Japanese earthquake and tsunami, child or forced labour among others) knows that you have to be prepared as the costs and the impact on the business (production stoppages, bad publicity, brand damage) have dramatically increased and will be a factor in any future disasters.
IT systems and technology have also developed and improved dramatically and offer us simpler and more powerful tools to provide visibility and understanding into our costs (spend analysis, cost modelling). We can now transact faster with internal stakeholders and suppliers through tools such as procure-to-pay, which has helped integrate the function deeper into the enterprise. I still shudder to think of those long and painful enterprise resource planning deployments!
So what is in store for us after all those years of fun(!) and big savings?
I would expect to see procurement integrate more closely with research and development, finance and supply chain. With the help of these functions we will be able to gain greater visibility into the true total cost of the supply chain and its impact on the bottom line (think total cost of ownership 2.0+) and also help remove other costs along the way. Innovation through open innovation efforts or existing suppliers is and will continue to be key too as more and more companies realise the leverage it provides.
But the key to the success of the function going forward will continue to be with the people, our teams. We need to keep on attracting and developing leaders with strong purchasing technical skills, business acumen, appetite for innovation, and a great capability to work in teams internally and externally. This is what matters most.
Enjoy the next ten years.
Gregoire Letort is CPO, Electrolux.