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Ahead of 2017’s World Procurement Congress, the CPOs of Vattenfall, Malaysia Airlines and Barilla share their thoughts on the five key trends shaping the function
Artificial Intelligence or cognitive computing will change the landscape of procurement. The question for CPOSs is how that will change how a function operates.
“Traditional procurement will be done by machines,” says Alberto Méndez, CPO at Vattenfall, one of Europe’s leading producers of renewable energy.
Rather than seeing this as a challenge though, Méndez sees it as an opportunity.
“The procurement function is now one of the largest drivers of margin in a lot of companies. With the growth in outsourcing, procurement takes a much bigger role in managing cost structure and we are increasingly involved in revenue generating activities.”
It is an opportunity that Italian food company Barilla is also trying to seize in order to help drive collaboration with suppliers.
“We are seeing a rapid evolution of cloud-based systems from our providers not just in terms of capabilities, but also in user friendliness. More specifically, we are very excited about APIs and portals that helps us exchange information with suppliers,” says CPO Luigi Ganazzoli.
Consumers are increasingly demanding more ethical products. They want to know where those goods have come from and the impact they have had on the environment. That is something that is feeding through to procurement with the business putting pressure on them to deliver that transparency.
“It’s a big issue in manufacturing as consumers demand transparency on ingredients, sourcing of packaging materials and the environmental impact of manufacturing and delivery,” says Ganazzoli.
It is a trend that isn’t limited to Europe, it is being felt globally.
Malaysia Airlines’ Christina Ooi says that her team is working hard to ensure that the company’s suppliers are meeting increasingly stringent CSR standards.
“We need to ensure that our suppliers are not only compliant, but also adhere to the rules of fair play,” she explains.
Finding the right talent and developing that talent is one of the key factors in the future success of a procurement function. It is no surprise therefore that it is seen as one of the biggest challenges identified for CPOs in 2017.
“In Asia Pacific, procurement talent is like an endangered species,” says Ooi.
Ooi firmly believes in “growing your own” talent. Pinching talent from competitors isn’t sustainable nor is it efficient, she argues.
At Malaysia Airlines, the focus has shifted to hiring graduates and investing in training schemes.
It may not be easy, but it is starting to pay off for the company.
“A lot of graduates haven’t even heard of procurement in this part of the world, so the role of the hiring manager is to advocate procurement as a strategic professional career, and move away from the traditional back office function,” she says.
Vattenfall’s Méndez meanwhile believes the big challenge is developing new and different skills within his team.
“We will require less operational purchasers and more strategic talent,” he says.
“A few years ago strategic procurement made up a quarter of the workforce. Now we’re looking at 50% to 75%. That’s a clear trend.”
As such Méndez is recruiting talent from other business functions, including sales.
“They have great knowledge of the business and can make a tremendous impact on procurement in their areas,” he suggests.
Transforming the function to be more agile, more adaptable and capable of meeting the challenges of the future is a constant challenge for CPOs.
While it is an essential process and one that will continue in 2017, when entering a change project it is important to understand why that change needs to happen and communicate that to the rest of the business.
“In the transformation journey there is the danger of ’boiling the ocean’, trying to do too much too fast," says Malaysia Airlines’ Christina Ooi.
“For us it is crucial to stay focused on customer satisfaction. Everything we do must centre around the customer, and to make sure we have happy customers.”
Vattenfall’s Méndez offers one example of a successful transformation his function went through when it realigned its KPIs to help the company win new business.
Many European countries are rolling back subsidies for renewable energy and replacing them with straight forward auctions. Vattenfall saw itself competing on Levelized Electricity Cost (LEC), which is the cost of producing 1kWh of power from renewable sources. This put pressure on the company’s costs, of which about 90% are locked in through by equipment such as turbines.
By switching KPIs from capitalised costs to LEC, the procurement department radically improved the company’s competitiveness at auctions.
Rapidly changing business models demand a different mind-set from procurement. Supply of goods needs to be faster, insight needs to be richer and the function needs to be able to react to global events quicker.
“Modern procurement is still focused on TCO (total cost of ownership), but in the future it will go to Total Value of Sharing,” says Vattenfall’s Méndez.
“The important question is how we can find business applications that will deliver immediate impact,” he says. “It’s more about experimenting than committing to a single solution.”
World Procurement Congress will take place 15-17 May 2017 at the Intercontinental London – The O2. There will be more than 700 procurement executives gathered for unrivalled networking opportunities and insight.
For more details visit worldprocurementcongress.com
This article is a piece of independent writing by a member of Procurement Leaders’ content team