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Over the last 25 years, we have become used to a steady evolution in procurement practices, as businesses have sought to drive out greater value while also reducing costs. Procurement has come a long way, but improvements are now measured in relatively small steps.
Reorganisations and consolidations can certainly help bring about change, not least in the culture of the function and how it is perceived across the business. However, it could be argued that this is more about improving existing processes, rather than radically altering them.
These changes are certainly important, as there are many global organisations in which procurement is neither as valued or as driven as it could be. There are areas of the globe where holding onto the ’we’re different’ mentality can wear down corporate outsiders, leaving large pockets of untapped opportunity merely because no one has the will, stamina or cultural understanding to determine what actually needs to be different and what is merely resistance to change. This is a war that those determined to defend archaic approaches and steer a lack of collaboration will ultimately lose. It takes a determined CPO to push forward a consistent, optimised approach to procurement across the entire organisation.
While we are encouraging our functions to improve, there are some large developments on the horizon that could change the environment dramatically and drive change at a faster pace.
These terms have become buzzwords but, in reality, they are impacting the way the function gathers insights and drives processes. Cheap, fast-access storage, accompanied by processing power capable of using big data, has allowed businesses to understand the performance of their processes and, consequently, through the use of analytics, drive improvements on a different level to what was previously possible.
Senior management can see performance reports that drill down via global operating units to, for example, individual stock keeping units sitting behind apparent issues without leaving the enterprise resource planning environment. This provides visibility and robustness which was previously unavailable.
It is instant. The industrial Internet of Things, where devices, tools and manufacturing facilities are connected to businesses in real time, will further this opportunity, providing more information on areas including stock movements and reliability.
There is a considerable amount of ‘science fiction’ talk surrounding the topic of AI but it offers an incredible amount of promise. AI, defined as intelligence exhibited by machines, represents something of a quantum leap forward in the way business processes operate, including who, or what, actually makes decisions. In the case of procurement, we have already seen AI dealing with helpdesk errors, for example. Developments are also underway that will see AI help to raise POs, removing much of the functions administrative burden.
The near-ubiquitous use of social media across the globe has meant poor practice by businesses no longer flies under the radar. Even worthy attempts to deal with difficult situations responsibly can be seized upon by protest groups when they fall short, for example. Many executives believe their companies operate ethical and safe supply chains but without adequate, regular confirmation of this, businesses run the risk of someone in the supply chain operating in a manner incompatible with their corporate ethics. Given the speed with which a social media campaign can spread, there is greater pressure to identify the risk and address it long before being faced with the issue of having to correct it in the glare of adverse publicity. Analytics and AI are providing a valuable means of adding rigour to de-risking supply chains.
We are seeing increasing interest in end-to-end traceability, which is linked to supply chain risk and improving reliability. In the ongoing drive for process efficiency, many have found success in linking customers to suppliers through organisations and, in doing so, reducing waste and making the movement of cash more efficient. It is now far more common for sales to be involved in procurement activities to ensure customer requirements are reflected throughout the value chain. Bringing the end customer’s requirements closer to the supplier is also creating an environment which stimulates innovation in the supply base.
Low-cost sourcing destinations, such as China, are seeing wages rise, which is leading to higher costs. This raises the dilemma of finding geographies from which to source low-cost goods, and raises the question of whether buying certain goods from certain locations continues to make sense, or whether buying a complete service from a third party would actually represent better value.
These changes are happening at increasing pace. Businesses are starting to move and momentum is building, and these opportunities will provide a clear direction for the future of the procurement function.
Andrew Nicholas is a member of Wipro Consulting’s intelligent Supply Chain (iSC) team
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.