Procurement Transformation for the Next Decade
As procurement in organizations is gaining momentum across the globe, the focus has shifted from mere cost reduction to strategically driving long term sustainable business growth. Procurement is considered to be a complicated task as it comes with the pressure of maintaining costs, regulation compliance and inherent legal challenges, and ethical sourcing. Procurement is undergoing a transformation in terms of increased need for engineering, design, and innovation in order to achieve goals that business partners are looking for.
Procurement integrated with sustainability involves making purchase decisions that both meet a company’s need for goods & services and minimize the impact on the environment. Though sustainable procurement practices bring in cost reduction and revenue growth, a common internal challenge is the difficulty to align all stakeholders towards a common framework. Differences in perception and opinion become problematic during implementation. However, if executed properly, this approach boosts economic value creation. Unilever is a good point of reference when we talk about sustainable procurement as it is working with certified suppliers who use less packaging material.
Amidst bilateral tariff disputes between the US and China, emerging global trade value chains are evolving to meet the rising demand of the developing world. More often than not, companies lose time and money to customs processing and delays in international payments. Usage of new technologies such as Blockchain, AI, and IOT in logistics and supply chain will continue to reduce cross-border transaction costs and enable all types of flows. Digital platforms can make cross-border purchases more efficient. Alibaba, a B2C E-commerce company, has already enabled remarkable cross-border flows by aggregating huge selections and making pricing and comparisons more transparent. Its annual sale is expected to reach $1 trillion by 2020. Scope for B2B E-commerce could be 5-6 times more, growing between $1.3 – $2.1 trillion by 2030.
Today, the wave of digital technology continues to bring transition towards a faster and well-connected world. Applying latest technology such as robotics, 3D printing, and blockchain will bring suppliers and buyers closer with higher efficiency and transparency. Procurement technology is not just transforming the way enterprises function, but also opening up new possibilities. In future enterprise would give more focus on fully integrated suit mapped with sourcing, contracts, payments, catalog, and so on, under one app. An integrated suite allows smooth flow of data from one module to another and provides a high level of automation. Transparency helps in building trust and long term partnership between procurement leader and suppliers.
In the coming years, finance teams and procurement professionals will drive together on one wheel on a wide range of analytical roles: right from domestic and foreign product purchases to supplier financing and quantitative risk management. Procurement’s fundamental objective is to obtain products and services required by a firm for smooth operations, so typically it covers between 40-70% of total company capital. To gain a good grip over every single spend made, CFOs have started realizing that finance and procurement teams need to collaborate in most of the sourcing decisions.
Rapid execution requires innovation and vision. Machine/deep learning techniques improve data cleansing performance and provide excellent visualization over dashboards to identify an issue in real time. Advanced analytics enhance a company’s capability to derive deep insights from big data and forecast spends category-wise. Recognizing the potential value of an enterprise and driving innovation will transform the procurement industry to achieve strategic growth.
In the years to come, procurement will have an external collaboration structure that will be completely different from traditional “procure and audit” models. Active collaboration with business partners across the supply chain will dramatically reduce inventory costs and warehouse management. It has already been proven that joint initiatives between companies allowed 61 percent of procurement leaders to deliver better savings performance. Every year American companies spend more than $1.5 billion on procurement tools and processes. Such shared responsibility can not only reduce costs but also increase focus on improving operational efficiency and customer satisfaction.