Cranfield School of Management | Procurement in the future: a major driving force behind organisational performance

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Procurement in the future: a major driving force behind organisational performance
By Soroosh Saghiri and Carlos Mena

Overview

To be prepared for the future, organisations are likely to need to reshape their internal operations and external relationships. This is the conclusion of a major research study into the future of procurement. In a business environment characterised by volatility, uncertainty, dynamism and hyper-competition, organisations must adapt to cope with significant change. Functions within the organisation need to gear up to face these changes in order to cope with the rapidly changing business climate.  This is particularly true for functions that have a direct engagement with the external environment such as procurement.

The Procurement function is the gateway of an organisation to the supply base.  This means it is responsible for establishing and managing relationships with suppliers and spending the organisation’s funds in sourcing goods and services.  Hence, procurement decisions have a significant impact on performance, not only in terms of costs, but also on quality, innovation, responsiveness and revenue generation. Increasingly, procurement professionals are involved in business process improvement efforts across the supply base, with a greater contribution to measured objectives, and their performance frequently reported to the organisation’s top management. At the same time, the role of procurement is changing in response to environmental changes. Adrian Turner, European Head Corporate Procurement - Apple Europe Limited comments: “Procurement has more to gain in driving revenue than cost. It also has a great capacity to influence business, and change the perception of business life. “ This is endorsed by Remko van Hoek, Global Procurement Director at PwC: ” Procurement can have more outcomes for the end customer.”

The Cranfield/CIPS Centre for Strategic Procurement and Supply has recently completed a major study which reveals procurement and supply management as a powerful driving force behind organisational performance. The study shows that the role of procurement must become more strategic and its scope broadened. In the future, procurement will not just focus on its traditional area of cutting cost, but put priority on enhancing value to the final customer and protecting the organisation from external risks.

What did the research find? Reshaping procurement

The research identified the following linking major trends which will impact on the shape and structure of procurement:

  • Corporate values and strategy will contain a significant contribution from procurement
  • Strategic business decisions will be made around sourcing and supply
  • Relationship management will come to the fore
  • Skills development of procurement will be an essential
  • Data management and web applications will become major features
  • Global sourcing will  be an ever-present activity
  • Risk management will become a significant issue
  • Complexity management will be high on the agenda
  • Material scarcity will become an ever present issue

Action to meet future needs

Procurement experts predict a different, challenging, but auspicious future for procurement as a function and as a profession. In view of this, procurement professionals need to take action in the following critical areas:

A more strategic role for procurement: Moving away from a transactional-focused role, procurement should contribute more to profitability, and value adding. Thus, procurement managers should seek greater responsibilities in more strategic areas such as supplier relationship management, global sourcing, outsourcing, and mergers and acquisitions. Consistent with that, CPOs should take the opportunity of trying economic times to gain greater involvement in strategic decisions and a stronger presence at the board level.

Talent management: Procurement talent availability is a challenge for the future of the profession. Skills shortage will be exacerbated, creating costs and risks for organisations without a developed pipeline of well-qualified procurement professionals. A broadening and increasingly strategic role for procurement demands a new deeper talent pool. Finding the right talent to oversee the pivotal procurement responsibilities requires a thorough understanding of the capabilities necessary to lead a best-in-class procurement operation.

The necessity of quick response: Volatility in supply and demand has become the norm, and managing uncertainty remains a major challenge for procurement. Accordingly, on top of advance planning, businesses need to be resilient to unpredictable changes in the market. Consistent with idea of agile procurement, re-shoring or near-shoring are key for future procurement plans.

Supply risk management: New expanding global supply bases bring new risks, such as different life cycles, quality issues, length and variability of lead-times, poor visibility, natural disasters, terrorism and regulatory changes. New types and levels of risks need new contingency plans. Procurement professionals should see this as an opportunity to assert their presence, influence strategy and drive performance.

In summary, the future of procurement will put a lot more stress on outcomes and end customer value. In this environment, skills and talents will be keys for procurement.

Details of the research outcomes and the relevant analyses can be found in the full report of this study, available from the authors of this article.

Dr. Soroosh Saghiri is Senior Research Fellow at the Centre for Strategic Procurement and Supply Chain Management (CSPSM). Dr. Carlos Mena leads the Strategic Procurement and Supply Forum (SPSF), a joint initiative with the Chartered Institute of Purchasing and Supply (CIPS).



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