Procurement’s Exponential Future: From Transactions To Strategy

The other day I was chatting with a senior procurement executive at one of the niftier Bay Area technology unicorns (if you’re a millennial, you probably have their app on your phone) and the topic came up: what’s this whole procurement game really going to look like five or ten years from now?

On a good week I get to have meaningful discovery conversations with between 5–20 procurement executives in various types of enterprises, spanning retail to healthcare to automotive to construction in both the private and public sectors. Unless the person I’m speaking with sets the agenda with a specific category, I usually try and ask some version of the following qualifying questions:

· How does your procurement team measure success?

· What core tool does your team currently use to track that metric?

· What’s your biggest bottleneck while running a bid?

Nine times out of ten, the person I’m talking to thinks that they are winning if their procurement team is putting out fires faster than new fires start. Cognitive time horizons are typically 3–6 months ahead, (maybe a year, two years if they are in the midst of implementing some new big ERP system).

Their success metric, common throughout the industry is (no surprise): savings, savings, savings.

Their core tool, also common throughout the industry, is Microsoft Excel spreadsheets plus long email chains, plus maybe some project management software with Gantt charts.

And their biggest bottleneck is that they have to spend too much time herding cats to gather the correct baseline data, too much time herding cats to get workable specifications from end-users and too much time herding cats to source vendors for their bids using the approved one-size-fits-all workflow.

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(A lone procurement cowboy, literally herding cats circa 2018)

Sound familiar? If you work in most procurement organizations, you’ve seen this movie before. So that’s why I was so impressed by this particular procurement executive who actually had a ten year vision for the future of his organization. It just wasn’t the usual conversation. At the outset, he stated in no uncertain terms that he considered savings to be a necessary but not sufficient metric of a successful procurement organization. Procurement, he felt, should and will rise to the occasion of fulfilling higher enterprise imperatives.

Feeling emboldened by his invitation, I asked him to describe a vision of what procurement work will look like at top enterprises in five or ten years. Without missing a beat, he painted a shocking picture.

 

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Zombie Categories and The Humans That Once Managed Them

Category Management has been a buzzword in procurement for at least the past decade, and a heuristic for thinking about the fundamental process of establishing a baseline (or Current State Analysis) in the strategic sourcing cycle. “Defining the category” is often listed alongside “Stakeholder engagement” in courses on best practices in strategic sourcing, and category managers have been elevated to refine and optimize buying patterns within their particular fiefdoms of spend.

Not for much longer, according to this executive. Category management has run its course, and while “defining the baseline” will remain a fundamental of sourcing cycles, the role of “category manager” will give way to savvy business strategists who will behave more like internal management consultants than transactional sourcing managers. Think about it: anyone who has had a consultant from Deloitte or AT Kearney can come in and save them millions just by looking through their contracts hates the idea that as soon as that person leaves they’ll once more begin leaving money on the table. Strategic procurement roles will become a powerful internal function at top orgs, who will incorporate regular audits to continuously improve their sourcing over time.

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Value Beyond Price & Cloning Success Across A Procurement Organization

The difference between the best and the rest is a subject of perpetual fascination for keen students of procurement leadership. Xeeva, a procurement software company, has as its tagline “Clone your best buyer”, and that sentiment resonates strongly in the C-suite. If only we could clone our best buyer, our best vendor, and never have to look at another spreadsheet again — what would our organization be able to spend its time optimizing?

Again, this executive had an answer. Procurement will drive solution discovery and change management, he said, and effective solution discovery means using new metrics.

Instead of benchmarking the success of a bid based on pure savings (a cost reduction as compared to a three year baseline), to thinking the way that markets think: return on investment.

Practically speaking, this means that if a solution has a return on investment through labor-saving automation, through using less electricity or less water or less solid waste or less toxins or less risk to the enterprise’s brand or business operations, then it will become procurement’s job to measure, manage and optimize sourcing projects based on those metrics.

The buzzwordy heuristic is Total Cost of Ownership (TCO), and it’s an idea in folk wisdom that’s older than dirt. Don’t be penny wise and pound foolish. One way or another, the enterprise usually gets what procurement pays for.

As Bloomberg and numerous other impact investment groups move to integrate more procurement data into 10K reports that affect the appetite of investors for buying the stock of publicly-traded companies, these high-impact metrics will become decisive kingmakers. And as leading organizations anticipate a world where purchase orders generate themselves, send themselves, match themselves and approve themselves based on definable rule-based processes, the far more rewarding work of business strategy will become procurement’s bread and butter.

Once measured, evaluated and verified, an emergent best practice can quickly be disseminated across a procurement organization through dynamic process templates, visualizing all the data associated with a sourcing cycle for executives in one place. The opportunities for business to tap into a world of efficiencies by leveraging procurement for greater competitive advantage are growing increasingly tangible. But without Total Cost of Ownership metrics baked into the everyday processes of contract negotiating, vendor management and performance forecasting, these outcomes are difficult to measure and impossible to manage. That, the executive finished, will be the task of procurement leaders for the next ten years: value beyond savings.