Procurement in 2020 won't exist in its current state

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Holographic interface.jpgThe procurement function as we know it will no longer exist in 2020.

This is the consensus reached in a report ‘VSION 2020: Ideas for Procurement in 2020 by Industry-Leading Procurement Executives’, the outcome of a dialogue between Ariba and leading procurement practitioners and influencers.

Its main points make for interesting reading…

1. Spend management will shrink

“Companies will still care about managing their spending in 2020; they just won’t have large, discrete, enterprise-level organizations dedicated to doing it.”

The spend management function will be very small by 2020, says the report, comprising a strong central core ensuring that all the right processes and tools, skills, relationships, templates, and performance metrics are in place across business lines and functions.

But, while enterprise-level spend management functions will shrink in the coming decade, report participants saw more supplier-facing positions being created at high levels in the strategic lines of business that comprise a corporate enterprise.

“Professionals with supplier-facing responsibilities will be in the business lines, will know the business lines, and will participate in business lines’ strategic planning processes. They will be responsible for developing — with suppliers in mind — all the strategies that help the business organise, design and execute processes, outsource (or insource), assure supply, innovate, and manage costs.”

However, the report warns that if you are going to eliminate the function of procurement, you need to have some very clear resolutions — perhaps coming from the Board of Directors — to ensure that there is a clearly articulated procurement policy and strategy and that the disciplines of procurement become a routine part of the way a business operates.

2. Profits will replace cost savings

“Today’s focus on cost savings will give way to a broader, more balanced emphasis on profitability, leaving open the question of whether supply management concentrates on cost savings or revenue growth to get there.”

The report found two general points of consensus around performance management for supply and spend management in 2020:
a) Money — be it savings, revenue, or profitability — will always be a piece of the performance picture.
b) Metrics will direct supply and spend management professionals to focus their efforts on both the top and bottom lines.

Metrics in 2020 will be focused less on savings and more on the likes of spend coverage — as an indicator that an organisation is focused on the right things — innovation, collaboration, internal and external stakeholder satisfaction, and competitive advantage. It will become more of a standard to see supply management being held accountable for delivering value and not just lower costs.

Supply management goals in the future, says the report, are going to look a lot more like the goals you see in marketing, where they are at risk for growing the market, or the goals you see in operations, where they are geared toward profitability. Procurement will not only be about cost savings, but how supply management can help marketing drive customer acceptance or help operations drive profitability; working on top-line growth and product innovation as well as bottom-line impact and total cost of ownership.

3. Budget fuzz will fizzle out

“There is plenty of effort today around trying to drive sourcing cost savings into budgets. But that is also a function of having discrete enterprise spend management organizations and heavy emphasis on cost savings, which are both supposed to go.”

Report participants expect supply management to have become so embedded, so early in business strategic planning that no one will ever think to ask a question like: Does procurement have a seat in the budgeting process?

“When you get to a point where you are well respected within the business segment, and you are conducting a series of projects that are expected to have significant impacts for the business, not just in terms of expense take out, but on the revenue line, then you will be working with the business through the course of each year and helping them to make their plans,” notes the report.

4. So long, sourcing geeks

“While valued highly in today’s marketplace, people who excel at sourcing processes or at being power users of procurement and sourcing automation technologies will find themselves working for third-party services firms — or not at all — in 2020.”

Organisations of 2020 will need people who are customer- and business-centric, not people who like procurement processes the most. Nor will procurement in 2020 require people who are experts at using procurement and sourcing software. Rather, we will require people who are experts at using technology to move businesses in certain strategic directions - systems supporting businesses versus asking businesses to support systems.

The implication is that procurement tools will become so intuitive by 2020 that even untrained professionals can be guided through the processes of executing successful sourcing and procurement activities. In many cases, systems will execute without any human intervention such tasks as:

• Sourcing based on market dynamics and predefined negotiation strategies.
• Ordering based on minimum-maximum levels.
• Invoice, reconciliation and payment.

“People are not going to need to know how to write purchase orders,” says the report, “they will need to be able to support supplier relationships that provide their companies with continuous strategic advantage in their niche markets.”

Many of today’s basic procurement activities can be automated. What is really needed are skills associated with driving economic contribution for the business. That involves financial assessment, relationship skills, the ability to coordinate teams and ensure collaboration internally and externally. The harsh truth is that these skills are not particularly associated with the function today. A very big challenge is to turn that perception around for 2020.”

5. Strategic business units will absorb procurement

“The vision for 2020 sees a loose network — vs. tight function — of supplier-facing professionals embedded into strategic business lines, communities, and processes wherever needed, constantly moving and reinventing their roles as needs shift.”

One outcome of the emerging 2020 vision is the functional ‘procurement’ label fading from the corporate lexicon over the coming decade. Procurement will no longer be called procurement in 2020.

‘Embedded’ in this context can mean either physically or virtually with the central idea being that the new spend management professionals get involved only where they are needed and move on once the right supplier relationships, processes, information flows, KPIs and performance metrics, technology tools, and so forth are in place and running both smoothly and predictably.

Sourcing in 2020, says the report, will be about thinking outside of the box to do things much differently as the business itself transforms. Tools, strategies, and information sources that make sourcing organisations incredibly nimble are going to be important in 2020.

“As companies go forward in 2020, as consolidation occurs, there will be a need to engage end customers more and more and that will require a relook at the centralised or center-led structure for procurement.”

Procurement professionals will work more in a ‘design-to-value’ concept, participating as one part of a much bigger thing the business is trying to achieve, which is innovation. Critical spend categories will gravitate much closer to and become much more integrated into the business lines.

To conclude: Sourcing will be driven much less by cost management and much more by innovation and contributing in terms of selling the products organisations are trying to create.

The information in this article was sourced from the report ‘VISION 2020 Ideas for Procurement in 2020 by Industry-Leading Procurement Executives’.
 

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