The Future of Procurement - 5 challenges to the profession & strategic function

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Jeremy_Kirsten.jpgJeremy Kirsten, MCIPS, puts pen to paper about where the procurement profession has come from, and where it is going.

Procurement as a profession is, I believe, in its infancy, as it only came into its own in the late 1980’s. Its growth from the mid 1990’s to date has been phenomenal. When I first started working, purchasing was not always carried out by professional purchasing officers, but by others that may have inherited the function. During this time, a new concept ‘Materials Management’ arose.

Materials Management essentially involved balancing purchasing and inventory management, and it was here where we started seeing an emphasis on minimum and maximum inventory levels. Essentially the beginning of what I would call, planned inventory, and order as required – albeit in a very crude form.

Back then it actually made sense to maintain levels of inventory that today would be considered absurd. This was the beginning of giving some thought to requirements, instead of what could be called ‘a free for all’. However, the roles of purchasing officers (or clerks), inventory- and warehouse staff were definitely not considered as careers-, or professions of choice. In fact, these were often the tasks assigned to poor performers from other functions.

Only recently have we seen purchasing and procurement gain recognition as something more than a clerical function that could be executed by anyone without the necessary aptitude and ‘yes’ attitude. Short courses, college diplomas and reference material support the growing need for expertise and knowledge in the field.

Businesses recognised that the practice of purchasing and storing excessive quantities of materials was just not sustainable. Particularly against the backdrop of the merger-and acquisition, and downsizing eras - and Thatcherism.

Academia was starting to do its bit in terms of training and equipping staff for this growing business need, and as we headed into the late 1990’s and 2000’s, we started to consider procurement as a strategic business function. Businesses started recognising the profession as a necessity to maintain and improve their competitive edge, manage costs sustainably, procure ethically, build long-term relationships with suppliers of similar mission, vision and ethics, explore green procurement and much more.

This has brought us to the present where post modernism is almost considered ancient, knowledge is increasing at exponential rates, and we communicate in ways regarded to be science fiction some 30 years ago. And of course, the internet. It was suggested to me some years ago, that the internet will have the same effect on the evolution of mankind as did the industrial revolution and the wheel. All of this has - and will have - a profound effect on our profession.

Procurement faces at least five challenges:

One

With knowledge increasing rapidly, individual practitioners need to keep their skill set current in order to remain relevant in a rapidly changing world. This requires forward thinking, up to date reference material and cutting edge education. It not only means changing concepts and practices in procurement, but also changes that affect enablers – or whatever “engines” that make our profession tick.

Two

We must continually demonstrate our value proposition. Yes, organisations like CIPS are doing their bit – as well as others – but when it comes to making promises to deliver, we need to walk the talk. We must not be found wanting in delivering value. For those sceptics out there (and yes there definitely are a few) greater effort is required. The challenge is to deliver value in tough economic times – for example, when exchange rates are not favourable, or when imported raw materials are priced higher due to a supply crunch.

Three

Procurement, like other professions, needs system tools and enablers. There are many enabling products out there. But, against the backdrop of curtailed budgets, the products we choose must drive and facilitate processes and functions such as Procure-to-Pay, business processes, contract management, master data management and spend analysis. The bottom line? Procurement needs to step up and be very clear about the type of tools that will deliver value.

We may consider cloud solutions, but there is a challenge in not knowing which solutions are available. In order to be proactive and pursue these solutions, it is important to identify the specific need- or challenge to be addressed, in order to select the appropriate approach.

Four

Master data. Specifically material and service master data. If you cannot clearly identify an item, your ability to procure that product, or even manage it, is compromised. Requisitions such as “goods as per spreadsheet” or “roller bearings” are not detailed enough. Modifiers and specifications are a must.

Keeping abreast of changing industry standards and product updates will go a long way towards cutting the cost of purchasing and carrying inventory. I am sure there is much to be said regarding duplicated inventory, increased P2P costs for duplicated items and erroneous or fudged spend reporting.

The bottom line? Individual material items should be clearly differentiated from one another.

Five

Networking and more networking. LinkedIn has done much for business professionals and is good for connecting people in the shortest possible time. Linking with professionals to share information is a huge driver for our profession, and is a matter of ‘watch this space’ for current developments.

One thing is clear – procurement needs to adapt to, but also to drive change. Your comments and feedback are appreciated.

Contact Jeremy through LinkedIn

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