Many challenges in the next 10 years have the potential to disrupt the dynamics of supply chains.
For years, chief procurement officers focused on reducing costs for purchased materials and services and ensuring the timely delivery of goods and services. Today, they face an increasingly complex landscape dominated by legal issues, sustainability concerns, and regulatory and ethical considerations that could impact not only their company’s bottom line, but also its brand and public image.
Over the next decade, procurement officers will need to take on more expansive roles within their organization. They will need to become guardians of the corporate brand, advocates for sustainable business practices and innovators who help develop new products and services. Companies that embrace this broader perspective for their procurement teams will find themselves in a better position to tackle the 10 change dimensions—from managing and anticipating risk to embracing the need for greater transparency across the supply chain—that will transform procurement by 2025.
Many of these challenges, described in detail below, have the potential to disrupt the dynamics of current supply chains. Procurement officers who proactively address these issues will be taking a major step toward helping their organization prepare for the future.
- Risk: By 2025, procurement risk management will undergo a major shift, moving away from emphasizing compliance to adopting a more holistic strategy that includes total risk exposure, risk mitigation investments and risk transfer pricing. To enable this transition, procurement leaders need to develop category managers who can develop next generation approaches to supplier risk management and factor new metrics into major sourcing and supplier management decisions.
- Sustainability: Procurement functions will move beyond managing cost and seek to develop supply chains that create and sustain economic and social value. This change will accelerate as millennials and other post-2000 generations gain more economic status and influence in the workforce. Younger professionals are particularly likely to embrace economic growth that is not dependent on exploiting resources and will ultimately encourage companies to reject the “linear economy” of consumption and disposition in favor of a “circular economy” based on continuous use and reuse.
- Globalization: As emerging markets assume a greater role in the global economy, the traditional demand and supply poles that have shaped global commerce over the last 50 years will change dramatically. By 2025, global companies will have procurement managers based in China to source materials and services not only for their operations in that country, but for the entire organization. In the Americas, Brazil will become a major source of both demand and supply for global companies. To handle this task capably, procurement teams need to start developing expertise in local emerging market sourcing in China, Brazil, Russia and India, as well as other developing economies.
- Integration: By virtue of its position within the organization, procurement teams are aware—or should be—of all supplier and market information flowing into the enterprise and for demand and product data flowing out to collaboration partners. Looking ahead, savvy procurement teams will begin to play a critical role in sharing information about internal and external costs throughout the organization. They will also become the go-to source for tracking information beyond costs, but also on how the organization is meeting its sustainability and social responsibility commitments. And with its insights into cross-enterprise performance metrics, procurement will also help identify suboptimal business processes.
- Finance: In the future, procurement managers will need to broaden their skill sets to help their organizations adapt to the complex challenges of managing the global supply base. Many will need to develop financial acumen that rivals those of their finance counterparts. Leading companies should start taking steps to tighten the relationship between finance and procurement and to enhance the financial skills of their procurement teams.
- Innovation: By 2025, the leading procurement organizations will serve as a primary channel for finding new ways to create value from the global supply base, whether by streamlining new product development or outsourcing non-core functions. As a way to move this evolution forward, procurement organizations need to gain a better understanding of the role outside entities play in driving innovation in their industries. To support this, many procurement teams will need to expand their expertise in engineering, design and new product development.
- Collaboration: In the future, leading procurement organizations will deploy external collaboration models far removed from traditional “buy and audit” models. Procurement professionals will need to orchestrate complex outsourcing and service management arrangements with multiple vendors. Starting now, procurement organizations need to begin moving toward establishing collaborative outsourcing and service acquisition models to replace adversarial constructs that encourage zero-sum or win/lose scenarios.
- Transparency: Social media and the increasing acceptance of information transparency will amplify the degree of scrutiny on procurement organizations. This disruptive change, coupled with the adoption of real-time social technologies, will make procurement one of the most visible corporate functions to the outside world. To that end, procurement leaders need to encourage their teams to adopt a social mindset and operating model that will sustain the corporate brand in this more transparent era. By 2025, the best procurement officers will be as comfortable speaking to consumers, regulators and the press as they are with suppliers.
- Information: As big data is increasingly intertwined into corporate decision-making processes, best-in-class procurement organizations will need to become more comfortable with advanced data mining and analysis techniques. These skills will be integral to all high-performance procurement organizations, especially in the consumer, high-tech and automotive sectors. Chief procurement officers in 2025 will live in a vastly different data-driven world, one in which they will have access to real-time updates on transactions and financial activities across a wide spectrum of the organization. Leading companies need to begin assessing their master data, data management and analytical capabilities and ask how those skills and technologies need to evolve in the coming decade.
- People: The preceding nine change dimensions make the case for an extremely different procurement function within 10 years. Even if only half of these predictions fully emerge, the procurement leaders of tomorrow (see below) will have to adopt a different worldview than their counterparts in the past. To adapt to this evolution, savvy chief procurement officers are already thinking about ways to find and nurture the next generation of procurement leaders, which will require them to assess their intellectual and geographic diversity and recruiting sources:
- New blood: Procurement teams will expand and attract more people with backgrounds in education and professional services, making it one of the more intellectually diverse organizations within the enterprise.
- New cultures: Geographical shifts into new or emerging markets will require procurement teams to recruit a more diverse workforce that can design buying strategies that will be more relevant to local social and cultural dictates.
- New mindsets: Doing business in a more transparent society will require procurement organizations to go far beyond “corporate social responsibility” and actively participate in a wholesale reevaluation of the corporate-social relationship.
- New profiles: The profile of the traditional buyer who counted success through hard-won negotiations that “didn’t leave any money on the table” will be replaced by procurement teams that adopt a multidimensional approach to managing the supply chain. While reducing costs will continue to be important, it will not be the overarching factor in all negotiations.
This shift in finding tomorrow’s procurement leaders will mirror the overall transformation for all procurement teams, in which they move beyond the role of buyers that exclusively specialize in finding, acquiring and ensuring the timely delivery of goods and services. Companies that begin adapting to the new procurement landscape today will be poised to seize a competitive edge in the decade ahead.
Niul Burton is a principal with global consulting firm Ernst & Young LLP.