1 PROCUREMENT PLACE'S SEVEN GRAND CHALLENGES FOR SUPPLY AND SPEND MANAGEMENT
1. Continue the Strategic Elevation of Procurement
Although much progress has been made in this area there is a lot more to do, particularly in the mid-market and in the public sector. The motherhood and apple pie statement here is “procurement strategy must be an integral component of corporate strategy” or something similar. This is the truism but the hard fact of life is that procurement must do the work internally to make itself worthy of such a lofty positioning. Technical and leadership skill levels must dramatically improve in many procurement departments, salaries must be raised to attract talent, and ultimately the procurement function must be respected and held in awe by internal stakeholders and suppliers alike as a focal point of bleeding edge sourcing practices.
2. Achieve a Truly Seamless Cross-Functional Strategic Sourcing Process
What I DO NOT mean here is inventing another seven-step consulting methodology. What I do mean is reaching a state where the right organizational players are facilitated smoothly into the strategic sourcing process at the exact time that their respective value-adds are required. This could be Engineering during specification rationalization, Manufacturing during supplier capability assessments, or Legal during contract development just to give a few examples. Procurement with its overall end to end responsibility for the sourcing process is in the perfect position to perform this facilitation activity, provided of course it possesses the skills and organizational credibility to perform this task effectively.
3. Optimize the Outsourcing of Indirect Materials
Enterprises will continue to evaluate their investments in the indirect procurement area. Some of the decisions they will ponder include which spend categories to outsource, which processes to outsource for these categories (sourcing? spot buying? purchase order processing? category management?) and whether to utilize “semi-outsourcing” strategies such as Group Purchasing Organizations. My personal belief is that very few organizations will outsource procurement “lock, stock and barrel” but that many will outsource selective processes for selective categories on an as-needed basis, sometimes utilizing more of a staff augmentation model than true outsourcing (“hiring commodity mercenaries” as one of my customers termed it). I also predict more use of accelerated, quasi- outsourcing techniques such as pre-negotiated contracts, particularly in the mid-market and private equity sectors.
4. Pursue Enterprise-Wide Spend Visibility
Organizations will continue to struggle in their quest to obtain visibility of who buys what from whom at what price across the enterprise. Without this knowledge they will be unable to effectively leverage their total spend with suppliers. Some enterprises will continue to believe mistakenly that they will be able to drive all spend through a single e-procurement system and achieve global visibility that way. The leaders in this area will realize that they need a tool to consolidate and analyze data from all systems that could potentially contain valuable spend information whether they be e-procurement systems, accounts payable, p-card or other sources. Oh, and the smart organizations will also realize that you don’t pre-select spend data for analysis based on accounting codes (see A Cautionary Tale of Zero Investment )!
5. Pragmatically Manage All Elements of Supply Risk
Talk about buzz. This one has rattle & hum. Personally, I see a little too much talk of virtual reality dashboards and not enough about what is really important. This means identifying the 20% of uncertainties in the supply chain that drive 80% of service and cost performance and figuring out how to provide accurate and timely information on these uncertainties to commodity managers to guide them in their supply management decisions. I would be ecstatic if organizations would simply improve internal reporting of incumbent performance, routinely subscribe to third party supply risk data sources, and implement formal methodologies for assessing the total cost impact of alternative global sourcing strategies that holistically consider all financial, quality and physical supply chain variables. I agree that the sky is the limit in this area, but let’s get the basics nailed down first.
6. Maximize the ROI of Sourcing and Procurement Technology
Oh so much to relate, so little space. The ongoing headaches here will include answering such questions as “Why do I need an e-sourcing tool if I always get good results with a traditional RFP?” or “Do I really need a spend analysis tool if I have an analyst who’s a wizard with pivot tables?” or “should I buy e-procurement or use my ERP purchasing module?” Those organizations that realize the greatest ROI from their procurement technology investments will be those that ground their decision-making in good old Procurement 101 fundamentals. If your solicitation meets the criteria for a low risk, competitive bid commodity like office supplies then try out a price-focused reverse auction. If you are preparing for a complex RFP such as LTL freight then ask an e-sourcing provider to demo an e-sourcing optimization event. Take stock of where the tool adds value over your standard approach and where it doesn’t. If it doesn’t, stay with what works (though you may be surprised). As for e-procurement, stay grounded in what will ultimately drive most spend through your preferred supplier contracts. Compliance is all about users finding what they want quickly and easily, not about the color of the swoosh or the sound of the bells and whistles. If you are in a state of paralysis by analysis, consider a hybrid approach that utilizes the best of the ERP and the e-procurement worlds (see The Age of e-PERP ).
7. Make Procurement “Chill” or “Tight”
The supply management profession must make itself attractive to young, degreed job seekers who would typically shun a career in Procurement for something more Generation X/Y such as, well, almost anything really. This challenge will revolve around positioning Procurement as a business function that someone can use as a launching pad to progress to the highest echelons of an organization, even the top job itself. This is still a far cry from how “Purchasing” is viewed today, with the exception of a few leading “Medal of Excellence” companies such as United Technologies, Proctor & Gamble and Hewlett Packard. I won’t be satisfied with our progression in this area until the day my college-bound daughter comes home excitedly babbling to me about how she is so, like, awesomely looking forward to embarking upon her Ivy League college experience in the field of Strategic Supply Management.
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