As I step into this pivotal time of year, ideal for reflection and looking at the future, it's fitting to reassess the definition of Procurement. I'll delve into its evolution - exploring what has shaped it in the past, what influences it presently, and what I anticipate will define its future.
Before we examine how procurement has changed over time, and what are the current and future trends and challenges in this field, it is important to start with a clear and comprehensive definition of what procurement is, and what are its main elements and functions.
Procurement is the process of acquiring goods or services from external sources, usually through a competitive bidding or tendering process. In a business-to-business (B2B) environment, procurement involves the interaction between buyers and suppliers, who may have different objectives, preferences, and expectations.
Procurement can have a significant impact on the efficiency, quality, and profitability of both parties, as well as on the overall supply chain performance and customer satisfaction.
Procurement in the Past
In the past, procurement was often seen as a clerical and administrative function, focused on minimizing costs and ensuring compliance with contracts and regulations. Procurement activities were largely transactional and reactive, with little strategic input or value-added contribution. Buyers and suppliers had a low level of trust and collaboration, and tended to negotiate based on price and specifications, rather than on long-term relationships and mutual benefits. Procurement was also fragmented and decentralized, with different departments and units having their own procurement policies and procedures, leading to inefficiencies and inconsistencies.
Procurement in the Present
In the present, procurement has evolved into a strategic and cross-functional process, focused on maximizing value and creating competitive advantage. Procurement activities are more proactive and analytical, with a high degree of integration and coordination across the organization and the supply chain. Buyers and suppliers have a higher level of trust and collaboration and tend to negotiate based on total cost of ownership and value creation, rather than on price and specifications. Procurement is also more standardized and centralized, with common procurement policies and procedures, leading to efficiencies and synergies.
An example of a modern procurement approach is the Apple Inc., which has a small number of strategic suppliers, each with a long-term partnership and a high level of alignment and innovation. Apple leverages its procurement capabilities to source the best quality materials and components, and to ensure the timely and reliable delivery of its products, while maintaining a low-cost structure and a high profit margin. Apple also uses its procurement power to influence its suppliers to adopt its environmental and social standards, and to comply with its code of conduct (Lashinsky, 2012).
Procurement in the Future
In the future, procurement will continue to transform into a more innovative and dynamic process, focused on enhancing sustainability and resilience. Procurement activities will be more adaptive and intelligent, with a high degree of automation and digitalization across the organization and the supply chain. Buyers and suppliers will have a higher level of transparency and co-creation and tend to negotiate based on circular economy and social responsibility, rather than on total cost of ownership and value creation. Procurement will also be more flexible and agile, with customized procurement policies and procedures, leading to responsiveness and differentiation.
An example of a future procurement approach is the Unilever, which has a vision to become a leader in sustainable procurement, by sourcing 100% of its raw materials from renewable or recycled sources, by reducing its environmental footprint and increasing its positive social impact, and by collaborating with its suppliers and customers to create a circular and inclusive value chain. Unilever uses digital technologies, such as blockchain, artificial intelligence, and big data, to enhance its procurement transparency, efficiency, and innovation, and to monitor and improve its procurement performance and outcomes (Unilever, 2020).
Impact of Globalization on Procurement:
Globalization has had a significant impact on procurement procedures, as companies increasingly source goods and services from suppliers located in different countries. This has led to the development of more complex and sophisticated procurement procedures that are better able to serve international markets.
Some of the ways in which procurement procedures are adapting to serve international markets include:
The use of advanced technology to facilitate communication and collaboration between buyers and suppliers located in different countries. Feel free to have a look at how we do this at SAP using the SAP Business Network
The development of more flexible and agile procurement procedures that can quickly respond to changes in global market conditions.
The adoption of more rigorous standards for supplier selection and evaluation, to ensure that suppliers meet the company's requirements for quality, reliability, and sustainability. Feel free to have a look at how we do this at SAP using SAP Supplier Management
The implementation of measures to manage risks associated with international procurement, such as currency fluctuations, political instability, and supply chain disruptions.
Overall, globalization has led to the development of more sophisticated and effective procurement procedures that are better able to serve the needs of companies operating in international markets.
In conclusion, procurement is a crucial and ever-evolving process in a B2B environment that can significantly impact the performance and competitiveness of both buyers and suppliers, as well as the entire supply chain and end customers. Procurement has undergone significant changes over the past decades and will continue to face new opportunities and challenges in the future.
Some key takeaways include the importance of value creation and competitive advantage, the need for a strategic and proactive approach, the benefits of cross-functional integration, the focus on total cost of ownership and value creation, the development of dynamic relationships, and the emphasis on sustainability and resilience.
Lashinsky, A. (2012). Inside Apple: How America's Most Admired--and Secretive--Company Really Works. New York: Business Plus.
Monczka, R., Handfield, R., Giunipero, L., Patterson, J., & Waters, D. (2015). Purchasing and Supply Chain Management. Andover: Cengage Learning.