Driven by new technologies, new talent and new thinking, procurement is reshaping business as we know it…
Much has been written about the transformation procurement has made over the last two decades. As the discipline has evolved with new technology, new talent and new ideas, it has officially moved from the backroom to the boardroom and become a strategic process that is delivering broad business value.
Getting to this point wasn’t easy. Back in the day, procurement professionals were primarily transaction processors. They received purchase orders (POs) and got them to suppliers. They used physical catalogs to find the items they needed to buy, and most did not have a central system for tracking what they had purchased. Procurement was a time-consuming and frustrating process, especially for businesses that needed goods immediately to keep the line going and meet customer needs.
In addition, it was a decentralized function executed in silos. In large companies, procurement was typically managed by regional offices, with no communication or collaboration. The person responsible for buying things in California had his or her own suppliers, and so did the guy in Chicago and the woman in London and staff at all of the global facilities and on and on. What’s the best price? Who’s providing the best service? Whose product is high quality, or poor? There was no way to really know and no cross-country or global coordination.
Digitization Takes Hold
Then the world went digital. Technology that could make the process of discovering, connecting and collaborating with suppliers more simple and efficient came on the scene. And slowly, but surely, procurement embraced it.
Aided by things like business networks, cloud-based applications and big data, procurement has begun to understand the businesses better, collaborate with customers and suppliers more efficiently, build trust with stakeholders and communicate the value that it can bring to the larger organization beyond just savings and efficiencies.
And in doing so, they have cracked open the door to the C-Suite. High-performing procurement organizations have earned their place at the table and play a more strategic role in running the business than ever before.
But the transformation is just beginning. Innovations that can make procurement awesome are fast emerging. Take the Internet of Things (IoT). Business Insider estimates that IoT will add $1.7 trillion in value to the global economy by 2019. The World Economic Forum estimates that by 2020 the number of connected devices on the planet will grow from today’s 22.9 billion to 50.1 billion.
And it will have a profound impact on procurement as well. As Andrew Bartolini, Chief Research Officer of Ardent Partners, recently wrote in the CPO Agenda, “IoT will transform the way that people, processes and technologies drive value through the enterprise procurement process…As a result of IoT, more procurement responsibilities and tasks that are largely tactical can be automated, enabling procurement leaders and line-of-business users to be more strategic. The Internet of Things will allow procurement practitioners to ‘connect the dots’ faster and more efficiently throughout the procure-to-pay (P2P) process, who will only drop down into the weeds when there are exceptions (such as rejected expense reports or supplier on/off-boarding).”
With IoT, procurement professionals can compile data and analyze it to avoid business interruptions. And with powerful technologies like in-memory databases, they can make the kind of instantaneous decisions that mitigate risk, cut costs and bring added value to the enterprise faster than ever before.
And this is just one example. Don’t be surprised to see bots controlled by artificial intelligence mining historical transaction data and automatically ordering items before supply gets low without procurement needing to lift a single finger in the not-too-distant future. Or machines scouring intelligence from thousands of sources to detect the risk of forced labor in global supply chains and recommending actions to stamp it out.
As the pace of innovation continues to accelerate and things like machine learning, virtual and augmented reality and blockchains become more real, the stage is set for procurement to make another Quantum Leap. Procurement organizations that embrace these trends will continue to move beyond simply lowering costs and driving process efficiencies and add broad value to their organizations. They will reap the benefits of true, networked collaboration between employees, customers and suppliers. And they will deliver innovations that drive real business advantage.