The Evolution of Procurement: Past, Present, Future – Part 1 of 2

By Aswathram Viswanathan

Procurement:

Supply chain is no longer as simple as getting goods from point A to B, as it is about understanding and executing a complex set of variables. Global competition, changing economies, and new supply chain challenges, have brought into focus the need for procurement leaders to develop strategies that will yield sustainable competitive advantage.

Current trends:

In response to these challenges, procurement has evolved from organizations focusing on buying goods from suppliers with lowest price quotations, to harnessing the power of big data analytics and cloud computing, to make better decisions. Here are some of the trends that are affecting procurement today:

  • Next Gen Spend Analytics: Spend analytics has moved beyond aggregating and analyzing transactional data, to gathering strategic intelligence. Supplier performance & risk information must be integrated into spend analysis to present a truly holistic view of an enterprise’s spend behavior. This is achieved by taking advantage of 3rd party information sources, such as local news media coverage.
  • Digital Capabilities Adoption for Indirect Spend: Companies have begun to realize that reducing indirect spend, offers a huge opportunity, by affecting its cost structure. To drive maturity in indirect spend, companies have incorporated cloud based technologies to create an “amazon-like” experience, with real time market view for buyers.
  • Best Cost Country Sourcing: There has been a steady shift in strategy around low-cost country sourcing to best-cost country sourcing. Companies have understood that source choice should be based, not only on a static view of total cost of ownership (TCO), but on future costs, alternative growth markets, and approaches to implementing greener and leaner supply chains.
  • Supply Chain Sustainability: Consumers are becoming aware of how products are sourced and manufactured. Supply chain sustainability has therefore, become an important factor today with more companies pushing towards positive social change and environmental protection.

Procurement Challenges

Evolution of ProcurementAs supply chains are becoming more global and agile, newer challenges are affecting procurement organizations today that provide opportunities for further innovation.

  • Use of Big Data - Procurement organizations today are inundated with huge amounts of data. It is essential that procurement leaders understand exactly what data is needed, employ tools that analyze the data, and employ people with the right skills.
  • Template-driven Methodologies* - Organizations today are plagued by too many template-driven sourcing methodologies. Simple and effective methods like Japanese auctions can be used to manage price volatility.
  • Drying up of cost-savings - The successful employment of strategic sourcing initiatives, since the early 2000’s, has dried up cost savings for procurement professionals. The challenge now is to search for the next set of strategies that help improve cash flow, reduce time to market and other new streams of innovation.
  • Foster Strategic Relationships/Supplier Innovation - It is essential to form deep, strategic relationships with suppliers that can enhance collaborative planning. Collaborative planning, in turn, drives commitment, management, and supplier managed inventory to be a reality. Strategic relationships also foster supplier innovation, used to reduce development costs or increase product differentiation.
  • Continued Decline in Global Commodity Prices - As the oil and metal prices continue to decline through 2016, it becomes essential for procurement organizations to rethink and realign their supply base.
  • Manage Global Supply Chain Risk - In today’s globally connected supply chain, it is essential for procurement organizations to plan for droughts/floods, terrorist activities, political instability, and the lack of safety regulations.
  • Track Exchange Rate Fluctuations - With companies procuring goods from all over the world, it is essential to assess the impact of exchange rate volatility. It is essential to look at what is the short term and long term impact of fluctuations on the procurement contract and make strategic decisions based on the degree of exposure.

CGN Global’s Impact

Innovative techniques include:

Strategic Sourcing — We implement enterprise wide strategic sourcing programs or across specific purchasing categories that are collaborative and systematic in approach for dramatically reducing external spending, while improving quality, internal processes, and total cost.

Modular Sourcing — We look at the internal and external collaboration process aimed at reducing the overall supply chain costs. Assembly savings are enabled by modularity, reduced sub-assembly, and in house main line assembly.

Supplier Network Rationalization — We identify and implement a supplier network, providing the lowest total cost for the business unit/enterprise, giving a projected manufacturing footprint, quality, delivery, and flexibility targets.

Procurement Business Process Transformation — We help clients fundamentally rethink and radically redesign their core procurement business processes, to achieve dramatic improvements in critical performance measures such as quality, cost, and cycle time. CGN’s proven expertise, ensures that the right capabilities, governance structures, and metrics, are in place to drive real, sustainable change.

Learn more about CGN Global’s Supplier Collaboration & Procurement practices here.

*Source: Procurement Leaders Americas Congress 16