Transforming procurement

To stay competitive in the future, companies need to add value by building intricate partnerships with trusted suppliers and making procurement far more strategic internally.

The future of procurement in manufacturing looks more integrated. So say a host of industry-leading procurement executives, when asked by the software and information technology services company Ariba to predict the future of their roles and of procurement itself.

Two major themes emerged from Ariba’s “Vision 2020” report. Firstly, experts predicted a far closer, more co-dependent relationship between supplier and customer. And secondly, in order to support this relationship, the role of procurement will become far more strategic and integrated within the company, to support and grow the business model.

But why is change needed?

Role revolution

For many companies, the role of procurement has been largely clerical, not offering any strategic support to the business. As the marketplace has rapidly globalized, procurement practices have not developed with it.

There’s an opportunity now, thanks to ever improving technology, for procurement to focus on value: cutting down or outsourcing clerical work, focusing on building supply relationships, understanding the ever-changing marketplace and identifying potential growth or change areas.

Tim Cummins, president and chief executive officer of the International Association for Contract and Commercial Management, explained this in the “Vision 2020” report: “It is clear that many of today’s basic procurement activities can be automated. What we really need are skills associated with driving economic contribution for the business. That involves financial assessment, relationship skills, the ability to coordinate teams and ensure collaboration internally and externally. The harsh truth is that these skills are not particularly associated with the function today. A very big challenge is to turn that perception around for 2020.”

“The future they see is one where key suppliers are far more embedded in a customer’s business, offering their expertise to grow products from inception.”

New-style relationships

Relationship skills are arguably the most fundamental aspect of the new procurement function, if you consider the views of the “Vision 2020” experts. Instead of suppliers and customers, the future they see is one where key suppliers are far more embedded in a customer’s business, offering their expertise to grow products from inception. And this is not a distant prediction. Several companies are already creating intricate partnerships with their key suppliers.

As Ann Oka, chief procurement officer for the multinational food services company Sodexo, said in the report: “Our supply chain comprises many consumer packaged goods and finished product manufacturers. We rely heavily on their insights into consumer trends and their innovation to develop new products and offers for clients.”

An integrated relationship with suppliers, she says, is a “strategy based on the belief that we have developed such intimacy with our client base, we know so clearly what problems they are trying to solve, that we can offer solutions to solve these problems rather than simply providing services.”

John Campi, former chief procurement officer of Chrysler and now managing partner at Genesis Management Group, realized the value of Chrysler’s critical suppliers and bestowed the title of “Supplier of Choice” on a select few. These suppliers would be invited to participate in the development of new vehicles and work together with Chrysler on target costings. “The metric they would be measured on,” says Campi, “was quality.”

Risks, rewards and trust

Combining the specialities and expertise of customer and supplier has obvious product quality benefits, but in terms of supplier-customer relationships, it makes both parties equally invested in the risks and rewards.

Javier Urioste, a former chief procurement officer and contributor to the “Vision 2020” report, believes that for this to work, supplier-customer relationships have to be fundamentally altered. “It requires complete transformation of the procurement organization,” he says. “It means establishing highly skilled technical entities that can be embedded with engineering. It forces companies to open their books and their patents to suppliers who could be supplying their competition, so understandably it is a very difficult thing to accomplish.”

It’s difficult because the risks look so daunting: sharing patent information, evolving the customer-supplier relationship from contentious to collaborative, ensuring supply chains are fully transparent. But what each of these risks, and the new role of procurement, have in common is the importance of relationships and specifically trust. And in the business world, this may be the biggest challenge of them all.

“The role of procurement will become far more strategic and integrated within the company, to support and grow the business model.”