Transforming Procurement For The Next Normal
In this article series, PASA reports on several sessions from its 9TH Annual Premier ConfeX, which took place on the 13th and 14th October 2021. The two-day virtual conference brought procurement leaders from across the ANZ region together to discuss the topic of transforming procurement.
This second article shares some of the highlights from a session delivered by Tarandeep Singh Ahuja – Partner, Procurement – McKinsey, who discussed the five themes that will help procurement transform in the coming months and years.
We are living in exceptional times. The way we work, live, and interact with one another has changed drastically in the past two years. In many cases, the pandemic has served to accelerate the disruptive trends which are shaping the next normal including technological advancements, evolving global growth, and sustainability initiatives.
The rise of these trends has some fairly fundamental implications for procurement professionals, presenting challenges but also significant opportunities. Here are the top five themes that the profession must embrace to survive and thrive in this new world.
1. Shifting beyond cost-reduction to creating a source of sustainable competitive advantage
Now is the time for the profession to shift away from prioritising cost reduction and earn its seat at the table. In today’s climate, procurement has a newfound sense of urgency and there is an opportunity here to take that sense of urgency and use it to elevate its status within the business.
Procurement teams across industries are focussed on finding ways to create a sustainable competitive advantage. BMW, for example, has invested in blockchain to enable ethical and transparent end-to-end sourcing.
2. Accelerating adoption of digital and analytics to unlock new sources of value
There is a whole range of technologies that are impacting procurement teams today.
With the advent of artificial intelligence (AI) and machine learning, the spend data that is now available is unlocking valuable new insights. Meanwhile, technologies like blockchain and smart contracts are fundamentally transforming how transactions occur – creating transparency and confidence in the supply chain.
Additive manufacturing has been a bit slower to take off than people expected in recent years, but it promises to change how procurement teams buy products.
3. Investing in partnerships with suppliers to drive innovation
It’s pretty normal for procurement teams to have long-term partnerships with certain suppliers. But these are often transactional relationships that prioritise getting the most value out of a negotiation.
Since the outbreak of COVID-19, however, many procurement teams are focussing on fostering more meaningful relationships with their supply base to drive innovation and bring in new ideas and ways of working to their own organisations.
4. Creating an efficient, resilient, and sustainable supply chain
This theme has rapidly accelerated through COVID as organisations increasingly prioritise sustainability and building resilience.
Disruption over the past two decades has become more complicated and more common, which requires procurement teams to take a systematic approach to risk mitigation activities. Research shows that most disruptions don’t happen within tier one suppliers and yet as many as 54% of CPOs admit to not having visibility beyond their direct suppliers. Creating better visibility will enable teams to predict, prevent, and mitigate disruptive events.
5. Building new capabilities and a future-ready operating model
To capture the opportunities generated by each of the first four themes, procurement teams need to build new capabilities and establish very different operating models.
It’s not about trying to do more and more things with the same resources, it’s about doing things differently and working smartly. Procurement teams need to think about collaborating differently with other functions within the business, their suppliers, and their customers.
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