The Changing Role for Procurement within Industry – Challenges and Opportunities

The rapid globalization of the world economy, over the last two decades, has dramatically changed the landscape for manufacturing companies all across the United States. For aggressive, leading-edge manufacturers that are ready and able to embrace the changed dynamics of this business environment, the opportunities are boundless. On the other hand, the intense competition that globalization has introduced can and does threaten companies that are unwilling or unable to take advantage of this newfound competitive environment. How organizations balance the opportunities and challenges of globalization will greatly impact their ability to prosper in this increasingly complex landscape.

Perhaps the most significant change to the hierarchical ranking of corporate strategies , directly influenced by this competitive global environment,  has been the expanded relevance and prominence given to the role of procurement within organizations. The procurement function has evolved from a largely administrative function to a strategic role within the organization. Today, procurement teams face the unique challenge of a business environment that is dealing with shrinking supplies of commodities, but rising public concerns for sustainability; that strives to control costs, but must balance regulatory and ethical considerations that could have a direct impact on the corporate brand.  

A LOOK AT SOME OF THE MORE RELEVANT CHALLENGES AND THEIR CORRESPONDING OPPORTUNITIES

People, People, People

Perhaps one of the more foundational challenges that face many procurement softwareprocurement software officers is the discordance between the corporate procurement strategy and the working reality of the position on the ground. The level of change in this strategic role demands a different skill-set than those of traditional procurement officers and profoundly impacts their development needs. There is a high degree of consensus that training and development (and attracting people with the right skill set) is the number one key challenge for procurement functions within an organization. This is an interesting challenge that highlights many possibilities for the company:

  • Expanding skill development throughout the company
  • Putting in place the right recruiting and retention practices
  • Developing career paths in other functions outside of procurement    

Sourcing, Especially Global Sourcing

Realistically speaking, emerging markets continue to assume a greater role in the global economy. The traditional demand and supply model is changing at a dramatic pace. Large organizations must become very familiar with setting up and managing global sourcing offices and the linkage between the global sourcing offices and headquarters.  It’s not difficult to see how the need for additional skills comes into play. Setting up a global office in China or in India requires entrepreneurial skills and the ability to improvise. Coupled with those skills is the necessary ability to handle intercultural management and negotiating skills.

International sourcing (and sourcing generally) is a crucial weapon for enhancing a company’s competitive position, as evidenced by the fact that purchased inputs account for 60% to 80% of cost of goods sold.

Collaboration and Cross-Function

How does procurement work and collaborate with functions (other than the traditional engineering and quality management functions) like sales and marketing? Or finance and controlling? And supply chain management? The importance of procurement to work in tandem with other functions in the company reflects the greater integration within companies generally. The history of procurement reflects a kind of evolving position that crosses different organizations over time. It begins with purchasing as more of a clerical and logistical activity to achieving the next step which is “achieving the lowest cost unit”. A significant step (in the evolutionary scale) is “coordinated purchasing” or purchasing requiring the input of other functions to improve supplier-customer relationships. “Cross-functional purchasing” has established the procurement department on an equal footing with other functions and recognizes their contribution as equal to the overall corporate success of the company.

Sustainability

Finally, procurement functions move beyond managing cost and seek to develop supply chains that create and sustain economic and social value. This change will accelerate as millennials and other post-2000 generations gain more economic status and influence in the workforce. Younger professionals are particularly likely to embrace economic growth that is not dependent on exploiting resources and will ultimately encourage companies to reject the “linear economy” of consumption and disposition in favor of a “circular economy” based on continuous use and reuse. Procurement functions will move beyond managing cost and seek to develop supply chains that create and sustain economic and social value.

Closing Thoughts

As premised in the introduction to this post, the careful balance that procurement officers must strike will broaden their function and significance beyond the role of buyers to include the promotion of the corporate brand, the advocacy for sustainable business practices and the instigators of new product and services. This is and will increasingly become the future of the procurement landscape for industry.   

 

Contributed by Gabriel Gheorghiu – Experienced consultant and analyst focusing on business software and customer interactions

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