Living in interesting times: procurement 2020

PartProcure_100.jpegBy Nicolette Emmino

We were not even at the end of Quarter 1 of 2020 when tariff wars seemed to be the least of our problems. Even before the coronavirus started to disrupt supply chains, procurement analysts had identified several things to watch out for and necessary transformations that needed to happen within the procurement world.

Here are a few things procurement professionals should be focussing on within their organisations this year:

Finding the right supplier partners
The concept of partnering with suppliers and aligning with partners whose corporate values mirror your own is becoming more crucial as consumers continue to demand transparency throughout supply chains. Customers are willing to pay a premium for ethically-sourced and manufactured goods, and are more likely to boycott companies that are either not forthcoming about their sourcing or who partner with organisations whose values are not acceptable.

Finding the right people with the right skills
As digital transformation increasingly affects the procurement function, finding, training and helping procurement professionals adapt to digitalisation, data analysis, machine learning and artificial intelligence becomes increasingly important. Learning how to scale the benefits of technology throughout the entire procurement process and supply chains for more than pilot projects or one-offs will be vital.

Integrating aspects of human resources and information technology with procurement is central to complete the transition from a services function to a strategic advisor. Smart new hires are part of the solution. But so is ongoing training for experienced procurement professionals so that they can take advantage of technology solutions.

Measuring performance
Stephen Bauld, a government procurement expert, identifies performance criteria as one of the biggest challenges for 2020 and suggests that too many criteria are being assessed: “It is better to measure a few select criteria well … than to measure a wide range of criteria poorly … The results obtained through measurement should allow meaningful comparison of a supplier against its competitors and against some overall standard of acceptability”. But when measuring procurement performance, the key performance indicators have to include procurement cycle time, vendor performance, spend under management, cost savings and the percentage of catalogue-based purchase orders. A group of McKinsey partners back in 2019 noted that “leading companies have created a B2B offering catalogue that lists all online marketplaces, additional services and supplier offerings … that are used for supplier evaluation and selection, cross-category orders and financial traceability”.

Coronavirus impact
While it is impossible to assess the total impact that the coronavirus pandemic will ultimately have on supply chains, early figures indicate that Chinese industrial output was down 13.5% in the first two months of 2020. Raw materials are either not being shipped or, when they are, are being affected by the varied responses of individual countries and ports to the pandemic. Port closures, quarantine zones and air cargo restrictions designed to slow or halt the spread of the virus will affect supply chains all along the way. Shifting supplier sources from one country to another may not help much as the pandemic progresses: today’s solution may become tomorrow’s ‘this isn’t working either’.

Focussing on fixing services procurement
If there is one area in which procurement professionals can make a huge difference, it is by finally addressing managing and consuming services, including temporary staffing. “At this point in time”, says analyst Andrew Karpie, “the responsibilities and capabilities for managing various aspects of the procurement of different types of services … are fragmented across organisations − and there really are no standardised models and disciplines”.

Necessary shifts
Gartner has prepared an action plan in 2020 in which it identified five shifts that procurement needs to make:
1. Move from cost savings and risk mitigation to execution speed and business insight
2. Move from sourcing executor to sourcing advisor
3. Move from procurement customer to disciplined sourcing agent
4. Move from a standalone corporate function to a hybrid centre of excellence
5. Move from execution staff and core technology to professional advisory staff that use customer-oriented technology

For another take on what procurement really needs to focus on in 2020, see what this group of chief procurement officers identified as this year’s biggest challenges.

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