A New Vision for Procurement
The March 2017 edition of Wired Magazine includes an interview with historian Yuval Harari, author of Homo Deus: A Brief History of Tomorrow. In the book and the interview, Harari analyzes the impact technology will have on the evolution of humans. To quote Mr. Harari:

 “The tipping point is when you have an external algorithm that understands you—your feelings, emotions, choices, desires—better than you understand them yourself. That’s the point when there is the switch from amplifying humans to making them redundant…. Take Google Maps or Waze. On the one hand they amplify human ability—you are able to reach your destination faster and more easily. But at the same time you are shifting the authority to the algorithm and losing your ability to find your own way.” 

There are clear parallels between Harari’s vision for the human evolution and the evolution of Procurement. As technology creates more and more opportunity to eliminate tactical tasks, procurement needs to recognize that the next version of the “Buyer”, “Strategic Sourcing Lead” or “Category Manager”, does not reside with placing purchase orders, running sourcing events or developing category strategies, respectively.

AI will make that workload redundant and obsolete, but the role for a human still clearly exists within the procurement ecosystem. From my vantage point, the fundamental changes we need to undergo as an industry are already starting to take shape. Looking back to ten years ago, part of my role as a consultant for Source One was teaching our clients what strategic sourcing was and how it could be leveraged in their organization. These companies had procurement departments, and in many cases sourcing groups, but the value they produced wasn’t clearly articulated throughout the organization. Today, most companies have a clear vision and understanding of the value of strategic sourcing.

More recently, the trend I see in the market is companies moving away from the fully outsourced BPO model for Procurement, to some level of hybrid that includes both internal and external resources. What are the external resources doing? Mostly, the tactical stuff. Internal procurement groups are seen as strategic – or at least that’s the goal.

The problem is, those strategic groups aren’t always sure what it truly means to be strategic. Engaging with internal stakeholders, embedding themselves in the business, developing category plans and leading sourcing events are all roles they play, but is that the future of our industry? I don’t think so – remember: 

“The tipping point is when you have an external algorithm that understands you—your feelings, emotions, choices, desires—better than you understand them yourself.” 

In other words, the technology will already know what the stakeholders want and need – and the most efficient way to get it.

So, where does that leave us? We’re currently in what I would call “Procurement 2.0” – we no longer have to demonstrate the value of our function or define our role within the business. We are already there. Procurement 3.0 is about optimizing that role. That means further automation of things that even now seem strategic, and Procurement truly setting a vision at the highest levels – helping to develop strategy with the business – from Engineering to Marketing, from HR to Operations and from Product Development to Finance.

How do we do this? How do we move from supporting the vision to help setting it? It’s not easy, but there are some fundamental themes you need to follow to get started.

  1. Set clear business rules and automate them. Procurement should be the gatekeeper for all purchasing within the organization, by mandate (I know, controversial stuff). Without 100% compliance, you won’t have the data you need to be effective in Procurement 3.0 - but you have to make it a streamlined and easy process. 
  2. Focus on analytics and data science. Today, every procurement group should have a strong analyst team with access to a broad range of internal and external data. Procurement’s role in the organization should be to translate this data into information the business can use, and help guide strategic decisions based on what supply markets are telling us.
  3. Continue the shift in mindset. The traditional role of procurement was reactive and customer service oriented - procuring what the business needs, when they need it. In Procurement 3.0, the systems should already know what the business needs and when they need it. It will be our job to help define what those requirements are and what strategy led to those requirements.

Leading procurement groups already have a say in overall business strategy – Apple, Tesla and others all have great case studies you can find online. The laggards are moving in a different direct (see Pepsi’s decision to take procurement out of marketing, and connect the dots between that and their latest ad campaign).

The future for procurement moves us into a truly proactive role within the organization. When will it happen? Well, right now the biggest limitation isn’t the ability to automate or collecting meaningful data. Those things are already available if you want them. The harder part will be building the right sets of skills within our own function to take that next step in our evolution. The good news is, regardless of when that shift happens, it will be faster than you think.
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Joe Payne

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