In our previous ‘Moving From Purchasing Thinking to Procurement Thinking’ series article, we answered the question, ‘What is procurement?’. We highlighted the key differences between the procurement and purchasing functions and how the act of purchasing is a phase within a broader procurement process cycle. We also touched on the mind-set of ‘procurement-thinkers’ – those driven to transform sourcing and procurement operations for greater value creation and innovation.
In this article, we will explore the concept of procurement thinking in greater detail. Then, we will discuss the priorities, challenges, and trends impacting procurement professionals and how you can take action.
Procurement Thinking – Defined
Procurement thinking is a strategic approach to sourcing and procurement that focuses on the entire supply chain rather than just the purchasing process. It characterises a procurement leader who views procurement as a critical strategic function of the business and understands how it fits into the complexity of modern business environments.
A procurement leader who embraces procurement thinking strives for continuous improvement in sourcing operations, and supplier relationship and performance management. As supply chains grow increasingly complex, they view investing in digital technologies as vitally important to improve operational excellence, increase efficiency, and enable better decision-making.
According to a report by Gartner, procurement leaders are driven to enhance their skills in using digital technology, with 96 percent saying that procurement professionals will need to significantly improve their digital effectiveness to succeed in their roles. Additionally, 81 percent of procurement leaders consider adapting organisational structures to business digitalisation a pressing issue in their strategic plans.
Several procurement thinkers have influenced how businesses approach the procurement process, such as Peter Krajilic and his matrix for supplier segmentation. Ardent Partners, a research and advisory firm, is another example. The firm has developed several strategic procurement frameworks to help organisations optimise their procurement processes, including the Procurement Performance Index (PPI). The PPI measures the effectiveness of an organisation’s procurement function, assisting leaders in identifying areas for improvement and benchmarking their performance against other companies in their industry. Such best practice performance monitoring can now be adapted for use in other leading-edge business solutions such as enterprise resource planning (ERP) software.
These procurement thinkers have demonstrated the benefits of adopting a strategic approach to procurement and supply chain management, highlighting the potential for procurement to create significant value for business.
What are the Priorities and Trends for Procurement Professionals?
Procurement is a dynamic profession that requires the skillful balancing of priorities such as cost, quality, risk management, and stakeholder needs to achieve the best possible outcomes for an organisation.
A Deloitte report found that 78 percent of procurement leaders hold cost reduction as the top priority in their business strategy. However, other priorities include new product and market development and risk management. To achieve these priorities, procurement professionals are focusing on digital transformation, utilising data analytics, and creating a more agile supply chain.
In addition, procurement thinkers are dedicated to innovation and continuous improvement, constantly striving to increase value by disrupting the status quo and enhancing procurement systems. Staying up to date with the latest trends and developments is integral to this undertaking and ensures that procurement becomes a forward-thinking function within organisations. These trends include:
- Sustainability: Procurement leaders are becoming more aware of their organisation’s environmental impact and are taking steps to reduce their carbon footprint. This involves working with suppliers to source sustainable materials, reducing waste, and minimising energy usage throughout the supply chain. Sustainable procurement helps organisations meet their environmental goals and can lead to cost savings and improved supplier relationships.
- Diversity and inclusion: Procurement leaders recognise the importance of promoting diversity and inclusion in their supply chains. This involves working with suppliers owned by underrepresented groups and ensuring that their procurement processes are free from bias. Promoting diversity and inclusion can lead to better innovation, improved supplier relationships, and enhanced reputation for the organisation. According to an analysis by McKinsey, companies in the top quartile for ethnic and cultural diversity outperformed companies in the fourth quarter by 36 percent.
- Circular economy: Procurement leaders also embrace the circular economy, which involves keeping products and materials in use for as long as possible to minimise waste. This might mean sourcing products designed for reuse and recycling and working with suppliers to reduce packaging waste and improve the recyclability of products. By 2030, the circular economy could result in AU$ 6.584 trillion in economic benefit globally.
- New technologies: Procurement professionals leverage new technologies such as blockchain and automation to streamline processes and drive efficiency. Blockchain technology can improve supply chain transparency and traceability, while automation can reduce manual tasks and free procurement professionals to focus on more strategic activities. Other emerging technologies, such as artificial intelligence and machine learning, are also being explored by procurement leaders to achieve further efficiencies and insights.
What are the Common Challenges Facing Procurement Professionals?
Procurement professionals face a range of challenges and issues in their day-to-day work. One of the most significant is rising inflation, which impacts the cost of raw materials and transportation. Additionally, managing supply security has become increasingly important due to disruptions caused by COVID-19 and other events. To address these challenges, procurement professionals are investing in risk management strategies and building more resilient supply chains.
Another challenge is improving analytics, modelling, and reporting capabilities for better visibility. Procurement professionals need the ability to track supplier performance, monitor spending, and analyse data to make informed decisions.
Finally, procurement professionals face challenges as they implement digital transformations to build agility. While they aim to streamline processes and improve efficiency with innovations like automation and artificial intelligence, it can be difficult to integrate these new systems with existing processes and technologies, as well as ensure that they are user-friendly and accessible to all stakeholders. Nonetheless, procurement professionals continue to push ahead with these efforts to modernise and optimise their operations.
The Future of Procurement: Procurement and Supply Chain Function Convergence
One of the key trends shaping the future of procurement is the convergence of procurement and supply chain functions. This involves breaking down the silos between procurement and supply chain to create an integrated approach. This process is driven by several factors, including the increasing complexity of business environments, the need for greater agility and flexibility, and the growing importance of sustainability.
By breaking down these silos, procurement professionals can better collaborate with supply chain teams to reduce costs and mitigate risks. In addition, this convergence can empower a strategic approach to procurement and supply chain, enabling organisations to source and manage their supply chains proactively.
What’s Next?
Procurement thinking is a critical component of any successful procurement operation. By focusing on strategic thinking, digital transformation, and the convergence of procurement and supply chain functions, procurement professionals can drive greater value creation and innovation.
Stay tuned for our upcoming article in our ‘Moving from Purchasing Thinking to Procurement Thinking’ series, where we’ll explore the key indicators that your business is ready to elevate its purchasing practices and explore the significant costs associated with manual purchasing processes. In the meantime, be sure to check out our article on How to empower your employees with ERP.
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