Procurement in 2025?
Procurement organizations are facing a decade of change — one that offers the potential to shift its function from largely tactical in scheme to functionally strategic to enterprise-wide value driver of business outcomes and operations, according to the latest GEP/Alsbridge paper, discussing five megatrends and their implications for procurement. Here are the 5 megatrends they have identified...
1) Shift from External Procurement Focus to Supply and Operations Management Focus:
Procurement has traditionally been focused on managing unit costs, and this will undoubtedly remain an important consideration. But forward-thinking teams will adjust their procure-to-pay practice to be more focused on the complete service value, taking into consideration the explicit benefit third-party providers and advisors bring to their business outcomes.
Why the change? Data, specifically the availability of transactional data, will drive increased visibility to cost-per-unit pricing. With this pricing intelligence becoming commonplace, use of an outsourcer with structured systems and processes in place to leverage this pricing information becomes more market prevalent and readily acceptable for leading organizations.
2) The Proliferation of Incremental Savings Realization
Over the next decade, we foresee an even greater shift in the volume of procurement/supply chain organizations that leverage the global and pervasive sourcing capabilities and expertise of managed service providers. This will significantly increase their spend influence and improve the velocity by which savings from strategic and project sourcing activities are realized. These arrangements with managed service providers complement the existing category and sourcing expertise of procurement organizations, without loss of managerial control, by integrating a flexible solution designed to scale with organizational demand, increase the visibility to spend and drive internal compliance. The outcomes, for some pioneering departments, have come to speak loudly with strong ROIs and early breakevens, while mitigating the risk commonly associated with business disruption. Forward-thinking enterprises are already gaining a marked competitive
3) Outsourcing Becomes Acceptable, Delivers Incremental Value
Following the shift in procurement functions supported by external transactional expertise, it stands to reason that procurement outsourcing reaches the maturity stage and becomes acceptable. Throughout the next decade, procurement leaders reap the benefits and rewards of building a partnership with their outsourcer. Outsourcing operations become an integral part of procurement operations.
IT, F&A, contact centers and HR are no longer the only functions where outsourcing is acceptable and delivering long-term value. Procurement outsourcers bring easy-toimplement solutions with repeatable processes and best practices. For example, outsourcers and procurement organizations within manufacturing will be using 3Dprinting to quickly deliver on-demand materials, thereby eliminating the need for complex supply chains and supplier relationships.
4) Vendor Management Office Leads as Best Practice
As mentioned earlier, most procurement organizations work on the cost principle — did we receive the product from the supplier at the stated cost? In 2025, procurement organizations will expand their perspective by being able to answer — did we receive the full, on-going delivery value from the supplier?
Enabling this expansion in service is the establishment of a Vendor Management Office(VMO). Over the next decade, procurement organizations will take steps to formally institute a VMO with the objective to enhance the procurement resources focused on service delivery by removing the burden of managing the contractual “administrative tasks.” A VMO will bring a dedicated, standardized, disciplined and heightened focus assuring tasks are fully accomplished in a high-quality and efficient manner. In addition, VMOs will assist procurement leaders to ensure all parties are fulfilling their contract obligations and that business case value is fully realized.
5) Procurement Becomes Central, Shared Service
Digitization will also have a profound effect on the way remuneration is allocated across labor and capital by reducing labor content of services and products in an unprecedented way. In the long term, this makes it improbable for increasingly large groups to participate in the traditional economic system — even at lower prices — urging a return to protectionism or resurrecting initiatives like Occupy Wall Street, buton a much larger scale. Mature economies will suffer most as they neither have the population growth to increase autonomous demand nor powerful enough labor unions or political parties to reallocate gains in what continues to be a global economy. Five Megatrends & Their Implications
Implications for Procurement Organizations
The GEP/Alsbridge report points out that "prediction is very difficult, but preparation is not. Proactive procurement leaders can take teps now to prepare for the future. They should....
- In 2025, procurement leaders who have repositioned themselves as internal strategic partners will likely be rewarded with improved business results.
- Consider the development of a VMO as an option to leverage the skills of an outsourcer. As with other critical business functions, outsourcers can be easily integrated into operations and provide state-of-the art, repeatable, cost-effective solutions.