Is Procurement function on the verge of its strategic revolution?
More than 200 professionals and 100 organizations, mainly composed of multinational companies, but also including public actors, contributed to the study led by the consulting firm By.O Group and the SaaS editor Per Angusta.
What are the main learnings ?
1st key point : a deep change of approach
97% of interviewees are calling for a change of paradigm on Procurement strategies. About half of them are looking for a radical transformation. By.O is convinced that building Procurement strategies in 2021 using methods created in the 90s is counterproductive. The unsatisfactory level of many category strategies is not only the result of a short-term focus imposed by the recent events, but also comes from the conceptual weaknesses of the tools and processes currently in use.
2nd learning : « People first, technology second »
What appears as foundational is the structural evolution enabling to move from the strategies of the Procurement department to the upstream strategies of the company, co-elaborated with stakeholders and embracing key strategic stakes. This evolution will be permitted by an extension of the range of contributors, significantly larger than the current.
The latest evolutions in the stakes related to Procurement strategy underline the need for the development of new skills and postures. One fundamental conviction can be expressed : strategy is a human matter before anything, requiring both distance from the daily transactional activities and an ability to investigate prospective matters while carrying ambitions.
Opinions diverge concerning the urgency and relevance of technological contributions to the elaboration of Procurement strategies. Nevertheless, many respondents feel very confident that digitalizing Procurement strategies should provoke 3 decisive changes :
- Integrate data to the core of the strategic exercise : The aggregation and dynamic analysis of internal and external data enables to have a grasp of market evolutions and opportunities windows. This work will reach such a high intensity level that it will require a technological assistance to ensure its efficiency.
- Mobilize artificial intelligence for quicker and deeper thinking: Agility, reactivity, resilience, and time-to-market requirements will lead to quicker and more frequent computation than a buyer could possibly handle, even if the said buyer is dedicated to this activity.
- Sharing strategies and their evolutions within a collaborative network: More than 81% of the respondents are keeping records of their strategies on centralized and shared platforms, which are not so often consulted nor updated. Even the best Purchasing strategy cannot deliver the expected value without being shared, and appropriated by the concerned actors.
3rd learning: new contributors to Procurement strategies
The results of the study underline strong expectations for deeper and more frequent involvement of the following functions in the elaboration of the Procurement strategies:
- 50% more contribution from General Management,
- 100% more contribution from Direction of Strategy and/or Transformation,
- 140% more contribution from Marketing & Sales teams.
These functions will be called to significantly contribute to Procurement strategies, in order to give them more hindsight and strategic impact. They want it and are ready for it. The tipping point for such a change to actualize relies in Procurement Management’s willingness to stand for a new posture. Onboarding another level of contributors will lead Procurement to move away from tender-centric and cost reduction impulses towards more strategic thinking and actual alignment to Business stakes.
Beyond internal actors, clients and suppliers will be more and more sought to take part in the elaboration of some aspects of these strategies. Initiatives have already been held in this field, supported by the rise of new cooperative methods (Vested in FM, co-marketing, co-sourcing, …) putting customers and value back at the heart of Procurement strategies.
4th learning : Towards Transformative Procurement strategies
The terms “Strategic sourcing” are still often used to describe the objectives of these strategies: identifying potential savings opportunities and defining a supplier target panel.
“Category Management” has complemented this vision by integrating risks analysis, market dynamics, or purchasing competition assessment to the scope of Procurement analysis on categories. More recently, new dimensions related to CSR stakes and innovation have also been partially integrated to this process.
And tomorrow, concretely, what will Procurement strategies consist in ?
There is a clear yet progressive change in the way companies strategically approach their purchases. The management of strategic supply chains is becoming a key stake, as we can see about vehicles batteries, luxury rare raw materials, or vaccine distribution for States. In parallel, the trend towards relocation is getting confirmed, or more precisely towards a better juxtaposition between sourcing locations and sales/consumption territories (cf. By.O’s articles on geo-sourcing).
The other radical change in nature of Procurement strategies is related to climate action. 73% of the respondents have expressed their thoughts on climate stakes, mostly on the reduction of CO2 emissions. Scope 3A (gathering suppliers and upstream supply chains) often represent more than 80% of CO2 emissions of a company on the average. The aims of 50% reduction by 2030 and neutrality by 2050 impose radical change, proximity sourcing strategies, as well as a restructuration of value chains around new industrial and usage models. Each economic actor will have to support its upstream supply chains on their path towards carbon neutrality. Weaker links of the chain who cannot support these urgent financial investments by themselves will likely need financial aid to take significant action. More complex economic models will consequently emerge, as each actor will have to take responsibility in front of more demanding consumers, employees, and stakeholders. By.O has developed a TCO2© approach to systematize the carbon dimension from Procurement strategies to performance management and continuous improvement in order to act at scale. This is not the time for experimentation anymore ; it’s time to massively reduce emissions.
What will be the name of these strategies addressing customer expectations, extended supplier ecosystems, planet-related concerns, … as core issues ? External Resources strategies, Value Chain strategies, Sustainable Procurement strategies, upstream strategies… It does not matter, let’s build and implement them !
By.O, consulting group specialized in BtoB relationship, has created the new methodological referential for the elaboration of efficient, inclusive and sustainable Procurement strategies. On this base, a Procurement strategies digital solution has been developed, in partnership with the editor Per Angusta: eMyse (©By.O Group).