Tomorrow’s procurement operating models
The procurement function can become twice as effective through a procurement operating model that achieves the right mix of technology, insights and expertise - assuring the optimal interaction between these and an organization’s people is the human factor
There is a long-standing debate that asks whether procurement should have a seat in the boardroom. A simple enough question, but if it is so simple why does the discussion persist today?
There is already industry acknowledgment that things must change and procurement should become more relevant to the business and suppliers it connects. More than half of The Human Factor’s respondents (53%) stated that they changed their procurement operating model in the last 12 months - rising to 80% in the last three years, while 46% name ‘structure’ as one of the top three operating-model aspects they have recently revised or reorganized. The procurement function is taking action right now.
Yet the sort of operating model shift we are talking about must go beyond a simple question of structure, whether centralized or decentralized, or what the roles and responsibilities of those in procurement should be. Organizations need to be far more ambitious and develop operating models that lead to a doubling of procurement effectiveness and are able to adapt quickly to future trends. This can only happen if people are working on the right activities and making better decisions, faster. This is made possible by a model that combines the generation and reuse of insight, expertise providing guidance and control, and technology to manage this in a global environment.
24% ranked ‘technological adoption; automation and digitalization’ as the number one impactful internal factor on their procurement operating model
Technology and tomorrow’s procurement operating models
Tomorrow’s procurement operating model will rely on technology to either automate tasks conducted by humans today or provide insights that significantly improve decision-making. In the case of automation however, the gains are marginal as they rely on having the right process, checks and skills available in the first place. That is not to say automation cannot add value in procurement. It can and does. But it needs to be viewed in context.
The real potential of technology comes from harnessing data to enable better decision-making. This creates value in a way that automation cannot. In technology-enabled operating models, tools can act as the engine of procurement by quickly crunching performance and cost data from strategic suppliers and visualizing it in digestible forms. This puts insights directly into the hands of procurement leaders and gets rid of the guesswork that can exist in complex procurement decisions. This can enable teams to focus on where they will get the biggest return on investment.
If technology is the engine, content is its fuel
For technology to become truly transformational and enable more effective decision-making in procurement, it must contain content that is organized and curated. If technology is the engine, content is its fuel. That content needs to be useful and insightful - the right type of fuel. People must see value in the content to the extent they want to use it. This in turn, encourages them to be part of the data cycle itself and feed the technology with ever more accurate and updated content.
Technology empowers employees to share, reuse and improve procurement best practice across different markets and entities. It creates a snowball effect; if the technology and content contained therein makes life easier for employees, then more people will use it, insights will become more compelling and the decision-making of procurement will be continually improved. This can greatly increase value so long as information overload is avoided.
But technology doesn’t just have the power to enable the procurement function to make better decisions, it can ultimately do the same for the wider business. Businesses can begin to self-serve their procurement needs if the right information is available to them and procurement can take a step back, analyze the content in the system to spot patterns, opportunities and risks to further refine the overall model.
Expertise driven models
Once the engine has the right fuel it also needs people who know how to drive it.
The third area of tomorrow’s procurement operating model is access to expertise to capitalize on both the technology and its content. This allows procurement to have meaningful conversations with both internal stakeholders and suppliers and, what’s more, in the language of business rather than that of procurement.
Procurement sits in a critical and unique position between the business and the supply chain but often fails to engage either effectively. Too often guilty of using process-centric procurement speak, procurement professionals need to adopt a customer-first mentality, speaking to internal customers in their own language and demonstrating a deep understanding of their needs.
The procurement operating models of the future
By translating both current and future business needs and matching them to current and future solutions in the market, procurement will enhance its credibility and relevance to the business. In fact, a fifth of respondents say improving engagement between procurement and the wider business is the biggest internal factor the function needs to address.
It’s the same with strategic suppliers that deliver business critical products and services. Procurement can be guilty of approaching them with an air of superiority and not engaging in a truly two-way conversation. Wouldn’t it be different if procurement approached its strategic supplier market with an investor mindset?
The supplier market has more startups than ever before as technology lowers barriers to entry. It is these companies that are the driving force behind much of the innovation in the world today. What’s required is the ability and willingness to build long-term relationships with this new type of supplier. And that can only happen if procurement is prepared to look beyond the veneer of a traditional supplier interaction. It needs to invest the time and money to build a detailed understanding of these suppliers’ plans, culture and people.
Procurement needs an operating model that will enable this shift, to take advantage of technology to make data-driven decisions and leverage the expertise of a new, highly skilled workforce. For this to happen procurement leaders of the future need two things above all else: highly developed soft skills and digital literacy.
To find out more about how your business can build robust and leading practice operating models fit for the future, download our full research report