Those of you of a certain age, will remember the film “Back to the Future” and you maybe, like me shocked to realise that 2015 was the year that the guys in the film travelled forward to.
Where did the last 30 years go?
So, as we are now ‘officially’ in the year F1 – ‘future plus 1’, I thought it would be interesting to take a step back and look at the future for procurement.
Input ‘future of procurement’ into Google and you’re presented with 125 million results, so there are a lot of perspectives out there already!
Do a similar search on Twitter and again, there’s lots of ‘noise’.
The key theme of all of this ‘noise’ is that procurement technology is the way forward.
Before we delve into the future, lets take a leaf out of the film and step back to really consider “what is the core purpose of procurement?”
In my opinion, the objective of Procurement is to “Deliver Value to the Bottom Line.”the objective of #Procurement is to “Deliver Value to the Bottom Line.” Click To Tweet
I spent a lot of time coming up with these 6 words and spoke to a lot of people. I wanted a simple definition, one that clearly identifies what procurement is there to do, but also one that highlights the potential scale of the role.
As such, the future for Procurement is to get back to focusing on “Delivering Value to the Bottom Line”
So, let’s break these 6 words down into their component parts….
Firstly, what do I mean by ‘Value?’
Undoubtedly, value is delivered when we negotiate a discount in unit prices. But there are many other ways to deliver value. Value can be created in effectively three areas;
- we can reduce costs,
- we can increase revenues,
- we can improve efficiencies.
Each of these will deliver value to the company.
I believe that Procurement can and should play an integral role in delivering value in all three areas.
By developing a collaborative approach with our supply chain partners, you will open up opportunities to develop joint marketing campaigns that can help drive revenues. Alternatively, through joint planning activities, your supply case will be able to offer up innovation that can deliver operational efficiencies.
These simple examples have provided significant added value to those organisations that have grasped this philosophy and they can for you too.
Secondly, why do I emphasise the word ‘Deliver?’
Well in my opinion, all too often, procurement activities are deemed to be ‘completed’ when the contract is signed and we all move onto the next ‘project’. What I’ve found is that too little time is spent on ensuring that the value is actually delivered.
All too often, value is diluted because of a lack of emphasis on delivering the necessary change across the organisation. Even a simple procurement activity will result in some form of change requirements. By ignoring the need to proactively manage this change, you run the risk of a significant amount of value not being delivered as expected.
Finally, why the ‘Bottom Line’?
Well, isn’t this the ultimate measurement in an organisation. If you are undertaking activities that are aimed at reducing costs, increasing revenues or indeed improving efficiencies, these will translate into bottom line improvements, won’t they?
But how often do you physically track the value right back to the bottom line? In my experience, this doesn’t happen that often. Why? ‘Because it’s hard’ is often an excuse that I’m given. ‘There are too many variables’ is another!
The challenge here is that if you don’t establish a tracking process, how do you know whether the value is being created and how can you monitor progress to ensure that you can take the necessary actions when things don’t go to plan? – which they undoubtedly won’t
You ability to track the value right back to the bottom line will differentiate you in the future.
Within my book, The C.O.S.T. Optimization Formula, I have identified four core elements that enable Procurement to deliver value to the bottom line. Of the four, two of the elements focus on creating value whilst the remaining two ensure that that value is delivered to the bottom line.
As I said earlier, there’s a lot of ‘noise’ out there concerning the future of procurement, but I’d argue that most of these are tactical applications. They will undoubtedly play a part in the future but I’d strongly suggest that the future for procurement is to get back to first principles and ‘Deliver Value to the Bottom Line’
What do you think?