supply chain

Living in Interesting Times: Procurement 2020

by Nicolette Emmino

We’re not even at the end of the first quarter of 2020 and already tariff wars seem to be the least of our problems. Even before the coronavirus started to disrupt supply chains, procurement analysts had identified several things to watch out for and necessary transformations that need to happen within the procurement world. Here are a few things procurement professionals should be focusing on within their organizations this year.

Finding the right partner suppliers

The concept of partnering with suppliers and aligning with partners whose corporate values mirror one’s own is becoming more crucial as consumers continue to demand transparency throughout the supply chain. Customers are willing to pay a premium for ethically sourced and manufactured goods and are more likely to boycott companies that are either not forthcoming about their sourcing or who partner with organizations whose values aren’t acceptable.

Finding the right people with the right skills

As the digital transformation increasingly affects the procurement function, finding, training, and helping procurement professionals adapt to digitalization, data analysis, machine learning, and artificial intelligence becomes increasingly important. Learning how to scale the benefits of technology throughout the entire procurement process and the supply chain for more than pilot projects or one-offs will be crucial.

Integrating aspects of human resources and IT with procurement is crucial to complete the transition from a service function to a strategic advisor. Smart new hires are part of the solution. But so is ongoing training for experienced procurement professionals so they can take advantage of technology solutions.

Measuring performance

Stephen Bauld, a government procurement expert, identifies performance criteria as one of the biggest challenges for 2020, and suggests too many criteria are being assessed. “It is better to measure a few select criteria well … than to measure a wide range of criteria poorly. . . . The results obtained through measurement should allow meaningful comparison of a supplier against its competitors, and against some overall standard of acceptability.” But when measuring procurement performance, the KPIs have to include procurement cycle time, vendor performance, spend under management, cost savings, and the percentage of catalog-based purchase orders. “Leading companies,” said a group of McKinsey partners back in 2019, “have created a B2B offering catalog that lists all online marketplaces, additional services, and supplier offerings … that are used for supplier evaluation and selection, cross-category orders, and financial traceability.”

Coronavirus impact

While it’s impossible to assess the total impact the coronavirus pandemic will ultimately have on the supply chain, early figures indicate that Chinese industrial output is down 13.5% for the first two months of 2020. Raw materials either aren’t being shipped or, when they are, are being affected by varied responses of individual countries and ports to the pandemic. Port closures, quarantine zones, and air cargo restrictions designed to slow or halt the spread of the virus will affect the supply chain all along the way. Shifting supplier sources from one country to another may not help much as the pandemic progresses: today’s solution may become tomorrow’s “this isn’t working either.”

Focus on fixing services procurement

If there’s one area in which procurement professionals can make a huge difference, it’s by finally addressing managing and consuming services, including temporary staffing. “At this point in time,” says analyst Andrew Karpie, “the responsibilities and capabilities for managing various aspects of the procurement of different types of services … are fragmented across organizations — and there really are no standardized models and disciplines.”

Necessary shifts

Gartner has prepared an action plan in 2020, in which it identified five shifts procurement needs to make:

  • Move from cost savings and risk mitigation to execution speed and business insight;
  • Move from sourcing executor to sourcing advisor;
  • Move from procurement customer to disciplined sourcing agent;
  • Move from a standalone corporate function to a hybrid center of excellence; and
  • Move from execution staff and core technology to professional advisory staff using customer-oriented technology.

For another take on what procurement really needs to focus on in 2020, see what this group of chief procurement officers identified as the year’s biggest challenges.

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