Twenty-five years ago, the internet was in its dial-up infancy, businesses still relied on fax machines and procurement was considered solely a back-office, cost-cutting function that controlled the organization’s purse strings.
But times have certainly changed. This past year alone has proven procurement plays a key role in organizational resilience. Due to COVID-19, teams have had to navigate some of the most widespread and severe supply disruptions and cash issues we’ve seen in decades. Many have stepped up to meet society’s call for greater inclusivity, strengthening relationships with diverse supply partners.
There’s no doubt 2021 will be a pivotal year for every business. As we think about what’s next for the procurement function, let’s first appreciate how far we’ve come.
Making Moves: From Tactical to Strategic
Modern procurement was born when FreeMarkets conducted the first online reverse auction in 1995. While auctions, like strategic sourcing and category management, were already established concepts, the real-time competition enabled by technology completely shifted sourcing mentality. No longer bound by sealed bids, suppliers had greater chances of winning business, and buyers had more product and material options from which to choose.
At first, online reverse auctions focused on price and essentially ignored other competitive factors, such as quality, lead-time, capacity, value, sustainability and more. Before long, the industry realized making the right sourcing decision goes far beyond cost. Platform providers expanded capabilities to take all supply considerations into account.
The development of sourcing optimization helped buyers make the best possible decision for their business, based on their unique constraints, criteria and rules. This advancement opened up the opportunity for procurement teams to become even more strategic and intentional. As AI sourcing optimization models have been built upon and become more sophisticated, adapting to buyer preferences and using that information to identify new scenarios, evaluate the strength of supplier bids, address complex categories and guide users to an ideal solution, procurement leaders are now in a strong position to advance the organization’s goals intelligently.
Changing Perception: Procurement Isn’t Just About “Buying Things”
With technology incrementally expanding procurement’s reach and value, the function has progressively become instrumental to a number of organizational initiatives, even solidifying its spot at the executive table with the role of Chief Procurement Officer.
The biggest benefit of procurement’s digital evolution is increased agility. The function is much better equipped to adapt and solve problems through the most unprecedented disruptions. This type of flexibility has proven vital throughout the global health and economic crisis as healthcare organizations have had to get personal protective equipment and other critical suppliers in the door quickly. Meanwhile, higher education establishments have had to shift and manage successful procurement, payment and teaching environments remotely.
Fueled by the gravity of issues like climate change and social inequity, a growing number of companies have redefined their commitments to social impact with procurement playing a starring role. In 2012, the Social Value Act required public sector organizations in the U.K. to consider economic, social and environmental well-being in their public service contracts, but also put forth the idea that procurement has the power to improve societal outcomes.
Consumer and societal pressure on private sector companies to behave responsibly and “do the right thing” is also mounting. Many procurement leaders today carry out this purpose through transparent, ethical, equitable, and sustainable practices that protect communities and support supply partners while driving the business forward.
Procurement has tremendous purchasing power that can advance corporate commitments, reduce risk, drive process innovation, foster diversity, create positive social impact, protect the environment and so much more. As we head into 2021 facing ongoing uncertainty and new challenges to solve, there’s incredible professional and organizational opportunity for teams that lead the charge.
Automation: Procurement’s Next Frontier?
Over the years, we’ve seen technology and world events help drive the transformation of the procurement function, but its evolution is far from finished. In fact, automation, AI, and embedded intelligence are already advancing sourcing and spend management practices and laying the groundwork for a truly digital procurement function in the next five years.
Imagine that one day you are in your office and you say “source.” Several weeks later, you are notified that a contract for exactly what you need is ready for review and signature. Your procurement system automatically selected the products or services for sourcing, confidently predicted and invited suppliers to the table, chose the criteria that should be most heavily weighted for evaluation and managed the sourcing event (including constraints, negotiation criteria and more) all without the need for human intervention.
Sound unsettling or too aspirational? Maybe, but it won’t soon.
Autonomous procurement, where an intelligence system learns from humans, adapts its behavior, and learns new tasks and how to respond in specific situations like a seasoned procurement professional , is within reach.
Does that mean humans have no future role in procurement? Not at all. Just as a plane on autopilot still requires a pilot to monitor the route and program changes as necessary, autonomous procurement will need procurement professionals to strategically manage the operation. The human component will continue to exist but will be augmented with technology so professionals aren’t bogged down with manual interventions that machines can perform. Instead of verifying certain criteria exist before signing off, procurement teams can focus on the work that’s most valuable and appropriate for them to do.
The next frontier for procurement will be much more predictive and proactive, empowering teams with more capacity to focus on the strategic initiatives their organizations and society need them to drive. Whether its collaborative supplier relationships, cross-industry alliances, or applying AI and machine learning to manage broader risk management initiatives, humans will manage the autonomous procurement framework as opposed to the underlying details. To obtain autonomous procurement, organizations need to double down on making sure their data is clean, complete, accurate and available, as this information is the foundation.
Procurement has always been called upon to meet the business community and society’s changing needs and it has risen to the occasion every time. The past 25 years have dramatically shifted the role of procurement and created new opportunities for more effective business practices, supplier relationships and more.
As we look ahead to a new wave of technological advancement through greater automation and renewed focus on equity, ethics and impact, procurement will become even more strategic and able to navigate the future landscape with the utmost agility.