Omer Abdullah, Co-Founder of The Smart Cube, explores how procurement has evolved throughout its history, why 2020 was such a turning point for the function and where things are headed next.
From the outside, procurement appears to be a relatively static department focused on one core goal: Acquiring the right goods at the right price.
But behind the scenes, procurement teams have been silently evolving. They’ve been growing their capabilities, creating value in new ways and driving growth while ensuring business continuity.
Procurement has slowly transformed from an expert cost controller into a major creator of business value, without many people outside of the function recognizing it until very recently. The disruptive events of 2020 and 2021 provided the perfect opportunity for procurement teams to step into the spotlight and show what they’re capable of today.
In this article, I’ll walk through procurement’s decades-long evolutionary journey, look at the powerful position the department has taken up today, and examine what might be next for leading procurement teams.
Procurement’s Roots: Sourcing What’s Needed at the Right Price
The procurement function was initially created to enable organizations to improve the consistency of supply and increase profit margins.
By building robust supplier portfolios and making better-informed supplier choices, procurement teams had a major impact on how businesses operate. Strategies like just-in-time manufacturing were enabled by this approach, bringing previously unimaginable levels of output and efficiency to manufacturing and retail organizations.
But procurement built its reputation with cost savings. By bringing such tangible benefits to their organizations’ bottom lines, procurement teams quickly became cost-saving heroes. It’s a legacy that has stuck with the department and continues to have a huge impact on how teams work.
The First Evolution: Expanding Procurement’s Role in Continuity
While cost savings caught the eye, leading organizations quickly acknowledged that procurement teams delivered value by ensuring consistent supply of goods and keeping production and output levels consistent.
By building diversified supplier portfolios, procurement teams helped organizations overcome potentially disastrous events – things like strategic suppliers going out of business or supply of a particular resource from one region drying up.
As supply chains went global, so too did procurement teams’ responsibilities for continuity. They were expected to build and maintain global supplier portfolios and navigate a much more complex international risk landscape.
But with that challenge came immense rewards. The precise engineering and management of international supply strategies helped procurement teams deliver new levels of cost efficiency and enabled consistent, year-round supply of seasonal resources.
These supply strategies formed the basis of today’s globalized trade environment. Over time, these complex, multinational supply strategies have become the norm, with procurement teams at the center of managing global supply networks and mitigating risk across vast supplier portfolios.
Leveraging Relationships: Procurement Becomes a Force for Innovation
In their mission to build resilient supplier portfolios, procurement experts have collaborated closely with suppliers to build mutually beneficial contracts and strategic supply connections.
Those relationships have proven hugely valuable from a risk mitigation perspective, giving organizations confidence in their suppliers’ commitment and ability to continue delivering essential goods in a crisis.
But, more surprisingly, the relationships built and maintained by procurement teams have also become a powerful driver of innovation and a source of competitive advantage.
Exclusive contracts and co-designed or white-labelled products have created opportunities for procurement teams to directly influence a company’s product strategy and provide a new source of competitive differentiation.
In many cases, the strong relationships built by procurement teams have created opportunities for organizations and their suppliers to share their expertise and innovate together, growing relationships into true strategic partnerships.
Beyond direct relationships with suppliers, procurement has also evolved to influence product and customer strategies through its constant monitoring of category and commodity markets as well as competitors. Procurement teams keep a constant watch on what’s happening in relevant markets, and they’re often the first to notice important developments that could influence wider business strategy.
That insight has enabled leading procurement teams to collaborate closely with key product strategy stakeholders. Events like the emergence of a new material or component, the growth of a new competitor, or a shift in customer preferences for particular goods can all influence product strategy and create opportunities for innovation.
Becoming Data-Driven: Procurement Gets Proactive
The most recent development in procurement’s evolution story has been the rise of the data-driven procurement team. Using data to make informed supplier, commodity, category or risk decisions is nothing new for those in procurement, but the emergence of new data sources and sophisticated insight-delivery tools has transformed what the function can achieve.
Advanced analytics, AI, and the availability of expertly curated datasets and insights have all helped procurement teams learn more than ever before about suppliers, market and commodity trends, and emerging risk factors. Crucially, they’ve helped procurement teams evolve from spending long periods of time analyzing historic information, to enabling truly proactive procurement operations.
That’s where leading procurement teams are today. Conveniently delivered, reliable, and timely insights enable them to detect trends and act quickly to create new value, optimize supply strategies and mitigate risk proactively – transforming supply and market threats into lucrative opportunities.
What’s Next: Procurement as the Number-One Driver of Strategic Business Value
Nobody can say for sure what the future of procurement will look like. But the disruptive events experienced in 2020 and 2021 have given us an interesting look at what the future could hold.
By managing one of the most disrupted and complex global supply environments ever seen, leading procurement teams demonstrated the value of the capabilities they’ve developed.
What emerged was a powerful combination of all of procurement’s major evolutions to date. Teams generated real-time insights and intelligence to mitigate risk, used strategic relationships to maintain supply of essential goods and proactively optimized supply strategies to turn major challenges into new value creation opportunities.
Procurement has been pivotal in helping businesses understand their exposure to crisis events and in maintaining operational continuity amid widespread disruption.
Procurement teams have shown why they have the potential to become the number-one driver of strategic value in the modern business. And for the first time, decision-makers across the organization are starting to see it, too.