02.2 / The future of Procurement is NOW, we live in a disrupted world…
With the risk of stating the obvious, we live in a world of constant change. The world is flatter than ever, as Thomas L. Friedman has brilliantly demonstrated in his book. There are huge transformation forces at play, and, as several observers and writers in various areas have written, we are far from having seen the end of if nor seen all the impacts.
The second machine age is now.
These changes impact us as individual and it also impacts companies. As Christian Lanng says in the presentation I posted in the introduction of these series of post, and, as what Erik Brynjolfsson & Andrew MacAfee describe in their book “the 2nd machine age”, innovation speed is unprecedented:
“Not only are the new technologies exponential, digital, and combinatorial, but most of the gains are still ahead of us. In the next twenty-four months, the planet will add more computer power than it did in all previous history. Over the next twenty-four years, the increase will likely be over a thousand fold.”
As they describe it, we are entering the 2nd machine age, characterized by high-speed and exponential innovation fueled by IT. It may look like that it would only impact the IT world (cloud, big data…) but the effects are much broader; the physical world is being shaken up too!
The good old world of physical stuff is about to be shaken up!
I will not list all areas or examples showing the transformation at play, but I will focus on some of them that are more related to Procurement and supply chain and that are still, I believe, under estimated by practitioners.
Manufacturing:
3D printing is a domain that may look like “gadget” today and only for niche markets but this will impact the manufacturing world. Lots of suppliers specialized in prototyping / small series may be the first impacted either by competitors making the leap faster or by their customers insourcing what they were buying outside earlier (make or buy). This could be due to the fact that investments become cheaper and that the know-how changes.
Think about what happen to small print shops when personal printers developed!
Then, when 3D printing will have made even more progress, other suppliers will be threaten. And beyond suppliers, as stated by Christian Lanng, any company manufacturing a physical product will be threaten. The way to survive will be either to provide more value that the D.I.Y. version (brand image for example) and/or to reinvent a business model.
In the area of material and nanotechnologies, the same applies. Revolutionary materials are changing complete industries and business models. Self-healing materials are an example:
The suppliers who will have access to the limited quantities of these new materials will definitely bring a competitive advantage. Which means that Procurement and its partner functions will have to analyze such situations with great care to decide on how to manage them: make, buy, exclusivity contract…
Logistics / supply chain:
It is not only manufacturing that is at risk. The logistics part of the supply-chain is also impacted. One could think that, in a world of globalization, the job consisting in moving things around would be pretty safe and eternal; but it’s not. And in an age where lots of logistics companies are fragile, the arrival of disruptive technologies and providers may soon change the market completely.
Like 3D printing sounds like a gadget in the manufacturing world, the word “drone” may have the same echo in the logistics word. The same applies to companies like Uber, famous for having torn apart the market of taxis. They are looking at the logistics world as their next expansion territory!
And they are not the single threat:
Again, like 3D printing, the first impact may be local: express delivery for example. But it may soon impact more than that. For now, it is still too early to say how and if drones, Uber and the likes will really distrust the logistics world but I would not be too surprised if it would!
Some other technological innovations like electrical cars and self-driving cars will also change what we know and how we manage logistics. For example, Mercedes presented a self-driving truck not so long ago:
Plus, innovations in one market (batteries for electrical vehicles) may lead to innovations in an adjacent market.
Then, there is the “Internet of things”:
Market and People:
The changes above, all technology-enabled also reflect change in the society. The new generations are much less inclined to buy. Rental is the new normal.
This trend, you may say, only applies to B2C but 2 things are in play:
- “Rental” vs. owning is not only for B2C, think about SaaS and cloud. This is the same idea applied to IT infrastructure.
- Whatever you consider, B2B or B2C, at the end of the day it is H2H, human-to-human! This means that people who are at the heart of business are exposed to this trend and will want to copy it to their work environment.
And this last aspect, has many other ramifications!
People want the same tools at work as the ones they use at home. The consumerization of IT is a huge phenomenon that starts to change the software and applications we use at work. As stated by Christian Lanng, people are now used to mobile and the concept of Appstores. These concepts are very far from having made it to the professional IT landscape.
The role of Procurement in all of that?
To conclude this part and before answering the question more completely in the next part, I see two main aspects to that question:
- First, and directly linked to the transformation of IT and to the more traditional role of Procurement, companies needs to “buy” IT (hardware and software) so Procurement plays a critical role to accompany IT departments in that transformation: source what will be required in the short/medium term, shut down / decommission what is or will no longer be required…
- Second, and this is broader than just IT, Procurement must work with the various functions of an organization to support them in the overall transformation. This goes with: identifying the trends, identifying the new players and organizing the transition
At the end of the day, there will always be the need to source (buy / rent) something (goods / services) but the nature of what needs to be sourced (supply), the nature of the market where suppliers evolve (supply-market), and who the suppliers are will change, fast and constantly!
“One of the main reasons we cite digitization as a main force shaping the second machine age is that digitization increases understanding. It does this by making huge amounts of data readily accessible, and data are the lifeblood of science. By “science” here, we mean the work of formulating theories and hypotheses, then evaluating them. Or, less formally, guessing how something works, then checking to see if the guess is right.” Quote from “The 2nd machine age”
This means that Procurement will have more complex, more impacting decisions to make and, to achieve that, as the quote above illustrates, insights (a.k.a. big data) will be required. But, one must not forget that big data (and some other buzz words) are just means of getting to a decision, the best possible one for the future of the organization.
It is a matter of survival!
“Procurement executive’s ability to read trends accurately in a rapidly changing business environment can make all the difference between surviving or going under.” Quote from “The Procurement value proposition”
More information and links:
- Part I of the series of articles
- “The world is flat”
- “The 2nd machine age”
- “The Procurement value proposition”
- Article from BCG on the shipping industry
