Procurement today and tomorrow

At Horizon 2012, Jason Busch Executive Editor — Spend Matters & Managing Director — Azul Partners in his session titled, Procurement today & tomorrow discussed the 5 procurement scenarios that should be watched out for and also provided 5 tips for a better procurement. In this post we will touch upon the 5 scenarios mentioned by Jason Busch in his presentation.

Before we talk about the scenarios, let us delve briefly into the present day scenarios.

• The International Monetary Fund is projecting a modest rise in global economic growth for 2013, but also warning that problems in the euro-zone and the United States could derail momentum.
• World Economic Outlook report estimates that the U.S. economy grew by 2.3 percent in 2012; it predicts that that number will fall to 2 percent for 2013.
• The World Economic Outlook report also suggests that we’re set to see a decline in oil prices this year, and a bigger one than projected in October.
• China’s economy grew by 7.8% last year, according to the official statistics agency. It was the slowest pace of growth since 1999.
• The price of carbon fell below €5 ($7) a tonne for the first time on the European Union’s Emissions Trading System.
• Atari filed for bankruptcy protection in America. A pioneer in video games, Atari has had several owners since its heyday in the late 1970s and early 1980s and was snapped up by a French company a decade ago.

This gives us an idea that today we are working with suppliers in an increasingly complex global economy forcing companies to rethink their procurement strategies. Let us now look into the 5 scenarios that one needs to be watch out for,

Scenario 1:

Extreme localization and decentralization: This calls for new approaches, like

• Localization of parts, materials and services inputs
• Ensuring supply chain is ethical and environmentally friendly. This should also take into account the practices adopted by tier 2 and tier 3 suppliers
• Measures to support sourcing activities that meet the global standards as well the concerned country requirements

Scenario 2

Define procurement’s focus beyond process — The role of politics, regulation, philosophy and economics: As discussed above, today the world is gripped by economic uncertainty and market volatility. The unemployment rates in developed economies are worrisome, financial debts that continue to mar euro-zone; constant battles over rare earth metals, military conflicts in Iran, terrorism, regulation norms for different countries etc will play a significant role in defining procurement strategy. The strategy needs to account for these possible issues.

Scenario 3

Technology proves more than transformative: With so much of complexity, technology is the saving factor. It changes the game for good. Emerging enterprise applications, mobile computing, social “intelligence”, supplier networks and technology democratization change the possibilities (and priorities) of procurement. It enables better supplier collaboration and development and thus the overall bench-marking.

Scenario 4

Global supply chain intelligence: In the age of globalization companies need relevant and timely information be it about metal process, oil prices, weather, financial condition etc. This is necessary to ensure positive results from budgeting and planning.

Scenario 5

Core procurement is absorbed: Today procurement is shared by services such as corporate Six Sigma, finance, operations, HR, etc. For instance, lots of companies are incorporating procurement risk management in finance. Of most importance is being on the same page with the finance team — coming to common savings definition.