Where I see Procurement in 2025

Organisations need two things to thrive. Growth and speed. Miss these and you will miss the boat. Today I want to look at how technological advances will enable procurement teams to automate and augment their current transactional workload and allow them to deliver measurable growth and speed.

Read any 2018 prediction article and you will undoubtedly be regaled with insight and opinion on how AI is changing the procurement paradigm. Maybe it is machine learning, Big Data or Blockchain. I would suggest that at their most straightforward level, each of the endeavours represent the same thing… an advanced form of automation. Automation is nothing new. It has been happening for centuries. What is new is the speed at which technology can now enable this automation.

Technology takes the top spot

Before we start predicting the future, let’s look back. A recent IBM white paper highlights what I think we all already know. The report claims that, according to CEO’s, ‘Technology Factors’ is the top external influence on enterprises. Unsurprisingly they have been since 2012. The chart below succinctly depicts the move of technology to the front of the CEO’s concerns.

AI, digitization… What does it all mean?

But what exactly are these ‘technology factors that are filling the CEO’s mind? First, it was the ‘cloud’ then it was ‘big data’ and more recently ‘artificial intelligence’. When considering the tangible impacts these ‘forces’ will have on procurement, I like to refer to some thinking from McKinsey (Driving superior value through digital procurement). That company’s analysts suggest there are two key areas where digital will drive change in the procurement function and I tend to agree. They are as follows:

1. Preventing Value Leakage. Largely through efficiency improvements to the P2P and performance management processes.
2. Identifying and Creating Value: Through improved spend visibility and collaborative and advanced sourcing.

I like this simplicity at the highest level. McKinsey of course dive in and break each area out into greater detail and suggest ways procurement teams can start to act on these areas.

Going back before going forward

It was after considering McKinsey’s high-level impact areas that I came to conceive my prediction for the procurement function of 2025. Before I dive straight in, I need to start with some background.

When I talk to business leaders, I like to address procurement to them through three specific areas of opportunity. I use this slide.

It depicts a kind of maturity through the procurement function that covers the full breadth of procurement opportunity. From managing purchasing orders through the Procure to Pay (P2P) process on the left-hand side of the image, through the cost savings focus associated with Strategic Sourcing and finally to leveraging Supplier Collaboration and Innovation (SC&I) to deliver growth and new ideas to a business.

For those of you wondering exactly what Supplier Collaboration and Innovation (SC&I) is, check out the next image. SC&I is a relatively new solution category in the procurement world. Essentially, SC&I is an enterprise approach focussed on delivering business speed and growth through managing the extended innovation network.

From my conversations with procurement leaders, I’d suggest that only a hand full of organisations are active in this space. This is, only a small number of organisations are collaborating with their suppliers and having those suppliers bring speed and growth to their businesses. (If you would like to learn more about SC&I and the potential it holds for businesses, read this post or alternatively reach out to me directly.)

My experiences would suggest that the distribution of strategic purpose across enterprise procurement teams looks something like this.

It is my firm belief that technology is an enabler not a driver of business change. So I find it interesting that so many prediction articles lead with how technology will transform businesses. It is just not the technology that will ‘cross the chasm’ shown in the diagram above. Change requires bold steps from leaders. In procurement’s case, the chasm we need to cross is to shift our focus from our bread and butter of registering savings and processes transactions towards delivering growth to our businesses. Technology merely supports and enables the change we need to make.

This is why I celebrate the businesses on the left-hand side of the chart above. The ones that are collaborating and driving growth. Moreover, their supply base that is directly aligned with their corporate objectives and can track activity and innovation efforts of its supply base directly to revenue growth. The ones that have procurement teams solving business problems, not meeting procurement metrics.

These businesses have understood that more of their spend is going externally, to suppliers and are trying to maximise the return they get on that external spend.

It is these bold organisations that are best positioned to benefit from the technological advancements we are going to witness in the coming years. These will be the businesses that bring innovation into their businesses. To quote another business bible, I refer to these organisations as Exponential Organisations.

An Exponential Organization (ExO) is one whose impact (or output) is disproportionally large — at least 10x larger — compared to its peers because of the use of new organizational techniques that leverage exponential technologies.

If Step 1 is a Mindset Change… What is Step 2?

So let’s imagine you are a procurement leader with a clear view of the future. You understand that more of your spend is going externally and that more of the ideas and innovations that will change your business are coming from the supply market. How might automation and technological advances play into your plans over the next decade?

Based on some further research I have come across from McKinsey I am convinced that there is a dramatic shift coming to the world of P2P. By leveraging the vast computing power now available to us, such as robotic process automation, machine learning, smart workflows and natural language processing we are going to free up much capacity that has previously been tied up in the transactional elements of procurement.

Furthermore, after a close inspection of the image below, you will see the vast potential for automation across the strategic sourcing space as well.

So what happens to all this saved capacity? All the extra headcount? All the surplus resource? The cynics amongst you might suggest that the company will take the reduced headcount as a saving and continue carrying out the same tasks only with a smaller ‘skeleton’ team supported by computers, robots and other forms of automation.

The short-sighted organisation might take this path. But the bolder amongst us can see the vast opportunity here. Looks at the chart above. As you move further towards the left (towards the strategic end of procurement remit) you will see more light blue. The tasks that are difficult to automate. These tasks that we are not able to automate just happen to be the tasks that provide the greatest opportunity for delivering growth to our businesses.

I believe that for forward-thinking businesses, automation of the transactional aspect of procurement’s work will push human creativity, and indeed headcount, towards the more strategic opportunities that face us. With the transactional burden now largely managed through automated processes, the procurement team of 2025 will be more able to pursue its destiny of delivering growth, speed and innovation into the business. In the process, it will become a more vital cog in the success of the company it serves.

The Shift of Procurement Focus

Let’s take a quick look at the distribution of procurement staff both today and into the future. Most organisations I talk to tend to follow a distribution similar to the one on the left of the image below.

My 2025 Procurement Prediction

I believe that by 2025 there will be a more defined gap between successful procurement teams and the laggards. Where leaders with bold objectives, will be able to better leverage technology and dominate their peers.

They will harness the power of AI, machine learning and likely countless other yet-to-be-released technology solutions to manage their transactional workload without the use of human resource. This evolution will alter the dynamics of their operations and enable more people to focus on solving business challenges. Procurement teams will be working directly on high-level corporate challenges like growing revenue and new product generation. Procurement teams and indeed the whole supply base will help to deliver speed and growth back to business and the vast majority of our efforts will be attributed to doing just that.

My team at Old St Labs are lucky enough to work with likes of Vodafone and their Innovation Centre, Tomorrow Street. Their combined approach of adopting of new technologies to streamline procurement & sourcing processes & UX while also innovating with both their big suppliers & startups — I believe is a sets a new north star for procurement leaders and CXO’s.

Sources.

• Source IBM White-paper “Procurement’s New Chapter: Innovation” www.ibm.com
• “A road map for digitizing source-to-pay” www.mckinsey.com
• Driving superior value through digital procurement

This article was posted on Linkedin in June 2018