The cheaply available computing power in combination with intelligent software applications that are capable of taking independent procurement decisions without the involvement of any buyer, is no longer science fiction but reality (check providers such as Keelvar for more information). As a report from the consultancy firm RolandBerger predicts, the procurement function of the future will look significantly different, automated and with 50% less headcount.
There is no doubt, new technologies are about to disrupt our profession.
No procurement or supply chain conference, no round table discussion these days hence without the mention of artificial intelligence, machine or deep learning, and software and systems that can turn the procurement function as we know it today on its head. Buzzwords that indeed excite, that allow us to imagine the endless new opportunities that lie ahead of us. The reality looks different though. These buzzwords rather raise existential fears in many procurement leaders. A fear that leaves many procurement professionals paralyzed, in a state of shock of not knowing what to do next.
The introduction of new technologies is a once in a lifetime opportunity that we must embrace. An opportunity to automate repetitive tasks, to focus on the strategic souring work that really matters to our stakeholders, and to finally become this strategic function that our business partners have been waiting for so long.
The debate on how to move the procurement function from its transactional, cost savings focus to a strategic, value generating, commercial partner in the company, trusted and recognized, has been going on for years, probably since its very beginnings in the late 80s, as we all know.
But whilst we all agree that change is needed, and we all understand where the function should be at, we are not making fast enough progress. I have the impression that most buying organizations are stuck in this state of shock, indeed overwhelmed by the technological advancements around them, afraid of the future and lacking the strategic thinking to determine what the actual next steps are to get their organization tomorrow ready.
There is no doubt it is not AI, but it is this lack of strategic thinking, and complacency that is the biggest threat our discipline faces today. We risk being changed top down instead of leading the way and crafting our future ourselves.
Only 60% of procurement organizations have an operational strategy in place. Do you?
At the aforementioned conferences and round tables basic procurement processes such as supplier relationship management, linking and leveraging of external capabilities with internal needs, involving of senior company leadership in influencing supplier performance are all presented still as breakthrough and leading edge. Just to be clear they are not. They are the basics. If you are just about to embark on managing your internal customer and external stakeholders strategically you are probably 10-15 years behind where you should be. Fact. Struggling to convince your CFO to invest in better tools and skills is no proof of the company not understanding the value of procurement but of you having missed to create a vision and mission for your department that your leadership team can relate to and is willing to invest in.
Far too often are we claiming to be strategic whilst we are not, using the respective nomenclature to fool ourselves that we are on the right track. If your “procurement strategy” reads something like “…deliver 3% savings year over year” then you have a serious opportunity area in strategic thinking. If you do not have an overarching vision, and mission statement in place that every single buyer in your team can summarize in 20 seconds, if you do not have 80% of your spend governed by executable and coherent category plans, if you do not push your teams to spend time with internal customers and to take commercial ownership for the business then you are indeed at risk to be rationalized by a CEO or CFO instead of leading the change yourself.
So, what to do?
Our immediate reaction to any kind of threating situation is to fight or to flight. It is still embedded in our DNA, engrained in our brains from the days long gone when we hunted and gathered and had to face the odd mammoth that crossed our path every now and again. Neither fighting of flighting is going help here. Before you jump into any kind of actionism, drive some basic interventions to get your organization back on track, to be seen as a strategic value contributor and not just as a cost center to the business. No rocket science or black magic here but good old managerial text book practices:
- Address the mindset! Force yourself and train your buyers to value thinking before doing. Establish strong guidelines of what the actual priorities are. Thinking is paramount if you are confronted with many, seemingly overwhelming operational tasks. Stop yourself and your buyers from just doing stuff, challenge yourself and them WHY certain things are done in the first place and what happens if they would no longer be done. Force yourself and the team to reflect on your actions, to prioritize, to strategize, and to align, before you go out and execute. Introduce purpose, your vision for your work and the mission of the department. This is your key role as leader.
- Understand your customers and internal stakeholders! You are a service organization! And hence you need think and act like one. Understand WHAT your customers’ business priorities actually are. Spending time with them is extremely important. This applies not only to you as senior leader but to everyone in your organization, from the new hire up to the manager. We assume far too often that delivering cost savings is number one priority for us as procurement. More often than not do more complex needs and requirements play a much more important role such as product innovation, enabling sales, supporting growth, risk management, sustainability and supply chain agility. Your purpose, vision and mission must reflect and address your customers’ needs.
- As leader YOU need to make choices! You will not be able to please every internal customer. Making choices can mean at times to entertain difficult discussions with your stakeholders that certain tasks will not be done. Establish a transparent and inclusive decision-making process on how to spend your time and available resources. Clearly define and align the WHAT and the HOW for the spend that you are tasked to manage. This means for example to establish spend category plans that are aligned with the business, documented and that clearly define WHAT you want to achieve and HOW you want to achieve it. These plans should make choices around projects, suppliers, industry interventions versus building internal capabilities, etc. and will provide the guidelines that your team needs to prioritize their time.
- Embrace technology now. New technologies are not a threat to our function but will allow your team to free up time fast and start focusing on strategic buying versus transactional procurement. Don’t tell me you are still just on Excel. Introduce data analytics software and automate as many process steps as quickly as you can. Not only do you currently miss out on opportunities such as gaining better market insights and running more complex sourcing events, but you will also find it hard to attract talent. The previous generations buyers might have enjoyed analyzing tons of data manually and sending out the same, odd copy and paste RFP document from the previous year to the same five suppliers. The next generation buyer with all their information at their fingertips are not so keen on operating like in the 1990s.
- Empower your team. You have introduced purpose, built the vision and mission as leader of the function. Now it is time to hand over responsibility. Allow your team to own their buying categories and the relationships with the suppliers ‘bottom up’. Have them recommend to you as industry and process expert and final approver what needs to be done. Refrain from micro management and let your team come up with new ideas and creative solutions that can make the difference for your internal customers. Establish a culture of trust where people are allowed to make, and learn from their mistakes. Encourage out of the box thinking, establish think tanks around problems, invest in diverse teams, leverage internal resources with external supplier capabilities. Encourage your team connect the dots between different customer interests, internal demands and the outside world.
Direction and mindset setting, true customer focus, taking decisions, embracing technology and employee empowerment and engagement are the five crucial areas to address to establish the base for the change to a strategic procurement function.
And noticeably, little of this is actual procurement specific but rather managerial and leadership skills that you need to apply as leader of your procurement function.
As said before, the new technological age is a great opportunity for us a procurement and it is real. Some of the leading procurement organizations out there had 25 years to get their procurement teams to their current leading-edge state. You are now in this unique position to leap frog your competition and to jump start your organization propelling them into the 21st century, leveraging new technological advancements that you do not need to be afraid of. Get out of the mode of window dressing, marginal improvements and finding excuses why you are too busy to trigger change. Lead your team to a new future. Apply these five simple, managerial steps and start your new journey today.
Your CFO and CEO will indeed appreciate it.
Written by Jens Hentschel, Founder & CEO of THE FIVIS PARTNERSHIP. The Consultancy That Gets You Your Oomph Back. Find out more at www.fivis.io.
