September 2018 |

We can predict that now

How do we know? Procurement is a service function; it advises others how to spend their money more wisely (it rarely holds the vendor budget itself). So it must respond to the changing needs and shape of the business around it. Just as presidents or prime-ministers are chosen as a response to their predecessor’s perceived limits facing a new set of problems, so too does Procurement change happens in stages – in stops and starts – of reacting to what went before it.

It is possible to track the evolution of procurement’s stages in most organizations and therefore to predict how it will evolve. It is also a mini history of our profession. We see a lot of US, UK and European functions. You can be the judge of where your own function is and where it has to evolve.

Stage Zero

Before Procurement …there was nothing.

The stakeholders bought for themselves. This is still the case in many young, rapidly growing businesses where the employees are expected to wear many hats.

But business changes. Previous Proxima research has shown that as businesses grow, they spend a greater and greater proportion of their income (on average they spend 5x more with vendors than on staff) with ever more suppliers. It becomes clear that not all budget holders were good at getting the best value out of suppliers.

Stage One – The generalist emerges

The response is often a team of generalists. Procuring well is a skill and so negotiators and RFP writers emerge as a small team of generalists who are meant to cover all bases.

But the problem is the asymmetry between sales teams who specialize and understand their narrow offering, versus generalists. The danger is that generalists become price obsessed because there is no time to cover anything else.

Stage 2 – Category plans emerge

The response, then, is to introduce category specialisms and category planning. Teams start to think more deeply about more than negotiations – they want to develop more sophisticated views and – like all the other professions – this demands specialization in categories.

But the problem is that categories do not line up with stakeholders. As an advisory function, dealing with suppliers is the easy part. Dealing with stakeholders is harder, and gathering their perspective is key.

Stage 3 – Business Partners evolve

The response is to introduce business partners, mirroring change with which other functions have had to grapple (IT, finance, HR to name just three). This enables Procurement to understand what their stakeholders want.

But the problem is that the role of advisor is more than saying ‘I’m from Procurement and I’m here to help’; successful advisors provide challenge and insights from beyond their organization, often adopting the disciplines of a challenger sales executive to help the stakeholder change their thinking and understanding of what is possible through new supplier practices. To stay relevant, the function must keep producing new perspectives and knowledge to share with their stakeholder.

Stage 4 – the Insight Partner

The response is to introduce Insight Partners. They bring real insight into what is happening outside the business, to challenge and shape what it is that the stakeholder wants from suppliers based on the best the market can provide. This is tough. Periodic RFIs are replaced; the function’s radar is set permanently in curious mode to pursue the best ideas from whatever source and insight will be given at any time because it is needed all the time.

The problem, however, is that corporate boundaries are being rese and markets are changing at an extraordinary rate. The most exciting things happening involve bringing combinations of stakeholders together with combinations of suppliers to help launch new products, or reshape the business. This does not correspond to the traditional alignments of categories or stakeholders.

Stage 5 – the Network Partners

The response is to introduce Network Partners. These are individuals who have the imagination and herding skills to act as the interface between networks of stakeholders and networks of suppliers. This is what the most ambitious functions do and it puts them where the action is. And who wouldn’t want that?

Of course we have simplified. It is possible that you may find you have a function which has pieces of some or all of the above and may need more than Network Partners. What technology does for the Network Partners, we cover in another article (hint: the function changes shape).

There are serious challenges about how to find and develop these Network partners, and keep them.

However you look at it, this is an exciting future putting the Procurement function at the forefront of what will help create agile, active businesses; but it is a future that demands extraordinarily different skills, attitudes, and traits from the Procurement professional of the future compared to our past. That is ‘Networked Procurement’.

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