Procurement’s growing role: is it sustainable?

On Spend Matters, Peter Smith recently made interesting observations about the growth of Procurement influence. He suggests that two major factors have raised its profile and purpose, one being the dramatic growth of external spend (largely driven by outsourcing) and the other being globalization. Each of these has taken organizations into uncharted waters, stretching internal skills and experience and exposing unfamiliar risks.

One obvious effect of this shift has been the centralization of most Procurement functions, as management realised the importance of greater controls, more consistent policies and the consolidation of spend in a group outside the control of individual business units.

But as Peter points out, spend volume cannot go on increasing for ever and many of the risks associated with global procurement are becoming better understood and managed. So what is the next big thing that will maintain the influence of the Procurement function – or isn’t there one, was this growth just an aberration?

This is certainly a point of growing debate, with more and more forums reflecting the apparent uncertainty and insecurity of the Procurement function. I have been involved directly in three such discussions in the last week – one with Proxima on a webinar, one at the Zycus ‘Horizons’ conference and most recently at this week’s Virginia Public Procurement Forum. CIPS has even advanced the idea that anyone buying goods or services should be a licensed practitioner – hence trying to institutionalize the function, rather than address the more difficult question of its real or sustainable value. Unlike the lively and motivational discussions at the events I mentioned, the licensing route seems to me entirely the wrong way to go – and indeed is in direct contrast to the general trend of liberalization within professions.

A point that is not often mentioned is the extent to which other (and much more established) professions are asking themselves similar questions. The reason for this is not hard to find; networked technologies replace the need for many lower level activities and also increase access to knowledge. McKinsey says that 47% of professionals will not be needed in a few years time. Hence, Procurement should survive only if it is needed; it cannot succeed in fighting the tide of ‘knowledge commoditization’ and task automation.

So what activities are needed? Certainly there is value in market evaluation and research, which is increasingly important as organizations race for competitive advantage and innovation. There is tremendous value in aligning business requirements with market capabilities, a frequent source of value loss in today’s supply management. There is value in assembling and reconciling stakeholder interests and perspectives, an often contentious, time consuming and incomplete activity. There is value in negotiation and in ensuring effective implementation of resulting agreements, focusing on users and their needs. Finally, there is value in overseeing results and outcomes, including avoidance of problems, resolution of disputes and dissemination of learning. Procurement is already active in some of these areas, but in many it is seen today as just one of the stakeholders or even an obstacle, rather than an organization that effectively coordinates, exercises judgment and takes responsibility for outcomes.

I believe there is a sustainable role for Procurement, but it will be quite different from the role of the past and it will encounter competition from others also seeking self-preservation. It also demands a radical shift from the control and compliance mentality that has dominated many of the discussions and growth of the past. So there is some urgency in moving ahead. But right now, I see no consensus of vision either within the practitioner community or among those who represent them – and that is a real threat.