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Procurement 2016: it’s time to find a new master

January 20, 2016

A new year, but continued pressure to deliver savings.

 That statement summarizes where many Procurement groups find themselves as we enter 2016. So to the casual observer, nothing has changed.

Yet they would be wrong, because the expectations of top management in both public and private sector are shifting fast. They want supply chains that deliver sustained improvements in cost, quality and innovation, supporting flexible, market-oriented operational capabilities. And those attributes will not be achieved through traditional, supplier-focused demands for price reductions.

2016 will see continued erosion of old-style Procurement and growth of the skills and methods needed to manage category segments and integrated supply networks. Input-based acquisition will be replaced by effective commissioning and management of outputs and outcomes. “Procurement” will steadily shift from being a functional activity into an organisational competence.

So what is left?

The future – far from looking bleak – is simply different. It demands greater understanding of markets, closer integration of customer / supplier operations and shared commitments to performance. Those characteristics will be delivered through the adoption of contract management and supplier relationship management techniques, underpinned by heightened levels of commercial awareness.

To meet the challenges of 2016 and beyond, procurement must move from its narrow focus on short term savings. Practitioners of the future will exhibit cross-functional knowledge and stakeholder understanding, to ensure that savings are achieved throughout the lifecycle of a supply relationship and that they supplement – rather than undermine – the achievement of business value.

Perhaps the big question in all of this is whether these new attributes can ever emerge while Procurement reports to the CFO. The short-termism of financial thinking, combined with its limited understanding of business relationships and ethics, far too often drives destructive behavior by Procurement. The growing importance of overall supply management demands a shift in thinking and measurements – implying that an escape from the umbrella of Finance is a critical need.

 

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