“The function must re-invent itself or it will not survive”.

That was what I said in France last week – and the audience – primarily current or former Chief Procurement Officers – appeared to agree. Indeed, one made an analogy with the Pony Express, put out of existence almost overnight by the final link being made in a new technology, the telegraph.

It was in this context that we wrestled to address questions over the future role and purpose of the Procurement function. They did not doubt the need to buy things; they simply wondered what need there would be for ‘a profession’ to oversee the process.

While it is certainly possible to redefine and extend the role that today’s Procurement practitioners could play, there are at least two major challenges. One, of course, is the nature of the skills or knowledge required, relative to those held by the incumbent community. The other is the openness of others in the business to the expanded or altered role that is envisaged. In this context, the issue is not only whether they feel the activities need to be undertaken, but also whether they view Procurement as the right place for them to be done. Given that many other functional groups are also busily redefining their future role, there is potentially a lot of competition.

It appears to not offer a comforting message. Specifically, even in those areas where Procurement executives believe there is potential for the function to expand, there appeared little receptivity by other parts of the business to allowing them to do so. Indeed, the best hope was in shifting to a more holistic role in determining total business cost associated with purchasing decisions, yet even here there was resistance by the Finance executives.

Another catalyst for change and re-evaluation of procurement’s effectiveness and worth seems to come from an unlikely source. Will the European horsemeat scandal at last lead to a rebalance in procurement measurements?

Yesterday the debate turned to whether the food chain is being threatened by a focus on price. According to the head of one major retailer, it is the only basis on which business can be won.

Over the last couple of years, the voices calling for less focus on price and more on value and outcomes have increased in intensity. Many – including those within the Procurement profession – have grasped the negative effects of an unrelenting focus on input costs. This focus simply does not

generate long-term cost reductions – and it results in many unwanted outcomes.

The European horsemeat crisis would be a rather ironic catalyst for change, but certainly welcome. The constant push for lower price as the only way to win contracts inevitably drives unscrupulous behavior. But which side truly lacks morality in this situation and how should we alter measurements to secure better results?

A second aspect of the horsemeat affair is that we are immediately into the blame game. This is also typical of poorly managed procurement systems, in which performance management is often a post-mortem rather than an active and collaborative discipline.

So let’s take 2020 as our notional year for our predictions.

Let’s start the discussion with a brief look back, to help understand how our profession and the procurement professional have developed over time. That helps to give some context as we look into the future.

1960s – Procurement grows in importance, particularly in manufacturing. People need skills in planning and stock

management – getting the right materials to the right place at the right time is key.

1970s – Commodity price volatility and inflation emphasise commodity buying and trading . Trading and negotiating skills come into their own as those procurement skills are needed in a challenging economic environment.

1980s – Procurement expands its reach - services firms and the public sector take an interest, ERP is invented A wider range of general management skills is needed, with the ability for procurement to work internally as well as externally becoming more important.

1990s – Globalisation, outsourcing, and technology advances add to the procurement scope and the growth of tools such as category management Procurement people need to be more professional and analytical, with an understanding of techniques, processes, technology and systems.

2000s – The Internet revolution impacts procurement: more data becomes available whilst strategic sourcing, partnership working and corporate social responsibility come to the fore.From a corporate employment perspective, the one role that typically has been safe, is strategic sourcing.

My epiphany regarding macro-economic change and transformation occurred during this time period, the early 2000’s, while working for a management consulting organization. After leading the offshoring of a client’s data storage capability to Guadalahara, I had the unfortunate experience of having to make 12 of 18 jobs redundant – effectively sending these jobs from the United states, abroad. This was my introduction to the world of outsourcing and offshoring, and it’s a trend that continues, even is accelerating, today. From my part, I moved on to lead a team of 175 procurement professionals at France Telecom. Today, those jobs don’t exist anymore because they sit in Cairo and Rio, under the leadership of an outsourced service provider.

Good news is, if your job isn’t outsourced to an offshore provider, there is a future in supply and procurement. The roles will change, and skillsets will change. The ability to work collaboratively with colleagues and suppliers and think beyond cost into wider business and social values is vital. Identification of supply and supplier risk – risks beyond purely financial risk issues. , effective supplier relationship management, leveraging supplier-driven innovation… all are becoming into focus and will be key differentiators for those firms wishing to optimise their value creation through supply management.

But will outsourcing survive?

Take Boeing. I am sure the analysis into Boeing’s problems with the Dreamliner will continue for some time. At present, there seems to be a growing consensus that ‘outsourcing’ was to blame.

My understanding is that management in the 1990 s was ′reluctant to commit funding to new aircraft development – especially on the scale needed for a concept such as Dreamliner. This resistance was overcome through a creative suggestion – to outsource almost 60% of the work to external parties and thereby slash the investment required from Boeing.

For the finance executives, this was an attractive solution. However, it seems that there was inadequate thought given to the implications of managing a portfolio of outsourced suppliers. This model was not the same as traditional procurement or project management. It required an organization capable of managing commercial relationships, equipped with the skills and tools to integrate across multiple stakeholders and ensure alignment of performance.

My suspicion is that Boeing did not make the investments needed to manage this complex network of relationships. It

most likely relied instead on traditional skills that lacked the insights or the flexibility needed to succeed. This was probably a classic case of failed ‘commercial assurance’, driven by over-reliance on technical and financial skills, coupled with contract managers trained in standard administration procedures.

In the end, I doubt that outsourcing itself was the problem with Dreamliner. It is more likely that senior management simply did not grasp the organizational and operational consequences of an outsourced development model and therefore lacked the skills, tools, insights and management system needed to achieve success. If that is the case, they will certainly not be the first to learn this lesson.

So will Dreamliner kill outsourcing? I think not. There truly are economic and commercial benefits to be gained from outsourced relationships – but they can be secured only when there is organizational adjustment capable of overseeing this business model.

Looking beyond the 2000’s, it is evident that the degree of change, complexity, speed and access to intelligence will continue to accelerate. Given this degree of change, agility and adaptability will be key traits for you to cultivate if you hope to keep up with the accelerated pace of change. Static and slow-moving procurement organizations will completely

lose their value propositions and be rendered either obsolete or shifted offshore to some low-cost country for efficiency purposes. If that happens, what are the implications for future procurement organizational design?

I t is also clear that technology has impacted procurement considerably, and that we’ve moved away from a focus on physical supply to much wider questions around value.

It is likely that many organisations will face economic and geo-political uncertainty, maybe even turmoil.

One prediction I can make with some confidence is that the pace of procurement technology development isn’t suddenly going to slow. The increased opportunities to use technology for the benefit of the organisation will become even more vital than today for most functions and professionals.

So, what will it take to survive and shine in the new supply and procurement universe? From a skillset perspective, supply professionals will need to blend an effective internal and external focus; and a combination of relationship and technical or analytical skills.

You will need to be:

A DIPLOMAT - worldly, sophisticated, connected but tough. Success for many organisations will depend on access to scarce resources, and for larger firms in particular, an ability to work successfully within organizations, as well as suppliers or supplier communities. As a point of rer=ference, one bank in Canada is now hiring resources to work within the sourcing department whereby the primary focus on skillset isn’t the sourcing process, it’s selling sourcing’s benefits to the business and spend owners at large. They realize that without alignment, the procurement department would be less than effective.

I see this understanding of what we might call “responsible procurement” as being key for the procurement person in 2020. And yet, responsible procurement must be allied with a hard headed, practical and pragmatic understanding of how to operate in a global environment. That also needs strong negotiation skills – but not a simple power based, “beat the supplier across the head” approach! We will need subtlety and sophistication. Being a Diplomat will require toughness as well as charm. It can be a dangerous world.

You’ll need to be an ANALYST – understanding global trends, data, markets and suppliers. While the Diplomat focuses on

relationships and direct personal contact, the Analyst is immersed in primarily external date, information, and news. Their job is to turn that into actionable insight which enables their organisations to gain competitive advantage. That could be analysing commodity markets. It might be gaining an early understanding of supply chain risks or actual risk events. Or identifying new suppliers who have cost or innovation advantages that the organization can exploit. In a connected and on-line world, there is already more data available than we can visualise or, in most cases, use effectively. Technology developments – such as “big data” products and initiatives – will make it easier to handle this overload, but only for those individuals and organisations that embrace the opportunities and put the effort into becoming appropriately skilled. And our Analyst will be at the forefront of making sense of all this data for the benefit of the organisation.

You’ll also will need to be an INVESTIGATOR – using internally generated data to drive value opportunities Whilst the analyst focuses externally, this face is internally orientated. Procurement professionals will not, I believe, need to be deep technology experts in 2020. Indeed, the strong trend I’ve seen in the last couple of years around usability as a key factor for systems will continue as software becomes more intuitive and even business solutions have a consumer-type look and feel. However, procurement executives must

be comfortable with the use of technology, and most importantly, have the capability to exploit that within the organisation. This means being able to understand, work with, manipulate and interrogate the increasing amounts of internal data that will be available via the technology. Whether it is in the context of the information available from ERP systems, spend analytics, supplier information and risk management systems or wider market and supplier data, the skill for the procurement professional will lie in; knowing what the mass of data means; understanding how to use it, drawing conclusions and developing actions based on it; and developing the next level of questions to interrogate the data or the systems further (for instance, going back with the right “what if…” questions in advanced sourcing scenarios).

The focus will be on identifying further value opportunities from the data. Where could the organisation usefully aggregate spend further? Are there compliance issues in certain departments? What usage trends need watching to manage costs or stockholding? Numerical analysis, reasoning, and problem solving skills will be enhanced, in the very best Investigators, by a streak of creativity – the ability to take the data and make a leap to an extraordinary idea or conclusion.

And finally, yes, you’ll need to work on your LEADERSHIP skills – working with internal colleagues to deliver organisational value It is ironic that whilst technology becomes more and more powerful, and data more prevalent, we realise that the most successful procurement people are those who can influence, persuade, and motivate colleagues and key stakeholders within their organisations. That requires a range of skills that can be called on at the right time. Factors such as the ability to listen well, persuasion, empathy, independence, judgement, presentational skills, even charisma (which is impossible to teach) come into play here. This role for Procurement is sometimes described as acting as a “business partner” within the organization. “Consultant”, or “Adviser”, are other terms that capture some of what I am talking about. But all of these in some way suggest procurement is supporting something separate that is “the business”. My vision is that procurement must be seen as an intrinsic part of the organisation, with a vital role to play, not standing outside the core business merely as a support function.

So I don’t see procurement disappearing. But I do think it needs to change. It needs to move away from the dominant focus on unit cost reduction that still prevails in many organisations, to playing a wider and more fundamental “enabler” role in the organisation. I see the procurement role as “managing the value the organisation gains from its

dealings with the external world of suppliers and potential suppliers, and understanding the underlying business drivers and requirements of the business”.

An anonymous procurement executive at a Fortune 500 software company relays this scenario: "Anything that's not strategic is being put on the discussion block for outsourcing and offshoring. We divided tactical and strategic procurement into two parts and offshored the tactical component. Now, we're even segmenting strategic procurement and determining what needs to be retained and co-located with the lines of business, and what work can be centralized in lower-cost locations."

He went on to describe a future scenario wherein a new role might be born: the procurement business relationship executive. These individuals would interface with the business at a very strategic level and then feed sourcing activities back to the centralized sourcing operations teams. When asked what skill sets these business relationship managers will need, he replied, "They'll look much like today's sourcing managers, but they'll be the cream of the crop — strategic thinkers and great communicators."

In conclusion: there are things you might want to think about doing tomorrow to position for the future:

1. Align with the Business

A major issue that continues to play havoc within many organizations is the mis- or non-alignment of procurement with the lines of business or the spend owners. In one bank, un-named to protect the innocent, sourcing is nothing more than the tail end of contract management – running contracts through legal, ensuring that the right contract language is embedded into the contracts – that’s it. And they call themselves sourcing! My vision for the future sees a loose network — vs. tight function — of supplier-facing professionals embedded into strategic business lines, communities, and processes wherever needed, constantly moving and reinventing their roles as needs shift.

One outcome of the emerging procurement vision is that the functional ‘procurement’ label fades from the corporate lexicon over the coming decade. Procurement may no longer be called procurement in the future. ‘Embedded’ in this context can mean either physically or virtually with the central idea being that the new spend management professionals get involved only where they are needed and move on once the right supplier relationships, processes,

information flows, KPIs and performance metrics, technology tools, and so forth are in place and running both smoothly and predictably. It won’t be about sticking to that seven- or eight-step strategic sourcing process in the future. It will be about thinking outside of the box to do things much differently as the business itself transforms. Tools, strategies, and information sources that make sourcing organizations incredibly nimble are going to be important in the future. Frankly, I see procurement professionals working more in a ‘design-to-value’ concept, participating as one part of a much bigger thing the business is trying to achieve, which is innovation.

2. Top and Bottom Line Contributions

Today’s focus on savings will give way to a broader, more balanced emphasis on profitability, leaving open the question of whether supply management concentrates on cost savings or revenue growth to get there.

I think it would be safe to say that there will be two general points of consensus around performance management for supply and spend management in 2023:

• Money — be it savings, revenue, or profitability — will always be a piece of the performance picture, and

• Metrics - will direct supply and spend management professionals to focus their efforts on both the top and bottom lines.

There will still be overall metrics in place in 2020, but it will be less focused on savings. I see metrics around things like spend coverage — as an indicator the company is staying focused on the right things — but also around things like innovation, risk, collaboration, supplier relationship effectiveness, internal and external stakeholder satisfaction, and competitive advantage, which includes getting to new markets and bringing out new products.

3. Win the War for Talent

This is arguably the most important activity – that’s why I’ll spend some time illustrating my thoughts.

While valued highly in today’s marketplace, people who excel at sourcing processes, or at being power users of procurement and sourcing automation technologies, will find themselves working for third-party services firms — or not at all. As supply chains become more collaborative and complex,

the roles and responsibilities of middle managers will increase. The role of an omnipotent CPO/CEO will diminish. In terms of general skill sets, procurement professionals are realizing that procurement is not a profession for one-trick ponies.

Even in the 1990’s, being a strategic procurement professional often meant simply being a good negotiator to many people. That’s not the case today.

Today, procurement professionals know that they need a broad range of skills to be successful. Yes, that includes mastering procurement processes and negotiation like it did in the 90’s. But today’s broad skill sets involve being excellent at things like managing risk, using the technology tools that are out there, being able to conduct sophisticated analyses, collaborating with suppliers, understanding risk factors, looking globally for sources of supply, hedging against commodity volatility, using best practices for managing projects, and so much more.

Procurement professionals are expected to know and show how their work affects EBITDA, working capital, earnings per share, and other lines on financial statements.

Financial statements are what C-level executives live and die by. If procurement departments want to hang with this crowd, they need to speak the language and evaluate business performance the way the CEO does.

Yet, with all of these new skills that procurement professionals will need in the future, it is important to not overlook those core, foundational procurement skills like sourcing, contract writing, negotiation, and so forth. While a lot of people think that they have high levels of these skills, we still see plenty of procurement professionals with gaps in these critical areas.

4. Outsourcing explodes

Outsourcing procurement

I used to be not a great advocate of outsourcing. I hope that the process becomes more thoughtful in the coming decade.

I can’t help but notice how outsourcing providers are gearing up for the next step in their cycle.

And what I see is that procurement outsourcing providers are investing in more training for their procurement professionals than Fortune 500 companies – the very customers they want to land.

I expect to see even more procurement outsourcing, including the outsourcing of roles that we consider strategic today. Will we ever get to the point where a procurement department staffed with 200 people in 2020 will be reduced to one person whose job it is to manage a procurement outsourcing provider? That’s a stretch for the next few years, but it is the general direction we’re headed. But, regardless of whether procurement is kept in-house or outsourced, the bar has been raised for the skills and training needed by procurement professionals. The procurement professionals in non-BPO companies today may be seeking work in BPO’s in the future. And, if they fail to raise their skill levels, they may find themselves being unqualified to join a BPO!

5. Strategy scope widens

Much has been done in the past decade to transform procurement from tactical to strategic. But the idea of

‘strategic’ remains hemmed inside the function, the process, or spend category. In the near future, I think that the meaning of strategic will get much bigger. Think “fringe edge of procurement”. Think risk management – beyond financial risk – to include reputation and impact on brand risk, third party risks, geo-political risks, regulatory risks. Environmental risks, bribery risks… commodity volatility risks. Relationship management. Innovation management. Internal consultants to the business or spend owners.

In essence, all strategy will tie directly to an enterprise’s end customers and it will be more cognizant of the diversity of desires and requirements within the internal business client base. And why develop competencies to manage processes that essentially generate no value to the business? Segmenting the supply base, focusing on the handful of truly strategic suppliers, putting effective performance and governance frameworks surrounds that core group – and outsource everything else. It will happen, I think.

6. Collaboration Reigns - VRM

Collaboration will be the new ‘normal’. The coming decades will see a major emphasis on taking innovation from the supply base. We may well be witnessing the dawn of the

extended enterprise – this trend promises exciting times for supply professionals.

Early involvement is also newly fashionable as the timings of customer/supplier collaboration shifts. Today, suppliers may be asked to contribute ideas to existing designs, or to help fix existing processes. In the coming years, they will be on the ground floor more consistently.Buyer/seller lines will blur, as supply management professionals seek to extract more value from suppliers by leveraging supplier resources and integrating supplier functions with their own.

Increasingly, too, the profession will focus on networks. While organisations once charted their own courses in innovation, a transition from ‘buyers and suppliers’ to ‘integrated supplier networks’ will enable greater co-ordination of innovation across connected businesses and industries.

Suppliers will gain power. My predictions regarding outsourcing, tighter integration and heavier reliance upon suppliers means that the latter are gaining more leverage in the buyer/ supplier relationship. Instead of them selling to you, you will be selling to them. Procurement has a new challenge – to remain attractive to key suppliers.

Increasingly, too, I am seeing organisations share risks and rewards. As supply management professionals get better at segmenting, defining and measuring value, they will start to incorporate both gain- and risk-sharing into commercial relationships with suppliers.

7. Wake up to supply risk

Converging trends will make supply relationships even riskier in 2023 than they are today. I expect to see big increases in companies’ awareness around supply risk and also an expansion in their perceptions of where risks lurk. Risk management will become everybody’s business as capacity and demand soar. Today, when supply management organizations are challenged on risks in their supply chains, they generally look at suppliers’ financial stability, which is only one element and not a very significant one compared to continuity of supply.

What is more, many companies treat all suppliers on equal footing, which is unacceptable from a risk point of view. Some suppliers are truly critical to the continuity of your business, while most are not. Those critical suppliers need to be treated very differently.”

There will be a big expansion in the kinds of risks companies address in their supply chains, considering, for example, such things as suppliers’ sustainability, brand and reputation impact, social responsibility, physical and information security practices, to name just a few.

A particular challenge will be for supply management to transition from generic to more dedicated and customizable risk management approaches, depending on spend category, region of the world, and so forth.

Everybody will have to wake up to the pervasive problem of supply risk – converging trends will make supply relationships even riskier as the decade progresses than they are today.

SRM and VRM will be mandatory – No successful company will be without a supplier risk or a supplier relationship management strategy. We expect VRM and SRM to drive up to 40% of procurement’s value-add. I am not talking only about today’s SRM and VRM activities – those focused on reducing total cost of ownership – I also mean bigger and broader activities such as increasing resource utilization and maintaining flexibility in the supply chain. Supply management

organizations and their strategic suppliers will be at the forefront of innovation

People will have to be razor sharp – as procurement becomes more cross-functional, procurement professionals will have to have business smarts. Technical skills in specific disciplines will be the price of admission, but success will depend on expertise in collaboration, risk management, relationship management, change management, and stakeholder engagement.

And lastly, business intelligence.

In order to gain traction within the organization, access to internal and external business intelligence will be essential. Understanding pricing and process benchmarks and baselines, options and possibilities of supply and supplier base, understanding internal spend data – this is the key that procurement professionals need to engage the lines of business in effective, business focused conversations. The business will still chose whom they would want to do business with; procurement will help them securing much more effective and advantageous supplier commitments

Thank you for your time and endurance. My colleague and I will be pleased to answer any questions you might have at our booth, especially if you buy us a drink.