DELPHI STUDYExecutive Summary

Looking to the Future:Purchasing as CostReducer or ValueBroker?

A research report carried out for the CIPS Centre for Procurement Leadership bythe Supply Chain Management Research Group, Manchester Business School,

The University of Manchester

Professor Paul D. Cousins, Dr Brian Squire and Dr Benn Lawson

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FOREWORD

First Thought

This summer, the world will focus on Beijing and the Olympic struggles of men andwomen in fierce athletic competition. Many in business are also determined to moveto a faster, higher, stronger level of performance. The look east is a timely reminderof where the true competition in global markets lies and why the men and womenleading in modern procurement need to be at the top of their game.

At CIPS we have been considering for some time the Future of Supply and how thoseleading it will be equipped to meet the demands of it. This report highlights thefindings of a Delphi Study conducted through our Centre for ProcurementLeadership (CPL), led by Professor Paul Cousins of Manchester Business School. Itbrought together a group of Chief Procurement Officers from the public and privatesectors, and from the manufacturing and services industries of the United Kingdom.

Our research set out to examine the future challenges facing the profession over thenext 5-10 years, and to explore how we might better manage supply to prepare forthese challenges. The results indicate that skills and capabilities, internal integration,and sourcing strategy aligned to the organisation goals are likely to have the largestimpact on organisational performance looking forward. Is the future of supply toremain as cost reducer or become a value broker?

Leadership in procurement as in any other area of modern business is the art andscience of getting things done through people. We see the leader’s role as a sensemaker; a person who helps others see pattern, meaning and direction in data andevents – to see constellations where others see stars.

We began by mentioning the forthcoming Olympics, which promises to be the usualquadrennial spectacle. In 2012 the Olympic Games come to London and in manyways the Olympians might be standing on the sidelines if true procurement andsupply leadership does not prevail to deliver the infrastructure upon which theGames depend. So procurement the challenge is to move faster, think higher andgrow stronger.

Simon Sperryn

Chief ExecutiveThe Chartered Institute of Purchasing & Supply

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This report highlights the findings of a Delphi Study conducted for the CIPSCentre for Procurement Leadership (CPL) by the Supply Chain ManagementResearch Group (SCMRG) at Manchester Business School in April 2008. Theresearch set out to examine the future challenges facing the purchasing andsupply management (PS&M) profession over the next 5-10 years, and to explorehow we might better manage supply to prepare for these challenges. The resultsindicate that skills and capabilities, internal integration, and sourcing strategieswhich are aligned to the organisational goals are likely to have the largest impacton organisational performance looking forward.

Introduction CIPS has been focusing on the challenges facing procurement and the future ofsupply for some time. The purpose of this research is to both identify potential futuredirections, and to give some insight into the supply strategies which will help attainfuture success.

A Delphi study was undertaken to provide academic rigour and practical outcomes tothis critical subject for the profession. The Delphi technique enables participants toinput their ideas and predictions regarding the future, and then, using the samplegroup drive these predictions towards consensus. The study was designed in severalphases, with individual inputs culminating in a workshop hosted by the CPL in April2008. Participants were fairly evenly distributed across discrete manufacturing,process manufacturing, public service and private services organisations.

Raising the Bar for Supply Global competition and ever improving technological innovation are rapidlyreshaping markets, products and operations. Organisations have had to rethink theway in which they manage their business and supply strategies to anticipate andrespond to these challenges. Consequently, purchasing and supply management isbecoming increasingly involved in developing and implementing organisationalstrategy.

The structure of procurement within organisations has also changed dramatically.Most leading organisations now have Supply Chain or Strategic ProcurementDepartments. Their role is to work across the business functions exploring ways tooptimise the supply process through strategies such as outsourcing, early supplierinvolvement, off-shoring and so on. The purchase of goods and services tends to benegotiated centrally and ‘call-offs’ and management of the requirements areorganized locally through purchasing cards and internet catalogues.

We also see a broadening and deepening of procurement’s role within theorganisation. Procurement will increasingly bring value to organisations by improvedcontract management, fostering supplier compliance across the entire lifecycle ofcontracts, and in turn achieving continued cost reduction and reduced total cost ofownership. However, much work remains to be done in understanding how wecapture the breadth and depth of the role of supply chain management in achievingthese cost reductions and other benefits. The traditional measures of cost saving areinsufficient. Wider measures on shareholder value and the link between procurement

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EXECUTIVE SUMMERY

strategy and business performance need to be considered nowadays. Definitions of‘new’ value are becoming vitally important to capture the success and impact ofprocurement activity on the business.

The function will also expand its remit into managing risk and vulnerability within thesupply chain, particularly in the context of geographically dispersed and distantsuppliers. Additional complexity also arises as a direct consequence of the volatility ofcommodities, currencies and interest rates. Senior management expect procurementto be able to avoid or reduce the vulnerability of their supply chain to disruptions, andincrease the resilience of the supply chain should a problem occur. Other risk-relatedissues include managing exposure to commercial and reputational risks, as well asproviding improved supply market intelligence, such as forecasting future itemshortages.

Approaches to managing supplier relationships will continue to evolve. For examplecollaborative relationships were seen as a prerequisite for tapping into innovationsavailable from suppliers globally. Suppliers are becoming increasingly integrated intonew product development efforts, requiring organisations to overcome not only a‘not-invented here’ mindset, but also the development of new remuneration and risksharing models to distribute the benefits of technological development withsuppliers. Moreover, discrete manufacturers, in particular, saw a key role for supplierrelationship management in driving revenue generation, particularly in opening upnew international markets.

The study also demonstrated that, organisations, customers and governmentsworldwide are increasingly focusing on the issue of sustainability, both from thesocietal and the environmental perspectives. The sustainability debate has thepotential to be the single most significant influence on organisational strategy, withprocurement being identified as central to this effort. The scope of procurementpresents greater potential for the function to act as a driver and influencer of theirorganisational response to sustainability, both in initiating environmentally friendlyinnovations (e.g. less packaging, emission reduction, product redesign, and so forth),and in ensuring appropriate conditions and benefits for workers throughout theirglobal supply chains.

Finally, we see a continued emphasis on the appropriate formulation andimplementation of high-level sourcing strategy. All participants in the studyemphasised the importance of ensuring alignment between corporate and supplystrategy, building on the organisation’s core competencies and leveraging buyerpower. At least in part, this future value was seen as being made available through theimplementation of ‘virtual’ teams to exploit global supply synergies across theorganisation operations. Procurement will also contribute to outsourcing decisionsand building relationships with their outsourced providers, particularly within serviceindustries. Procurement’s role is thus increasingly focused on optimising the way inwhich organisations manage not only their inputs but also how these inputs aretransformed into finished goods. Interestingly, less opportunity was seen forprocurement in actually facilitating interaction among these service providers.

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Looking to the Future A number of implications for the future structure of procurement emerged followingthe analysis of the Delphi Study data and focus group sessions.

Attracting and Retaining Procurement TalentAs procurement expands its role, taking on increasing responsibility and bringingvalue-add within the organisation, the skills required to perform within the functionwill change. Procurement professionals will become more focused on developing andimplementing value creating initiatives, such as revenue generation, technologyacquisition, risk management and ensuring sustainability goals are met. Participantsemphasized a mismatch between the demand for and supply of high-qualityexperienced supply professionals as a key challenge.

Relationships with universities who can provide talented ‘raw recruits’ andprofessional associations such as CIPS, who can provide a structure for capabilitydevelopment were highlighted. In summary, the ability of the organisation to attract,retain and train procurement professionals who can work cross-functionally, cross-culturally, who have ‘softer’ skills in leadership, collaboration and creativity will likelybecome a critical success factor.

Integrating Internally with the OrganisationWhile the benefits of external collaboration are much espoused, developingintegration internally with other functions of the organisation has often received lessattention. However, internal collaboration and integration is absolutely necessary toaccess gains from information sharing, decisions related to outsourcing/in-sourcingand helping other operational units meet their cost savings targets. From this,participants saw a role for procurement in generating senior level commitment,improving their status in the organisation and their contribution to strategy. Suchrecognition within organisations may also provide an opening to expand procurementinto examining other drivers of cost beyond the goods and services purchased by theorganisation, such as sales, or more general and administrative aspects of theorganisation’s activities.

Building Value-Creating Relationships Robust and forward-looking category management strategies will help drive value-creation through collaborative relationships with a subset of an organisation’ssuppliers. Identifying, segmenting and modifying attitudes to working with suppliers,who are considered to be strategic will help procurement align the supply base withcorporate strategy and support the core capabilities of the organisation. Creating thisvalue may also require the skills to act as a central node within a network, managinggroups of suppliers, rather than taking a single supplier approach. In addition,participants recognised that value-creation can be achieved through becoming the‘customer of choice’, by understanding the supplier’s position and building the trustrequired to create win-win outcomes. Developing this perspective on supplierrelationships is critical to achieving cost savings by identifying and jointly eliminatingsupply chain waste with the suppliers.

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Investments in Technology Technology developments, such as procure-to-pay and e-sourcing products, haveproliferated in recent years. Harnessing these new technologies requires bothmanagement buy-in, and acceptance of them among procurement staff, who will alsoneed to have the skills and capabilities to implement their use and utilise theinformation they provide. Optimising the use of these e-sourcing technologies willlikely cause headcount reductions across tactical purchasing activities, whilstillustrating value-add from effective, efficient professional procurement. Further,these same technologies, implemented globally, can underpin the creation of virtualteams with access to the same information regardless of their geographical location.

EXECUTIVE SUMMERY

ConclusionsIn working with the members of The Centre for Procurement Leadership we set outto investigate how leading organisations perceive the role and contribution ofprocurement to change and how they will meet the challenges of the future. Itpresents the initial view of participants highlighting the key challenges they face in amodern business environment. However, it is beyond the scope of this research toaddress all the possible managerial implications from this Delphi Study. Managersshould use the information presented here to carefully evaluate their ownorganisation’s current and proposed strategies.

Further analysis of each theme shows that they may be grouped into three categories:Operational, Managerial and Strategic. Operational-level themes, impact on theroutine, lower-level activities of the P&SM function. Managerial-level themes refer tofactors influencing the scope and influence of the P&SM function. Strategic-levelthemes illustrate the potential impact of P&SM on organisational performance.

This research is part of an on-going project to identify key procurement trends and tobenchmark global procurement activity. It is clear from our research in this and otherprojects that procurement’s role has changed dramatically over the last few decades.It is also clear that the role and nature of procurement is about to change again as wemove into a much more global and competitive environment. Our initial hypothesisthat procurement needs to evolve from a cost saver to a value generator appears tobe supported by this research project. The key question for procurement

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DELPHI STUDY

Operational

Managerial

• Corporate Social Responsibility• Risk Management• Outsourcing• Customer of Choice• Relationship Management• Executive Representation

• Contract Management• Internal Integration• SC Intelligence• Demand Management• Technology

• Skills & Capabilities• Global Sourcing• Performance• Revenue Generation• Sourcing Strategy• Supplier Involvement

Strategic

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professionals is how are they going to make this change happen. Radical ideasinclude renaming procurement to take account of it’s day-to-day value managementactivities, whilst moving away from those activities conducted at the transactionallevel through the use of IT networks. It is clear too that there is going to be a largeskills gap that might well inhibit this change process. Most significantly, procurementprofessionals (and academics) will need to make the link between their activity andshareholder value in private sector organisations and stakeholder value in publicsector organisations. Making this link is imperative if organisations are to take thestrategic role of procurement seriously.

Implications for Purchasing and Supply ManagementWe will now discuss some of the key findings from this research work.

High pressure Procurement: The findings suggest that procurement as a driver ofstrategic cost management and cost reduction is a fundamental expectation of seniormanagement. However, the function is increasingly being looked upon to providevalue-adding contributions to the organisation’s performance. The broadening ofthese expectations has seen procurement move into areas such as risk management,sustainability, as well as moving beyond simply cost concerns to contribute toorganisational performance in terms of time-to-market, quality, technologyacquisition and revenue generation.

Managing Supply is more challenging than ever: Today’s supply chains areglobally and geographically diverse, with variations in supplier quality, environmentalpractices, and social impacts on their local environment. Customers, however, havestrong expectations that the standards of the developed world will be appliedconsistently and globally across an organisation’s suppliers. UK organisations andtheir respective procurement functions have great responsibility for developing andmaintaining a complex, uncertain and dynamic supply base.

The impact of Procurement varies across organisations: Considerable variancewas observed at the industry-level across the respondents’ consensus views of theimpact of each of the Delphi themes. Some of this variation may be due tofundamental differences between industries; while others may representopportunities for learning and benchmarking across them. Overall, however, there isscope for improvement in procurement’s impact and the development ofprocurement’s profile within the organisation.

Procurement talent is key: All respondents, across all industries, cited thechallenges of developing a strategic procurement capability. Procurementprofessionals have increasing responsibility across more spend categories, often witha reducing headcount in the area, at least at a tactical level. Recruiting, retaining anddeveloping staff who possess both the technical and people skills to driveprocurement forward as a value-creating function are crucial. In this respect,professional organisations such as CIPS, along with the university sector, play a keyrole in promoting procurement as a rewarding and influential career path for the nextgeneration of supply chain managers.

EXECUTIVE SUMMERY

Further Information:If you have any further comments on this report and its content please contact:

Professor Paul Cousins or Gerard ChickManchester Business School CIPSThe University of Manchester. Easton HouseEmail: paul.cousins@mbs.ac.uk Email gerard.chick@cips.orgTel: +44 161 306 3459 Tel: +44 1780 756 777

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© The Centre for Procurement Leadership, The Chartered Institute of Purchasing & Supply,

Easton House, Easton on the Hill, Stamford, Lincolnshire, PE9 3NZ Web: www.cips.org