The Art of Procurement

Uncertainty is the biggest challenge economy is facing these days. There is always a crisis somewhere in the world - that is the new normality (Handelsblatt, commentary Nine lessons from Davos 19. January 2024).

A new division of the world also became clear in Davos: The world is not only divided into an American and Chinese sphere of influence, but also into a group of countries that are confidently working on their future, relying on new technologies and innovations, and the others that are stuck in the past. 

The view of the world and its conflicts, ecology, economy, politics, and society varies more than ever between countries. There is no global consensus on the evaluation of the world's constitution.

Supply networks must therefore operate successfully in an environment characterised by great uncertainty, diversity, fundamental technological upheaval, and increasing legal requirements in many areas.

This means that procurement as the driving force behind building and leading supply chains must take on additional and new tasks as well as grow into new roles. The generalist profiles of strategic buyer and project buyer no longer fulfill the requirements. We see 6 roles in procurement that are being developed on a company-specific basis and are significantly more specialised.

1.    Scouting - Identifying, Evaluating, and Integrating Best Fit Suppliers

Supply Market intelligence is a core role for procurement. The scouting activities on the global supply markets should be differentiated between a) general and constant supply market research, data driven and partially automated and b) customized on demand search initiatives. This differentiation drives the allocation of resources, as the competence profile of the search team needs to align with the goals of the search initiative. 

Search activities should be specified along the following dimensions:

High Tech or Commodity - Does the search need to identify and evaluate high-tech suppliers or commodity products and services?

• Specification or Concept - Is the goal to find suppliers fulfilling an existing specification or an enabling technology to further develop the overall business model?
• Is there a need for an immediate integration of suppliers or a long-term perspective?
• The cultural fit of suppliers is essential for a long-term, successful supplier partnership.

The overarching goal is to be predictive by evaluating the fit of suppliers with the later serial production. Hence, the supplier evaluation criteria need to reflect the later serial production environment. 

2.    Enabling Sustainable Business Development

Business Partnering needs to evolve during product and service development. Procurement needs to have a seat at the table when product and service offerings are compiled. Engineering, marketing, product management, procurement, operations, and other relevant functions all have stakes in this process.

Two phases should be considered – the service and product offering design and the later supplier selection process. Both need the injection of profound supply market intelligence. Companies would risk missing out on innovations, technologies, resources, and relevant capacities if procurement’s role is reduced to placing orders.

3.    Establishing and Operating a Business Infrastructure

Establishing and operating a business infrastructure is key for an efficient and successful collaboration between supplier and customer. The goal is to implement smooth and resilient supply chains for services and goods, as well as information, documents and payments with each and every partner.

Integrating partners is a cross-functional exercise to match two companies in all relevant aspects. To ensure a smooth start and a proper business later, testing and a ramp-up plans are required and should be measured in a stage gate process.

4.    Orchestrating Supply & Risk Management

Procurement needs to be the master of ceremonies running an integrated Supply & Risk Management. Supply chains are always exposed to risks. Hence, a detailed analysis of the multi-tier supply chain is a prerequisite for efficient risk management in hindsight. The scope needs to be the value chain, from raw materials to the end customer, plus the material and information flow itself, covering transportation routes, harbours, transshipment points, IT-system landscapes, etc.

Floodings, truck breakdowns, IT-system downtimes, cyber-attacks, damage to goods while loading, insolvencies, tool breakages, shortages of raw materials or semifinished goods – all these incidents require immediate actions safeguarding serial delivery. Dedicated and specifically trained people need to be available at short notice. Procurement organisations must have fully worked out emergency plans at hand.
 
Bundling all risk management activities within one single procurement role ensures an integrated view of the supply network. The multi-tier structure, operational and strategic initiatives, as well as physical and digital supply chains can be risk-managed with this approach.

5.    The Relationship Manager

Supplier performance management covering quality, commercials, and delivery remains unquestionable, but further enhancement is required. A good amount of supply markets are changing drastically in a way that customers are dependent on access to certain technologies, raw materials, competence, production capacity, or intellectual property. ACCESS is becoming a critical success factor.

The context that leads to the necessity of establishing a specific relationship management is versatile: stressed supply chains, allocation and shortages across industries, extreme weather conditions and their implications on production and supply, tight financing due to increased interest rates, raw material price increases and limited availability, lack of people and talents, etc.
 
A dedicated Supplier Relationship Management can provide

• access to critical resources, innovations, materials, IP, and capacity,
• higher resilience in product and service delivery through effective crisis management and
• more efficiency in inevitable escalations.

6.    Lead Cost & CO2 Reductions

CO2 emissions are the game changer of our days. The European Union Green Deal and subsequently the CSRD do not only stipulate a documentation of a company’s CO2 emissions, but also demand a yearly reduction thereof.

The profound understanding of supply chains in general qualifies procurement to lead the CO2 reduction initiatives in scope 3. Nevertheless, it requires a cross-functional approach together with engineering, operations, quality, marketing, and sales.

Hence, CO2 emissions need to be established as second dimension in the continuous optimisation of the supply networks. No doubt, cost of services and products is the most important KPI in procurement – but CO2 emissions in the supply chains need to be established as equally important.
 
It is all about optimising the service or product offering by re-configuration, decontenting, improving and replacing manufacturing processes, replacing materials, or utilizing new materials, etc. A professional initiative management approach needs to be installed, incl. testing and auditing of the results.

Summary

The roles described will vary depending on the company, industry, and market cycle. The trend towards specialisation is a common theme in the upcoming enhancement of procurement organisations. Managers will be confronted with a growing diversity and variety in their organisations. The CPO’s skill profile trend even more towards a comprehensive supply network leader.

The internal communication needs to be revised and enriched with the latest digital collaboration tools. An efficient task, information, and document management will be pivotal. Asynchronous and decentralised work, always based on a single point of truth for data, is the new norm in procurement.