2017: The Year For Supply Chain Transformation

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Procurement Leaders recently surveyed our community of procurement executives in which we asked about their plans to reform their functions. In one of the most surprising findings of the research was that 82% of procurement organizations were currently undergoing a transformation.

This is an enormous number. The last time we conducted such a survey, we found that only a third of businesses were transforming their supply chain management functions. This proportion has jumped dramatically.

The sample of this research comes from Procurement Leaders’ network of Chief Procurement Officers, who represent some of the largest businesses within North America, Europe and Asia.

Many within the business community regard procurement and supply chain management functions as perhaps among the least adaptive to technological change. This is even true of those within the department.

One former CPO wearily observed to me once that “nothing much changes in procurement.” Before he added with a sigh, “except for technology”.

Indeed, technology has been changing at an accelerating rate which has allowed corporations to review and expand the efficiency of their procurement operations almost constantly. Within Procurement Leaders, we have observed that major corporations have been able to leverage deeper knowledge of their supplier spend data and are able to successfully convert management information into predictive data that informs decision-making.

Some of the exciting developments here have stemmed from utilizing big data and making more use of information about purchases, news, market trends and even linking the physical world through the internet of things.

These developments may originate in a somewhat obscure part of the business, but will have a significant economic impact.

For most organizations, approximately two-thirds of revenue is spent with third parties. That is, as business grows more complex, they outsource more services to suppliers to help manage that complexity. This creates a greater reliance upon supplier capabilities.

Years of outsourcing have also heightened the exposure of firms to risk. Any price shock or major disruption that occurs within distant marketplace, can now have magnified effects across the global value chain, as inter-dependent relationships pass on risk and uncertainty to their increasingly diverse trading relationships.

Those forward-thinking companies, that are aware of this enormous exposure within their business, are beginning to look at their procurement function as a major opportunity.

Historically, buyers were seen as price negotiators, who were primarily measured upon their ability to create cost savings and were generally employed to apply heat to suppliers. Not much was expected of the function aside from low-level efficiencies and tidier contracts.

Now, procurement is responsible for delivering two-thirds of sales. Moreover, in some of the leading organizations, purchasing teams are gradually assuming responsibilities for innovation. Companies such as Johnson & Johnson and Philips employ dedicated innovation talent within procurement, who are tasked to scout for market trends, acquire innovation and ultimately contribute to a more profitable enterprise in the future.

These raising expectations are leading corporations to develop and transform their procurement functions. No longer are they back-office administrators, if the company wants to be truly competitive in increasingly volatile world, then it needs to tap into its supply base and learn how to mobilize supplier resources more effectively to beat competitors, remain innovative and to delight consumers.

This is why, in 2017, we will see major procurement transformations across many industries as businesses compete to the best at managing supplier talent.

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