Ed – This week we welcome Marc Bruyninckx onboard as a guest blogger. Marc has more than 30 years of cross-functional experience working on both the demand and supply side of strategic relationships. His experience on both sides of the ball, combined with a passion for positive corporate change, uniquely position Marc to discuss the reinvention of the procurement function. As you’ll see from this post, his thoughts are very much aligned with how we see the world at Old St Labs. Without further adieu here’s Marc.
Our Industrial Past
Since the Industrial revolution, economic growth has spread across the world. Efficient and lean mass-production was the main business model. Product and services were pushed to the eager customer. It was during this time that procurement developed as a formal business function. Its mission was to control and optimise external spend in turn, directly impacting the profitability of its business. Operating Cost savings and Total Cost of Ownership became the primary objectives.
The rise of the connected economy has opened up a complete new world. Globalisation transferred the centres of economic growth across the globe. Businesses started to struggle to guarantee the promised economic forecasts to its investors. The financial markets collapsed. During this crisis, most companies were relying on Procurement to generate additional and even exceptional cost savings by increasing the pressure on their supply base.
They say that the only thing that is certain is uncertainty. With that in mind, its clear that world markets will continue to be in a state of transition. The status quo will constantly be under “attack”. The pace of change and innovation will continue to get more aggressive and new ecosystems will emerge around to meet these new challenges.
If Procurement wants to leverage this power of the “As-a-Service” economy, it will need to move out of its comfort zone and be ready to jump into a whole new world of value generating collaboration and sourcing engagements: “Generate Value”, “Respond to Change” and “Speed to Market” are the new primary business drivers.
While cost containment will still be important, business leaders are exploring and experimenting new business models and ecosystems, leveraging the competitive advantages of new nimble players in new types of collaborations, partnerships and alliances. These relationships will evolve very rapidly. To survive, incumbent suppliers will need to re-invent themselves, changing the rules of the game. Traditional guidelines and approaches to assess supplier relationship risks and healthiness will have to be developed.
Procurement will need to search pro-actively for disruptions as new value creating opportunities. It will translate any threat of value destruction into a unique opportunity for competitive differentiation. Contracts will be restructured to take advantage of these new and shortening windows of opportunities at any time during the relationship. “Sense & Respond” to change will become Procurement’s new DNA.
Value generation will compete with hard cost savings as one of Procurement’s primary objectives. Procurement initiatives will be driven by a comprehensive system of business value drivers to select and manage its new and constant evolving supplier base.
Survival in the New Economy.
The new playing field of suppliers will force procurement to design new, more agile and flexible processes and approaches to cope with the speed of setting up and adapting collaboration relationships. The old adage of cost, risk mitigation, compliance and rigidity need to be updated to reflect new business landscape.
Supplier Enabled Innovation will become one of the major engines for business growth. Business leaders expect Procurement to define new commercial and contractual models to cope with these new business dynamics. Traditional procurement processes and approaches will kill such “Silicon Valley “type of relationships: products and services are unknown at start; requirements will evolve over time; target operating models are fuzzy; new partners will be added, while others will disappear; partners might have uncertain futures; financial stability is not guaranteed anymore; operational and financial dependencies will be high; knowledge need to be protected while being openly shared and commonly developed.
Procurement will have to develop new approaches to manage collaborative ecosystems of suppliers replacing large monolithic incumbents and incubator programmes. Services and products of Fin-tech companies will be integrated in companies business models, while relying on completely different business dynamics. Build-in flexibility and relaxed conditions with these startups are additional risks in case of acquisition by major players.
Faced with these new challenges, Procurement will evolve from buying to deal making to cover the broad spectrum of potential alliances within the Supply Chain. Procurement will have to find new ways to remain the strategic business partner to support its internal business stakeholders to drive the new ideas and competitive advantage
Therefore, Procurement is at the beginning of a journey to reinvent itself to breath value, disruption, flexibility and responsiveness. CPO’s will have to gear up their transformation, while guaranteeing business continuity of their mature and more traditional core business domains.
If you’d like to get in touch with Marc about his opinions on the future of procurement or any of the other work he is engaged in please contact him through his LinkedIn page. If you interested in learning more about procurement in the new world, click the link below and access our free white paper on working in a new era.