In April, the University of Tennessee Global Supply Chain Institute published its latest white paper, “Future-Ready Procurement: Foundational Capabilities and Leading Practices,” by Dan Pellathy and Jadé Johnston. The paper summarizes research by the Advanced Supply Chain Collaborative, a think tank partnering faculty experts with industry professionals to enhance business performance, enrich teaching, and cultivate supply chain excellence.
Despite a rapidly changing business environment, many procurement teams are locked in organizational silos that were established a generation ago.
Overwhelmed by traditional activities, they struggle to demonstrate procurement’s potential to add value. Meanwhile, the constant need to deliver short-term cost savings hobbles efforts to chart a new, more strategic path.
Leading-edge companies recognize these problems and ask tough questions to orient their procurement teams toward the future. Does your procurement team focus on incremental cost reductions over total value creation and innovation? Are they executing purchase orders and routine tasks rather than thinking about customer value? Are they seen as a valued partner in decisions related to new product development, go-to-market strategy, and competitive differentiation?
As part of GSCI’s Advanced Supply Chain Collaborative, a team of UT researchers recently engaged leading companies to identify foundational capabilities and future-oriented practices that can transform procurement at your company.
In the free white paper we produced to summarize our work, we include a detailed discussion of foundational capabilities procurement teams need to succeed, as well as a framework for identifying additional business-aligned capabilities required to drive specific procurement strategies. The paper also features numerous real-world examples from leading companies and direction on how companies can measure the ROI of capability investments.
Over three blog posts, we’ll explore portions of the research to demonstrate how procurement is pivotal to driving outcomes for customers, suppliers, and shareholders.
The current state of procurement
Procurement is rapidly transforming, driven by pressures from across the supply chain and the broader operating environment. Internal challenges include system complexities, supply network vulnerabilities, and evolving customer requirements. Externally, a rapidly changing technology landscape, punctuated by geopolitical and economic disruptions, demands adaptation. At the same time, procurement leaders must continuously improve the cost, quality, and speed of supply.
Under these pressures, traditional systems and practices do not adequately equip procurement teams for success. Procurement professionals are expected to adapt to new tasks, process changes, and product initiatives, yet they remain disconnected from broader supply chain and customer-led decisions.
Too often, procurement is engaged after decisions have been made. Overwhelmed by requests yet unable to influence decisions, it is no surprise that procurement is experiencing record levels of burnout. Company leaders want their procurement teams to deliver results but are less willing to make the long-term investments to transform capabilities.
Survey data suggests that most senior leaders see room for improving procurement capabilities. They express a desire for more digitized, automated processes, with disparate data silos and a lack of visibility into material flows emerging as top concerns. Yet it is only when companies intentionally change processes, broadly and deeply, that they benefit.
Procurement teams are stretched, yet they manage external spend that is anywhere from 50–80% of a company’s cost base. Investing in capabilities that enable procurement teams to make better, faster decisions has the potential to generate enormous value for companies and their customers.
Laying the foundation for procurement’s future
Senior company leaders identified three foundational capabilities for the future of procurement: customer value management, talent pipeline management, and cross-functional integration.
Customer value management
Our research uncovered procurement teams that remain disconnected from customers and the commercial teams that manage customer engagement. To overcome the disconnect, procurement must build a strong capability in customer value management. This entails having a deep understanding of value from the customer perspective, managing components of value generation across the supply chain, and ultimately maximizing relevant value to customers of choice.
Procurement teams can take specific actions to develop a capability in customer value management. These include:
- Understanding customers’ desired outcomes. Companies craft product-service bundles that generate customers’ desired outcomes. Procurement teams must develop processes, metrics, and incentives that prioritize a deep understanding of these outcomes. Actions should encourage direct engagement with customers, market research, sharing of customer insights, design thinking, and linking employee advancement to customer outcomes.
- Mapping the creation of product-service bundles across the supply chain. Procurement must have a detailed understanding of how product-service bundles are created across the supply chain. Achieving this awareness will require mapping material, financial, and information flows related to value creation.
- Identify areas to better align resources to customer value. Procurement must have a structured approach to identifying opportunities, reviewing proposals, and allocating funds to better align resources with customer value. Procurement teams should bring new ideas to the table, and leadership should proactively reach out to understand what types of investments might be considered to improve operations.
- Leading with ideas for enhancing customer value and pursuing growth. “There is a huge marketing component to selling procurement,” one senior leader told us. With a deep understanding of both customers and the processes that generate product-service bundles, procurement can offer valuable insights for improving customer outcomes. In addition, procurement can enable growth opportunities: speeding go-to-market efforts, capitalizing on changes in the business environment, and realizing synergies during acquisitions.
Every touchpoint during a consumer’s journey provides a “moment of truth” for companies. Procurement must play a far more active role in creating those moments of truth and continually aligning resources to customer value.
Talent pipeline management
The need for procurement talent comes at a time when the supply chain faces a significant labor shortage. Intergenerational issues plague senior associates and new hires alike. To achieve future-oriented capabilities, procurement must be actively involved in developing tomorrow’s talent and leadership. These include:
- Defining and measuring core competencies (KSAs—knowledge, skills, and attitudes). Procurement must develop and maintain a competency matrix that reflects future-oriented talent needs. This matrix should reflect KSAs at entry, middle, and senior levels and across various roles. Procurement must also create approaches to measuring competency that highlight development opportunities in alignment with company talent management systems.
- Recruiting and onboarding top talent. Procurement must actively recruit talent, including building relationships with university partners and creating a company brand on campuses. In attracting new talent, recruiters should focus on experiential learning through high-impact internships, prioritizing rotational programs, and establishing programs for onboarding new hires that assimilate them into the organization.
- Supporting, developing, and retaining talent. The competencies procurement professionals require to be successful in the future involve managing the social and personal dimensions of system transformations. Yet many organizations continue to approach talent development through targeted activities for acquiring technical skills. Procurement must lead the effort to develop robust educational opportunities with processes, metrics, and incentives that create broad-based experiences for growth.
- Growing leadership. Too often, procurement leaders react to crises instead of driving strategic initiatives. Leaders must be at the forefront of changing these organizational habits. They must proactively identify high-potential individuals, map their leadership trajectories, and provide them with opportunities to work alongside more experienced managers on high-priority projects.
Procurement is a specialized skill set. It takes time for buyers to understand their market, become proficient in using company tools, and contribute to team outcomes. Speeding time to proficiency and contribution depends on experience. Procurement leaders should collaborate with internal and external partners to develop high-impact experiential training that targets desired competencies.
Cross-functional Integration
This process connects decisions and actions across a company’s end-to-end supply chain organization to drive total value. It requires aligning goals, effectively managing business processes, and maintaining reciprocal flows of information across areas of the company. Procurement functions can take specific actions to develop a capability in cross-functional integration. These include:
- Developing performance metrics that reflect supply chain excellence. Procurement teams should be accountable to supply chain excellence metrics and work with leadership to place them on business/general manager scorecards.
- Actively incorporating other functional areas into procurement decision-making. For instance, companies report a deep divide between their purchasing and logistics areas. Procurement should engage logistics teams in prioritizing requirements, establishing mutual support to achieve objectives, and developing a flexible response to the market environment.
- Creating a strong partnership with new product development. Engagement in new product development dramatically enhances procurement’s ability to influence decisions throughout the product’s life cycle. Research shows that up to 70% of the cost impact of a spend category is determined at the product- or service-design stage. This means that when procurement is asked to purchase a category after design, buyers can address at most 30% of the cost. Procurement leaders must set expectations around active, up-front involvement in new initiatives.
- Aligning with areas outside the traditional supply chain. Procurement is increasingly impacted by decisions made in the areas of human resources, information technology, finance, accounting, compliance, and legal. Integration with these areas represents the next plateau for leveraging procurement’s organizational contribution.
Procurement teams must support the development of a cohesive supply chain organization, with senior leaders emphasizing the need for functional areas to act together in the pursuit of organizational goals.
Customer value management, talent pipeline management, and cross-functional integration represent foundational procurement capabilities on which to build other business-aligned capabilities in partnership excellence, operational excellence, continuous improvement, and value innovation.
In the next blog post, I’ll explore the major opportunity areas that will shape the future of procurement.
To learn more about how your company can partner with us to explore advanced concepts in supply chain management, visit ASCC.
Download the white paper using the form below to read more about developing the next generation of supply chain planning talent.