A new world

From the April 2022 print edition

Google “what is strategic procurement?” and see what comes up. Even with the improvement in Google’s algorithms, the competing results may make you scratch your head. It seems that there’s little, if any, difference between the term “strategic procurement” and “strategic sourcing” as both come up using the above search term.

For example, one result defines strategic procurement as incorporating: “actions aimed at reducing the supplier base, negotiations, communication and maintaining long-term relationships with suppliers (Ryals and Rogers, 2006; Swinder and Seshadri, 2001).” Note the date of the earlier reference – 2001. Another result, this time for strategic sourcing, says “A procurement process that continuously improves and re-evaluates the purchasing activities of a business in order to reduce costs.” Is the word ‘reduce’ or ‘reduction’ overemphasized?

Besides wondering how many of us consider strategic sourcing and strategic procurement two sides of the same coin, I can’t help but think the issue is the narrow definitions versus the differentiation. According to one P2P service provider, strategic procurement, also known as strategic sourcing, refers to “the long-range plan to ensure a timely supply of goods and services that are critical to an organization’s ability to meet its core objectives.”

A more complex evolution?
What do I mean by “narrow definitions?” Here is a quick history lesson. Strategic sourcing arose in the late 80s or early 90s. Its adoption was first confined to large companies to “quantify and increase vendor return on investment (ROI).”

Looking at the origins of strategic sourcing and the introduction of strategic procurement in 2001, you can see why the view of the two disciplines is interchangeable. It appears that rather than being different, one marginally evolved from the other.

Swinder and Seshadri provide an example of this narrow evolutionary path in saying that the “cooperative negotiation with a small base of suppliers” reveals the “impressive ability of the purchasing function to enhance shareholder value.” It sounds close to the ROI reference to strategic sourcing, the only difference being that said ROI is “extended” to include shareholders.

Based on this, inserting the word “procurement” after strategic is a misnomer, as procurement’s evolution over the past few decades is far more complex and demanding.

The Deloitte Global 2021 Chief Procurement Officer Survey reports that “With changing business dynamics and increasing layers of complexity, expectations of the CPO role have increased.” The changing business dynamics and “increasing layers of complexity” mean that procurement “isn’t just about cost savings and operational efficiency anymore.”

When CPOs talk about dynamics and complexity, they say that there is “so much more to procurement today.” The “more” includes “innovation, digital transformation, introducing new products and services,” and “other factors such as climate change, geopolitical stability, increasing societal expectations, and world health.” Put another way, the word “strategic” with procurement takes on a whole new meaning.

As is becoming more apparent, procurement’s role has been elevated to a new level of importance since the pandemic began. Terms such as “supply chain disruption” and “rising costs” are now a normal part of our vernacular. The world now realizes what we in the industry have long known: no single part of our lives is untouched by global supply chains and, therefore, procurement. This public awakening has thrust what we do into a spotlight, making our quest for getting a seat at the table moot. The real question we must ask is if we are ready to be truly strategic?

Last year, I spoke with AT Kearney partner and futurist Dr. Elouise Epstein. During that discussion, she noted there are challenges with outdated curricula. Many educational programs must reboot to reflect the new demands of a high-profile profession.

While it’s not the only reason, Dr. Epstein’s point is well taken. Lagging education and, more specifically, curricula that no longer meet the demands of a complex world are noteworthy – which is reflected in the numbers.

As far back as 2016 and every year since, most CPOs believe their teams “do not have the necessary skills to deliver their procurement strategy.” What is equally concerning is the growing talent gap in procurement. In her recent article, chief procurement and supply chain officer at Tesca Group, Nadia Stoykov, referred to the fact that between 2018 and 2028, “there will be 2.4 million unfilled (procurement) positions with a potential economic impact of $2.5 trillion.”

This means that organizations will have an added challenge in becoming strategic beyond updating their current team’s skillsets. I am talking about both attracting and retaining new talent. Stoykov refers to this when she talks about reports that “the average ‘new hire’ only lasts 18 months before moving on to another company.” This is more troubling given that it applies to frontline staff and goes up to more senior management positions.

In a world that is becoming increasingly volatile, uncertain, complex and ambiguous (VUCA), strong leadership and team stability are even more necessary – especially regarding new digital possibilities.

A whole, new meaning
A 2021 McKinsey article about inflation and volatility calls on our profession to step-up and take the lead responding to the “urgent challenges in the current market, as well as any future uncertainty.”

From cross-functional collaboration to establishing a “nerve centre” that “brings together a team of specialists from supply chain, planning, finance, operations, and engineering,” strategic procurement has taken on a whole new meaning.

In response to this new world, there is the belief that procurement can deliver significant value to enterprises. Of course, there is a caveat here: organizations can only realize this value when they are “armed with the right capabilities for pursuing sophisticated approaches.” Now that is what I call being strategic.