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Changing Perspective towards the Role of Procurement

By Uldis Sipols, Principal, US Associates, LLC

Uldis Sipols, Principal, US Associates, LLC

In growing businesses, the procurement discipline is advancing rapidly in terms of establishing its professional identity. In the past, the function of procurement was limited to expedition or placement of orders in many cases rather than a strategic transformational force. Now, Chief Procurement Officers (CPO’s) have transitioned into legitimate C-level business partners. This resulted from the evolving trend among companies to view procurement and supply as a source of competitive advantage rather than a function performed at the end of the supply chain. Hence, enterprises are beginning to realize the importance of placing dynamic people to lead this aspect of the organization.

"In growing businesses, the procurement discipline is advancing rapidly in terms of establishing its professional identity."

Challenges Faced by Enterprises

Placing the right person at the right job is a critical component to a company’s success, but proves to be quite a challenge for any enterprise. This organizational necessity should be observed both in leadership and other key positions, as it enables organizations to transform from a transactional type of company to a strategic one; making them more purpose-driven as they work by setting out clear objectives. Another challenge is orchestrating a delicate balance between the requirements of the business and the capabilities of the outside supply base to impact both the bottom and top lines, which requires a special set of skills as an integrator. Such a role legitimizes the position of procurement and supply professionals as a part of the senior team. Other pain-points include risk management, and competitive or economic pressures, which again positions procurement at the forefront to manage risks faced by the company.

Checklist to Choose the Suitable Solution Provider

During the evaluation process, it is necessary to browse through the comparative landscape. Tools like data mining and spend management techniques allow procurement professionals to assess a wider range of suppliers, by matching the required capabilities to the vendor's skill-set. This may include criteria like the solution provider's financial health, quality of service, and history with your employer or within the industry. Other tools, like the rating system that evaluates their continuous improvement, quality, delivery of service, engineering capabilities, ongoing market competitiveness, and contribution towards innovation are key aspects in choosing the suitable solution provider.

The enterprise should also ensure that the provider can maintain an effective professional relationship. This can be appraised from the team they assign to your account, and its ability to successfully interact with your organization at all levels. Most importantly the provider should share your objectives and help you achieve them year over year. They can do so through the fulfillment of your expectations in the broadest sense and encourage customer satisfaction by reducing the margin of error.

Technological Disruptions Reshaping the Logistics Arena

Companies that follow the traditional model of business tend to keep all the organizational functions under their direct control. The others, especially modern technology companies, have realized the futility of trying to compete under such a structure. Take, Apple, for instance, a company that focuses mainly on their innovative R&D and engineering capabilities, and relies on third parties for their manufacturing requirements. In addition to managing contractors or external suppliers, the enterprise has to closely guard their intellectual property, functionalities, and operations through confidentiality clauses. This is also where the procurement and supply aspect of an enterprise becomes crucial to successful performance.

In the case of Amazon, the company fulfills the necessity of being a massive integrator. Dealing with various contractors makes logistics a core competency. Their high inventory turns for key products reflect the manner in which they attack the market and express themselves in terms of customer service. Due to their success, customers willingly pay for this service. The fact that they can replenish their inventory quickly and deliver fast makes them an efficient supply chain. It is not just a matter of warehousing years of components, hoping someone would discover them. Instead, enterprises have to be efficient in their own right by adding new partners to the supply chain, capable of complementing competitive end to end supply chain solutions and diversifying into innovative, multiple products.

Clarifying Misconceptions

When trying to assess a particular enterprise, the focus should be on the comparison between what exists and the potential transformation it can achieve. The cookie cutter approach towards such a modification is futile as it largely depends on the combination of the existing skill-set, the management, their willingness to change and the capability of the people involved. They should be prepared to take the risk of doing things differently and be open to the possibility that their operational methods are not effective at all or to the degree required for them to be competitive.

It is true that undertaking risks may lead to failures, but instead of masking them, the enterprise should learn from those experiences. With rapid changes in the market due to numerous technological disruptions, enterprises need to look ahead for growth instead of sticking to traditional methods; transforming their position from defense to offense.

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