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Procurement’s Continued Evolution: Strategic Opportunities for OEMs

Procurement continues to extend in importance and reach across the organization. While procurement's evolution is a shared phenomenon across many industries, the electronics industry stands in a prime position to experience significant supply chain and enterprise changes. Exploring the findings of the recent survey by Oxford Economics, new opportunities for electronics OEMs are uncovered when organizations extend procurement's scope to be more strategic and collaborative with suppliers and within the organization.

The research continues to roll in, underscoring the growing position that procurement is holding in the enterprise due to the strategic opportunities possible when corporate goals are collaborative and include sourcing. Not long ago, EBN looked at Gartner’s new bimodal balance and the maturing relationship between the strategic and operational goals in major corporations. In a similar research vein, a recent study by Oxford Economics, sponsored by SAP and Ariba, The Future of Procurement,  brings to the fore the transformations that happening and the dramatic impact had on procurement and supply chains. (See the end of this article to view an infographic outlining the study findings. 

To learn more about the study's findings, and the implications for the semiconductor and electronics industry, EBN spoke with Marcell Vollmer, chief operating officer, Ariba. At the core of the transformations happening across industries, is, as Vollmer explained, “a clear trend in the 'procurement industry' to transform from a service into a function. One example is, that procurement is no longer just executing the purchasing request a line of business provides them; the value proposition of procurement is changing radically to focus on business outcome and business value, not only procurement savings.” 

Procurement's transformations are really rooted in larger changes in how enterprise operations, processes, and business strategies are being developed and executed. Procurement's role is maturing and expanding, taking on the due strategic position in the enterprise due to the ability of software to take on the more mundane, rote tasks such as processing orders, maintaining inventory controls and catalogs, and other administrative tasks. The digitization of these administrative tasks has freed up professionals to contribute and collaborate at more strategic levels and improve supply chain opportunities, deepen vendor relationships, and take advantage of market events to promote the position of the enterprise.

As Vollmer offered regarding the impact of digital business on the current transformation of procurement, “Business networks, for instance, are changing the way we discover, connect and collaborate with our trading partners. […] Digital supply chains are the onramp to innovation and success in today's digital economy. Companies that want to be among the winners need to get on the highway and go fast. They need to reimagine their entire supply chain, role of procurement and develop digital strategies that allow them to proactively evolve ahead of the competition.” 

As the Oxford study underscores, the real challenges now are also very much human-focused: collaboration. The maturing of procurement and strategic goal sharing also necessitates a new interaction level, a new corporate culture within corporations (between departments) and between enterprises (procurement and suppliers) in order to realize these next levels of influence and opportunity.

Source: The Future of Procurement study

Source: The Future of Procurement study

For example, according to the Oxford study, “It's all about relationships” as procurement increasingly manages supplier relationships, accounts payable, among other supplier strategies – this is a critical change, and is shifting the very core of the interaction with suppliers, and hence the supply chain network expectations – the ownership of supplier relationships is now falling squarely in procurement's domain and that represents a major business shift along the channel. “The drivers behind these changes are rooted in how technology is changing the function of procurement,” Vollmer explained.

He cited three key drivers to these changes:

The first is digital networks: 35% of the executives and practitioners surveyed expect business networks will have a significant impact on procurement and its transformation in the next three years by enabling new, more efficient ways for companies to discover, connect, and collaborate with their trading partners around the world.

The second catalyst is digitization. Once a manual, paper-laden process, procurement has made great strides in automating key tasks to improve performance and productivity. […] Roughly one-third of executive and practitioners who participated in the Oxford survey say investments in procurement/supply chain technology are a priority, and nearly half say they intend to fund supplier innovation programs.

The third driver is big data. As a result of technological investments that have been made to digitize and modernize functionality, procurement now generates vast amounts of transaction-level data from its supplier, partner, and partner relationships. This adds value across the enterprise and further elevates procurement's status within it.

Clearly, it is not just that digital business trends are relieving procurement of the mundane, paper-laden tasks, but that the corporate structure is recognizing, and hence investing in, the opportunity for procurement to play more central, strategic roles. Along with technology, there has been a trend in additional employee hires into procurement, further extending the boundaries and injecting new views and highly tech-savvy professionals to push the new boundaries even farther.

Another driver necessitating these changes is the extending of supply chain partners as businesses continue to globalize and market penetration and dynamics demand outsourcing and locally-based capabilities. Bridging the local-global dynamics is a challenge that demands deeper, closer collaborations with suppliers and supply chain partners. 

In turn, these requirements further promote procurement's role in overseeing and managing these new demands; new demands that are critical to mitigating risk and managing strategic opportunities globally. In this manner, not only are there company-internal drivers transforming the role of procurement, but there are very real demands in managing company-external relationships and market agility that demand more from procurement today. 

Vollmer offered a concrete example of the transformation happening: “One example of the importance and dependency on suppliers is the tight integration into the supply chain. In time delivery (e.g., automotive industry) or outsourcing of entire production (e.g., smartphones) both rely on suppliers to fulfill contracts without a hitch. This, in turn, increases the importance of supplier risk management to assess sustainability, reliability, and financial capabilities of suppliers.”

Procurement is clearly moving into a new domain – from a service provided to the enterprise to a functional core of business strategy and market success. The future is open now for new opportunities and successes that will be measured in terms of savings, innovation, efficiencies, and improved financial performance, as reiterated in the Oxford study. In conclusion, Vollmer summed up procurement's transformation:

Procurement does play a critical strategic role in managing [today's] virtual enterprise, leveraging technology to simplify and aggregate complex business transactions and manage their operations in a new and dynamic way that keeps their companies ahead of the competition. Procurement is evolving from a service to a function. It is refocusing and expanding from driving procurement savings through cost reductions to driving business value and enabling supplier innovations.

Do you see this evolution in your procurement function? Let us know in the comments section below.

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