In the last 50 years, purchasing has transformed from a transactional role into one that’s more strategic, aligned with long-term business requirements.
Until mid-1970, the purchasing function played a passive role within the organization, with reporting lines to Finance and Operations. The oil crisis in 1973-1974, and consequent lack of raw materials, changed all that, drawing attention for the first time to the importance of the procurement department.
In the late 1970s, business strategist Michael Porter identified buyers and suppliers as two of the five forces in his model of competitive advantage. Porter said suppliers were an essential part of the business organization, impacting a company’s ability to achieve strategic targets. After that, the importance of procurement began receiving greater attention from academics and consultants.
In the 2000s, business requirements for purchasing began expanding beyond the traditional focus on cost savings in acquiring production materials and services. Globalization became more intense, and with it came greater competition among companies and their supply networks. The fight for lower-cost sources of raw materials, and the need to manage complex logistic chains, became part of the new routine of strategic purchasing.
Meanwhile, the internet and rapid technological progress brought a new level of supply chain interconnectivity. As a consequence, purchasing today confronts a fresh set of challenges, including global buying opportunities, new and distant suppliers, the need for tighter supply security, and supplier mergers and acquisitions.
Modern-day purchasing plays an essential role in cash generation, working capital management, and incremental sales from joint product development with suppliers. In the process, the relationship between buyers and suppliers has moved from a confrontational approach to one that’s more cooperative. New supply strategies focus on improving the supplier base, involving it in the early stages of new product development, creating cross-functional teams for supplier assessment, and selecting suppliers based on total cost and the fostering of long-term relationships.
All this becomes possible through the adoption of innovative technology tools based on the use of shared web-based portals and internet databases. Following are the digital capabilities that chief procurement officers must embrace to stay ahead of the competitive curve, improve operational efficiency, and drive long-term success.
Visualization. Tools such as Power BI help to transform data into user-friendly, visual formats that simplify decision-making by organizing information and delivering fresh insights and recommendations.
Robotic process automation. RPA reduces human error, fosters cost reduction and increases operational efficiency. Organizations can allocate critical resources more effectively by automating repetitive and time-consuming operations.
Predictive analytics and artificial intelligence. AI is being used to level up analytics and provide deeper insights into market trends and supplier performance. With the integration of advanced analytics, businesses can evaluate spending behaviors, discover cost-reduction possibilities, and optimize sourcing strategies.
By combining AI with advanced analytics and machine learning, businesses can predict the most-likely scenarios for cost and price fluctuations and demand variations, and adapt sourcing strategies accordingly.
Risk management and supply chain visibility. It evaluates and mitigates potential risks in the supply chain, reducing exposure to disruptions, and providing real-time insights into every stage from raw materials acquisition to selling to the end customer.
Effective risk management and supply chain transparency help in identifying potential bottlenecks, optimizing stock levels and improving response times to market demands.
Sustainability and compliance tools. Organizations today are expected to prioritize sustainability and ethical sourcing. Contemporary procurement systems are essential for businesses to monitor and control environmental objectives and comply with legal requirements. These tools enable procurement teams to monitor and analyze their supply chain’s ecological impact, find areas for optimization, and make strategic data-driven decisions.
E-procurement. Electronic sourcing, auctions, catalogs and invoicing streamline routine tasks, while also enhancing collaboration with suppliers, fostering competitive bidding, improving contract management and ensuring compliance with procurement policies.
Digitalization helps procurement to meet its many responsibilities in line with its importance to the greater supply chain. It’s about more than purchasing goods and services: The procurement process today relies on strategic planning and diligent market monitoring to meet cost targets and quality standards. It should be a vital part of every business that wants to grow and stand the test of time.
Michal Cukier is head of procurement for the VMS (Vitamins, Minerals and Supplements) division of Reckitt, a global consumer goods manufacturer.