Executive Summary. Looking to the Future: Purchasing as Cost Reducer or Value Broker?

Transcription

1 DELPHI STUDY Executive Summary Looking to the Future: Purchasing as Cost Reducer or Value Broker? A research report carried out for the CIPS Centre for Procurement Leadership by the Supply Chain Management Research Group, Manchester Business School, The University of Manchester Professor Paul D. Cousins, Dr Brian Squire and Dr Benn Lawson

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3 FOREWORD First Thought This summer, the world will focus on Beijing and the Olympic struggles of men and women in fierce athletic competition. Many in business are also determined to move to a faster, higher, stronger level of performance. The look east is a timely reminder of where the true competition in global markets lies and why the men and women leading in modern procurement need to be at the top of their game. At CIPS we have been considering for some time the Future of Supply and how those leading it will be equipped to meet the demands of it. This report highlights the findings of a Delphi Study conducted through our Centre for Procurement Leadership (CPL), led by Professor Paul Cousins of Manchester Business School. It brought together a group of Chief Procurement Officers from the public and private sectors, and from the manufacturing and services industries of the United Kingdom. Our research set out to examine the future challenges facing the profession over the next 5-10 years, and to explore how we might better manage supply to prepare for these challenges. The results indicate that skills and capabilities, internal integration, and sourcing strategy aligned to the organisation goals are likely to have the largest impact on organisational performance looking forward. Is the future of supply to remain as cost reducer or become a value broker? Leadership in procurement as in any other area of modern business is the art and science of getting things done through people. We see the leader s role as a sense maker; a person who helps others see pattern, meaning and direction in data and events to see constellations where others see stars. We began by mentioning the forthcoming Olympics, which promises to be the usual quadrennial spectacle. In 2012 the Olympic Games come to London and in many ways the Olympians might be standing on the sidelines if true procurement and supply leadership does not prevail to deliver the infrastructure upon which the Games depend. So procurement the challenge is to move faster, think higher and grow stronger. Simon Sperryn Chief Executive The Chartered Institute of Purchasing & Supply 3

4 DELPHI STUDY This report highlights the findings of a Delphi Study conducted for the CIPS Centre for Procurement Leadership (CPL) by the Supply Chain Management Research Group (SCMRG) at Manchester Business School in April The research set out to examine the future challenges facing the purchasing and supply management (PS&M) profession over the next 5-10 years, and to explore how we might better manage supply to prepare for these challenges. The results indicate that skills and capabilities, internal integration, and sourcing strategies which are aligned to the organisational goals are likely to have the largest impact on organisational performance looking forward. Introduction CIPS has been focusing on the challenges facing procurement and the future of supply for some time. The purpose of this research is to both identify potential future directions, and to give some insight into the supply strategies which will help attain future success. A Delphi study was undertaken to provide academic rigour and practical outcomes to this critical subject for the profession. The Delphi technique enables participants to input their ideas and predictions regarding the future, and then, using the sample group drive these predictions towards consensus. The study was designed in several phases, with individual inputs culminating in a workshop hosted by the CPL in April Participants were fairly evenly distributed across discrete manufacturing, process manufacturing, public service and private services organisations. Raising the Bar for Supply Global competition and ever improving technological innovation are rapidly reshaping markets, products and operations. Organisations have had to rethink the way in which they manage their business and supply strategies to anticipate and respond to these challenges. Consequently, purchasing and supply management is becoming increasingly involved in developing and implementing organisational strategy. The structure of procurement within organisations has also changed dramatically. Most leading organisations now have Supply Chain or Strategic Procurement Departments. Their role is to work across the business functions exploring ways to optimise the supply process through strategies such as outsourcing, early supplier involvement, off-shoring and so on. The purchase of goods and services tends to be negotiated centrally and call-offs and management of the requirements are organized locally through purchasing cards and internet catalogues. We also see a broadening and deepening of procurement s role within the organisation. Procurement will increasingly bring value to organisations by improved contract management, fostering supplier compliance across the entire lifecycle of contracts, and in turn achieving continued cost reduction and reduced total cost of ownership. However, much work remains to be done in understanding how we capture the breadth and depth of the role of supply chain management in achieving these cost reductions and other benefits. The traditional measures of cost saving are insufficient. Wider measures on shareholder value and the link between procurement 4

5 EXECUTIVE SUMMERY strategy and business performance need to be considered nowadays. Definitions of new value are becoming vitally important to capture the success and impact of procurement activity on the business. The function will also expand its remit into managing risk and vulnerability within the supply chain, particularly in the context of geographically dispersed and distant suppliers. Additional complexity also arises as a direct consequence of the volatility of commodities, currencies and interest rates. Senior management expect procurement to be able to avoid or reduce the vulnerability of their supply chain to disruptions, and increase the resilience of the supply chain should a problem occur. Other risk-related issues include managing exposure to commercial and reputational risks, as well as providing improved supply market intelligence, such as forecasting future item shortages. Approaches to managing supplier relationships will continue to evolve. For example collaborative relationships were seen as a prerequisite for tapping into innovations available from suppliers globally. Suppliers are becoming increasingly integrated into new product development efforts, requiring organisations to overcome not only a not-invented here mindset, but also the development of new remuneration and risk sharing models to distribute the benefits of technological development with suppliers. Moreover, discrete manufacturers, in particular, saw a key role for supplier relationship management in driving revenue generation, particularly in opening up new international markets. The study also demonstrated that, organisations, customers and governments worldwide are increasingly focusing on the issue of sustainability, both from the societal and the environmental perspectives. The sustainability debate has the potential to be the single most significant influence on organisational strategy, with procurement being identified as central to this effort. The scope of procurement presents greater potential for the function to act as a driver and influencer of their organisational response to sustainability, both in initiating environmentally friendly innovations (e.g. less packaging, emission reduction, product redesign, and so forth), and in ensuring appropriate conditions and benefits for workers throughout their global supply chains. Finally, we see a continued emphasis on the appropriate formulation and implementation of high-level sourcing strategy. All participants in the study emphasised the importance of ensuring alignment between corporate and supply strategy, building on the organisation s core competencies and leveraging buyer power. At least in part, this future value was seen as being made available through the implementation of virtual teams to exploit global supply synergies across the organisation operations. Procurement will also contribute to outsourcing decisions and building relationships with their outsourced providers, particularly within service industries. Procurement s role is thus increasingly focused on optimising the way in which organisations manage not only their inputs but also how these inputs are transformed into finished goods. Interestingly, less opportunity was seen for procurement in actually facilitating interaction among these service providers. 5

6 DELPHI STUDY Looking to the Future A number of implications for the future structure of procurement emerged following the analysis of the Delphi Study data and focus group sessions. Attracting and Retaining Procurement Talent As procurement expands its role, taking on increasing responsibility and bringing value-add within the organisation, the skills required to perform within the function will change. Procurement professionals will become more focused on developing and implementing value creating initiatives, such as revenue generation, technology acquisition, risk management and ensuring sustainability goals are met. Participants emphasized a mismatch between the demand for and supply of high-quality experienced supply professionals as a key challenge. Relationships with universities who can provide talented raw recruits and professional associations such as CIPS, who can provide a structure for capability development were highlighted. In summary, the ability of the organisation to attract, retain and train procurement professionals who can work cross-functionally, crossculturally, who have softer skills in leadership, collaboration and creativity will likely become a critical success factor. Integrating Internally with the Organisation While the benefits of external collaboration are much espoused, developing integration internally with other functions of the organisation has often received less attention. However, internal collaboration and integration is absolutely necessary to access gains from information sharing, decisions related to outsourcing/in-sourcing and helping other operational units meet their cost savings targets. From this, participants saw a role for procurement in generating senior level commitment, improving their status in the organisation and their contribution to strategy. Such recognition within organisations may also provide an opening to expand procurement into examining other drivers of cost beyond the goods and services purchased by the organisation, such as sales, or more general and administrative aspects of the organisation s activities. Building Value-Creating Relationships Robust and forward-looking category management strategies will help drive valuecreation through collaborative relationships with a subset of an organisation s suppliers. Identifying, segmenting and modifying attitudes to working with suppliers, who are considered to be strategic will help procurement align the supply base with corporate strategy and support the core capabilities of the organisation. Creating this value may also require the skills to act as a central node within a network, managing groups of suppliers, rather than taking a single supplier approach. In addition, participants recognised that value-creation can be achieved through becoming the customer of choice, by understanding the supplier s position and building the trust required to create win-win outcomes. Developing this perspective on supplier relationships is critical to achieving cost savings by identifying and jointly eliminating supply chain waste with the suppliers. 6

7 EXECUTIVE SUMMERY Investments in Technology Technology developments, such as procure-to-pay and e-sourcing products, have proliferated in recent years. Harnessing these new technologies requires both management buy-in, and acceptance of them among procurement staff, who will also need to have the skills and capabilities to implement their use and utilise the information they provide. Optimising the use of these e-sourcing technologies will likely cause headcount reductions across tactical purchasing activities, whilst illustrating value-add from effective, efficient professional procurement. Further, these same technologies, implemented globally, can underpin the creation of virtual teams with access to the same information regardless of their geographical location. 7

8 DELPHI STUDY Conclusions In working with the members of The Centre for Procurement Leadership we set out to investigate how leading organisations perceive the role and contribution of procurement to change and how they will meet the challenges of the future. It presents the initial view of participants highlighting the key challenges they face in a modern business environment. However, it is beyond the scope of this research to address all the possible managerial implications from this Delphi Study. Managers should use the information presented here to carefully evaluate their own organisation s current and proposed strategies. Further analysis of each theme shows that they may be grouped into three categories: Operational, Managerial and Strategic. Operational-level themes, impact on the routine, lower-level activities of the P&SM function. Managerial-level themes refer to factors influencing the scope and influence of the P&SM function. Strategic-level themes illustrate the potential impact of P&SM on organisational performance. Operational Managerial Contract Management Internal Integration SC Intelligence Demand Management Technology Skills & Capabilities Global Sourcing Performance Revenue Generation Sourcing Strategy Supplier Involvement Strategic Corporate Social Responsibility Risk Management Outsourcing Customer of Choice Relationship Management Executive Representation This research is part of an on-going project to identify key procurement trends and to benchmark global procurement activity. It is clear from our research in this and other projects that procurement s role has changed dramatically over the last few decades. It is also clear that the role and nature of procurement is about to change again as we move into a much more global and competitive environment. Our initial hypothesis that procurement needs to evolve from a cost saver to a value generator appears to be supported by this research project. The key question for procurement 8

9 EXECUTIVE SUMMERY professionals is how are they going to make this change happen. Radical ideas include renaming procurement to take account of it s day-to-day value management activities, whilst moving away from those activities conducted at the transactional level through the use of IT networks. It is clear too that there is going to be a large skills gap that might well inhibit this change process. Most significantly, procurement professionals (and academics) will need to make the link between their activity and shareholder value in private sector organisations and stakeholder value in public sector organisations. Making this link is imperative if organisations are to take the strategic role of procurement seriously. Implications for Purchasing and Supply Management We will now discuss some of the key findings from this research work. High pressure Procurement: The findings suggest that procurement as a driver of strategic cost management and cost reduction is a fundamental expectation of senior management. However, the function is increasingly being looked upon to provide value-adding contributions to the organisation s performance. The broadening of these expectations has seen procurement move into areas such as risk management, sustainability, as well as moving beyond simply cost concerns to contribute to organisational performance in terms of time-to-market, quality, technology acquisition and revenue generation. Managing Supply is more challenging than ever: Today s supply chains are globally and geographically diverse, with variations in supplier quality, environmental practices, and social impacts on their local environment. Customers, however, have strong expectations that the standards of the developed world will be applied consistently and globally across an organisation s suppliers. UK organisations and their respective procurement functions have great responsibility for developing and maintaining a complex, uncertain and dynamic supply base. The impact of Procurement varies across organisations: Considerable variance was observed at the industry-level across the respondents consensus views of the impact of each of the Delphi themes. Some of this variation may be due to fundamental differences between industries; while others may represent opportunities for learning and benchmarking across them. Overall, however, there is scope for improvement in procurement s impact and the development of procurement s profile within the organisation. Procurement talent is key: All respondents, across all industries, cited the challenges of developing a strategic procurement capability. Procurement professionals have increasing responsibility across more spend categories, often with a reducing headcount in the area, at least at a tactical level. Recruiting, retaining and developing staff who possess both the technical and people skills to drive procurement forward as a value-creating function are crucial. In this respect, professional organisations such as CIPS, along with the university sector, play a key role in promoting procurement as a rewarding and influential career path for the next generation of supply chain managers. 9

10 DELPHI STUDY Further Information: If you have any further comments on this report and its content please contact: Professor Paul Cousins or Gerard Chick Manchester Business School CIPS The University of Manchester. Easton House Tel: Tel:

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12 The Centre for Procurement Leadership, The Chartered Institute of Purchasing & Supply, Easton House, Easton on the Hill, Stamford, Lincolnshire, PE9 3NZ Web: