The procurement function, which plays a crucial role in modern-day supply chains, was further emphasized and focused on when supply chains were recovering from the impact of the COVID-19 pandemic. Essentially, the pandemic prompted a widespread change in the way businesses conventionally operated, and it was deemed that those who didn’t adapt their supply chains were to perish. In that direction, this special feature story explores the idea of procurement transformation in the simplest and the most basic perimeter.
The procurement function is a less talked about yet extremely important link of the supply chain that has experienced a lasting evolution rather than a temporary change. According to experts, it has transitioned from being a reactive and cost-focused role to a strategic and value-driven position within supply chains.
Even though the shift towards a more strategic procurement function was already underway before the pandemic hit us, COVID-19 can be given the credit for accelerating this transition and coagulating procurement as a strategic value creator rather than just a back-office cost optimizer. Basically, the pandemic put a limelight on procurement as businesses struggled to restock shelves and fulfill their raw material needs.
Procurement Transformation (PT), although, is a self-explanatory term, various resources point out that it refers to the process of implementing significant changes and improvements in the way an organization procures goods and services. With the aim to enhance efficiency, reduce costs, increase transparency, and improve the overall quality of goods and services obtained during the procurement process, PT involves a range of activities aimed at modernizing and optimizing the entire procurement function, backed by the optimum and appropriate use of technology.
For modern supply chains, procurement plays a critical role in building resilience and includes diversifying suppliers, creating alternative sourcing strategies, and developing contingency plans. And then of course, a cornerstone of it is the new-age technology available to man – from obtaining real-time visibility and making data-driven decisions to streamlining processes.
ROLE OF THE PANDEMIC
Sourabh Maity (Vice President, Operations – Supply Chain and Logistics, Otipy) says, “The manufacturing sector faced a shortage of raw materials, and non-availability of parts and packaging materials. Also, they faced high inventory levels, the inventories that had lower shelf life got obsolete and the demand for products changed radically as well. Thus, entire production planning had to be altered or modified.”
As cited above, the pandemic did play a catalyst in the rejigging of the supply chain means and methods. It exposed most of the existing vulnerabilities in supply chains, including that of opaque supplier networks. Procurement teams are now placing a greater emphasis on supplier transparency and risk management by conducting thorough assessments of suppliers’ financial health, ethical practices, and geographic diversity.
Another change is the intimate relationship that the procurement teams share with the other links to create an environment of collaboration and trust, which ultimately makes room for innovation and agility, allowing supply chains to respond effectively to changing circumstances.
Procurement now prioritizes flexibility and agility to adapt to rapidly changing market conditions. This involves agile sourcing strategies, dynamic demand forecasting, and the ability to pivot sourcing locations as needed.
“The new normal has led many procurement teams to revamp aspects of their supplier networks, manage unfamiliar risks, and undertake new sustainability and diversity initiatives, all while still holding the line on cost, continuity, and quality. These responsibilities were already on CPOs’ radar prior to the pandemic. The pandemic meant undertaking new, unplanned initiatives for some organizations in some instances and greatly expanding or accelerating transformation initiatives that were planned or already underway for others. For many organizations, it meant both,” said Jasmine Arora (Senior Specialist – Supply Chain, Gartner) as she explained the change of priorities that COVID-19 brought along.
EMERGING CHALLENGES IN PROCUREMENT
Jasmeet Marwah (Vice President, Moglix) shares that the emerging challenges that procurement leaders come across include disruptions in the supply chain, heightened demand volatility, geopolitical uncertainties, and mounting sustainability concerns. He lists the following recommendations for navigating through these challenges –
- Scenario Planning: Develop robust scenario planning and risk management strategies to anticipate and mitigate potential supply chain disruptions effectively.
- Diversify Suppliers: Actively seek out diverse and reliable suppliers to reduce dependency on a single source and enhance supply chain flexibility.
- Data-Driven Insights: Utilize data analytics to gain insights into supplier performance, market trends, and demand patterns, enabling informed decision-making.
On the other hand, Purushottam Tatkar (Head of Operations 3PM – India, Middle East & Africa, Henkel) shares that uncertainty has always been a challenge in procurement, however, it has now taken precedence over everything else. He adds, “The biggest challenge the current leaders face is inducing agility to meet their organizations’ supply chain. They need to plan for the supplies, and at the same time balance it with the right cost. The first thing supply chain leaders need to do is a mindset change because the strategies of the past are just not applicable today. They need to make data-driven decisions and many times even with incomplete information.”
Under the measures to face these challenges and overcome them, processes need to be optimized using lean tools and technology should be leveraged for better visibility. In fact, digitization in procurement is the need of the hour and all procurement leaders need to explore digitization in every step.
CLEARING THE AIR AROUND PT
Gartner’s sourcing and procurement team defines procurement transformation as a fundamental change in a function’s responsibilities or how it meets its responsibilities. They put a lot of emphasis on fundamentals. Change is a constant; some are smaller, some are bigger, and they can be difficult and disruptive. However, not every big, difficult, disruptive change is transformative.
“We’ve been using the example of an ERP implementation – switching from one ERP system to another is a difficult, disruptive change, but it’s not fundamentally altering how procurement gets its job done. But if an organization is implementing an ERP system for the very first time, that’s a transformation,” said Arora.
This is an excerpt from the original Special Feature published in the September 2023 issue of Logistics Insider magazine. To read the complete story, click here.