Welcome to the Virtual Enterprise, and a new era for procurement. Procurement is evolving from service to a function. Six predictions for this transformation in 2015.
Business is different today. The rise of globalization, outsourcing, and rapidly changing market dynamics have prompted companies to adopt more variable operating models to maximize agility and minimize risks. Businesses are more dependent upon external suppliers, talent, and partners than ever to do everything from product innovation to manufacturing to distribution and customer service. And a growing portion of their workforce isn’t even on their full-time payroll.
Business is no longer about executing a service within a company, but across an entire value chain. It’s not only about the intelligence within an organization, but the intelligence of entire communities. It’s not about automating and doing things faster, but tapping collective insights and best practices to do things better – and in entirely new ways.
Procurement can and will play an increasingly strategic role in managing this virtual enterprise, leveraging technology to simplify the way complex business gets done and manage their operations in a new and dynamic way that keeps their companies ahead of the competition. Procurement is evolving from service to a function. And with increasing frequency, it is focused on business value and enabling supplier innovations as opposed to just driving procurement savings through cost reductions.
This transformation will continue in 2015. Here are a few predictions for what lies ahead.
1. Collaboration will become a priority
The 21st century businesses simply can’t achieve its cost, revenue, and cash flow goals without being connected. Empowered by business networks, the chief procurement officer will effectively become the chief collaboration officer, organizing resources and optimizing collaboration within the enterprise and across the supply chain to achieve new levels of innovation, efficiency, and agility for the enterprise.
2. Technology will change the game
Technology has driven a new wave of productivity by digitizing key financial and business processes and enabling collaboration across the organization and this trend will continue. Paper-based purchase orders and invoices will become a thing of the past, replaced by end-to-end automated transactions. But more importantly, best-in-class organizations will fuel the next wave, leveraging business networks to extend these processes and systems beyond the four walls of the enterprise and create a virtual “extraprise” of partners into a shared community executing improved, fully automated, and coordinated processes in a more informed way than in the past.
3. Innovation will accelerate
Driving supplier innovations is critical in today’s connected and global economy. Business networks will drive them by enabling new processes, insights and levels of collaboration among buyers and suppliers that lead to more cost-effective manufacturing, product enhancements, and even new services.
4. Business will run simpler
Personal networks from Facebook to Twitter have made it simple for consumers to shop, share, and consume in new and more informed ways. Business networks provide an equally easy and scalable way for companies to discover, connect, and collaborate with the trading partners and resources they need to operate in today’s dynamic world. Procurement will tap into these networks to create a simple, consumer-like experience where with just a few clicks, they can shop for goods and services, place and manage orders and pay for them electronically, and view and manage spend across all major categories through a single, connected platform.
Imagine combining the social media capabilities of Facebook with the selling opportunities of eBay, Amazon, and Alibaba for business.
5. Lines will blur
Fueled by networks, procurement will take the lead in integrating business processes and collaborating across functions in entirely new ways that drive value. For instance, CPOs will engage in helping to manage the financial supply chain, turning payables into a profit center because they have real-time visibility into whether an invoice is okay to pay and whether it has it been matched against purchase orders and contracts. Or extending days payable outstanding to improve the overall balance sheet while at the same time offering early payment discounts to suppliers because to mitigate both financial and supply risk.
6. Procurement will continue to transform
With the automation of core processes – sourcing, procurement, and payables – procurement will finally be freed from the basic blocking and tackling of negotiating agreements, managing suppliers, and executing orders to spend more time working with suppliers, developing supply, capturing innovation, and driving long-year roadmaps to create value.
The time has never been greater for procurement to contribute to the corporate agenda. Just as network-powered upstarts like Square and Airbnb are creating new models that are transforming entire industries, procurement organizations that leverage business networks can fuel a new way of operating – and deliver their organizations to levels of excellence they never imagined were possible.