The Future of Procurement – Take 1
by Rolf Zimmer
What will the Future of Procurement bring?
Kelly Barner from BuyersMeetingPoint started an “Open Call for Predictions: What does the Future of Procurement Hold?”. What a great idea – thanks Kelly for this initiative! We immediately started collecting our thoughts about what the future might bring for procurement. This is our first take, which we would like to share with you:
THE END OF SUPPLIER RELATIONSHIP MANAGEMENT
Over the last decade, the topic of Supplier Relationship Management (SRM) has dominated strategic procurement. The benefits and objectives are clear to see: increased supplier performance, reduced costs, development of relationships with suppliers, defined optimization potential. To a certain degree, risks in the supplier base can also be identified as part of SRM. In most cases, however, this applies to creditworthiness checks of direct suppliers.
But what happens with subcontractors along the supply chain?
According to the current Supply Chain Insights LLC study “Can you afford the risk?”, only 18% of companies interviewed have transparency over their 2nd and 3rd tier suppliers. A recent example of a large German sports item manufacturer, who appeared in the media at the end of June, is proof of this: Following a media report about disastrous conditions at a plant in El Salvador. PUMA stopped orders as one of the business partners was not using authorized subcontractors. According to the media report, PUMA had no knowledge about this supplier, but instead, a damaged image.
And what happens with locations and hubs along the supply chain?
Increasing internationalization, global networking and shifting of value added processes are a real development. Disruptions in the supply chain – be they of an economic, structural, political or ecological nature – can have fatal consequences for security of supply in terms of organizations and their corporate success. A research study of PwC (Global Supply Chain and Risk Management Survey, 2013) revealed that more than 60% of respondents saw their performance indicators drop by 3% or more in 2012 as a result of a disruption in their global supply chain. This means that besides suppliers, supply-related risks along all transfer points, interim storage sites and logistics hubs must be monitored in order to secure supply.
We are convinced that the trend in future is going to be towards transparency over the entire supplier network, including location and country risks of 1-n tier supply routes. Previous supplier-centric approaches in terms of quality, stability and price of partners must be supplemented by supply security aspects along all supply routes as well as compliance aspects as regards 1-n tier relationships.
Companies in all sectors must continue to focus on their suppliers and supplier relationships. They will however have to take this a step further, namely to include the entire supply chain into their management.
So, we are not predicting that supplier management will no longer be relevant! But a holistic 1-n tier supply chain management approach will enter a new era: The conversion of SRM and SCM has started.
See also our second prediction: SUPPLY CHAIN RISK MANAGEMENT AS ESSENTIAL PERFORMANCE METRICS FOR PROCUREMENT