The Three Eras of Modern Procurement - Which are you living in?
Modern Procurement began approximately thirty-five years ago when McKinsey Director Peter Kraljic published the ground-breaking article “Procurement Must Become Supply Management” in the Harvard Business Review. Kraljic articulated the idea that procurement staff must apply specific strategies to categories of goods and services. Strategy developers must consider the financial impact and supply chain risks associated with those goods and services.
Kraljic’s insights got the attention of top management, elevated procurement, and kicked off the first modern era of procurement. Initial efforts were mostly focused on standardizing procurement processes. Finally, you could go from General Electric to General Motors to General Mills and see consistency in how they handled requisition through payment. In the1990s, Strategic Sourcing was a new process pioneered by A.T. Kearney and General Motors. It was embraced rapidly across industries. This emphasis on the process was also fueled by the wide adoption of ERP. Data derived from ERP made it possible (but not yet easy) to monitor pricing trends and find outliers in cost and delivery times. Data analysis occurred in spreadsheets and documentation and visualization was handled by Microsoft Office apps like Word and Powerpoint that became widely available at the time. Along with ERP, Desktop publishing was the technology that powered the first era of modern procurement.
The second era of modern procurement arrived when companies began to embrace web-based solutions in the late 1990s. These were, by and large, the manifestation of our newly standardized processes on the web. This was a handy evolution of the processes, especially since China joined the WTO in 2001 which led to opening the floodgates on global trade. Supply managers were challenged to manage a newly globalized supply base. Websites drastically reduced the cost of disseminating information to a global supply base. A global aerospace manufacturer spent about $10,000 printing and mailing RFQ’s to 80 global suppliers in 1999. A year later they undertook a similar effort on the web at virtually no incremental cost.
By 2010, social networking apps like Facebook exceeded half a billion users and Twitter got to 100 million users a year later. Young buyers joining our teams were already well-versed in the socially networked world where they knew up to the minute what their friends were thinking and doing. However, at work, they were limited to email and other communication tools that were less collaborative and more informational. That felt like a step back to most of them.
The good news is that in the current third era of modern procurement, buyers are leveraging collaborative networks comprised of supply managers, other functional stakeholders, and their suppliers. “Executives are increasingly looking to Procurement to engage the business in strategic conversations about how supply chains can be optimized to deliver to greatest returns”*. Although Procurement has been slow to evolve and there is not enough focus on ongoing supplier relationship management, procurement executives realize that in order to get more value from their suppliers they need to collaborate with stakeholders and suppliers on a cloud platform. Modern procurement apps allow them to ‘follow’ the issues, projects and communications with suppliers that are most relevant to their work. While also feeding real-time information on supplier financial, health & safety risks, or supply chain disruptions from third-party sources. It also integrates with other systems to retrieve and analyze all relevant data. Supplier management is taking a giant step forward.
In this third era of modern procurement, simple and intuitive workplace technology has finally caught up with the tech we enjoy using in our daily lives. Our ‘third-era’ supplier management app called LUPR was designed and built as a collaborative network to provide procurement the best means to communicate with suppliers and stakeholders. Using technology from Salesforce enable us to get a user friendly platform that will allow getting, feeding and analyzing procurement data from anywhere, anytime via mobile or desktop in a secure and reliable way.
Think about the three eras as evolving from using maps to GPS to Waze. Are you in you still using maps as you would have done in the 1990’s, or that dashboard Magellan GPS you brought on business trips in the 2000’s. You have probably already switched to community-based live navigation apps like Google Maps or Waze.
If you’re still analyzing spend data in Excel or sharing RFQs in Ariba Sourcing, contact us to evaluate whether a third-era procurement app fits your organization.
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KPMG - The Power of Procurement*