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Focus: Sourcing/Procurement: Feature Article from Our Sourcing and Procurement Subject Area - See All

From SCDigest's On-Target e-Magazine

- Sept. 17, 2015 -

Supply Chain News: Procurement Function Expected to Change Dramatically Over Next Five Years, New Accenture Study Says

New App Bundles, such as the Virtual Company Mall, will Help Drive Changes in Process and Roles

SDigest Editorial Staff

There have been major changes in procurement organizations across the globe over the past decade. You are likely to see even more over the next five years.

That's really the core message from a new study by Accenture titled "Procurement's Next Frontier: The Future Will Give Rise to an Organization of One," which predicts major changes to the future procurement organization and its role, changes driven in large measure by major advances in related technology support.

SCDigest Says:

Suppliers are not created equal, and shouldn't be managed as such. While this has always been true, our research suggests this maxim will be even more relevant in the next five to seven years.

Accenture

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From a performance perspective, procurement has really been delivering the goods in recent years, Accenture says. A 2007 study it conducted found that found that what it called "procurement masters," or the top performers, saved their companies 10 times as much as it cost to run their procurement organizations.

And across the board, procurement organizations are getting more efficient. Accenture says that the typical procurement organization's operating cost is approximately just 0.8% of the enterprise's overall spending, down from about 1% in 2007. Some industries, given the nature of their business and spend distribution, do even better, averaging between just 0.5% and 0.7% of total company spend on the procurement function.

Those are all pretty impressive numbers.

But despite all that good work, procurement organizations will need to rapidly evolve to meet changing needs in the business, Accenture says, based on detailed interviews with some 50 procurement executives from across the globe.

"In the next several years, our research suggests the definition of [procurement] "value" will evolve from a focus exclusively on cost reduction and savings to work that helps the company differentiate itself strategically," Accenture says. "Procurement increasingly will be evaluated by more advanced measures, ones that are intimately linked to the company's strategy and financial metrics."

The obvious question: How will procurement respond to this new set of demands? One thing is for sure, Accenture says, and that is that it will involve broad use of a new generation of digital technologies. The technologies "will revolutionize the procurement organization and its professionals in five to seven will have on the very essence of how procurement interacts with internal business stakeholders and the external supply base," Accenture says. "It also suggests that this new digitally powered procurement organization will continue to significantly drive down its operating costs while delivering more strategic value to the larger enterprise."

We'll get to those new digital technologies in just a bit, but together they will help give rise to the emergence of what Accenture calls the "virtually integrated enterprise," characterized by intimate relationships with a smaller group of strategic suppliers that allow both buyer and seller to derive much greater mutual and strategic benefit than in the past.

"In such a relationship, the demarcation between buyer and supplier becomes blurred, to enable the procurement organization to focus on strategically differentiated activities and generating much broader value," Accenture says.

The Five Apps

Accenture has defined five "bundles" of apps that it says will be required for procurement to be successful in the future. Those five apps are (see graphic nearby):

The Virtual Company Mall: Owned and managed by procurement, the
company mall will feature a Cloud-based set of pre-approved private and public "shops" (i.e., suppliers) from which internal customers can select goods and services, supported with business logic that guides their purchasing based on policies, preferred suppliers and contracts.

(Sourcing and Procurement Article Continues Below)

CATEGORY SPONSOR: SOFTEON

Supply Analytics: These tools will bring together a wide variety of data and, through a standard dashboard, and enable both procurement and business users to interpret analytics to solve specific problems or answer questions. Big Data will be a key component of the supply analytics apps, bringing in information from outside sources such as the industrial Internet of Things.

These analytics will evolve from simply provide information and insights to being capable of recommending decisions and opportunities that can optimize supply management and savings opportunities.

The Five Coming Procurement App Bundles

Source: Accenture

Virtual Supplier Room: This virtual collaboration room is a critical component of the virtually integrated enterprise," Accenture says. This technology will enable the companies to virtually interact with strategic suppliers to share insights and ideas, as well as collaborate on innovation programs via common social media methods.

It will also provide uncharted suppliers with an avenue to collaborate with the company on possible future innovations.

Virtual Category Room: This is a virtual central gathering place to which a company's category managers will go to keep track of their in-flight projects based on where they are in the process by category.

In addition, category managers will be able to find relevant market intelligence data for their category—both what the category managers upload themselves as well as content that is pushed to them automatically by content aggregators.

Supplier Network: The supplier network, which will be accessed via an app, connects a company seamlessly with the market, the virtual company mall (i.e., for transactions of purchase orders and invoices), and to the supply analytics apps.

Powered by technology solutions supporting tendering, performance assessment, supplier discovery and supplier interaction, this app is also linked to both the virtual supplier room and the virtual category room, Accenture says.

In turn, these five technology advances will help drive six key trends, from "the organization of one" (that sounds intriguing) to the impact of the industrial internet of things and more. We'll cover that thinking in part 2 of this article next week.

We'll conclude with this from the Accenture report:

"Suppliers are not created equal, and shouldn't be managed as such. While this has always been true, our research suggests this maxim will be even more relevant in the next five to seven years," Accenture writes. ‘We expect the polarization between strategic suppliers and all others to become even more extreme, and strategic suppliers to have a much greater impact on a company's growth agenda."

Do you share Accenture's view that there will and must be profound changes in procurement over the next five years? What do you make of this vision of the five key app "bundles?" Let us know your thoughts at the Feedback button (email) or section (web form) below.

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