The Future of Purchasing

Management
Dr Mihalis Giannakis
 Outline
• Can we predict the future?
• Likely future development in purchasing &
supply management:
• Vision 20/20 statements
• IPSERA 2013 round table findings
• Exam guidance
 Predicting the Future…
• “I think there is a world market for
about five computers” (T. Watson,
CEO IBM, 1948)
• “I cannot conceive of any vital
disaster happening to this vessel”
(Captain of the Titanic, 1912)
• “Mission Accomplished!” (George
W. Bush, 2003)
 Future of Purchasing Overview

• Expanding the mission, goals, and performance expectations

• Developing category strategies
• Developing and managing suppliers
• Leveraging technology enablers
• Collaborating internally and externally
• Attracting, developing, and retaining supply management talent
• Managing and enabling the future supply management
organization and measurement systems
• Twelve high-impact sourcing and supply chain strategies for 2015 –
2020
 External Forces

• Global competition and macro-economic changes

• Mergers, acquisitions, and supply market consolidation
• Increased governmental regulation
• Technology advances
• Customer and channel dynamics
• Increased product/service variety and shorter life cycles
• Social responsibilities
• Environmental responsibilities
– Such as sustainability
Expanding the mission, goals, and performance expectations
Executive Expectations of Supply are Increasing to
Deliver Greater Value Beyond Cost

Source: A.T. Kearney AEP Study

Expanding the mission, goals, and performance expectations

Future Focus

• Accelerating and obtaining more innovation from

suppliers
• Leveraging supplier capabilities and know-how to
establish new sources of revenue
• Identifying and mitigating supply risks
• Expanding breadth and depth of cost management
efforts
– Outsourcing/insourcing
– Nontraditional purchases
– Purchase item standardization
– Purchase item complexity reduction
Expanding the mission, goals, and performance expectations

Examples of Potential Supply Risks

• Price volatility
• Potential supply disruptions
• Financially troubled suppliers
• Negative impacts on …
– Sustainability and environment
– Protection of intellectual properties
Expanding the mission, goals, and performance expectations

CAPS Research Question - 2009

• Assessment question:
– “For your most important purchases (80/20 rule)
over the past twelve (12) months, indicate the
magnitude of measurable performance
improvements and/or business unit contribution
achieved through sourcing and supply chain
strategies at your business unit.”

Source: Supply Strategy Implementation: Current State and Future Opportunities

Expanding the mission, goals, and performance expectations

CAPS Results – Exhibit 20-3

Performance Area Average Improvement Results
Unit purchase price 4.0% ↑ 30% - ↓ 80%
Transportation and logistics costs 5.1% ↑ 36% - ↓ 20%
Total cost of ownership 4.3% ↑ 50% - ↓ 30%
Performing to purchasing price/cost
4.2% ↑ 50% - ↓ 30%
objectives
Overall inventory investment costs 1.7% ↑ 30% - ↓ 38%
Supplier quality 2.3% ↑ 30% - ↓ 20%
Supplier on-time delivery 3.1% ↑ 50% - ↓ 20%
Supplier responsiveness/flexibility 5.4% ↑ 100% - ↓ 20%
Supplier diversity 3.8% ↑ 82% - ↓ 10%

Note: ↑ = Improved; ↓ = Worsened

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Developing Category Strategies

Developing Category Strategies

• Purpose is to maximize value by leveraging

external resources and capabilities
• Need to …
– Look globally for new suppliers
– Define strategies for new categories, i.e.,
• Contract manufacturing
• Facilities management
• Logistics

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Developing Category Strategies

Creating a Robust Category Strategy

• Multiple and concurrent • Supply base reduction
initiatives • Global sourcing
– Low-cost country sourcing • Increasing focus on total
cost and value creation
– Design specification changes
• Product/service design and
– Switching suppliers to increase complexity reduction
product innovation
• Supplier improvement
– Supplier development initiatives
• Need to better define “value”
• Increase in breadth and
scope of category strategies
 Developing and managing suppliers

• Develop competitive worldwide supply base

• Lead sustainability efforts with suppliers
• Communicate requirements back through
supply chain
• Need for value creation and innovation from
suppliers
Developing and managing suppliers

Improving Supplier Relationships

• Supplier segmentation
• Supplier scorecards and feedback
• Supplier capability matrices
• Rewards to best performers
• Joint executive exchange
• Supplier councils and conferences
• Process improvement and innovation
workshops
Sourcing and Supply Chain Management, 5e
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Developing and managing suppliers
Purchasing & Supply Chain Challenges

• A company is no more sustainable than

the suppliers from which it sources:
purchasing is at the heart of
sustainability!
• SCM is about creating transparency
across the supply chain: the challenge is
to create transparency about
ethical/social and environmental/green
issues: use of child labour, polution,
dangerous ingredients….
 Framework for ethical and sustainable
sourcing strategy development
Step 1 – Establish corporate ethical and Verifies top management support, establishes a vision and
sustainable sourcing strategies direction, enforces the importance of ethical and sustainable
Step 2 – Train purchasing staff and sourcing, and reduces confusion.
implement policies Ensures that buyers are skilled in environmental and social
considerations in sourcing, and that users and suppliers
Step 3 – Prioritize items based upon ethical understand why and how purchasing decisions are made.
and sustainability opportunities Allows buyers to “pick low hanging fruit” to provide
and ease of implementation evidence for successful strategy implementation.
Step 4 – Develop performance
measurement system Measurement provides accountability and a way to improve
over time. Should be reviewed periodically.
Step 5 – Monitor progress and make
improvements. Increase use of Use the purchasing department’s success and influence to
green and fair trade products grow awareness in the firm and among customers.
communicate successes and programs to stakeholders.
Step 6 – Expand focus to include other
departments Use performance measures to identify weaknesses. Step up
efforts to develop better capabilities in the firm and its
supply base.

Source: Based in part on Newman, D., “Steps You Can Take to ‘Green’ Your Procurement” Summit 9(4), 2006: 10; and “Buying a Better
World,” www.forumforthefuture.org
 Leveraging Technology Enablers

• Continuing improvements to existing supply

management e-systems
• Technological advantages integrating
applications and data, people’s personal
effectiveness, and collaboration
• Improved spend management using analytics
 Evolving Technology Tools
Today Future
Spend management
• Collaboration
Sourcing networking
Contracting • User-defined
dashboards and
Procurement analytics
Supplier • Knowledge
management management
Product life cycle
management
Stand-alone, Integrated,
serially-connected collaboration-based,
applications flexible systems
 Technology Applications

• Analytics / Data Mining / Optimization Models

• Big Data
• Cloud Systems
• Agent Based software
• Drones
• Reduced data cleansing
Collaborating internally and externally

Themes of Collaboration

• Internal collaboration and integration should

be enhanced to meet future company needs
• External collaboration will signal shift from
pure competition to cooperation for some
segments of company’s supply base

Sourcing and Supply Chain Management, 5e

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Collaborating internally and externally

Themes of Collaboration

• Technology is required to enable increased

collaboration
– Both internal and external information
transparency
• Management risk and protecting intellectual
property may limit collaboration with
suppliers

Sourcing and Supply Chain Management, 5e

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 Supply Management Talent

• Understand and interpret supply market

dynamics
• Analyze complex supply options and risks
• Develop innovative value acquisition
strategies to support business and functional
strategies

Sourcing and Supply Chain Management, 5e

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Supply Management Talent
Future Supply Management Skills

Leadership ability
“Soft-side” Collaborative Innovative
skills style spirit
International
Cross-cultural Foreign language skills
experience
Cross- Multi-disciplinary
Broad business knowledge
functional experience
Current and Supply market Supply process
future knowledge expertise

Source:
Succeeding in a Dynamic World: Supply Management in the Decade Ahead, CAPS Research (2007)
Supply Management Talent
Current and Future Skills

Current Future
• Supply market • Emerging supply
knowledge markets sustainability
• Supply process • Merger and acquisition
expertise activity
• Competitive market • Potential new entrants
structure • Technology trends
• Price and cost models

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 Cross-Functional Skills and Teaming

• Broader general business skills

• Multi-discipline skills
• Working knowledge of business fundamentals
• Cross-discipline exposure
• Supplier market competition
 Cross-Functional Teams

• Broader base of knowledge for decision

making
• Cooperative sharing of expertise
• Category and supplier strategy development
• Process and system improvement
• Global systems development

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 Cross-Cultural Skills

• Include foreign language fluency

– More suppliers in emerging markets
• Broader business perspective
• Understanding of how to work in different
settings and cultures
 “Soft-Side” Skills

• Exhibiting and fostering collaborative working

style
• Possessing innovative spirit that challenges
current approaches and seeks innovative
solutions to problems
• Having leadership ability
• Showing ability to lead virtual, geographically
dispersed teams
 Organizational Alternatives

Supply Chain
Management

Product /
Supply
Operations Distribution Service
Management Development
Source:
Succeeding in a Dynamic World: Supply Management in the Decade Ahead,
CAPS Research (2007)
 Organizational Alternatives

Product /
Supply Service
Management Development

Strategic Tactical Contract Outsourced

Sourcing Buying Manufacturers Operations

Source:
Succeeding in a Dynamic World: Supply M anagement in the Decade Ahead,
CAPS Research (2007)
 Process Organizational Structure
Purchasing Engineering Operations Supply Chain Processes

• New product
development
• Integrated supply chain
logistics
• Demand / supply
• Emphasis on functional knowledge, skills, planning and execution
and abilities • Customer order
• Vertical flows, decisions, and measurement fulfillment
• Supplier evaluation and
selection
• Supplier management
and development

SHIFTING FROM A VERTICAL STRUCTURE…. ….TO A HORIZONTAL STRUCTURE

 Measuring Supply Management Performance

• Align supply measures to corporate and

business unit measures
• Develop common metrics across trading
partners
– Supply measures should be customer-centric
• Utilize a balanced scorecard approach
– Link to economic value add (EVA) and return on
invested capital (ROIC)
Sourcing and Supply Chain Management, 5e
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 Procurement Vision 20/20:
Innovation
The range of supplier choices is going to get
much broader, so we are going to have to
become a lot more sophisticated in our supplier
discovery and selection processes. We will still
look for opportunities to lower costs, but I
believe we will become far more focused on
quality and innovation.

Tim Cummins
President and CEO, IACCM
 Procurement Vision 20/20:
Networking
In the same way that Apple has thousands of
developers worldwide creating applications, I
see us and our suppliers building loose networks
where relationships are fluid and production
moves out to a much broader spectrum of
suppliers. We will be fighting over the same
pools of supplier and customer resources.
Henrik Larsen, VP Procurement, Maersk
 Procurement Vision 20/20:
Total Solutions Suppliers
I expect to see a lot more total solutions-
type relationships with suppliers,
whether it’s an OEM, a third party
distribution partner, or a marketing
partner

Tim Cummins President and CEO, IACCM

 Procurement Vision 20/20:
Early Supplier Involvement
With critical suppliers we will commit to working
with them at the very inception of our product
development cycle. The future is where suppliers'
engineering teams sit down with our engineering
teams and the supplier team has an opportunity to
say 'Here is the optimal way to get our
subassembly for your product made. Now how can
we manage that within the construct of how you
want to build your new product?’
John Campi, former CPO, DuPont, Chrysler, The Home Depot