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Procurement is at an inflection point. For many leading companies, procurement has been transformed into a linchpin of enterprise strategy. Yet many remain trapped by outdated paradigms and struggle for influence within their companies. Here's how organizations can reinvent the procurement function and put the past behind them.
AT MANY LEADING COMPANIES, procurement has been transformed in profound ways to become a linchpin of enterprise strategy. Meanwhile, many procurement groups continue to struggle for in^uence within their companies-in large part because they remain trapped by decades-old paradigms that are far too prevalent.
In this article, we will share what we have learned during our work with leading procurement organizations around the world as they seek to adapt to a future that is already upon them. In these organizations, the need to drive innovation is paramount, and an increasing proportion of the opportunity and risk with suppliers involves not only physical materials or equipment, but also complex services and intangible assets like intellectual property, data and brand equity. In that new environment, the strategies and skills that constituted a recipe for procurement success in the past need to be reevaluated, and to some extent upended, based on a 21st century world with new risks, threats and opportunities.
A changing world and a changing context
In order to understand the future of procurement, it is useful to briefly review its history and evolution. For a very long time, procurement was a back office function focused on processing transactions. The selection of suppliers, and the negotiation of supplier agreements, was highly fragmented, unsystematic and non-rigorous. That began to change in the 1990s with the advent of strategic sourcing. Over the past several decades, this simple but powerful discipline has delivered enormous savings at countless companies, and earned procurement groups a substantial degree of respect and influence.
What is unacknowledged is the fact that strategic sourcing rests largely upon a set of concepts and principles laid out by Peter Kraljic in his classic Harvard Business Review article "Purchasing must become supply management"-which was published in September 1983.
The article is full of many useful examples and case studies that remain relevant, as do many of the principles and methodologies of strategic sourcing that developed later. At the outset...