Optimum Press

10th Mar 15

Is this the era of Procurement-as-a-Service?

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Two years ago, Eva Wimmers, SVP of group procurement at Deutsche Telekom, speaking at a conference in London, said that procurement had evolved over the previous 10 years from a service into a function. And yet today the buzz seems to be about Procurement-as-a-Service; P-a-a-S this is where the value lies! Was Eva, a seasoned and very well respected CPO wrong? Well no of course not. Why, because the evolution of a service economy coupled with the rise of strategic (rather than tactical) outsourcing since that time is creating a need for something quite different.

This difference which is a truly disruptive technology comes from the supply chain. And the difference is that this is not innovation as an incremental addition to the existing product or service. For organisations with transactional procurements functions it means that their suppliers will become competitors. These suppliers or third-party service providers have the potential to disrupt the market and perhaps change the face and nature of procurement completely.

Customer centricity is at the heart of this, i.e. delivering what the customer wants. Today’s mega businesses, such as Amazon came about because of their flexible and agile business models, and they went into markets with inchoate demand. Not only that they had a vision and desire to succeed.

Procurement is a business; and the business of procurement is to deliver ‘customer’ satisfaction. For procurement to succeed and remain relevant to the modern enterprise it needs to become a combination of a strategic M&A department scouring the supply market for disruptive technologies, and a strategic marketing department seeing beyond the traditional boundaries of what the customer wants because often they have no idea what they might want in the future. If Procurement is to survive it needs to commoditise its old thinking and let the system take the strain and become a completely different function.

It doesn’t require much imagination to see that modern business is increasingly about networks – where the transition from ‘buyers and suppliers’ to ‘integrated supplier networks’ will enable greater coordination of innovation roadmaps across connected businesses and industries. But how can we make this happen?

When it comes to procurement outsourcing many procurement leaders are still searching for the right supplier, contract, programme, blend of suppliers, governance structures and more. This lag is probably due to the fact that CPOs have never had to consider such a wide and varied choice, both in the number and type of service providers available, nor the plethora of differing delivery methods.

But even when that isn’t a major factor the outsourcing conundrum seems to persist for many businesses; and perhaps this is due to a focus on the wrong things. For many CPOs the main focus has been on sourcing options, delivery methods and contractual terms. And yet we hear over and over that procurement needs to get better at the communicative aspects of effectively managing and delivering to the business outsourced procurement.

Today C-Suite leaders continue their demand for cost reduction strategies. However today's cost imperative is different, because the traditional means of driving out cost have pretty much reached their limits. That said the increasingly important issue for many businesses is to reduce their reliance on labour within their operations – and many are discovering they need to work smarter before they can work cheaper.

Clearly business leaders can’t keep dipping into their operations (functions) to find more staff to relocate, or simply remove them. Consequently they have to explore the emergence of "As-a-Service" solutions as that next viable cost reduction method.

This is amplified by the much discussed shift from a ‘cost vs value’ to a ‘risk vs value’ business environment. The enduring desire by CEOs to operate their businesses as cost-effectively and flexibly as possible is therefore creating a market opportunity for something new. Procurement may well be saying good bye to the single, organisation-wide function, valued so highly in the past; and be replaced by the capability, capacity and possibilities offered by a third party supplier of Procurement as a Service.

Many current procurement activities especially those that haven't already been redistributed to internal end users of goods and services will be outsourced. This is because the quality of service and quantity of third-party procurement services has increased. Moreover their performance in many spend categories surpasses what can be achieved in house. At Optimum Procurement we see this as the future simply because service providers capable of deploying a flexible ‘As- a-service’ model exemplify the contemporary strategic concept of ‘never committing beyond your short term need’.

http://www.optimumprocurement.co.uk/news-article/optimum-press/10/is-this-the-era-of-procurement-as-a-service/188