As I enter year 20 in this industry and year 10 at Ardent Partners, I’ve spent a significant amount of time reflecting on the progression of the Chief Procurement Officer (CPO) and the procurement function in general. I remain as excited and inspired by the opportunities that sit in front of procurement professionals/teams as I did when I wrote the first article on this site “What’s Past is Prologue!” But while the opportunities are still huge, they are no longer easily achieved.
For the average procurement department in 2019, the low-hanging fruit has been picked. In fact, for many procurement teams, the fruit trees are barren, having been picked over and over and over again during the last 10 years. Procurement departments and the function in general need new sources of “food” or value as the case may be. And, they will need innovative ideas and approaches in finding ways to do so.
Again, it is not the case that every procurement organization has plateaued. In fact, many procurement organizations still have the opportunity to jump to a new value creation trajectory by simply doing the basics or doing the basics better and/or extremely well. And that point is important for CPOs to understand. But, there are just as many procurement teams and CPOs that need or will soon need a catalyst to expand the impact of their work on operations, costs, profits, and even sales.
Identifying these catalysts and building them out, and constructing different ways that CPOs can leverage these new value drivers is going to be one major area of focus for Ardent Partners (and this site) in 2019. (A second major area of focus will be the publication of a series of reports that will help Procurement, Finance, and HR leaders make better technology investment decisions – more on that later). Back to value expansion….
Recently, new procurement engagement models are emerging that are more attuned to a workforce that is younger and in many cases, more contingent. Over the course of 2019, we will share stories and interviews from our conversations with leading procurement practitioners and we will spend more time interacting with a new set of “procurement influencers” who are driving real innovation in the industry.
Value Expansion: Pareto is a starting point
In 2006 (yes almost 13 years ago), I wrote that supplier enablement initiatives needed to push beyond the initial 20% standard target of enabled suppliers to capture as much spend in an eProcurement system as possible. What was true then remains true today as Best-in-Class procurement organizations, on average, have nearly doubled that target.
In 2019, more mature procurement organizations are starting to realize that the same concept can be applied to the spend that they currently manage. Today, the average procurement organization manages slightly more than 60% of total spend. In many instances, these organizations have been stuck at or around the same percentage for years, while Best-in-Class procurement teams manage ~90% of total spend and save dramatically more. This makes sense since a majority of CPOs decry their lack of headcount and budget to take on new responsibilities and manage more spend. The reality of the situation is that, despite the proven impact that procurement has by managing more spend, CPOs no longer have “placing more spend under management” as a top priority.
Enter Fairmarkit. This innovative, Boston-based upstart has developed an advanced technology that uses machine learning and large supporting database to enable large and mid-sized enterprises to attack and source a previously unaddressed set of spend.
Greenfield opportunities still exist in our industry, even at the most mature and advanced procurement organizations. One way for procurement teams to expand value is to find these areas and make a good run at them.
Andrew Bartolini is the Founder & Chief Research Officer of Ardent Partners and the publisher of this site.
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