Harvard Business Review

Reimagining Procurement Through a Strategic Lens

Procurement teams now have extraordinary new opportunities to lead global business transformation. But the complexity of recent, challenging global trends, changing industry ecosystems, and new digital technologies has made it difficult to find the path forward. This white paper demonstrates that, with the right set of differentiated sourcing and procurement capabilities, companies can turn that complexity into competitive advantage.

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It’s now time to implement more strategic procurement processes

Based on the recent Harvard Business Review webinar, featuring Bain & Company’s global procurement lead, this executive brief discusses the strategic importance of the procurement function, especially with regards to:

  • The rising complexity among global businesses
  • How this complexity affects operations and procurement
  • How companies are creating differentiated procurement capabilities
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Following the recent end of the “golden decade” of procurement, when organizations were able to easily unlock value for their companies, these procurement leaders now find it difficult to create additional value for their business.

Thus, some procurement organizations are refocusing efforts to take a more strategic approach to value creation. Beyond simply negotiating better prices, this strategic shift includes management of the value chain, an optimization of spending techniques so as to control demand, a reduction in complexity, an improvement in processes, an emphasis on value engineering, and improvements in the supply chain. This strategic reimagining of procurement also seeks to identify use cases, which enables procurement teams to prioritize and successfully implement digital strategies.

We’re being asked what is the next step of performance that’s going to unlock cost, increase innovation, manage risk, and help sustainability. At the same time, we’re struggling to hold down the fort.
Caperton Flood, Partner and Lead of Global Procurement Practice, Bain & Company


What are the top challenges that procurement teams face currently?

The first major challenge for procurement in recent times is that there has been a shift from a deflationary environment to an inflationary environment, so traditional levers aren’t leading to savings. Secondly, procurement teams face increasing supplier sophistication and consolidation, which gives suppliers higher margins and ROI. Third, the increase in the speed of change has put pressure on procurement teams to take a fresh look at each category every 6 to 12 months. Fourth, the procurement skill set has become more complicated, and the average procurement person must have an impressive combination of skills, including digital, analytic, and strategic capabilities. Fifth, tariff changes and many other issues are causing disruptions to global supply chains. Sixth, Digital programs are beginning to bog down as a result of multiple challenges, so businesses haven’t been able to realize the full value of these tools. Finally, there has been an increase in executive skepticism due to an inability to track procurement’s efforts to the bottom line.

What are the key points of procurement maturity?

The first stage of procurement maturity is what procurement has traditionally done well, which we’ve termed “Smart Buyers.” The next step is to become more proactive and less reactive with optimized sourcing: a “System Cost Optimizer.” Most companies are only part way to that point. The third stage are the companies that we call “Virtual Value-chain Integrators,” who have implemented strategic procurement with matured category management embedded across functions. Finally, the most mature stage are the global procurement leaders that have achieved “Next Generation Procurement” with processes that provide a strategic competitive edge and a resulting revenue uptick.

What are the main ways that procurement teams are lacking that keeps them from being further on the procurement maturity curve?

Many procurement teams are held back when senior leaders lack the right level of ambition regarding the role that procurement can play. Also, they may not have the strategic and analytic tools to build market forecasts and deep category strategies, or to assess the total cost of ownership and risk. The procurement teams may also lack the financial tools to build robust business cases, or they may not have the ability to engage and influence other cross-functional stakeholders. Procurement staff members may not have the implementation and project management skills (including agile) to ensure the implementation of complex procurement strategies. Another common issue is that they may not have a long-term mandate and focus, but are focused more short-term.