The Future Of Procurement : What CFOs Need To Know

Disruptive trends in technology are changing the procurement function as we know it today. Procurement is fast evolving into a more strategic and value-generating function.

The digitization of procurement drives bottom-line impact on the margin. From the finance perspective, two key contributors are significant:

1. The automation of transactions will increase the productivity of administrative and operational processes, mainly in shared services.
2. The transition to a strategic procurement function will create increased value for the lines of businesses to grow profitability by aggregating the demand, driving supplier innovations, focusing on compliance and active risk management to ensure a sustainable supply chain.

By way of background: As the former CPO for SAP with the overall responsibility for source-to-pay, I transformed the internal procurement function of a company with approximately US$4 billion spend, 800,000 invoices, and 1 million trips. We introduced a global category management, one end-to-end source-to-pay process, and cloud solutions for goods, services, temp labor, and travel. And as chief operating officer of SAP Ariba, the world’s largest, most global business network and provider of cloud-based applications, I am part of a team that is fundamentally changing the way procurement is done.

I’ve learned a few things along the way and look forward to sharing them among a unique community of peers.

Procurement goes digital

The Internet of Things is revolutionizing the procurement function, making it more simple, smart, and strategic than ever. And savvy CPOs are embracing it to become chief value officers and transform their operations.

Disrupt and conquer

Digitization and disruptive technologies, like 3D printing, machine-to-machine communication, and self-driving cars are changing the world and the way we work. We can only speculate about the next megatrends coming up and the changes they will bring. But if the past is any indication, they will be big. Think about how smartphones have changed the way we tightly link our business and private lives and how we have changed to stay connected and be “always on.”

Beyond savings and efficiencies

Over the past decades, procurement has evolved from an operative, administrative service into a more strategic function. Business partnering has changed the purpose of procurement from cost cutting to value generation.

The traditional term purchasing was quite often used to describe the transactional process of buying. Purchasing was a function to buy and process goods and services for different lines of businesses. This is still the key function of procurement.

But the spectrum of tasks is expanding consistently as the value procurement can deliver to the business has become more clear. Predominantly, procurement can contribute in two dimensions:

1. Leverage the purchasing power of a company to get the best price and desired quality for goods and services to be delivered at a certain time
2. Embrace automation to eliminate slow and paper-based processes and reduce transactional costs

Both dimensions have one target: to reduce the company’s costs. But procurement can do much more than cutting costs and improving the bottom line. Procurement is the only function overseeing all lines of businesses and can bundle all demand across the company. And procurement teams can leverage the insights and relationships they have as a result to drive strategic actions. Procurement can, for instance, leverage disruptive technology trends like 3D printing to change the way spare parts get purchased. Instead of searching for them in a catalog, the parts might get printed next door. Or drones could deliver maintenance repairs to a production line ordered by a system based on a failure reported by an Internet-of-Things sensor.

The future looks bright

In the future, the chief procurement officer will be the chief value officer, not measured on savings delivered, but value created. And procurement will become a driver for business innovations that define the future of a more strategic function.