How to Transform Procurement into a Strategic C-Suite Player
Procurement is at a crossroads. At the same time that automation has launched the discipline into a new era of efficiency, global supply chain and manufacturing practices are in a constant state of flux.
With technological advancements in their playbook, procurement has largely risen to meet these new challenges — 80% of C-suite leaders say procurement has made strategically valuable contributions. However, only 31% say procurement is driving their strategic agendas.
In this climate, procurement can continue in the role it has traditionally played — a mainly reactionary function driving cost savings. Or, it can finally elevate itself into a strategic value-add, driving innovation across more than procurement functionalities alone.
In this blog, we’ll explore procurement’s role today and the factors, tools, and players setting the stage for procurement to finally move from a reactionary function into a strategic partner.
A New Paradigm in Procurement
In 2023, an overwhelming 95% of manufacturers plan to ask their suppliers for cost reductions. This is especially true for industries where costs of labor, warehousing, and more have gone up, such as automotive, food and beverage, chemical manufacturing, and consumer goods.
In this evolving climate, procurement and finance are coming together to re-think the procurement function as a strategic player driving value, especially when it comes to supplier relationship management. Let’s explore two examples at Johnson & Johnson to illustrate how this can work in a real-world setting.
When Procurement Drives Innovation: Two Johnson & Johnson Pandemic Wins
During the COVID-19 pandemic, Johnson & Johnson was one of the foremost creators of an accelerated vaccine against COVID-19. One of the critical components of their vaccine was a final phase three trial — one of the largest and most diverse trials the company ever undertook.
Rather than see the short turnaround and constrained supply as a challenge, Johnson & Johnson’s procurement team and suppliers partnered together to bring incredible innovation, delivering the vaccine to the broader public in record time. By collaborating, they were able to overcome the challenges at hand and introduce pandemic-friendly processes to achieve Johnson & Johnson’s broader goals.
Another example of this is Johnson & Johnson’s work introducing virtual training for surgeons to treat atrial fibrillation. During the pandemic, in-person training wasn’t possible during global shutdowns, especially for surgeons in cities highly affected by the virus. However, one of Johnson & Johnson’s suppliers suggested an innovative system with an entirely new, remote qualification and certification training.
The result? The revolutionary new process was implemented for this instance and was soon adopted organization-wide. Len DeCandia, former CPO of Johnson & Johnson, recently shared in a webinar, The Power Couple: Uniting Manufacturing CFOs and Procurement for Margin Expansion, that the innovation demonstrated in this instance was a value beyond cost savings but had a significant material impact on a topline business metric by accelerating a product launch.
As these examples demonstrate, seeing suppliers as a source of innovation rather than a cost strain can help procurement begin to solve for problems bigger than procurement alone. When working closely with research and development, it’s possible for procurement to put value in terms of revenue growth to those efforts.
The Natural Friction of Procurement and Supply Chain, and How it Can Lead to Growth
There’s no question that we’re in an era of rapid evolution when it comes to manufacturing. One only needs to look at Silicon Valley startups like Tesla, Astra, Lucid, or SpaceX to get an idea of the realm of possibilities for the future of supply chain innovation. For example, Tesla is on the verge of consolidating roughly 400 unique electric vehicle parts into one single entity.
With such strides in manufacturing on the horizon, questions about how businesses’ procurement processes can keep up are naturally following, especially from corporate leadership teams. Inextricably linked to these questions about procurement are questions about the supply chain. Suppliers are poised to either herald in a new era of innovation — or potentially hold procurement back.
Finding the Balance Between Stability and Change
Traditionally, there’s been a healthy amount of natural friction between supply chain and procurement. On the one hand, supply chain wants to keep things as stable as possible, maintaining existing relationships. On the other hand, procurement wants to bring other options to the table and find the best route for sourcing, even if it means changing the status quo.
The crucial question here becomes: How can procurement and supply chain stay on the same page about the pace of change and the opportunities versus the costs of change?
It comes down to introducing change in a way that all stakeholders are comfortable with. Namely, by conducting smaller-scale “test-and-learns” that can translate into broader, scalable opportunities. This is where tools like Arkestro’s Predictive Procurement Orchestration (PPO) can come into play, helping procurement teams find the balance between ushering supply into a new age of innovation while maintaining stability during the transition.
Using Technology to Frame Procurement as a Strategic Player
We’re in a new era of disruption and innovation. Just as paper maps were replaced with satellite-powered maps to get us where we need to go, self-driving cars may soon eliminate the need for drivers behind the wheel. The same could be said for procurement — we’ve moved past the time of manual processes and Excel spreadsheets. Now, we’re entering an era where technology has the potential to direct every aspect of the business.
The next era of procurement innovation will be driven by embedded automation, directed by procurement professionals who know where it’ll make the most impact. Studies show that companies with an automated procurement negotiation process consistently save money, improve their supply chain resilience, and increase buyer productivity.
If CPOs want to prove their value beyond cost-savings, they need the right tools to give them the insights to get there. In short, it’s up to procurement leaders to elevate procurement into a partnership with CFOs and drive value across the whole organization.
Arkestro’s PPO capabilities are the best-in-class solution to help procurement reach its full potential. Our machine-learning based technology helps companies experience a 2-5x lift in cost savings from everyday purchasing and sourcing cycles, freeing up more time for leaders to start thinking about how procurement can add to strategic initiatives and innovations
PPO can help your procurement team level-up strategically by:
- Quickly identifying risks and opportunities on the horizon
- Providing forward-looking alerts in real-time
- Creating competitive context for your suppliers
Learn more about how Arkestro is helping procurement team’s prove their value to CFOs in our webinar, The Power Couple: Uniting Manufacturing CFOs and Procurement for Margin Expansion.