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The Structure: Technology

Procurement has languished toward obsolescence and will die if it doesn’t transform quickly. Tectonic shifts in technology threaten to completely alter the function, leading eventually to its automation. Companies that start now have a better chance of capturing the full potential of digitization, becoming hubs of innovation, wellsprings of value, and orchestrators of success.

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The Light: Strategy

Unlike the typical online shopping experience, corporate purchasing tends to be slow and cumbersome. Forward-thinking companies find innovative ways to meet users’ needs without hindering their productivity—and CEOs who create an environment that values procurement, so the company can reap the benefits.

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A Future-Proof Approach

A few global businesses are set up with a future-proof approach. One of the most successful businesses in the world that consistently achieves double-digit top-line growth, a double-digit net profit margin, and sustained cost reduction has all these elements in place, along with a highly capable CPO who is part of the top executive team.

Procurement is center-led and has ownership of the key value-adding processes along with being a hub for innovation. The benefits created by procurement in this company are comprehensive and go far beyond pure deal-making to embrace new approaches to the supply market, support for the company’s sustainability agenda, and radical process automation. An end-to-end external spend governance approach interlocks procurement benefits into budgets and avoids leakage.

The CPO recruits the best talent from business schools and working in the procurement function is seen as a career training ground for other roles in the organization. The CEO, CPO, and wider executive team have collaborated to create a culture that is highly conducive to great procurement and delivers consistent value year after year.

At this organization, procurement is not a defensive mindset but rather an offensive weapon that has created exclusive arrangements with ecosystem partners to take advantage of new technology to improve the bottom line and enable sustainability in the supply chain. It has also innovated new economic and sustainable uses of by-products rather than simply negotiating a cheap price for disposal. Procurement has been in the foreground—making things happen and taking value creation to a whole new level.

This level of performance should be the norm. After all, in most organizations, procurement is the corporate-wide function with the strongest orientation toward value creation. Its reach is both broad and deep while still being tangible, practical, and operational—a much different model than, for example, finance, which is focused on the numbers in the accounts. Procurement done well creates value that no other function can surpass. This is the model to emulate.

The authors would like to thank John Blascovich, Ana Conde, Simon Horner-Long, Renata Kuchembuck, Shakil Nathoo, and Prasad Poruri for their valuable contributions.

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