Future-ready procurement: Breaking free from legacy silos to drive strategic value

Procurement teams are trying to apply yesterday’s toolkit to solve tomorrow’s problems. Pressing internal challenges include system complexities, supply network vulnerabilities, and evolving customer requirements. Externally, a rapidly changing technological landscape, punctuated by geopolitical and economic disruptions, demands constant adaptation. At the same time, procurement leaders must continuously improve the cost, quality, and speed of supply.

Under these pressures, traditional systems and practices do not adequately equip procurement teams for success. Procurement professionals are expected to adapt to a stream of new tasks, process changes, and product initiatives. Yet procurement remains disconnected from broader supply chain and customer-led decisions. Too often procurement is engaged only after decisions have been made, forcing teams to react as best they can. Overwhelmed by requests, yet unable to influence decisions, it is not surprising that procurement teams are experiencing record levels of burnout.

Procurement teams manage external spend that can be anywhere from 50% to 80% of a company’s cost base. Investing in capabilities that enable procurement teams to make better, faster decisions has the potential to generate enormous value for companies and their customers. But as one executive we talked to said: “How do you paint the value? This is the central challenge for procurement.”

Breaking free from legacy silos

Leaders emphasized that current organizational structures often act as a barrier to procurement value contribution. Despite talk of breaking down functional silos and endless organizational reshuffles, procurement leaders still feel disconnected from the broader supply chain and customer-facing areas of the company.

A typical organizational design, for example, positions commercial teams as the primary point of contact with customers, with procurement acting as a “support function.” Breakdowns occur at multiple points. Commercial teams’ desire to accommodate customer requests related to customization and timing clash with procurement’s mandate to generate efficiencies through standardization. Rather than supporting value generation, procurement capabilities are oriented toward maintaining processes and enforcing policies. Experience of procurement as imposing constraints rather than generating value-add solutions reinforces to commercial teams that engagement should be avoided.

Leading companies are facing this problem head-on. Consider the example of a global leader in construction equipment. In response to a highly dynamic regulatory environment, the company reorganized its procurement function. Before the reorganization, communication with suppliers had been fragmented while functional boundaries separated procurement from the business. Today, each business vertical has a vice president of procurement, supported by a central strategic procurement division. An additional senior vice president has ownership over process innovation, tools, and risk. The new structure allows procurement to be much closer to customers when supporting cost, availability, and after-sales services.

 

No single design will be optimal in all situations. However, conversations with senior leaders suggest that leading companies are incorporating design changes to position their supply chains for success. These include the following.

• Establishing robust, multifunctional business processes, especially in sales and operations planning and new product introduction.
• Establishing centers of excellence to drive best practices and offer specialized skills, tools, and insights to other departments.
• Adopting flatter organizational structures to speed decision making and empower employees to take initiative.
• Designing robust reporting systems that provide real-time data on key performance indicators, integrate advanced analytics and business intelligence tools, and establish clear reporting lines.
• Creating cross-functional liaison roles to facilitate collaboration, particularly with functional areas outside of the supply chain.

Ultimately, organizational design should be assessed on the extent to which it fosters procurement’s ability to support business growth, improve efficiency, and improve customer experience. Structures should integrate procurement early in decision-making processes, where it can have the most impact in these areas.

Laying a foundation for the future of procurement

Although organizational design is important, equally important is the development of foundational capabilities that position procurement for future success. Leading companies that we spoke with identified three foundational capabilities for the future: customer value management, cross-functional integration, and talent pipeline management. Senior leaders were adamant that any effort to position procurement teams for future success depends on these foundational capabilities. They represent the first layer of capability development leaders must undertake to optimize total value for their supply chain.

Customer value management emerged as the area most in need of capability development. Procurement teams must have a deep understanding of customers and lead with value innovation based on a detailed understanding of supply chain processes. One senior executive described a strategy of “insourcing customer intimacy.” His procurement team focuses on hiring associates from key customers. New hires bring years of experience, helping the procurement team design offerings that address customer needs.

As with external customers, procurement will also need to craft offerings that generate value for internal customers, especially if it hopes to tackle indirect spend. While technology integration will be central to internal efforts, procurement teams must focus conversations on ideas for enhancing internal customer value. One procurement leader described the “sales pitch” to an internal customer this way: “We protect your budget. By letting us manage your purchases, you get to spend more money on your priorities.”

Along with customer value management, procurement teams must enhance their capabilities in cross-functional integration. This requires aligning goals, effectively managing business processes, and maintaining reciprocal flows of information across areas of the company. One way to build this capability is through focused work on a specific initiative. The procurement team at a durable goods company we spoke with helped lead an effort to reduce lead times at every step in the order fulfillment process. Procurement worked with more than 100 suppliers to reengineer their ordering process, with a special emphasis on shrinking component supply lead times. Procurement also put in place a rigorous process to continuously manage lead times within other functional areas. Through this initiative, procurement established strong working relationships with other areas while demonstrating its ability to deliver on project goals.

Benchmark procurement leaders are proactively engaged in forging relationships with areas outside the traditional supply chain. Several teams we spoke with are collaborating closely with IT departments to mitigate cybersecurity threats. This includes cataloging cyber assets, developing acquisition strategies for new resources, and working with suppliers on enhancing cybersecurity across the supply chain. Beyond the normal benefits of better spend management and closer relationships, procurements involvement helps these companies mature suppliers’ cybersecurity programs.

Finally, the need for talent emerged as procurement leaders’ number-one long-term constraint. A capability in talent pipeline management is therefore critical to the success of any procurement effort. Here, teams need to focus on defining future-oriented procurement competencies (knowledge, skills, attitudes) and then creating broad-based experiences for growth. Benchmark supply chains are particularly focused on competencies that extend beyond traditional technical skills to include change management, compelling communication, team leadership, influence, and technological fluency.

And as any good procurement professional will tell you, building the pipeline requires cultivating the supply base. In other words, procurement must work closely with HR recruiting efforts. This includes creating a university campus brand around procurement, focusing on experiential learning through high-impact internships, and prioritizing rotational programs that include different procurement roles.

One of the companies we spoke with partners with select universities to generate their talent pipeline. The company participates in recruiting events at both the undergraduate and graduate levels. The procurement team also hosts an annual “A Day in the Life of a Buyer” event to expose potential recruits to career opportunities. These efforts pay off in regular, successful recruitment efforts.

Aligning to the future of business

Foundational capabilities will be critical for the success of any future procurement initiative. But moving forward, procurement teams will also have to build new capabilities to support specific business strategies. To guide thinking on business-aligned capabilities, leaders can consider investments in four broad areas: Partnership excellence, operational excellence, continuous improvement, and value innovation.

These four areas represent a “balanced scorecard” for procurement capabilities. Partnership excellence and operational excellence capabilities allow teams to establish and lead processes that ensure the continuity of high-quality supply. Continuous improvement and value innovation capabilities enable the pursuit of both incremental and transformative changes to procurement systems and the broader supply chain.

Business-aligned capabilities are mutually reinforcing and best developed in combination to support specific strategies. For instance, a company we talked with manages thousands of contracts with suppliers across the globe. Although many of the suppliers provide low-cost, standardized goods, the sheer volume of contracts required a “value innovation” capability in AI to review agreements for risks and costs. Meanwhile, another company we spoke with was developing “partnership excellence” capabilities needed to manage a preferred provider that offers unique differentiators, including a high-quality workforce and difficult-to-duplicate expertise. A third company developed a “continuous improvement” capability around protecting supplier-developed intellectual property, including designs, formulas, processes, and patents. As procurement leaders look to support specific business strategies, they will be able to determine which capability investments make the most sense.

Conclusion

Procurement is at a pivotal juncture. Driven by a rapidly changing business environment and evolving customer expectations, the need to enhance procurement’s value impact is greater than ever. Benchmark leaders are meeting this challenge by redesigning how their procurement organizations create value. From customer management and stakeholder engagement to talent development, these leaders are envisioning the future of procurement. And the future looks bright.

About the authors

Dan Pellathy, Ph.D., is a faculty of practice and operations director of the Advanced Supply Chain Collaborative at the University of Tennessee-Knoxville.

Jadé Johnston, MBA, PMP, CPSM, is the director of global supply chain for commercial & international sector, EIA, UK, & Europe at Leidos.

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