Key Challenges of Tomorrow, Part II

In Part I, David Bush summarized the fifth installment of the CPO Agenda 2007 debate series – What are procurement’s key challenges in the next 10 years? that took place early this summer in Paris and featured a dozen procurement executives from leading companies in the region.

As per his summary, the key topics that emerged from the debate were “Best Practices. Compliance. Supplier Relationship Management. Supplier Performance Management. Strategic Planning. Collaborative Partnerships. Outsourcing. Talent. Sustainability. The Centralized Business Function. and Innovation.“. And, collectively, the debaters did a great job of summarizing many of the key challenges for the purchasing function of tomorrow and what purchasing is going to look like in five to ten years.

But they didn’t get everything. At a minimum, the following should also be added to the list: On Demand. Analytics and Optimization. Scenario Simulation. Risk Management. Demand Shaping. Guided Sourcing. Change Mangement. Crowd-Sourced Open Source. Capacity & Material Securitization. Visibility. The New ERP. Sourcing as the foundation of the Extended Enterprise.

However, before I explain what the future is, how each of these concepts tie into it, and where they fit into the overall picture, I’m going to start with a brief definition of what each concept is.

Analytics is all about analyzing spend to understand spend patterns and opportunities for spend avoidance and reduction.

Best Practices
Best Practices is all about improving the sourcing function from a process perspective.

Capacity & Material Securitization
As initially described by Jason Busch, this will involve companies purchasing production capacity at manufacturing plants and raw materials in advance of their production to meet future forecasts. Then, if they over-purchased, or under-purchased, they will trade this capacity on an exchange in current market rates. This model could work out very well for all parties as it would ensure much needed cash-flow on a timely basis to manufacturers who would gain increased stability and better financing terms and ultimately be able to lower costs and keep them down in the long term.

Change Management
Change management is a structured approach to change in individuals, teams, organizations and societies that enables the transition from a current state to a desired future state.

Collaborative Partnerships
This is where buyers and suppliers work together to serve customer needs and reduce costs in a positive manner. It’s not where a buyer beats up a supplier when they are unhappy with quality or cost.

Crowdsourcing is the process of delegating various tasks for which you do not have the manpower or expertise from internal production to external entities or affiliations of networked persons with the expertise, access to, or raw capabilities that you require.

Compliance is a term with at least as many meanings as there are distinct arabic numerals, but generally refers to either ensuring that spend is on contract, that regulations are being adhered to, or that corporate initiatives are being considered.

Demand Shaping
Demand shaping is a demand-driven customer-centric approach to planning and forecasting that tries to shape the demand to a desired level.

Enterprise Resource Planning systems were early attempts to integrate all organizational data into a system that could be used for enterprise planning. The advantages were that all data was centralized, processes were encouraged, and queries were answered quickly but the major disadvantage was that ERP was primarily concerned with what happened within the four-walls of an enterprise and not the supply chain it was ultimately a part of.

Extended Enterprise
As most recently described by Jean-Phillipe Massin, the extended enterprise is an aggregation/network of independent and top-performing companies, working together to supply products or services as effectively as they can.

Guided Sourcing
In the future, e-Sourcing technology will contain expert systems that “guide” a junior buyer on the right process to follow in sourcing a certain category.

Innovation is progress by way of the new. It’s what business should be all about.

On-Demand refers to the delivery of software over the internet using the Software-as-a-Service model.

Open Source
Open source is a set of principles and practices that promote public access to the design and production of goods and knowledge. The most common instantiation is open-source software, which makes software freely available to the general public with relaxed, or non-existant, intellectual property restrictions. This allows users to create software content through incremental contributions.

Decision optimization is the application of rigorous analytical techniques to a well-defined scenario to arrive at the absolute best decision out of a multitude of possible alternatives in a rigorous, repeatable, and provable fashion.

Procurement Outsourcing is the act of turning over part, or all, of the sourcing function to an external company.

Risk Management
Risk management is the art of predicting, analyzing, and mitigating against potential risks before they happen.

Scenario Simulation
A simulation is an imitation of a real-world process and can be used to determine potential outcomes under different scenarios. It can be especially useful in forecasting.

Strategic Planning
Strategic planning is the process of defining organizational strategy or direction.

SRM: Supplier Relationship Management
Supplier Relationship Management refers to the art of managing all aspects of a supplier relationship to make sure it is a beneficial and productive relationship.

SPM: Supplier Performance Management
Supplier Performance Management is particularly concerned with measuring, managing, and improving supplier performance on an ongoing basis.

Sustainability is another one of those broad categories that could refer simply to business viability, to environmentally sound practices, or to the broader subject of Corporate Social Responsibility.

Talent refers to people – brilliant people capable of doing a brilliant job – and talent management refers to the art of identifying them, recruiting them, retaining them, and when necessary, retiring them in a positive manner.

Yet another of those over-used and often misunderstood terms, visibility could refer to spend visibility, it could refer to inventory visibility, or it could refer to potential disruption visibility throughout the supply chain (as in a supplier’s supplier needs titanium for its part and there’s a shortage on the market).

The phrase we all hope to say someday when someone asks “How’s it going, dude?”, unless, of course, you’re Canadian, then, when someone asks Howse it gowin’?, you answer Z’allgood, eh?

So, now that we’ve got the basics covered, I’ll put the pieces together in part III.

Still quiet

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