This was the headline from one of the most respected consulting companies in the world (McKinsey) “A new era for procurement: Value creation across the supply chain” and I must admit it caught me by surprise. Surprise because I thought we had moved way beyond talking about moving to Value and should have been a long way by now. I am not at all comparing us to McKinsey, but we took major hits when we declared the death of Strategic Sourcing many years ago (2010) and shifted our entire Maturity Model to add a new Level 5 (Value Creation) at that time. That is to say that our clients and alumni have been singing from the Value hymnal for many years and have been diligently working towards it, so I am a bit surprised that McKinsey is talking about it now.
Here are some interesting points made by our esteemed colleagues that merit repeating. It’s increasingly clear that the resulting shifts in how people live, work, and play are not temporary but structural and we could not agree more having written about this a few times to point out that these changes are permanent, and we need to reflect that in our thinking. They go on to say, Consequently, chief procurement officers (CPOs) who have successfully navigated uncertainty in recent years have become indispensable partners to the executive suite. This is the exact reason we recommended a new organizational competency called Response Lead Time (blog link) and encourage every CPO to focus on this. This is also why we went even further in our Maturity Model and added a Level 5.5 (2020) which encompassed a post COVID level of competencies oriented towards the permanent added uncertainty.
McKinsey identifies four megatrends and two of them are significant to point out.
Procurement leaders are therefore shifting focus from cost improvement alone toward resiliency and assistance to businesses that are adapting to volatile market conditions. And if you are clients, alumni or readers of this blog, you know that we have been preaching this mantra for a verrrrrrrry long time 😊.,
The task for procurement departments is to attract and nurture candidates with competencies needed to unlock value……. And I’m not going to harp on this point anymore 😊.
The most interesting point in the article was what they call “The new currencies of procurement” and these include things like Improving net margin, collaboration between procurement and sales, ensuring volumes and enhancing growth, contributing to carbon goals, etc. etc. Again, most of you should recognize these as Strategic/Stakeholder Value Drivers. This has been a cornerstone of our practice for a couple of decades now – to move away from a cost only focus and start addressing the real Value which is always defined by the Stakeholders and not by us. In fact, that is the major and probably the only reason for resistance to the efforts of the Sourcing/Supply Chain functions – is this mismatch between cost and Stakeholder Value Drivers.
Our colleagues end with a prediction of “Toward ‘Procurement 2030 that comprises three critical challenges for the CPO: becoming an end-to-end value entrepreneur, expanding into new venues of value creation, and building the organization of the future”. We could not agree more and have been preaching similar messages for a while to all our clients and readers. It’s nice to receive validation from the likes of McKinsey and I say that with the utmost humility.
Starting on Tuesday, October 10th we will be launching a weekly video series in addition to our blog. Our first topic will be ON Navigating Uncertainty AKA Risk Management. Please “tune in” and let us know what you think.
