Evolution of Procurement as a Key Strategic Function
Procurement as we know it today can be broadly defined as the process of acquisition of raw materials and components needed to produce goods. The earliest instance of Procurement is found in the Egyptian Era when scribes recorded the amount of materials and number of workers needed for the construction of the Pyramids on papyrus rolls. Procurement as a function gained prominence in the nineteenth century with manufacturers hiring ‘materials’ men to handle the acquisition of goods.
In the twentieth century, Procurement, though considered relevant, was not seen as a strategic function. During the world wars, Procurement as a function mainly focused on placing orders and was managed by people in clerical positions. This changed in the 1960s when industries shifted their focus to material management. However, Procurement was perceived to be a cost cutting function. This perception changed in the 1970s during the oil crises when it was difficult for businesses to acquire raw materials amidst rising input costs.
Procurement then came to be recognised as an independent function whose aim was to obtain raw materials in a tactical manner. This was a significant shift in perception. In the 1980s, Procurement evolved into a supportive function ensuring that the material quality complied with the required standards and that availability requirements were met. Supplier competition also increased significantly during this decade. This led to organizations focusing on supplier quality and reliability, rather than just cost management. Supplier Management gained importance and remains important to Procurement till date.
In the 1990s, Procurement transitioned to Strategic Sourcing. The objective of Strategic Sourcing was to leverage the buyer-supplier relationships to maximum possible advantage. The focus of Procurement thus shifted to sustaining the buyer-supplier relationship. The Procurement practices of the 1980s and 1990s had to adapt to this change in focus. It was during this phase that the function of Procurement started influencing the decision making process directly. This can be considered the beginning of the modern day evolution of the Procurement function.
As businesses acknowledged that suppliers play a crucial role in achieving business objectives, the strategic significance of Procurement increased. Procurement acted as a link between businesses and the supply chain. Supplier relationships evolved into collaborative relationships. Today, the procurement function is seen as a critical function that helps businesses meet their objectives in dynamic, competitive environments through effective management of supplier relationships. This change can be attributed to the need to reduce costs, deliver value to customers and critical time-to-market success in a highly competitive & rapidly evolving market. Thus, Procurement has evolved from a clerical function to an important strategic function critical to business success.The dawn of Industry 4.0 and the resulting adoption of technologies, automation of repeated processes and Artificial Intelligence (AI) will continue to accelerate this evolution increasing the function’s ability to impact business outcomes.
Has your Direct Procurement process come of age or are you still following a mechanical process with most of your resources spent on repeatable low-end document handling and communication?