Procurement's evolution: Navigating a new partnership with leadership

It almost seems trite to say that the COVID-19 pandemic has been a catalyst for change across organizations, accelerating digital transformation and prompting a re-evaluation of business strategies. But the impact on procurement has been so significant, it bears repeating. 

In this landscape, the role of procurement has undergone a significant evolution, transitioning from a back-office function focused on cost optimization to a strategic partner driving enterprise-wide value creation. As we navigate the post-pandemic era, procurement leaders must seize this opportunity to solidify their position as strategic advisors and forge stronger partnerships with enterprise leadership.

From reactive to proactive: Embracing risk intelligence

One of the key lessons from the pandemic has been the importance of proactive risk management. Traditionally, procurement teams relied heavily on historical data, leaving them in a reactive mode when crises struck. However, the disruptions caused by COVID-19 highlighted the need for real-time risk intelligence and predictive analytics.

Procurement leaders who embraced advanced analytics and intelligence capabilities were able to identify early indicators of supply chain disruptions and take proactive measures to mitigate risks. By shifting suppliers, sourcing from new geographies and rebuilding category strategies, these teams ensured business continuity and provided valuable input for crisis management and risk mitigation strategies.

Moving forward, procurement leaders must continue to invest in risk intelligence tools and cultivate a proactive mindset. Why? Because inflationary pressures, geopolitical risks and supply chain disruptions are on the rise and costing enterprises big. 

For instance, the ongoing conflicts in Ukraine and the Middle East have disrupted supply routes and increased costs. The Red Sea crisis, for example, has led to rerouting ships around the Cape of Good Hope, causing significant shipping delays and increased prices. 

Additionally, the Israel-Hamas war has strained ports in Israel, escalating ocean shipping premiums tenfold. 48% of companies have seen their profit margins shrink due to rising costs, with raw materials being the most affected area. Overall, 84% of global businesses and 85% of US ones report experiencing supply chain disruptions within the last year.

This investment in risk intelligence will not only enhance procurement leaders’ ability to navigate future crises but also position them as strategic partners in enterprise risk management. As Michael Klinger, Siemens’ Senior Director of Supply Chain Excellence, said, “Technology doesn’t give you visibility to reliably prevent supply disruptions before they happen, but it can give you information that can help you respond to supply-chain disruptions much faster than human buyers can.”

Driving innovation through supplier partnerships

We talk a lot about strong supplier partnerships here at DSSI as they are fundamental to who we are as a business and what we help build for our clients. The pandemic underscored the value of strong supplier relationships, with strategic partnerships often being the difference between business continuity and operational halts. Leading procurement teams have long recognized the importance of these relationships, but the events of 2020 and 2021 provided an opportunity to showcase their value to the broader organization.

Procurement leaders can leverage these partnerships to drive innovation and support overall business strategy. By negotiating exclusive contracts and fostering collaborative relationships with suppliers, they can gain early access to new products, materials, capabilities and offerings. This insight can inform commercial, product and innovation strategies, positioning procurement as a catalyst for growth and competitive advantage.

To capitalize on this opportunity, procurement leaders must nurture a culture of open communication and trust with suppliers, fostering an environment conducive to knowledge sharing and co-creation.

One notable example of an enterprise business driving innovation, profit and sustainability through supplier partnerships in the manufacturing sector is Unilever, a global consumer goods company, who partnered with Graham Packaging, a leading supplier of plastic packaging solutions, to launch the 3X Concentrated Liquid Detergent. The goal was to develop a more concentrated liquid detergent that would reduce packaging, transportation costs, and environmental impact.

Innovation Process:

• Joint development: Unilever and Graham Packaging worked closely together, combining their expertise in product formulation and packaging technology. This collaboration allowed them to co-create a new product that met both performance and sustainability goals.
• Rapid prototyping and testing: The partnership enabled rapid prototyping and testing of the new detergent formula and packaging. This iterative process ensured that the final product was both effective and efficient to produce.
• Shared risk and reward: Both companies shared the risks and rewards of the innovation process. This mutual investment fostered a strong commitment to the project's success, leading to a more resilient and productive partnership.

Outcomes:

• Product launch: The collaboration resulted in the successful launch of the 3X Concentrated Liquid Detergent, which transformed the laundry category by offering a more efficient and environmentally friendly product.
• Financial impact: The innovation led to a 1400 basis point gross margin improvement for Unilever, significantly enhancing profitability. This financial success was a key factor in Unilever's decision to sell the business in 2008.
• Sustainability: The concentrated formula reduced the amount of plastic packaging required, contributing to Unilever's sustainability goals and reducing the environmental footprint of the product.

Strategic Benefits:

• Enhanced agility: The close collaboration with Graham Packaging allowed Unilever to respond quickly to market demands and regulatory changes, demonstrating increased agility in product development and launch.
• Long-term value creation: The partnership went beyond short-term cost savings, focusing on long-term value creation through continuous improvement and joint investments in innovation.

Becoming action-oriented value creators

In the past, procurement teams often spent significant time sifting through data to identify trends and insights. While valuable, this approach was time-consuming and reactive. The pandemic has accelerated the adoption of sophisticated intelligence solutions that streamline data analysis and enable faster, more informed decision-making.

Procurement leaders who embraced these technologies during the crisis were able to act swiftly, staying ahead of competitors and delivering tangible value to their organizations. Moving forward, they must continue to leverage these tools to drive agility and responsiveness, positioning procurement as a strategic enabler of business objectives. We outline how AI is transforming procurement, what areas it's impacting and what tools are available to procurement leaders in this article. 

An example of this includes one of our clients, a multi-billion-dollar major industrial products manufacturer, who underwent a significant transformation after being acquired by a private equity firm. The new ownership conducted an extensive review of the company's operations, including its procurement processes and supplier contracts, to identify areas for improvement and cost savings.

Implementation: The private equity firm, in collaboration with DSSI, implemented a comprehensive Maintenance, Repair, and Operations (MRO) strategy that leveraged advanced e-Procurement tools and data analysis technologies. Key elements of this strategy included:

• E-procurement tool: Through its e-procurement tool, Epic®, we streamlined the procurement process, enabling the manufacturer to manage supplier contracts more efficiently and gain better control over spending.
• Data analysis and pricing optimization: The e-procurement tool facilitated detailed data analysis, allowing the procurement team to identify cost-saving opportunities and optimize pricing across various categories of MRO supplies.
• Supplier performance evaluation: The private equity firm conducted a customer satisfaction survey to evaluate DSSI's performance, ensuring that the procurement processes met the highest standards of efficiency and effectiveness.

Outcomes:

• Significant cost savings: The implementation of the MRO strategy resulted in a 27% reduction in sourcing costs for the industrial products manufacturer. This substantial cost saving was achieved through better pricing, improved supplier management and more efficient procurement processes.
• Enhanced operational efficiency: The e-procurement tool automated many manual tasks, reducing the time and effort required for procurement activities. This allowed the procurement team to focus on strategic initiatives and value-adding activities.
• Improved supplier relationships: By leveraging data analysis, the procurement team was able to evaluate supplier performance more accurately and foster stronger, more collaborative relationships with key suppliers.

This demonstrates how an enterprise procurement team can become a value creator. The use of DSSI's e-Procurement tool Epic® and the implementation of a comprehensive MRO strategy not only led to significant cost savings but also enhanced operational efficiency and supplier relationships.

Fostering collaboration and alignment

As procurement's role evolves, it is crucial for leaders to foster collaboration and alignment with enterprise leadership. This involves proactively communicating the value proposition of procurement, demonstrating its impact on strategic objectives and aligning procurement initiatives with broader organizational goals.

Procurement leaders should seek opportunities to participate in strategic discussions, offering insights and recommendations based on their unique vantage point across the supply chain. By positioning themselves as trusted advisors and value creators, they can solidify their seat at the leadership table and ensure that procurement's voice is heard in critical decision-making processes.

Developing a holistic skill set

To thrive in this new strategic partnership, procurement leaders must cultivate a diverse set of skills that extend beyond traditional procurement expertise. Strong communication, stakeholder management and business acumen are essential for effectively collaborating with enterprise leadership and translating procurement initiatives into tangible business value.

Additionally, procurement leaders must embrace a growth mindset, continuously developing their knowledge of emerging technologies, industry trends and best practices. This will enable them to identify opportunities for innovation, drive continuous improvement and position procurement as a future-focused function.

Procurement leadership - a new era

The COVID-19 pandemic has accelerated the transformation of procurement from a tactical function to a strategic enabler of enterprise success. As we navigate this new landscape, procurement leaders have a unique opportunity to solidify their position as trusted advisors and value creators within their organizations.

By embracing risk intelligence, fostering supplier partnerships, leveraging advanced technologies and cultivating a collaborative mindset, procurement leaders can excel at this new dynamic and elevate their strategic impact. The path forward requires a proactive approach, a commitment to continuous learning and a relentless focus on delivering tangible value to the enterprise. 

Those who successfully navigate this transition will not only secure procurement's seat at the leadership table but also position their organizations for long-term success in an increasingly complex and dynamic business environment. If you’d like to dive deeper into this topic, check out our State of Procurement in Manufacturing Report 2024.