Procurement practices have undergone an evolution over the past two decades. Where once large organization structures spread out the category work and focused largely on goods, today’s procurement focuses increasingly on services. SaaS plays a huge role in this shift, both directly - such as the increase in need to buy SaaS software - or indirectly, through advancements in procurement technology and platforms.
While the old ways of large-scale category management don’t fit the modern procurement model, the benefits of strong procurement leadership remain.
In this month’s Vendr Fireside Chat, we had the pleasure of speaking to a procurement leader who (literally) wrote the book on the evolution of the industry.
Dr. Elouise Epstein is a Partner at Kearney and the author of Trade wars, pandemics, and chaos: How digital procurement enables business success in a disordered world. She is also a procurement and supply chain expert with over 20 years of experience in the space. Over that time, Dr. Epstein has emerged as a strong advocate for the industry, and a self-described “provocative figure” championing excellence in procurement practices.
3 takeaways from a procurement veteran
Dr. Epstein’s current work focuses on advancing procurement practices from the C-suite down, facing the challenges of supply chain strain and economic hurdles, and embracing the automated future of procurement now emerging. She shared some of her best insights and observations of the state of Procurement, the makings of great sourcing leaders, and her vision for the future of the stakeholder purchasing experience:
1. Software – and its procurement – has changed the game
The proliferation of SaaS software has had the biggest impact on procurement practices in the last 30 years. At one time, purchasing focused on on-premise licenses and hardware in a standardized “three bids and a buy” approach to procuring goods.
“Back in the day, you’d build out a complex matrix of procurement organizations with category managers. You’d have a leader for IT, Software, Network, Hardware, Cells & Telecom.”
Those purchases have been replaced by a growing tech stack of cloud-based apps and services. The old-school procurement management process doesn’t translate nearly as well to this new model of buying. While the category leader rationale was meant to create buying experts who niched into a specialty, in practice, it resulted in siloed information and inertia.
“What we found is they were inefficient, none had the data they needed… and weren’t adding to the value of the organization.”
Now with the explosion of SaaS spend, things move differently. And while the game has changed, in Epstein’s estimation many of the players have not. This old-school approach can put procurement in the way of innovation.
"I have a bias against procurement being in the middle. What value are you adding to the transaction? The answer is not much. You want to engineer it so that transaction is seamless to the end user.”
Those strict procurement controls in turn led to some of the most common issues with the tech stack: shadow IT, unmanaged tail spend, and rogue, unchecked purchasing. Again, it comes down to human nature. “If an engineer wants Snowflake, why should procurement get in the middle?”
This is where Epstein sees software taking a larger role in the procurement process. She envisions a process where a chatbot (for instance, integrated through Teams or Slack) can communicate with a new school of procurement platform and create a seamless experience for the stakeholder.
The experience would be somewhat on the line of travel procurement, where you research, book, and (for the stakeholder) the rest of the transaction happens in the background. The platform could enforce any procurement guidelines or price ceilings, allowing the stakeholder more freedom to serve themselves and get the tools they need.
2. “Cost savings” isn’t the desert island KPI
For many years, procurement was focused on one thing: how do you bring down the bottom line. However, focusing exclusively on one golden metric of cost savings can actually leave a lot of money on the table.
As Epstein points out, “Anyone who studies history or human behavior knows that a single metric — or even a couple of quantitative metrics — is a recipe for failure.”
Doing so elicits a certain type of behavior from your teams, which may not drive the best outcomes.
Instead, Dr. Epstein encourages procurement leaders to think about what they add to the organization as much as what they save. A better metric to use as a Northstar, says Epstein, is revenue, with the better approach being to turn your cost centers into profit centers where you can.
“Cost savings is the minimum. That’s what’s expected. How are you going to move the needle on ESG? How are you going to move the needle on innovation? Increasingly, the really good CPOs are taking revenue targets.”
Yes, SaaS spend management is an important part of the game plan. But surfacing those opportunities to save requires companies to have reliable data. It’s a component Epstein sees lacking far too often.
“Right now most companies have historical data but it’s not very good. There are some clients that can tell you with good precision, but by and large, most companies struggle just to get the IT spend categorized.”
This is especially true of IT spend, which often comprises a large portion of the budget.
This lack of visibility makes it difficult to understand your spend or engage in effective cost-saving measures. Ineffective vendor management strategies (AKA, the dreaded spreadsheet) are often the root cause. Often, companies don’t reach out to get their house in order until a deadline looms.
“When something comes up… they reach out to consultants or companies that have benchmarks and might actually conduct market research. It’s all still very nascent and haphazard.” Epstein cites this lack of data as one of the biggest gaps facing procurement right now.
3. The rise of strong procurement management
Procurement has gone through growing pains over the last two decades. Where technology holds the promise of bringing procurement into harmony with the larger org, CPOs must recognize the need for change in order to harness it. What’s needed, says Epstein, is for the industry to champion advancement in the same way that happens for other departments (for instance, Finance).
“I think procurement has struggled. There was a huge momentum in the early 2000s and then we fell back to earth.” Epstein says this lack of forward motion has resulted in flagging performance from procurement leaders.
All is not lost, however. Through the advancement of procurement and its marriage with better technology, the strength of this C-suite underdog is beginning to emerge. “We’re seeing the shift, going back up to very strong leaders coming in.”
Those who are actively looking to forward their career and advance the strength of procurement in business shouldn’t be going it alone. When looking for resources and opportunities, she says, look to your network. That's where you'll find like-minded professionals to build valuable connections and improve your understanding of the complex sourcing and supply chain ecosystem.
If you’d like to learn more about Dr. Elouise Epstein and her work, you can read more about her work here.