By Ram Raghuraman, Founder,
Purchasing started out as a purely clerical/ administration function– come in to work at 9, raise a bunch of purchase orders, speak to the suppliers and coordinate receipt of material, ensure they are paid on time and it was considered a job well done - a far cry from what is expected out of Supply Management professionals these days! Down the line, when economic cycles kicked in and demand became weak, costs became an area of concern. Keeping in line with expectations, the Purchasing Department transformed into a Cost Center with the primary focus being to lower costs, identify waste and help the company improve its bottom line.
The focus on costs alone was never going to be sustainable. Indeed, in the 90’s, the Procurement function morphed into a Profit Center – with ‘value’ becoming the buzzword. The focus expanded to the Total Cost of Ownership and increased use of technology and analytics. In the 21st century, with the advent of modern technology and globalization making mincemeat of geographical barriers, Procurement underwent a final transformation to its current state - a Shared Service Provider, contributing to both the top and bottom line. It is typical for mature organizations to outsource a significant portion of the Procurement function to low cost regions. It is estimated that about 80 percent of the Procurement lifecycle from Spend Analysis to Payment is now done at off-shore locations!
While the function continues to adapt, the strategic importance has come to be appreciated substantially. The terminology has changed as well – gradually, the term Procurement is being replaced by the all-encompassing Supply Management. From being a part of the Finance organization, Supply Management has evolved into standalone function with Chief Procurement Officers (CPO’s) having a seat in the boardroom. With Supply Chains now seen as a key differentiator and a significant portion of operations outsourced, Supply Managers have become critical to an organization’s success.
The Indian Perspective
Procurement & Supply Chain in India is far from efficient - despite a few outliers, a majority of Indian firms still have a long journey ahead of them in their quest for efficiency. With increasing salaries, poor infrastructure and healthy inflation, Indian companies are waking up to the reality that the cost-advantage that they once enjoyed is slowly diminishing.
A majority of the Procurement professionals in India belong to the Shared Services/Global Business Services community. Their day-to-day responsibilities are mostly tactical and their expertise usually is limited to one or few processes in the Procurement Lifecycle. The modern Supply Management professional should be capable of understanding the entire value chain of the organization to uncover hidden costs and efficiencies.
The Technology Transformation
In recent years, new technology has significantly altered the way Supply Management operates. Within the realm of Supply Chain, numerous software providers exist – right from enterprise providers to small lightweight tools that can be plugged in and automated within weeks! By lightweight tools, I am referring to those that specialize in one particular area of Supply Management – say, Spend Analysis, Risk Management, Procure to Pay etc. As companies tries to figure out their technology strategy, two things are vital. One, technology is here to stay. Two, investments in technology should be planned with considerations given to: implementation complexity, cost, having too many tools vs having one bulky, inflexible enterprise tool.
The Future and What India Needs To Do?
Globally, organizations are moving towards having increasingly diverse, cross-functional teams instead of each department functioning independently within silos. This will mean flatter organization structures and the need for quick, agile and responsive decision making. Supply Chain can stand to benefit from this trend as it is one of the few functions that have visibility into most of the departments within an organization; this automatically makes them a sound choice for managing such teams and fill key leadership positions. I recently read reports of certain companies using artificial intelligence to increase process automation (I’m serious, just google RPA Robotic Process Automation) – this has scope to further boost efficiencies while making a lot of current jobs irrelevant. Watch out, the AI invasion has begun!
“From an Indian perspective, a lot of what needs to be done is simple and straightforward. The key lies in managing change and driving attitudinal change in the way we think and operate.” Senior Management and Decision Makers must be the champions of these changes if we are to be successful.
1. Technology & Innovation: We must invest heavily in technology and analytics to keep up with the rest of the world.
2. Manage Talent Gap: Lack of talent and know-how remains a fundamental problem – however, education and specialized certifications can help.
3. Increased Focus on Infrastructure: This will be a challenge at least in the near-term, albeit recent improvements in roadways, railways and waterways which were long overdue.
4. Culture and Attitudes: Both individuals and organizations must learn to be agile, to embrace change and to question status quo.