As the old joke goes, for corporate professionals, the procurement department is where you go to retire. Indeed, said KPMG‘s Procurement and Operations in the Americas Practice Leader Samir Khushalani, historically, procurement has been viewed within the organization as a cost center that deals with straightforward transactions.
And while technology progressed, with solutions providers developing company-wide infrastructure for businesses to manage all aspects of procurement, Khushalani explained that these technologies were clunky, expensive and ultimately not as effective as they could be.
“Such implementations could take years, especially if you were dealing with global enterprises,” he told PYMNTS. “And it could cost you millions and — I kid you not — even billions of dollars to deploy these huge systems. So, obviously, that becomes a huge source of friction.”
But something has happened within corporate procurement departments over time: Technology only progressed in a way that removed much of that friction, but corporations have begun to shift their fundamental understanding of procurement and its strategic purpose within the enterprise.
Further, Khushalani explained, while procurement professionals have traditionally focused on strategic sourcing, they realize that, while this area is critical, it is no longer sufficient.
“They need to be looking at purchase-to-pay as a compliance engine, to drive compliance of negotiated contracts with strategic suppliers,” the executive said.
That recognition of procurement as a compliance engine isn’t the only driver shaping the way corporates approach procurement. Another is the concept that suppliers aren’t simply vendors but are a collaborative part of a firm’s supply chain and a strategic partner.
“Supplier relationships can be a true competitive differentiator,” Khushalani noted, “and are perhaps one of the most undermined – or un-mined – assets that a company has today.”
Of course, the focus on the front-office customer is also critical; these customers are driving the demand for an omnichannel experience in their own shopping patterns. That’s forced corporations to take a new approach to managing suppliers and supply chains.
“As a company, you need to be able to give that customer the flexibility of omnichannel; you need a supply chain that can support that,” said Khushalani. “You need supplier relationships that can support that as well.”
It’s changed the dynamic of the buyer-supplier relationship, he continued.
“Companies need to not be thinking of competing with other companies; they need to think of their supply chains as competing with other supply chains,” the executive explained. “Having an interlocked relationship with suppliers and visibility into the supply chain is critical for companies’ very survival today.”
As Khushalani mentioned earlier, these shifts — understanding procurement as a compliance engine and as an area to build strategic relationships with suppliers and supply chains — all occur as technology can actually begin to support this approach.
“With the advent of the cloud, systems are easy to deploy and easier to support — and much easier to use,” he said. “They’re inherently intuitive. A lot of those on-premise systems were very powerful, but they weren’t very user-friendly. And what happened was they spent all of this money, but then, people wouldn’t use them; they’d use a telephone to order.”
The usability of these powerful, cloud-based platforms enables procurement professionals to pursue their strategic relationships with suppliers and to elevate their procurement processes, like purchase-to-pay and strategic sourcing, into a function of contract negotiation and compliance.
KPMG’s response to all of this is to collaborate with other procurement technology firms, like Ivalua. This latest partnership, announced last month, aims to guide their business clients in the direction of developing procurement functions into a strategic unit of the enterprise. But already, Khushalani told PYMNTS, corporations are coming to the realization alone that this is the way they need to move forward.
“An increasing number of companies are starting to reshape procurement for what it is capable of doing,” Khushalani stated. “They’re now doing that with the role of CPO elevated.”