Procurement - a tool to achieve strategic value, innovation, and resilience

The pandemic and the war in Ukraine have brought various supply chain challenges across many industries. These events have had a profound global impact, causing layoffs, productivity decrease, a harsher economic climate and dwindling store shelves. As a result, logistics management, procurement and supply chain management have become crucial competitive advantages.

An increasing number of companies are looking for employees with expertise in these areas.

Futuristic thinking

Professor Frank Rozemeijer is one of the syllabus authors for Kristiania´s students in procurement, logistics, and sustainability.  The Dutch professor recently visited Kristiania to meet the students and offer insights into the challenges and opportunities that procurement and supply chains may face in the years to come. Rozemeijer has, since his authorial debut "Revolution in Purchasing" in 1996, had a strong passion for futuristic thinking and the development of the procurement field.

During Rozemeijers visit to Kristiania, we asked him a few questions. In the interview below, the professor shares his insights into procurement’s critical function in our society. He highlights that it is people that make-or-break procurement, and he stresses that we need good people to fill up the many vacancies in procurement.

We need to develop the next generation of procurement professionals.

– In what ways has the coronavirus and the war in Ukraine made procurement more complex? Is efficient procurement more important now than ever?

– The Corona virus and the War in Ukraine resulted in many supply chain related challenges across many industries. Suppliers struggle to deliver their products at the right time – at the agreed prices. Buyers struggle with limited availability and growing scarcity on several supply markets, and with unexpected supply chain disruptions (e.g. Suez Canal blockage, jammed harbors, trade wars, etc.). This

means that it becomes increasingly difficult to keep their factories running. One response that we observe is that buyers invest more cash in safety stocks, most often against higher prices. We are confronted with price inflation in many supply markets, which potentially harms profitability. So, no surprise that CEO’s turn their heads to their Procurement teams and invite them to come up with some proper responses to these challenges. Procurement itself does not become more complex, but the challenges are complex. In order to survive, firefighting is needed, and Procurement is good at that! Procurement needs to develop some pragmatic quick fixes and smart buying to keep the factory running. Next to that, Procurement has a unique opportunity to show its strategic value to the business. What is necessary today is more than just price, (re)negotiations or switching suppliers. In order to cope with the increasingly VUCA (volatile, uncertain, complex and ambiguous) world around us, Procurement needs to conduct in-depth supply chain risk assessments and provide top-management with different scenarios on how to best deal with these supply chain risks.

– What are some of the challenges facing procurement that we can expect more of in the future?

– One important challenge facing procurement is the increasing attention to supply chain risks. We need to become better in identifying major supply threats that slowly approach us (often over many years), but that potentially have a big impact. We have to come up with answers on how to deal with these supply chain threats and whether we are able to withstand them (supply chain robustness) and/or recover quickly (supply chain resilience). The truth is that buyers often do not see these threats because they are too busy with other things, such as finding suppliers, contract negotiations and operational fire-fighting. They do not pay enough attention to long-term developments and too rarely scan the horizon for potential threats.

Next to that, we need to invest in category management and supplier relationship management. A more strategic approach will support companies in being better prepared when the next crisis hits the fan and have the relationships that will help you out.

Finally, it’s people that make or break procurement. We need good people to fill the many vacancies in procurement. They are hard to find, so we need to become more creative in recruiting from other functions, invest more in training and development and start with campus recruitment at universities.

– Kristiania offers a bachelor’s degree in strategic procurement. Why is this a relevant field of study in today’s world?

– It´s great that Kristiania offers courses on procurement! We need to develop the next generation of procurement professionals. We live in a wicked world, with the right skills and mindset to bring the procurement function to the next level. The current generation of students also brings a natural appetite for sustainability (they want to make the world a bit better), and they are digitally savvy. Both are needed to future proof procurement.

The current global challenges provide more work for procurement.

– How will the pending global recession impact procurement?

– It is difficult to predict whether there will be a small or big recession, whether it will be short or long, and whether it will be the same for all countries, or not. What we learned from the past is that recessions, wars and crisis most of the time had a positive impact on the professional development of procurement. The term Supply Chain Management was not introduced until 1982 by consultant Keith Oliver. In an interview with the Financial Times, he spoke about a project he had conducted for Philips on how to control inventory in times of crisis and volatile demand. A few months later, Peter Kraljic introduced his famous portfolio model (1983), giving the procurement profession new impetus. So, there was a lot of attention for Procurement and Supply Chain management in the ‘80s… just like now a period of global crises. Time and again this proves to be a good breeding ground for innovations. So, whatever happens in the coming months, let’s at least not waste this crisis, but do whatever we can to give our profession a new impetus and contribute to solving some of today’s challenges. I’m hopeful!

– How can AI technology be used in procurement? 

– With my team at Maastricht University, we conduct research on the transformational impact of digital procurement technology. So, we have a close eye on the current development, and I must admit I am quite impressed with the already existing AI supported procurement solutions. There are solutions that support advanced spend analysis, produce a short-list of new suppliers for you, conduct price negotiations with your long-tail suppliers, write a new contract for you in a few seconds, and so on. For almost any procurement activity you can imagine, AI solutions can augment and/or automate (parts of) the activity, or even enable autonomous procurement without buyer interference. Currently, ChatGPT provides a clear example of what value AI can bring to procurement in the future. You can ask questions (e.g. what can I do to best cope with price inflation in our supply market?) and chat about the answers and quickly come to some first ideas. The current global challenges provide more work for procurement, at the same time we do not see more full-time employees in Procurement. Digitalization in general, and more specifically AI technology can be used to cope with the increasing job demands and increase productivity significantly.

I believe we have the responsibility to act as a strong force against all kinds of misbehavior of market parties.

– In what ways can procurement support sustainability efforts? 

 – Don’t get me started, in so many different ways! I suggest a read of our latest book ‘Procurement and Supply chain management’ (2022), where we have written a whole chapter (‘Procurement with Purpose’) about it. Attention to sustainability should be integrated in how we specify, how we select suppliers, how we negotiate and formulate our contracts, how we order, how we manage our suppliers and how we evaluate our suppliers. It’s in every aspect of procurement!

– Norway has seen an extreme increase in food prices over the last year. This is due to various reasons such as the war in Ukraine, changing weather and Covid. Do you have any opinions on how procurement can alleviate the pressure?

– Procurement can contribute by continuing to build deep knowledge about the underlying cost structures of the products they buy, andbased upon that knowledge negotiate fair prices with their suppliers. Next, they need to collaborate with their key suppliers to innovate and find creative ways to reduce costs and/or increase value. Procurement is in the best position to fight inflation. However, in the end there is only so much you can do as a buyer. Many stakeholders (i.e. buyers, suppliers, NGO’s, governments) influence what happens in a market. What we see today is that government policies and restrictions increasingly have a significant impact on how markets (can) function, this goes beyond Procurement’s span of control. But, what we can do is make supply chains transparent, not only with regards to costs, prices, risks, sustainability, but also with regard to misbehavior and ethical breaches. I believe we have the professional responsibility to act as a strong force against all kinds of misbehavior of market parties. We need well-functioning markets, with fair prices, especially in Food markets.