Procurement should always be a separate strategic function and be more vital in its outlook, but also must integrate with the business to understand its requirements well in time to go out to the market and get what is required. For the procurement department, it is important to develop key supplier relationships which will enable them the market insights and learn about new products that are going to be in the market and when it is going to be obsolete. Because of these components, it can work very well with the business but remain as a stand-alone function.
A lot of changes have occurred in the near past across the country. We have seen the policies change drastically while the impact of GST is still being felt. A big transition has taken place along the past 30 years. It has been a massive journey which has come with a cost and a lot of game changes have thrown challenges as well as opportunities. Probably what was considered as the destination before, is now the starting point for a journey. Today procurement stands as a science of acquisition that includes everything.
Digitalization is all about data. An organization in Japan handles everything from sourcing to fulfilment which completely work on paperless process. The entire process of procurement to the fulfilment of services is paperless. In India, some organizations have achieved a part of that whole process.
At first, there was only a typewriter and carbon paper along with a book or a piece of paper, but now everything has become electronic. Recently a new transport policy which has come into place requires an e-bill instead of an invoice where just the e-bill no. is necessary for both supplier and the vendor. If caught, it has a fine of 200 times the GST value. The policies have changed the skill sets and the way housekeeping, pantry and other services will operate. Previously, for women, there was only 14% diversity in the workforce level, 25% in the service industry and 5% at the CEO level. But now due to policy changes, 50% diversity is going to come into effect. Another is the maternity policy which insist the amount of leaves to be granted to both the spouses. Transport facilities for women working after 8pm will be provided. Airport industry is also foreseeing a change where people will have to load their own luggage onto the conveyor after getting the boarding pass.
It is estimated that there will be less jobs till 2022 as of now. There was a differentiation between 20 and 5 years of experience. But along the journey, as the momentum changed, professionalism got multiplied by zero. Leadership must be maintained, or it will be equalised. At times it has become a burden. Which is now good news for youngsters at this point, as seven years of experience seems to overcome 20 years of skill.
More and more sourcing needs would be identifying what business actually wants. Increasingly, the traditional role of running contracts and being negotiator, beating vendors down will move away. They would sit very close to business and be integrated with the it. But it’s also important to have this as a central function just to ensure consistency across the organization.
Three keys of how procurement creates an impact on any business
- The top item on the procurement list is financial outcome. Based on the request when the requisition goes out and what it sources back in terms of savings, contributes directly to the border line of any business and creates a huge impact.
- Secondly, it safeguards the interests through proper contract terms which could be in terms of penalties or delivery methodology.
- If a successful set up of extended payment terms with the suppliers is done, there will be a boost in the cash flow as well as business of the organisation.
Procurement is a very significant function in any organisation because when categorised, expense of the company is between the non-HR and HR cost. It is the procurement department which takes care of such needs. There are a lot of value added services which is provided by procurement team. It starts right from saving costs to bringing in efficiency, right partners and customer experience. If there is a need for network expansion of branches or offices, the procurement team will provide scalability. The procurement department needs to monitor and track the utilization to get into the consumption pattern and demand management which will overall contribute to the business.
Now is the time wherein it must be a transformative and a radical change. In the coming years, the roles would change. There will be a trend where companies will seize to have large procurement and would be broken up where all will become business enablers and be a part of business teams.
Transformation is already happening wherein procurement department is not just being looked upon as just releasing a purchase order. There is a lot of expectation from the purchase department to understand the products which a business or a service wants & to understand the scope of what is required, what is good. A lot of it is getting centralized. There should be close interaction between business needs and what is to be procured. It must be two separate functions – one as a business and second as a procurement department looking at values from money point of view.
Key Challenges Which Impacts the Business
- Huge amount of challenge in terms of expectation a business has
- Managing expectations of the users and balancing execution of work and value for money
- Radical change or innovation is expected from procurement department
- The data – If one wants to centralize the cost of rentals and maintenance, they need to collect the data from respective offices and zonal offices which takes time, about a month
- Providing data analytics
- Quality of data, for which there is no analytics behind consumption pattern