An Interview on the Challenges Facing Procurement Today with Jon Hansen
For this episode of Supplier Experience Live by HICX, we welcomed Jon Hansen. Jon is a renowned writer and speaker in Procurement. Starting his career as a software company founder, he now runs the Procurement Insights blog and hosts a podcast, PI Window on The World Show which airs on Blog Talk Radio. Deservedly, Jon also sits among the Top 50 Global Thought Leaders in this space.
In this episode, we discuss with Jon the challenges Procurement is facing today, including:
- What ‘Procurement transformation’ means in practical terms
- How to approach taking into account the suppliers’ perspective and experience
- How Procurement can step up and take ownership
How Procurement transformed into the function it is today
Jon starts the discussion by explaining how ‘transformation’ is usually thought of in terms of technology, but that it should actually be about the way in which people think and how they approach different scenarios.
As Jon describes, “The technologies today no longer pose the same problems and limitations that were present in an ERP-only environment, yet people are getting no further ahead. They seem to be stuck in a holding pattern. So, what this means, is that transformation is no longer rooted in technology, the technology will do what it’s supposed to do,” Jon states.
Jon believes that a change of mindset is the next necessary step in order to achieve success. Technology cannot, and should not, be the focal point, as Procurement is no longer a transactional function, but is much more strategic and increasingly affected by multiple factors outside the scope of IT, such as geopolitical (in)stability and shifting societal expectations.
In the podcast, Jon cites a series of studies carried out between 2013 and 2018, which revealed that more than 50% of CPOs ‘felt that their current teams lack the ability to enable them to achieve their strategic objectives’. However, he believes the reason lies in the fact that, despite the goals of Procurement changing, the mindset has stayed the same.
“The reason why the skills haven’t caught up is the fact that the mindset, or the view of Procurement, hasn’t changed, and that original role of cost savings and getting the best deal and delivery, and all these things, which are still important elements of the task, are not perceived to be as important as the other factors that come in,” he adds.
Taking into account the suppliers’ perspective and experience
Although Procurement and Supply Chain probably touch all areas of our everyday lives, the turbulent events at the beginning of the decade have made everyone far more aware of the impact of these functions.
“It wasn’t until the pandemic hit that we realized the true depth of supply chains’ impact. I’m sure you’ll agree, if you look at the news and the headlines, we’re seeing Supply Chain and Procurement pop up everywhere,” he states.
Jon mentions that, in light of the pandemic, there were a number of forward-looking organizations that revamped their approach to suppliers, realizing that if their suppliers struggle, they will struggle as well. As a result, they focused on setting them up for success and paying them early, to ensure they were able to continue their operations and deliver on their promises.
“When you have supply networks and suppliers who are going through strain and they only have limited resources and capabilities, who are they more prone to work with? The company that is paying them faster, or the company that’s trying to preserve their cash flow and making them give them longer terms? The people who will stay with the latter are usually suppliers that are in incredible trouble, and they have no alternative or other choice.”
According to another study from 2019, 56% of organizations experienced a security breach caused by third-party vendors. More worryingly, 32% of those buying organizations stated that they were not aware of how their third-party vendors were storing or handling data, while 25% did not think it was even their responsibility.
“So, how do you solve a problem that you don’t acknowledge is a problem for you? Here, mindset is the key. In other words, we have the technology. What we don’t have is the innovative, forward-thinking mindset that we need to have. […] If you look at it, Procurement is the open door where the majority of these attacks occur. Who better than procurement to take the lead on managing that?”
Procurement taking ownership
Over the years, Procurement has had to prove to Finance they are a valuable function. As a result, Procurement has become synonymous with ‘cost savings.’ However, this has been detrimental.
“Procurement doesn’t have to change the way they think to be like a CFO. Procurement just has to recognize their scope of influence. This goes back to the ‘Deloitte 2021 CPO Global Survey,’ which said that Procurement isn’t just about cost savings anymore, Procurement isn’t just about process improvement. It includes all of these other elements,” Jon adds.
A common saying in the community is that ‘Procurement needs a seat at the table’. Jon believes that Procurement has a seat at the table, but it has to take the initiative, own it, and lead the conversation.
“The fact remains that these changes are coming, whether Procurement is ready for them or not. The question is, are we going to be spectators, or are we going to be a driving force in those elements? Are we going to be the ones taking the lead? Somebody has to step in,” he concludes.