Procurement Through the Ages
The Evolution of Procurement
Ferris Bueller once said “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”
He makes a good point, the world is constantly changing, on the move, industries jump from one big innovation to the next.
Without taking the time to pause and reflect on where we’ve come from, it can be easy to forget. Plus, as the saying goes “History doesn’t repeat itself, but it rhymes,” so maybe in looking backwards you can find the next breakthrough or trend.
With March being National Procurement Month there’s no better time to look back and reflect on procurement’s history and evolution than right now.
Before the formal idea of ‘Procurement’ truly existed, the work was still being done.
Greek, Roman, Chinese, and Mesopotamian civilizations also used procurement and accounting principles.
We can thank the Romans for two procurement innovations in particular: risk management in the form of insurance and different contract categories, many of which are still in use today.
Fast forward to the Industrial Revolution of the 1800s and the vast expansion of commerce and supply (and railway) networks.
In his 1832 book, “On the Economy of Machinery and Manufactures,” Charles Babbage argued for the need for a “materials man” who would select, purchase, and track the goods and services in a mining operation.
By the end of the century, the procurement function was being formalized into actual organizations (the railroad’s “Supplying Department”).
What can the Industrial Revolution Teach you About Procurement?
The Industrial Revolution is seen as one of the most successful and pivotal points in American history. Without it, most of the technologies we use today would not exist. Procurement was the key driver for success in the 18th and 19th centuries – it changed technology – and it continues to influence the world today.
The Industrial Revolution highlights the importance of procurement. Here are three lessons we have learned from history:
1. Use automation to take the dirty work off your plate.
Imagine this: it’s the 19th century and you own a business. You don’t have a streamlined way of managing all of your processes. What if there was a better, more efficient way to perform these daily tasks? The Industrial Revolution looked to answer this question, leading to the emergence of new technologies. These new technologies brought forth new ways to automate production – which led to increased output for less money, uncovering savings.
Today, business owners look to do the same, except they have already discovered ways to save. Much like their ancestors they ask, “what if I could do more?” Like the business leaders from yesteryear, today’s procurement professionals are looking to capitalize on automation technology to reduce the dirty work. Their goal is to discover value, but this time, beyond obvious savings.
2. Don’t rely on manual processes to find the best value.
Manually managing multiple suppliers is difficult. Let’s go back to our previous imaginings: your business needs supplies to continue producing your product. In order to find the materials you need, you would have to find the right materials at the best cost, manage the supplier relationship yourself and keep contracts and budgetary records yourself. That’s a lot of yourselves. And when it’s all over, do you really know if you provided the best value for your business?
We have learned from history that manual processes are not always the most beneficial. Today, we look to minimize manual procurement processes and maximize value by utilizing preferred suppliers, catalog management and contract compliance tracking. With procurement software, a simple search will find an item yielding the best value for your business (based on parameters you set which can include cost, geography, etc.), making it that easy.
3. Intangibles win the day.
When you’ve implemented a solution that delivers hard savings, it’s easy to get caught up in the moment. However, when those savings become expected, you need to start looking for something more. Procurement technology does more than deliver hard savings, it eliminates the need for manual processes, boosts efficiencies, and reduces manual errors, leading to more effectiveness. You can spend less time manually performing your procurement processes and use your free time to develop strategies. With the right technology and processes, procurement creates continuous value for your business.
Over the course of history, we have seen many events repeat themselves such as the World Wars and Napoleon and Hitler’s invasions of Russia. What lesson can we learn from this phenomenon? That events will eventually reoccur, and when they do, we should recognize it and use our knowledge of the first events outcome to anticipate the likely outcome.
Take a lesson from history and ask yourself: is my company on the cusp of its own revolution? And how could the right procurement software help that revolution happen faster?
Strategy and Automation
In the 20th century, procurement becomes steadily more strategic and sophisticated, spurred by scarcity (The Great Depression) and World War II. During the wartime boom, purchasing was recognized as a major, vital part of company operations.
Perhaps as important, the function became professionalized during this period. As Purchasing and Supply Chain Management by Robert M. Monczka, Robert B. Handfield, and Larry Giunipero notes; in 1933, only nine universities had purchasing programs.
By 1945, 49 had them. These professionals helped manage the economic expansion of the post-war ‘50s and ‘60s.
Procurement’s next major shift—one in which we still find ourselves in part—was during the ‘80s and ‘90s, when computers and computer networks gave organizations a slew of new tools for communicating and bidding.
The sophistication of this period is evidenced by the fact that organizations began judging suppliers in terms of quality and dependability, not simply lowest price. By the late 1990s, “strategic sourcing” and supplier/supply chain management were all the rage and remain so today.
Beyond automation (i.e. connecting the eSourcing tool and operational systems to automatically create contracts, POs, info records, etc.), modern procurement platforms now offer deep analysis of current and prospective suppliers, helping companies make more informed supplier choices and other business-critical decisions.
Today, procurement is entering yet another exciting period, thanks to technologies like blockchain, IoT and AI.
Together, these platforms are creating what’s known as autonomous procurement. By no means does this mean the end of humans in procurement. Quite the opposite in fact.
Instead, it will empower people to make more strategic value-adding decisions and cut out manual, repetitive tasks.
Roger Blumberg, JAGGAER VP of Corporate and Product Marketing, had a good illustration of this that he used in a Future of Business TV interview:
“Autonomous procurement is really about getting into deep insights for you. So for instance, an autonomous procurement system is going to be, ‘Hey, Roger. Just so you know you’re at a good risk of losing some suppliers out there. Maybe we should go write an RFP for you. Here are the vendors that we recommend that we invite for you to that event. Or “Oh, by the way, Roger. Gas prices or oil prices are going down; you may want to consider renegotiating.”
That’s just the tip of the iceberg. It will run sourcing events, handle all of the manual paperwork, and bring powerful risk prediction and prescription.
All of this will free up time for professionals to spend on negotiations, relationship building, supply chain strategy, risk management and mitigation, as opposed to running sourcing events or processing paperwork and POs.
Job functions will no doubt change but the reliance on people will not. There will always be a place for someone to negotiate and guide strategy which is a lot more exciting than processing paperwork.
The future is bright for procurement, and, in the words of Ferris Bueller “The question isn’t ‘what are we going to do’, the question is ‘what aren’t we going to do?'”