Purchasing Future Trends 2015 Version of Annual Commentary

Bill Kohnen

Traditional big organization Purchasing Departments are no longer thought leaders as constraints of legacy technology and bureaucratic inertia have foiled attempts to harness emerging technology and align with supply base shifts.

Bill Kohnen Initial Release V1.0 October 2015

Organization

Supply Base

Technology

Bill Kohnen Initial Release V1.0 October 2015

Immediate Change at Core of Purchasing

CloudOpen

Systems

M2MIOTMobile

3 Year Trends Changing Purchasing

Purchasing As a Function is Transformed

The Organizational Themes for 2015

• Thought Leadership coming from new segments

• Traditional Purchasing Departments shrink despite Supply Chain and Purchasing being more important

• Real Introspection and Change at Large Purchasing Organizations

The Technology Themes for 2015

• Expectation of consumer like process and systems that are responsive to constant change

• Mobile, Mobile, Mobile • Cloud based tools enable transactions anytime,

anywhere and meet immediate core needs with short term ROI

• Disengagement from expensive legacy solutions

Supply Base Themes for 2015• Further disruption in the supply base for traditional corporate spend

categories at both the direct supply and wholesale level

• Continued push toward open systems and solutions optimized for task without additional items. Legacy suppliers will fight this.

• Continued shift to everything as a service or subscription

• Continued Logistics and Communications improvements enable truly global sourcing and fulfillment for all

• Indirect Spend once again has attention of CPOs

• Traditional Sales People Disappearing

Themes for 2015 and Beyond • Move towards open software for purchasing

• Emergence of Application based purchasing tools as a first step

• Internet of things and machine to machine interface will ultimately eliminate all tactical manual transactional activity for planning, purchasing and logistics

• Purchasing as a separate function may disappear and merge with IT, Operations, Accounting and Sales Operations

• Advanced printing technology will replace 50% of need for actual shipment of parts for some industries

Skills for Purchasing Pros

• Core Purchasing skills still valuable but applied to process and technology

• Project and change management• Ability to quickly learn, apply and leverage

technical knowledge for direct materials, indirect and internal process

• Global experience even for companies with primarily domestic end market focus

Skills for Purchasing Pros

• Category experts will continue to see opportunity for high pay direct jobs and increasing as consultants.

• Transferable relationships with suppliers where Category experts more directly and cost effectively replace need for companies to engage with expensive consulting firms

Skills For Purchasing Pros

• With Rapid Change and also growth in importance of importance of Purchasing and Supply Chain professionals should be aggressive in reviewing the performance of and opportunities available ,I n their present organizations

• See appendix for one possible approach to that

Purchasing Professional Compensation Trend and Forecast

1985 1990 1995 2000 2005 2010 2015 2020 20250

20406080

100120140160180200

Relative Compensation

Year

Com

pens

ation

Real Salary Growth

Back to 2005 Level

CPO Challenges

• Adoption of Technology Enablers in Purchasing• Massive changes and disruptions with other

functions within their own organizations• Creating complete transparency across supply chain• Alignment of supply chain resources with

organizations strategic goals• Escaping the grip of expensive legacy systems and

process which constrain opportunity and innovation

Questions and Discussions• Why the shift in thought leadershipThe typical big companies that appeared on Purchasing Magazine cover stories may have never really been that innovative to begin with and just had big spend numbers, leverage and more resources to be early adopters of enterprise systems. Now those legacy systems constrain innovation and all have pretty big gaps in core purchasing areas. Also US companies stopped supporting training and professional memberships. Alternatively small to mid sized companies and those outside of the US do not have legacy constraints and innovate out of necessity and interest .

• What will eliminate the barriers that have held back innovation and technology adoption?

Continued move toward open systems and cloud solutions which will disrupt old solutions and process. Also general trends related to big data, mobile, Internet of things (IoT)

Questions and Discussion

• What do mean introspection by big Purchasing organizations

Big companies have spend lots of money on purchasing systems yet still miss on capturing savings negotiated and sustaining gains. Furthermore, the core activities and concerns and complaints of Purchasing functions have not changed much in 100 years. Past and most recent technology basically just improved efficiency of 100 year old approaches that ultimately are not responsive enough today. If Purchasing organizations do not respond fast the functions will be distributed elsewhere and literally purchasing as a separate entity could disappear like drafting departments, secretarial pools etc…

Questions and Discussion• What is the career path to be a purchasing leader?Not only working in Purchasing. Experience in other functions and also locations. Project Management and IT experience helpful

• You say Indirect spend is back on the agenda why and what are people doing?One reason is because it never goes away and even short term lack of attention results in quick loss of previous gains. So back to being easy source of saving if you can get right category managers and put tools in place to capture and sustain savings

• Some have declared Strategic sourcing has squeezed all that there is from suppliers already

Supply Chains are not static. Neither are products. It is an ongoing process that works whether done manually or with the help of software tools. It does require professional knowledge of process and project management.

Questions and Discussion• Describe the future look of a purchasing groupDistributed, Global, Smaller, Broader Skills. Center led but team located globally. Staff meeting important but also held globally.

• What is the relevance of China?Reality is China is the worlds manufacturing engine but costs are rising and there will be more focus on efficiency and process. This will mean purchasing professionalism and use of tools will continue to increase creating opportunities for western professionals in China.

• What non cost KPIs will be importantCorporate Social Responsibility, Contribution to customer satisfaction and growth

• What is the next buzzword or initiative we all will be chasing?Transparency at all tiers of the supply chain . Consumer like interfaces.

Questions and Discussion

• Describe specific technology that will change purchasing

Big Data, Cloud, Mobile, Machine to Machine, Printing, Internet of Things

• What will the job situation be for Purchasing pros?Continued strong opportunity for category experts. General hiring picking up. Lots of activity for Indirect Purchasing leaders that not only know the space but can also put new process and technology in place.

Questions and Discussions• Discuss future of sourcingIndeed we have access to more information and sources than ever and can identify these easily via the internet. However, the process of actually engaging with and investigating suppliers still is arguably getting harder as companies have reduced the level of sales staff. Buyers have to work as hard as ever at sourcing.

• Discuss future of Supplier RelationshipsLots of focus on this from purchasing side but generally is addressing things from old paradigm of Buyer and Sales person relationship. Many suppliers are essentially eliminating sales and support with automation. How can you have a relationship with an automated system. It will become more important to actually visit key suppliers and meet and build relationship with live people there.

Bill Kohnen Initial Release V1.0 October 2014

CPO/Purchasing Leader Level 3 Year Roadmap

2015 Distributed Organization with more Category Expertise

Internal and ExternalMore time spent recruiting.

Disengagement from Legacy Systems Move to cloud Aps

for pain point needs

Traditional Metrics continue to lose relevance replaced by

insights from big data analytics

Indirect as an area of focus and value

SRM challenges as Suppliers CRM changes

2016 Global recruiting and development. lines blurring

between traditional department and career paths

Integrated Cloud SolutionsAP Driven Purchasing in Place

Multi tier Supply Chain Transparency takes hold

Emergence of M2M

Traditional corporate Indirect suppliers disappear or leave

marketsEven for hardware and

commodity companies IT related spend rivals direct

material spend

2017Direct Staff professional,

Strategic. Self directed cross functional and aligned directly

to revenue.Recruiting and training take up

larger portion of time and budget

Integrated end to end cloud based solution drive innovation and open

standards begin to emerge

Integrated Data fully enables organizational best Total cost

decision making

Integration with key supplies systems

Open or AP based integration with others

Sourcing is still important

OrganizationTechnology and Metrics

Supply Base

Appendix

• Individual and Organizational Assessment Framework.

Assessment Tool

– How does your Purchasing Department Compare?

– More Importantly how are things going for YOU professionally and should you make a change?

Purchasing Assessment

For Organization• Review 10 Critical Areas• Rank 1 to 10• Guidance given for Low

Mid Range and High Scores• Multiply total by 10• Compare total score to

scale

For Individuals• Review 10 Critical Areas• Rank 1 to 10• Guidance given for Low

Mid Range and High Scores

• Multiply total by 10• Compare total score to

scale

Both Assessment Tools developed based on proprietary Purchasing benchmarks including objective and subjective inputs and multiple direct interviews.

Purchasing Individual Assessment

Area Rank1 5 10

Travel to interesting places with good travel policy No Some travel with stringent policiy High impact and intersting travel with travel policy

supportive of you

Seminars and TrainingNot encouraged and out of pocket

When budget availible and limited scope

Viewed as vital to continued improvement and development. Minimum one seminar and one training annualy. Global scope and locations preferred.

Raise and Bonus No Small Raise Raise and Bonus Better than Last yearRecognition by Executives outside of purchasing No Ocassional Recognition from

Functional Executives C Staff Level

Nice work environment free coffee and sodas No Corporte Cube with Free Coffee Innovative Workspace with food and refreshments

to make day niceOccasional acceptable entertainment from supplier No Lunch, Golf or Game ticket, candy at

ChristmasOffsite working seminars at interesting places, Attend Supplier Sponsored Charity Events

Boss takes team to lunch or dinner sometimes Never Corporate Lunch at Christmas Sincere both at work and also when traveling

Good Purchasing system and resources like computers, smartphone and company credit card

Manual and you provide everything

Basic resources SAP or Oracle with Dell Computer and reimbursed for cell phone

Innovattive use of traditional ERP combined with best in class cloud based Purchsing tools. Computers and Smart phones with gloabal reach provided for and paid directly by company

Flexible work hours when needed Clock in and out

Basically yes but not consistant in organization and required to us vaction or make up hours

Yes as focus is on results and team and not rewarding just showing up

Good CoworkersRack and Stack Competitve work enviornment

Friendly work Enviorment Coworkers that have diversity of skills and talents that work together to improve and exceed goals

Individual Assessment Results

• Above 90 Dream Job

• 70 to 90 Great• 40 to 70 Normal• 20 to 40 New Job?• 0 to 20 Change

Dream Job Great place to be opportunities for even bigger things

Normal You can do Better Better ways to earn a living

0

10

20

30

40

50

60

70

80

90

100

Individual Results

Comment

Scor

e

Purchasing Organization Assessment

Area RANK

1 5 10

Spend Categorized Not Sure what this means Focus on few perceived critical areasGlobal data readily availble with spend leaders and teams assinged with subject matter support as needed

Total Cost Do not measure Cost Savings Focus Total Cost view with link to revenue as well

Internal Measurement None Lagging Measures Leading Measures in place to track path to success

Supplier Site Visits Never Based on need and budget. Focused on audits Formalized results driven reviews on a regular cadence

Direct materialsOrder and plan Manually as needed Supplier Management approach with key Suppliers

Suppliers dirctly aligned with plans with transparent communicatins

Indirect material Just place ordersMaanged Locally but primary decisionmaking with requestors Streamlined Globally Integrated webbased tool

Training None Relevant training when budget availibleGlobal Program Fully Funded Including Seminars and Experiential OJT

Place in Organization No Formal Purchasing Function Reports to Level below Executive Staff CPO Level

Supplier Performance Measurement No Only to meet audit requirements Integrated Global System with real-time data focused on few

key measures

New Product Development Not Involved Brought in Occasionally Integrated as part of process

Purchasing Organization Assessment Results

• Above 90 World Class• 70 to 90 Great• 40 to 70 Normal• 20 to 40 Developing or

Stagnant?

• 0 to 20 Not Relevant

World

Class

Great

Normal

Stagn

ant o

r Dev

eloping

Purchasi

ng Not R

eleve

nt0

20

40

60

80

100

120

Organizational Result

Comment

Scor

e

Combining Assessments for Action

• Consider scores together.

• In some cases requires very personalized consideration

• Take Action if needed

• Celebrate now or when you get what you want!!!

Requires further self review and adjustment. Maybe temporary issue. Try to fix things in 2014 but start networking.

Stay where you are!!!

If you like Purchasing find job at a new company. If

you like the company move to new department.

If you are happy no need to change unless you

want growth opportunity

Org

aniza

tion

Individual

100

100