McKinsey: Where is Procurement Heading in the Next 10 Years?
With more and more organisations looking to transform procurement into a source of competitive advantage, innovation—especially applying generative AI and other digital capabilities—is set to play a significant role.
That's the view of a trio of Partners of McKinsey, Tarandeep Singh Ahuja, Riccardo Drentin and Mauro Erriquez.
In a McKinsey Talks Operations video posted on its website, the trio share their views on the sector's direction over the next decade.
Tarandeep Singh Ahuja
Tarandeep Singh Ahuja leads McKinsey's product development and procurement work across the Asia–Pacific region and leads the firm's energy work in Australia and New Zealand.
He has extensive experience in strategy, procurement, supply chain and operations, as well as large-scale performance transformations across industries.
He said: "Over the next decade, we'll see procurement becoming a source of competitive advantage for organisations. Our research suggests mature procurement organisations can deliver as much as five percentage points higher EBITDA compared to the less mature ones.
"The days of procurement being a transactional function or procurement people beating up suppliers to get some more cost savings are over. Increasingly, we are seeing procurement move into the space of being a source of bringing in innovation into the company from their supplier ecosystem.
"Procurement will continue to step up its role in driving sustainability and ESG initiatives in organisations. How do you think about driving Scope 3 emissions reductions? How do you think about improving social license for organisations to operate in? And the role that organisations play in the community will become much more important."
Riccardo Drentin
Riccardo Drentin is a Partner in McKinsey's Jakarta office, where he co-heads McKinsey's procurement and product development division in the Asia-Pacific, focusing on sourcing optimisation and procurement operating models.
He said: "[The time] before COVID was really about cost and managing the business as usual; now we see more and more boards of directors, CEOs, and executives asking for procurement to have a say in the big tables and managing much more responsibility. That hasn't been done before.
"We saw a great acceleration of digital in procurement in the past couple of years, thanks to the latest technology like gen AI. This allowed buyers and procurement professionals to take faster decisions more in depth, based on facts as well as bigger quantities."
Mauro Erriquez
Mauro Erriquez is a Senior Partner in McKinsey's Operations Practice and global leader of the firm's product development and procurement efforts.
Based in Frankfurt, he advises clients on value creation, strategy and growth with a focus on the materials, automotive and machinery industries.
He says: "There is a huge opportunity out there, which is AI and specifically the subset Gen AI. I think the potential is by far still untapped.
"This will require a lot of effort, looking at not only the whole data infrastructure but also the way procurement is run. And why can't we think of a future in which Gen AI is taking over a negotiation fully with some of your suppliers?
"That's what's happening already today, every day in a banking system where you have an algorithm negotiating with other algorithms and making transactions for some commodities. I think that's going to happen, definitely.
"Many of my clients are struggling today with finding talent. It's not something that is delegated to an HR department. It's going to be a CPO priority, because only with the right talent can you win the next ten years."
To read more on the thoughts of Tarandeep, Riccardo and Mauro, click here.
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