Future lessons – from the history of procurement

To be a good futurist, you need to be a good historian.

But that doesn’t mean just memorising the facts of history. It means learning how to extract the wisdom of the past. So, if we look at the history of procurement, what wisdom can we extract, and how does this apply to the future of the profession? asks CIPS Chief Futurist Dr Graham Norris in this latest features in our The Great Conversation series. 

The history of the procurement profession, as with most business functions, has evolved through a series of stages, each of which redefined the purpose of procurement. While governments and militaries have been procuring goods and services for centuries, it was only around the turn of the last century that commercial organisations began to scale and require particular individuals to monitor their purchases. The earliest procurement professionals were therefore mostly clerics, adept at placing orders and recording purchases. Their role was based on process with little in the way of decision-making power.

Oil price shocks radically change expectations on procurement 

The oil shocks of the 1970s radically changed the expectations of procurement professionals. With inflation rising quickly, they were expected to be more proactive in managing spend. As cost controllers, they created some of the first materials requirement planning tools and the earliest procurement policies. Their role became more about developing systems that could help companies survive supply shocks.

Supplier relationship skills become king 

In the 1980s and 1990s two emerging trends once again redefined the role of the procurement professional. First, the rise of Japanese manufacturers shifted the emphasis away from cost and toward quality and "just-in-time" delivery. Second, liberalisation driven by the World Trade Organisation created new manufacturing powerhouses, most notably in China. This meant the procurement function had to spend more time as relationship builders, negotiating with suppliers over great distances and in different languages to ensure reliable supplies and consistent quality. The emphasis was on integrating suppliers into the value chain.

Data and efficiency become the focus in an age of digitisation

In the 2000s and 2010s, the proliferation of computing power allowed many previously manual processes to become digitised and automated. Data and efficiency became the name of the game, as procurement got real-time spend visibility and new insights into supply chain vulnerabilities. At the same time, compliance and audit expectations rose, so that the procurement professional started to feel more like a data analyst. The emphasis was on managing risk and wringing out inefficiencies.

Procurement is managing complex risks, with major implications

Throughout this evolution – from clerks to cost controllers to relationship builders to data analysts – the role of procurement has become increasingly strategic. It's no longer possible to simply give a shopping list to procurement and expect a simple response. From having virtually zero decision-making responsibility, the procurement specialist is now expected to exercise their judgement in managing a complex web of risks and requirements that can have serious financial and reputational impacts on their organisations.

As we ride a new wave of change with the rise of AI-powered tools and platforms, we are forced once again to ask the question: What is procurement for?

As well as the evolution of the procurement professional, it's also worth look at the macro-trends that have influenced how organisations have bought things. History has a tendency to run in cycles, and for procurement in particular these cycles appear as oscillations.

The first of these cycles is the centralisation-decentralisation cycle. At a national level, war and crises tend to result in centralisation, such as with the creation of European Coal and Steel Community following World War II. Decentralisation is often driven by political imperatives, such as in Australia under the Hawke and Keating governments, or in India under the reforms of finance minister Manmohan Singh starting in 1991. Companies go through the same oscillations of centralisation, driven by the desire for control and efficiencies, and decentralisation to satisfy customer demands and remain agile. Going forward, we can expect rising tension between the centralising influence of regulation and the decentralising influence of technology.

The other major cycle is of integration-fragmentation. During the second half of the 20th century, the trend was toward integration, with the creation of the European Union, World Trade Organisation, North American Free-Trade Agreement and many others. This century the trend has reversed, with the disintegration of NAFTA, the UK leaving the European Union and most recently the UAE announcing it was leaving the Organization of Oil Exporting Countries.

Forward to the past

To understand how the past applies to the future, we need to examine progressions, parallels and contrasts. Progressions are the ways in which cycles of change build on each other. Parallels are examples of current events that have occurred in similar form in the past. Contrasts focus on what's different or unique in the current situation. Based on these three elements, we can draw three conclusions.

First, while we might not know what the next stage in the evolution of the procurement professional will look like, each cycle up now has endowed the role with increasing amounts of autonomy. This means that the profession as a whole has more influence than ever how that evolution progresses.

Second, we can find numerous parallels between the current situation and history. For example, we are currently facing what looks like a slow-moving energy shock centred on the Persian Gulf. Previous energy shocks have taught us that supplier relationships will increase in importance, and the focus will likely shift from efficiency to resilience in the short term.

Third, climate change is the major new trend that was largely absent from history. Flood, drought and severe weather events are likely to impact supply chains in novel ways, directly and through the environmental regulations that they spur. Procurement professionals will need to see familiar challenges through this new lens.

Play It Again, Sam

There's a saying among futurists that history doesn't repeat itself, but it rhymes, like a song or a poem. So we need to learn the lyrics of the past to understand how they will sound in the future. We may fret about the uncertainties of the future, but the wisdom of experiences, our own and those of others, can unlock many of the mysteries.

Listen to our CIPS Futures podcast epside Think like a futurist: how to make decisions with certainty to hear more from CIPS global futurist Graham Norris.