In today’s commerce-focused world, it would be impossible for most businesses to function without procurement. Put simply ‘procurement’ describes the act of acquiring goods and services, products and materials (including negotiating terms) required to run an efficient business. A quick trawl through LinkedIn shows there are around 19.6m people with ‘Procurement’, ‘Sourcing’, ‘Purchasing’ or ‘Buying’ in their job title (about 2.4% of all people on LinkedIn); there are over 220,000 companies offering procurement-related services, products or solutions across this landscape and there are approximately 25,000 current sourcing-related roles advertised across the platform. Today, Procurement is recognised as strategically important both as an ‘activity’ and as a ‘department’, and it’s riding the crest of a Digital revolution that will change the industry forever. 

But where did it all begin and how has this journey evolved over time? 

Humble beginnings

‘Procurement’ can claim to trace its roots back to the early civilisations – when Scribes used papyrus to record the materials & labour used in the building of the pyramids, and the Romans introduced contracts to record the transaction of goods. The Middle Ages saw various schemes to record land, property and livestock for the purposes of taxation on the holding and exchange of items. The derivation of the word ‘Procurement’ comes from the 14th  Century and to the Medieval Latin word ‘procuramentum’, meaning “the process of bringing something about (by the action of another)”. 

The ‘Materials Man’ in the “Supplying Department”

To understand when ‘buying’ really started to emerge in the business world in a recognisable way, we probably need to fast forward to the First Industrial Revolution, which began around 1760 in the textile industry in the UK, with the invention of steam powered machinery. This resulted in the migration from hand production to the building of factories and the need for supplies to keep them running. Hot on its heals, in the early 1800s came the invention of the steam locomotive and the building of the railways. These projects were hungry for raw materials and the role of ‘Materials Men’ emerged. By the end of the Century this buying function was being formalised into the first “Supplying Departments”. 

The Professionalisation of Purchasing

The introduction of electric power heralded the Second Industrial Revolution in the 20th Century, and with it the concept of mass production. By the early 1900s local purchasing associations had formed in at least 10 major cities in the US and these came together in 1915 to form “The National Association of Purchasing Agents (NAPA)” (which would ultimately become the Institute for Supply Management). In 1916 it held its first convention and launched a magazine, The Purchasing Agent – a forerunner to Inside Supply Management magazine. 

During the 1930s, in an effort to continue to professionalise this “purchasing” function, NAPA focused on improving education and developing standards across its expanding network. In support of this, Harvard Business School published two purchasing textbooks and developed case studies about purchasing issues, all under the auspices of NAPA. 

Meanwhile, in the UK, a gathering of Purchasing Managers came together in 1932 to form the Purchasing Officers’ Association (POA). 

This wider buying capability across the Western world, started to come into its own in handling the shortage of supplies that occurred during wartime. Then, with the return to a peacetime free market, purchasing executives faced new complexities of higher costs and increased demand, which required a different and more structured approach to the role. 

By the 1950’s and ‘60s, organisations began to realise that purchasing was spending, on average, half the corporate sales income! This resulted in Leadership teams putting pressure on these buyers to begin to make a positive contribution to the strategic goals of the company. This elevated the role from undertaking simple clerical tasks – no longer was Purchasing acting as a mere agent but it had been transformed into a vital management function. 

To reflect this fundamental shift in Purchasing’s role, in 1967, the Purchasing Officers’ Association in the UK became known as the “Institute of Purchasing & Supply”, and was fast becoming the central reference for industry best practice. A year later, in 1968, NAPA followed suite and changed its name to the “National Association of Purchasing Management, Inc. (NAPM)”. 

Recognising that professionalising an industry required the ability to ensure practitioners had the requisite skills set and had achieved certain measurable standards, in 1974, NAPM introduced the Certified Purchasing Manager (CPM) qualification – the first professional certification in the field. 

People, Process and Technology

The next significant shift for Purchasing came during the Third Industrial Revolution, which began in the ’70s in the 20th century and has picked up pace ever since! The key influence at the start of this period was the commercial development of the computer. Often referred to as the period of “Automation”, the computer allowed basic or standard repetitive procurement tasks to be processed automatically. With the computer came the natural emergence of Software companies (e.g. SAP was founded in 1972 in Germany, Microsoft in 1975, Oracle in 1977 in California) and the creation of solutions to manage a range of tasks from business operations, customer relations to financial management and ultimately the birth of ERP systems. 

Alongside the software companies, came a new world of Services companies, to support organisations through a significant era of change. The general business consulting companies of the first half of the Century became global Management Consulting firms, with bespoke divisions focused specifically on the procurement function; a new wave of specialist Procurement Companies emerged along with the new kid on the block, ‘Outsourcing’.  

Outsourcing allowed organisations to engage with specialist 3rd-party service providers to manage non-core functions and activities – initially at a category level, but ultimately sometimes as a wider function. These services providers not only provided the people (or in some instances, transferred them from the client with the function) to provide the service, but also sought to implement standard best practice procedures to drive operational improvement. It wasn’t long before these organisations introduced technology platforms to drive more effective project management and buying portals to simplify the ordering of standard items and elements. 

From the client’s perspective, this required a seismic shift within the Purchasing organisation, as it evolved from a simple ‘buying function’ to a ‘Category or Supplier management’ function, leading to the development of a whole new skill-set associated with managing the performance of 3rd-party strategic partners. 

As the field grew in complexity, and became more global, purchasing professionals were becoming increasingly responsible for the supply of goods and services. To more accurately reflect the scope that the profession encompassed, NAPM members voted to change the organisation’s name to the “Institute for Supply Management (ISM)”, which became effective in January 2002. In a similar vein, in the UK, the “Chartered Institute of Purchasing and Supply“ (as it was known by then, having received a Royal Charter in 1992) changed its name in October 2014 to the “Chartered Institute of Procurement & Supply”.

If the ‘80s/’90s were all about this strategic management, the 00’s saw a focus on using e-procurement tools to simplify the procurement process – from eRFX platforms to e-Auctions – and to drive competitive tension in the supply chain. This approach, effective though it was in a one-dimensional way, helped to compound an increasing global view that Procurement was becoming fixated with ‘Cost’, often at the detriment of ‘Value’ (this is a mantle that the industry is still trying to rid itself of today).

Plotting the evolution of the procurement function over time, you can see it perfectly reflected in the associated job titles. From ‘Buyers’ in the 1950’s, to ‘Purchasing Managers’ in the 1980s, to ‘Procurement Directors’ in the ‘00s to the “Chief Procurement Officers” of today, the escalation in importance that the wider world of Procurement plays in the Corporate environment is self-evident.

All this suggests that Procurement has come all long way in a relatively short period of time. But, it’s not done yet, not by a long stretch!! In many ways, it’s beginning to feel that we’re only just getting started! 

The Digital Procurement Transformation

There’s a revolution that’s happening all around us in our everyday lives from a technology perspective – what is increasingly referred to as ‘The Fourth Industrial Revolution’ (4IR).

As Klaus Schwab (Founder and Executive Chairman, World Economic Forum) says “We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before. We do not yet know just how it will unfold, but one thing is clear: the response to it must be integrated and comprehensive, involving all stakeholders of the global polity, from the public and private sectors to academia and civil society. The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.

There are three reasons why today’s transformations represent not merely a prolongation of the Third Industrial Revolution but rather the arrival of a Fourth and distinct one: velocity, scope, and systems impact. The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

Whether consumers or businesses, customers are increasingly at the epicenter of the economy, which is all about improving how customers are served. Physical products and services, moreover, can now be enhanced with digital capabilities that increase their value. New technologies make assets more durable and resilient, while data and analytics are transforming how they are maintained. A world of customer experiences, data-based services, and asset performance through analytics, meanwhile, requires new forms of collaboration, particularly given the speed at which innovation and disruption are taking place.”

This is driving change in the Procurement function, faster than the previous 100 years combined.

We’ve now entered a new world of Digital Procurement, where disruptive 4IR technology is shifting Procurement from a one-dimensional supply management / cost control function, to a proactive and disruptive force of change throughout the organisation. 

Global organisations have rarely had to deal with change on the scale they face today. Pressures from this wave of Digital Transformation, combined with challenges brought on by the global pandemic and increasing pressures to do the right thing as far as the planet is concerned, are forcing these organisations to act, and at a pace they’ve not historically been known for, or been geared to manage without support from external expertise. 

Enter the ProcureTech start-up community – bringing a level of innovation, digital problem solving and agility that today’s CPO is looking for in seeking to address the multi-faceted challenges that Procurement, and the organisation as a whole, is now faced with.

As Digital Procurement World (DPW) puts it, “digital procurement isn’t just about using new platforms and technologies – it also requires new ways of working and a determination from the top to drive through meaningful change. In recent years, a revolution has taken place in procurement – a transformation that has brought sweeping changes to how functions operate and what they can achieve. Central to these changes is the shift from the old idea of procurement technology that focused on a single, closed-loop, end-to-end system. This has been replaced with the far more flexible ideal of a digital backbone tying together a myriad of bespoke solutions from different providers – the best of breed ecosystem.”

Global organisations are reaching out to this dynamic start-up community (of over 4,000 solutions according to the ProcureTech platform) to deliver this agility. As Dan Bartel, CPO of Schneider Electric, explains “75% of the innovations that we embed are coming from start-ups now and 25% are coming from our strategic suppliers – 5 years ago that ratio was reversed.”

Ultimately, though it depends on how far Procurement is willing to go to utilise the new technologies at its disposal. As Jacob Larsen, ex-Director of Digital Procurement at Maersk and Founder of boutique Digital Procurement Consultancy firm Moneyball CPH, says: “the term Digital Darwinism can be used regarding procurement – the solutions are there, but the question is whether Procurement as a function is ready to adapt to the new digital opportunities.”

Dr. Elouise Epstein, Thought Leader and Partner at Kearney adds “the technology landscape of the future will be an ecosystem of flexible tools. Companies need to take a future-proof approach, which means sourcing intelligent, individual technologies that can be updated as they evolve.”

Adrian Friederich, Maersk Growth, summarises the opportunity perfectly when he says “if we can get procurement digitalisation right, the potential is huge, in the best-case scenario, procurement could become a competitive differentiator, anchoring the supply chain and driving collaboration with a wider ecosystem of partners.”

The most forward-thinking organisations in this space are waking up to the fact that data, analytics, insight, AI, blockchain technology, etc. are the currency of progress. A new era of intelligent procurement has dawned. As Lance Younger CEO & Founder, ProcureTech, says “Procurement leaders are looking further ahead. They are creating ecosystems of solutions, anticipating the adoption of new technologies, driving digital-first delivery across the supply chain and embedding agility in preparation for future changes“.

The era of functional technology as a way of simply automating manual processes is over. Today’s CPO is looking for solutions that have real impact on the actual procurement decision being made. They are looking for solutions that deliver real-time intelligence at the point of purchase; that offer instant decision-making and the ability to optimise every purchase using the power of AI; solutions that allow their teams to make decisions that consider the impact on the environment and the effectiveness of the product or service – not just the efficiency of the purchasing transaction and cost; solutions that enable decisions to be based on what’s happening in the marketplace and take into consideration the impact of global events.  

At Axiom, this is where we’re focused, and we call this Procurement-Intelligence. 

As part of the wider ProcureTech landscape, we’re unlocking the value trapped in organisation’s procurement data.  Applying AI to completely revolutionise the procurement landscape, taking complete control of all relevant data and creating a data foundation, that allows for AI-generated price prediction, ESG prediction, demand prediction, effectiveness prediction and risk & compliance management capabilities, to ultimately enable organisations to make more effective, more efficient, more sustainable and more inclusive buying decisions, in real-time. 

As Dr Elouise Epstein says, “the greatest time to be in Procurement is NOW!”  It’s certainly a different landscape to those Scribes and their papyrus!