Procurement has come a long way over the years, evolving from a simple purchasing function to a strategic business process. The evolution of procurement has been driven by various factors, including technological advancements, changes in market dynamics, and the recognition of the purchasing potential to generate savings and improve operational efficiency.
In this article, we will explore the key stages of the evolution of procurement, from the traditional purchasing model to the modern strategic procurement function. We will also discuss the challenges and opportunities that Procurement Specialists face in today’s rapidly changing business landscape. Join us to trace the journey of procurement and discover the strategies that have shaped its evolution. Check out The basics of the Procurement Management.
๐๏ธ History of procurement ๐๏ธ
The history of procurement dates back to ancient times when Egyptians, Romans, and early Britons initiated the first activities related to securing raw materials. During those times, procurement was more of an organizational task than a strategic one.
However, with the development of industry in the 19th and 20th centuries, purchasing began to play a crucial role. For example, during the Industrial Revolution in England, the significant demand for mineral resources for the growing mining industry required effective procurement.
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๐ Procurement and pyramids ๐
Purchasing played a crucial role in the construction of ancient Egyptian pyramids.
To build these massive structures, Egyptians had to effectively manage the procurement of resources and labor. The procurement function was crucial in this process.
One significant aspect of procurement was the management of raw material supply. Egyptians needed vast quantities of stone, wood, and tools for pyramid construction.
The delivery of these materials was tracked and managed by workers known as scribes. Scribes played a crucial role in managing orders, tracking deliveries, and ensuring the quality and quantity of delivered materials.
In this way, scribes performed organizational functions, ensuring not only the delivery of the necessary materials but also tracking the construction process and managing labor.
Thanks to this procurement role, pyramid construction was possible, despite its immense scale and challenges.
๐ ๏ธ Procurement revolution ๐ ๏ธ
The procurement revolution is a crucial moment in the evolution of the procurement function. It involved transforming procurement from an organizational function into a strategic role that influences competitive advantage.
During the Industrial Revolution in the 19th century, procurement gained greater importance. In Marshall Kirkman’s book “The History of Entrepreneurship,” he describes how procurement played a key role in the development of the railway industry. Kirkman writes about the emergence of strategic planning in the procurement process and the advent of the first procurement departments, tasked with providing essential goods and services to railway companies.
๐ Procurement is changing again ๐
After the end of World War II, the procurement function underwent another change. In the post-war years, due to shortages of raw materials and supplies, procurement primarily focused on office and administrative functions. All available resources were carefully managed, and procurement processes relied on meticulous record-keeping, documentation, and reporting.
However, in the mid-20th century, the procurement function began to play a more strategic and managerial role. This phenomenon was particularly evident in the industrial sector, where growing demand for raw materials and supplies prompted organizations to implement competitive tenders to select the most advantageous Suppliers. This new direction required procurement professionals to develop negotiation skills and effectively manage supplies.
In the 1980s, another breakthrough occurred in the procurement function, driven by increased competition among Suppliers. The presence of many companies offering the same products or services forced organizations to take a more rigorous approach to evaluating the quality and credibility of Suppliers. Organizations began to engage in monitoring and auditing their supply networks to ensure compliance with specified standards and minimize risk. Collaboration with Suppliers to improve the quality of products and services also increased.
Finally, by the late 1990s, a transition to strategic procurement took place. This concept assumed that Suppliers become partners of organizations, and relationships are based on long-term agreements. Instead of competitive tenders, organizations focused on setting strategic goals and values with Suppliers, allowing for synergy effects and joint development of innovative solutions. This new procurement model required procurement professionals to have skills in relationship management, innovation, and strategy.
๐ก Procurement today and in the future ๐ก
Currently, the procurement function plays a strategic and crucial role in organizations. Procurement professionals influence strategic decisions regarding supply chain management, translating into gaining a competitive advantage. The support of new technologies, such as e-procurement and artificial intelligence, has revolutionized the way procurement processes are carried out.
E-procurement facilitates and accelerates order management, providing access to a wide base of Suppliers and excellent data visualization. Artificial intelligence, on the other hand, supports decision-making by offering order optimization and demand forecasting. These technologies provide automation and reduce administrative burdens, allowing procurement professionals to focus on more strategic tasks, such as building relationships with Suppliers and negotiating favorable agreements.
One of the most promising technologies for the future of procurement is blockchain. Blockchain provides a secure and transparent environment that can revolutionize procurement processes. With blockchain, tracking and authenticating transactions are possible, minimizing the risk of fraud and abuse. Additionally, blockchain enables the creation of smart contracts, eliminating the need for intermediaries and speeding up the procurement process.
The procurement function continues to evolve, becoming increasingly strategic. Procurement professionals are crucial for achieving business goals through continuous improvement of Supplier relationships, risk management, and cost optimization. The development of technology and changes in the business environment will continue to shape the future of procurement, providing organizations with a competitive advantage.
Summary
Procurement has evolved from a simple administrative function to a strategic contribution to organizational development. Knowledge of the latest technologies and the ability to build relationships with Suppliers are crucial competencies for procurement professionals in a dynamic and competitive business environment.