New opportunities are emerging for organizations to leverage procurement for a competitive edge and sustainable impact. However, global supply chain complexities and market shifts pose challenges. In this McKinsey Talks Operations episode, Mauro Erriquez and Dominique Lebigot discuss how procurement can drive advantage. Daphne Luchtenberg hosts, with Marc Sommerer joining to explore further.

Unlock the Potential of Procurement in a Changing World

Section 1: The Evolution of Procurement

Procurement has always been a dynamic function, reinventing itself every ten years. Dominique Lebigot started her career in procurement 30 years ago and has seen different challenges in various industries. Mauro Erriquez's clients find the current period highly challenging, but Dominique believes it's just the start of a new reinvention and not more complex than the past.Today, strategic procurement operations optimize product design and material sourcing, improve sustainability, and manage volatility. It's no longer just about administrative tasks but about driving business strategy.

Section 2: Priorities for Procurement

The first priority for CPOs is to be aware of the next ten years' trends and prepare their organizations. Dominique's organization is working on disruptive concepts like impacting business growth through procurement.Some of these topics focus on how procurement can have a greater impact on the business. For example, moving from traditional procurement to focusing on circular economy practices and reducing carbon footprints. AI will automate transactions, changing the role of buyers from managing tenders and negotiating prices to managing supplier ecosystems.Relocalizing sourcing and organizing the circular economy will be more expensive but necessary to create value and reduce costs. Vendors will need to sell services rather than products, reducing property transfers and creating new jobs.

Section 3: Cost Savings and Circularity

Thicker-walled bottles may cost more initially but can lead to lower overall costs in the circular economy. R&D departments will focus on extending product life cycles. Circularity has a positive impact on decarbonization, reducing resource extraction and creating local economic benefits.Procurement plays a crucial role in orchestrating the circular economy by organizing collective intelligence between suppliers. It's a long-term process that will take time to fully realize.

Section 4: Changes in Procurement with AI

Clients are already working on fully autonomous buying through bots, aligning procurement with sales to manage and increase margins. Digital models of supply chains enable management of cost and CO2 simultaneously.For example, in the energy and materials space, solvent-free adhesives reduce costs and emissions while increasing sales. In the chemical industry, creating a digital value chain twin helps identify CO2 abatement levers.

Section 5: The Expanding Remit of Procurement

Procurement needs to become end-to-end value entrepreneurs, thinking about upstream value chains and margin management. It should open up new venues for value creation, such as autonomous bot-based buying and gen AI applications.Building a flexible and agile procurement operating model will be crucial in a talent-constrained market. The role of the buyer will evolve significantly over the next few years.In conclusion, procurement is undergoing a significant transformation, and companies need to adapt to drive competitive advantage and sustainability.