In the last decade, changes in the global market, combined with shifting attention towards green policy and sustainability, have resulted in new and important trends within sourcing and procurement practices, with some experts going so far to call it an industry transformation. While the terminology alone went through its own transformation-changing from the more passive concept of “identifying and purchasing” to the broader, and more strategic, “sourcing and procurement”-industry professionals still debate whether these new trends constitute true transformation.

Dr. Joseph Cavinato, Institute for Supply Management (ISM) Professor of Supply Chain Management, characterizes transformation as something that occurs when the intent of an entire process is changed to seek broader results. The question, then, is whether new industry practices and methodologies-including a push for increased software, technology, and overall automation-fit the parameters of this transformation.

While transformation may be debated, however, supply management professionals seem to agree on one thing: in order for companies to compete in today’s global market-a market laced with more transport regulations, supply chain disruptions, and calls for sustainability than ever-companies must seek an increased integration among the all-too-often isolated processes that make up today’s sourcing and procurement practices.

Industry trendsetters

Early in 2010, Godiva Chocolatier made industry news upon hiring John Bradshaw as Vice President of Global Procurement. Bradshaw’s vision of changing procurement from a tactical to strategic operation had everything to do with process integration. Bill Kornegay, Godiva’s Senior Vice President of Global Supply Chain, recently reported that Bradshaw’s procurement strategies have already saved the company $24 million, with a projected savings of $10 million for this year.

“Each function was doing its work in isolation and throwing the results over the wall for the next function,” Kornegay stated in an interview. “I asked John [Bradshaw] to help us work through the innovation process and ensure that all the functions are engaged early and everyone understands the impact of what he or she is doing. He had everyone work through touch points in the process, such as who should be communicating with whom and when, helping tear down walls that built up over time.”

Granted that today’s sourcing and procurement goals include not only the acquisition of a product, but the cutting of corporate spending, increased innovation, reduction of overhead, and improvement of the working capital position of the company, the integration of processes seems like a good start. But what does this integration entail? Does a shift in processes constitute a shift in intent, and thus transformation? And why are industry experts such as Anurag Dixit, Vice President of Global Marketing for spend management solution giant Zycus, putting automation at the forefront of procurement transformation?

The scope of supply

ISM, a near-century-old supply management association with a membership base of more than 40,000 supply management professionals, describes today’s concept of supply as more future-oriented than ever. Supply, as defined by ISM’s Cavinato, is the identification, acquisition, access, positioning, and management of resources that an organization needs, or will potentially need, to attain its strategic objectives. As for positioning, Cavinato defines it as the posturing of the overall organization to acquire and access the best possible goods, services, assets, and energies from suppliers. “Positioning,” Cavinato says, “means becoming the best customer to a supplier, obtaining superior service, and thus potentially influencing suppliers’ actions and investments.”

In addition to this more sophisticated relationship between purchaser and supplier, Cavinato further categorizes the scope of supply into fourteen integrated processes: disposition, or investment recovery; distribution; inventory control; logistics; manufacturing supervision; materials management; packaging; procurement; product development; quality; receiving; strategic sourcing; transportation; and storage. These fourteen components continue to affect companies’ abilities to efficiently manage trade finance, risk (current understandings of social responsibility), and transportation infrastructures.

While it is clear among professionals that the end-goal is to have these fourteen components working together in one integrated pipeline, it is the means by which to achieve this in a most cost-effective way that is being explored. Automation-or simply, the use of electronic means to complete a task, thus reducing human involvement-has been on the radar for quite some time; however, just like “supply,” it is the scope of automation, and whether such processes constitutes transformation, that is currently being examined.

Automation: at the forefront of industry transformation?

Dr. Joseph Cavinato notes that in terms of automation and industry transformation, there is an important distinction arising today. “Automation processes are simply projects,” he states, “though the people doing them think they are transforming something. IBM morphed from being a Big Iron computer company into a services company requiring different processes, culture, outputs, competitiveness, and behaviors. That was transformation. Today,” he says, “CISCO, Pfizer, and Amgen are truly transforming their procurement/supply. Others are simply automating and outsourcing…projects [that] attain that same thing in a cheaper, faster, better way.”

Of course, that’s not to say automation would not, or is not, playing a major role in the kind of industry transformation exhibited by such professionals as John Bradshaw of Godiva. What certain professionals may in fact be pointing towards is the integration of processes achieved via automation, thus representing a kind of transformation.

In his report, “A 4-Step Guide to Procurement Transformation,” Anurag Dixit writes that the “Holy Grail for any procurement transformation project is an integrated system whereby automated solutions in the entire procurement cycle from market analysis of suppliers to the final purchase order creation are brought together in a seamless workflow to achieve organizational goals.” He then goes on to list these four steps to procurement transformation, via automation:

1.    Ensure seamless integration between your spend management systems to ensure maximized savings;

2.    Integrate and automate the entire supplier management process from supplier discovery to supplier performance management;

3.    Entail central level management support and utilize automation to ensure alignment of procurement goals and organization goals; and

4.    Ensure easy to use solutions and easy to adhere processes to get employee buy-in and guarantee transformation.



There appear to be recurring ideas within these four steps: automation, integration, and eventual transformation. And just as these three words flow in a processional order, so do these steps, beginning with the first, or the foundation for the following three.

 “The achievement of set goals for procurement transformation,” Dixit writes in reference to his first step, “can be achieved in its true sense only if the entire procurement automation infrastructure is seamlessly integrated. An integrated spend management system will lead to benefits of identifying more savings opportunities, executing on these savings...as well as complying to processes that will ensure further savings.”

Dixit goes on to emphasize the need for a complete e-sourcing tool, one that is able to support supplier interaction with suppliers and the monitoring of sourcing projects.

E-Sourcing Tools: representatives of procurement transformation

While Panjiva does not literally describe itself as an “e-sourcing tool,” Josh Green, current CEO of the online resource for executives seeking knowledge about suppliers and manufacturers around the world, describes his company as an automated system, one that collects and delivers the information of companies that are doing business across borders. Green refers to Panjiva as a fully integrated process, owing its success to those visionary companies that, years ago, realized sourcing and procurement could be utilized as a tool for competitive advantage.

“It was in 2009,” Green notes, “when sourcing became nearly universally viewed as a strategic function. This shift was not necessarily due to more companies understanding the advantages that the sourcing function could create, but because companies suddenly came face-to-face with the risks the sourcing function did create.” And while there are significant cost-savings available to companies that automate labor-intensive tasks, Green notes, there are also strategic advantages for freeing people up to perform higher value activities.

Green, however, does not hold true transformation as synonymous with automation alone. “Given that a lot of technologies and attempts at automation simply create more work for people,” he says, “a true transformation will occur when technology adapts to the way people do their work, not when people are forced to adapt the way they work to rigid technologies.”

Transportation and transparency

Of course, a seamlessly integrated automated process can only do so much once a product has been procured. And, the transportation of a product from point A to point B is no exception to changes within the supply industry. Given the increased disruptions in the supply chain, in part owing to stricter security regulations, companies are developing a new appreciation for the concept of “one-stop shopping.”

The past decade has seen a changing landscape, or culture, in international trade, thus greatly affecting sourcing and procurement practices. Such change has much to do with the post-9/11 climate, which has directly affected the transportation of products and services from the “source” to the “shelf.” In his 2007 lecture entitled, “Logistics and Transportation Megatrends and Strategies for Supply Managers,” Cavinato describes the supply chain as a global pipeline of product movement, primarily made of five tiers:

1.    Origin of service;

2.    International transportation;

3.    Destination services;

4.    Distribution services; and

5.    Domestic transportation



Only making this process continually more complex, and thus increasing the number of supply chain disruptions, Cavinato goes on to list a few of the myriad security initiatives in existence in the post-9/11 freight environment, including initiatives from the Customs-Trade Partnership Against Terrorism (C-TPAT), Operation Safe Commerce (OSC), and the FAA’s own Known Shipper Policy.

When asked about automation’s role in transportation specifically, Dixit notes that, generally, an automated workflow ensures visibility, or transparency, and thus the right checks and approvals to reduce turnaround time.

“Looking at transportation and freight as an extremely complex category in itself,” he says, “an automated workflow might help top management gain visibility as well as provide input at the necessary stages…an automated workflow ensures that the complexity in the process is removed and referrals and feedback from executive level employees is incorporated during the process.”

Sustainability and social responsibilities

Increasingly, supply industry professionals are dismissing the idea of a complete transition to automation as an unrealistic, albeit possible, goal. However, Dennis Gawlik, Director of Purchasing Services at the University of Washington, Seattle and member of ISM’s Committee on Sustainability and Social Responsibility, believes that, given the complexity of today’s operational systems, it may not even be a possible one. In addition to the professional skills, experience, and knowledge of today’s procurement professionals, Gawlik notes, it is a person’s responsibility to not only “buy-in” or adhere to automated processes (as Dixit writes in his fourth step), but to seek, oftentimes outside of an automated system, sustainable procurement practices.

Is automation then, as a purely technological function, unable to aide the push for sustainable procurement practices? And if “sustainability” is defined by ISM as the establishment of diverse and long-term suppliers, what chance does it have on the corporate priority list in a global climate where supply chains are disrupted more than ever and companies are actually using these automated systems to “jump ship”?

As an example, one of Panjiva’s features for its clients is that it is able to provide its clients with a “Watch List” consisting of those suppliers that have suffered a year-over-year drop of 50 percent or more in terms of volume shipped to U.S. customers. Companies affiliated with these suppliers, of course, are then advised by Panjiva to seek other suppliers. When asked if such a “Watch List” is counter-intuitive to the push for sustainability, Green states that such a push is going to be industry-situation.

“In industries where technological innovation is the key driver of cost reductions,” he says, “it makes sense to invest in long-term relationships that foster innovation. In industries where labor is the key cost driver, however, it’s practically impossible to commit to long-term relationships, because wage rates change so rapidly, particularly in emerging markets.”

Such a push for sustainability, therefore, may depend on whether the buyer/supplier relationship is technological-specific or labor-specific. However, Dennis Gawlik notes that the recent global recession might provide a unique opportunity for sustainability to become a powerful brand differentiator.

“In this economic climate,” Gawlik writes, “it makes sense for a business to communicate one’s sustainability activities while others are hunkering down until conditions improve and the recession is declared over.” In addition to this, today’s shifting focus towards “going green” may mean that unless companies actively display clearly drawn sustainable programs, they may be accused of indifference. Gawlik characterizes today’s objectives within the supply management industry as, yes, centered around increased automation, but also as calling for a more proactive, activist approach to sustainability. The integration between the two objectives, without sacrificing company profit, represents a “new normal” in sourcing and procurement practices.

The "new normal"

Gawlik defines the “new normal” as the situation where leading supply management organizations no longer view sustainability as a “PR exercise,” but truly demonstrate that they have the public’s interest in mind. This “new normal” can extend to procurement in three ways:

1.    Corporate Social Responsibility (CSR) programs must be conducted in a more holistic way, with a long-term view of the customer’s needs;

2.    CSR managers must move up and down the value stream to identify potential efficiencies; and

3.     Sustainable initiatives must extend the brand and be constructed to help the customer save money while helping to meet the company’s sustainable goals.



Just as Dixit’s four steps to procurement transformation can be boiled down to automation, integration, and thus, transformation, Gawlik’s three-point path to the “new normal” seems to focus on the customer and corporate visibility, or transparency. And it is this call for transparency that provides proponents of sustainability, such as Gawlik, and proponents of automation, including Dixit, common ground in terms of procurement transformation.

“Enhancing visibility into more than window dressing,” Dixit writes, “is the backbone of any transformation initiative.”

In addition to this, Cavinato notes that today’s Chief Procurement Officers (CPOs) are focusing upon sustainability, risks, and green policy, due to several global shifts. “In the past,” Cavinato says, “plants were built and operated in other countries in order to seek low labor costs. The closure of many of those plants have left some countries with many factories with For Sale signs on them…Countries don’t want that anymore. They say, ‘Come here. But build strengths for us. Build your plant, but also schools, clinics, phone lines, and more. Help build our community and share in it.’”  wt



Steven Ramirez is a graduate of the Iowa Writer’s Workshop. His work has appeared in numerous literary journals. He currently teaches English and Literature in the Chicago area.

Sidebar: Speedy Sourcing for the Smaller Guys, by Lara L. Sowinski

The Internet has emerged as a great resource for matching up prospective buyers with sellers, creating such well-known marketplaces as eBay. For U.S. companies, especially and small- and medium-sized ones, there are several online companies that are promoting Chinese suppliers and manufacturers-Alibaba.com and Made-in-China.com.

Made-in-China.com was created in 1996 and now boasts 3.6 million members in more than 220 countries who use the portal to source products ranging from consumer electronics to construction equipment.

One customer includes the soon to be launched company Lonely Grower, an online retailer specializing in hydroponic grow tents.

“As a small business located in Northern California, finding the right product and the right source at a good price point was a daunting challenge,” says proprietor Mike Kissling. “The ability to get online and have the resources, information, and products all available in one place has been invaluable. Not only does Made-in-China.com save me time, it has helped drive my margins upwards of 35 percent by eliminating the middleman and allowing me to compete on a much bigger scale.”

According to Joseph Wong, vice president of Made-in-China.com, aside from competitive prices, the portal also provides third-party auditing of the Chinese manufacturers, meaning they provide a layer of quality control that greatly benefits the North American clients.

“No longer is that crushing 24-hour journey across two continents and many time zones necessary for small- and medium-sized Main Street businesses to ensure they get exactly what they pay for,” he explains. “Instead, high quality and low prices are now only a mouse-click away.”

Founded in 1999, Alibaba.com has three online marketplaces, including a global trade marketplace for importers and exporters, a Chinese marketplace for domestic trade in China, and, through an associated company, a Japanese marketplace that facilitates trade to and from Japan.

Together, its marketplaces form a community of more than 45 million registered users from more than 240 countries and regions. Alibaba.com also offers business management software solutions targeting small businesses across China under the “Alisoft” brand and incubates e-commerce talent for small businesses in China through Ali-Institute.

Toys are one of the most popular product categories on Alibaba.com. The site promotes approximately 22,000 toy suppliers and 750,000-plus related products to buyers 24 hours a day. As of August 2009, international buyers searched for 80 percent more toy products on Alibaba.com during the 12 months prior than during the same period a year before.

 The company states that since the onset of the global economic downturn, more and more companies around the world are seeing e-commerce as a more efficient way to market and sell their products and services. In the first half of 2009, for instance, Alibaba.com reported a 69 percent year-on-year increase in members on its international marketplace, growing to nearly 10 million.