Summer is here, and in San Francisco, people are out enjoying the unusually warm weather. That is how I found myself in an unexpected conversation with my neighbor. Leaning over our shared garden, what began as small talk about summer plans soon turned into an impromptu lesson on procurement’s role in modern organizations.

When asked about the company I work for, I started to explain that Levelpath is a new company and talked about our technology, which is pretty amazing, and the value we provide. I then realized I needed to start at the beginning to truly understand how cool it is. What is procurement, and why is it important in an organization?

It’s easy to forget that what’s familiar to some isn’t common knowledge to everyone. I did my best to break it down: Procurement is a core operational function that touches every employee, yet it is often invisible. Those desks, computers and software solutions that employees use? These things do not come automatically with a business or appear by magic. Employees often do not understand the entire organizational effort behind sourcing and procuring all of what makes the business operate. My neighbor then added, “Isn’t that just purchasing?”

I explained that at its core, procurement is about buying goods and services to keep a company running, but it’s much more complex than that. It is a strategic process that involves sourcing solutions and suppliers, researching vendors to supply competitive bids, vetting strategic suppliers, ensuring ethical practices, managing supplier relationships, analyzing profits, and handling all the necessary paperwork. Procurement teams juggle contract facilitation, budget management, price negotiations, relationship management, and delivery timelines while meeting internal demands. Additionally, procurement manages risk, ensures compliance with regulations, drives sustainability initiatives, promotes supplier diversity, and integrates technology to streamline processes. Clearly, procurement is much more than just purchasing business needs.

Procurement is not a new concept for businesses, nor is it novel as a dedicated team within large organizations. The roots of modern procurement trace back to the Industrial Revolution when the Pennsylvania Railroad established the first recorded procurement department in 1869. This was a groundbreaking innovation at the time, providing a structured and strategic approach to sourcing and purchasing, which facilitated the railroad’s rapid expansion.

By 1880, the Pennsylvania Railroad had grown to employ approximately 30,000 people and boasted $400 million in capital, making it the largest corporation in the United States, with a budget second only to that of the U.S. government. At its peak in the early 1900s, the railroad employed around 279,000 (which would equate to workforce of approximately 880,000 in today’s economy)

To find a modern-day parallel for the Pennsylvania Railroad, one might look to Amazon. Much like the Pennsylvania Railroad, Amazon has developed an extensive logistics network and continually innovates its procurement and supply chain processes to maintain market dominance.

The evolution of procurement as a strategic business investment really took off with the advent of democratized technology systems. These systems helped automate and streamline many procurement processes, connecting suppliers globally and managing complex networks through specialized apps and systems.

As I was telling my neighbor, procurement and supply chain processes are on the verge of another monumental shift. This transformation is already underway, and it’s changing the landscape of procurement. The value of procurement within enterprises has skyrocketed because today, companies spend the bulk of their dollars on external suppliers. In fact, Fortune 500 companies spend an average of 75% of their total costs on external suppliers, accounting for 65% of revenue. Yet a mere 10% reduction in supplier costs could surge EBITDA by 32% for these industry leaders according to research from Proxima and Bain & Co..1

Executive leaders and board members are recognizing the massive potential of procurement to improve the bottom line. Much like how finance, HR, and sales have evolved with critical systems leveraging AI, procurement is also embracing AI and digital technologies. This represents a significant transformation in how procurement operates.

That is where Levelpath comes in. Our vision for a reimagined procurement process, one that is AI-powered and mobile-first, enables organizations to create a connected, single system of record. Levelpath simplified processes that typically involve weeks-long email chains, calls, and Slack threads with numerous stakeholders into just a few clicks. With everything on one platform, users across the organization have immediate access to the project, supplier, agreement, security, compliance, and legal information they need. This includes departments like marketing, IT, HR, finance, and manufacturing, making a single supplier system of record essential in today’s complex organizations.

With Levelpath, all of a business’s supplier information is centralized, allowing for maximized spend management and with AI at the core, data access and insights are united in a single view, enabling the best decisions that balance cost efficiency, strategic availability, and risk.

Beyond creating productivity efficiencies and streamlining processes, Levelpath helps companies uncover new sources of value that such a transformation promises. Understanding the history of procurement reveals how far the industry has come and highlights the massive, untapped business opportunities that lie ahead when we infuse the power of AI with a modern procurement platform.

Happy summer!

— Michaela

PS: The Pennsylvania Railroad, established in 1846, was not just a pioneer in railway construction but also played a significant role in the early development of corporate procurement practices. Under the leadership of figures like J. Edgar Thomson, the Pennsylvania Railroad implemented systematic management practices that included early forms of procurement and supply chain management. Their approach to procurement was part of its broader strategy to ensure control and efficiency over its vast and growing network. This included acquiring materials and services necessary for its operations, which ranged from construction supplies for its extensive rail lines to the acquisition of smaller railroads to expand its reach.

For those wondering, if the Pennsylvania Railroad were to employ the same percentage of the population as it did in the 1880s (0.06%), it would need around 199,200 employees today. (Imagine that procurement team!) This comparison gives us an idea of the scale and impact the Pennsylvania Railroad had on procurement during its peak, relative to today’s enterprise organizations.

1 According to The State of Spend Report and Supplier Cost Reductions, Proxima a part of Bain & Co

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