Global management consulting firm Kearney held two key events for Australian business leaders and CPOs in November 2024, taking place in Sydney and Melbourne. Here, the organisation shares the big insights and important takeaways for procurement, which it says has a leading role to play in Australia’s forthcoming productivity crisis.
Foreword
Sustained geopolitical tensions have resulted in a sticky inflation environment globally. Interest rates across the globe, despite the recent reduction, have remained elevated and demand soft, with the recent US election likely to impact global trade relations, further adding to the uncertainty.
In Australia, we expect sustained levels of inflation into 2025 and 2026, resulting in continued cost pressures, productivity challenges, economic volatility and supply chain disruptions, and growing pressure for sustainable and responsible sourcing which demands strategic supplier choices.
In the face of such economic shifts, procurement leaders have a unique chance to guide businesses through this transformative shift in the coming years.
A circuit-breaker is required to traditional demand-side levers (e.g. aggregation) used to manage cost, as these are now contributing to other productivity, volatility and sustainability challenges. Bolder investment decisions are needed to expand and diversify supply, introduce new thinking into supply chains and better inform business decision-making when it comes to suppliers and operating models.
In November 2024, more than 40 business leaders and CPOs representing the full spectrum of the Australian business landscape came together with Kearney Australia’s Strategic Operations leadership team to discuss these four issues of critical importance to our collective future growth and prosperity.
We were joined by Professor Ian Harper (Advisor Kearney ANZ, Board Member Reserve Bank of Australia and Professor Emeritus Melbourne Business School) for a fireside chat to share his personal reflections and help contextualise today’s macroeconomic conditions with respect to the role procurement can and should play in helping Australian business be ‘future ready’ over the next three to five years.
Five priorities for procurement leaders in 2025
Procurement must help drive the productivity agenda, supporting an increase in volume and quality of capital ‘inputs’ to deliver a disproportionately greater increase in economic ‘outputs’. It requires a shift in perspective from ‘How do we get a lower price of cocoa?’ to ‘How do I improve my delivered cost per crate of chocolate to my customer?’
This opens the door for procurement to influence everything from product design and operating model, through to last-mile logistics and, in some cases, even help guide supplier selection to drive revenue growth.
Planning for uncertainty creates the flexibility in the supply chain for the business to remain resilient and act when it experiences supply chain shocks.
1. Greater need for cost drivers and transparency in the land of the duopolies
Inflationary pressures continue, exceeding some commentators’ expectations and presenting a significant and sustained challenge for businesses. To combat this, procurement teams must prioritise developing deeper cost transparency across the supply chain at a driver level to enable targeted management of inflation (and deflation) while leveraging demand power more effectively.
Within Australia, duopolistic/oligopolistic competitive dynamics and constrained international supply have created the need for deeper and more frequent market testing for uncovering opportunities for better value.
Navigating tough supplier negotiations in sectors with limited competition requires procurement teams to apply advanced critical thinking and innovative approaches to unlock value.
Building strategic partnerships and fostering shared investments with key suppliers will be pivotal for ensuring mutual growth and long-term success. Companies must also be open to driving increased local and global competition, finding new ways to import innovation and stimulating a more efficient and agile supply base.
2. Deeper understanding of inherent category risks
Supply resilience is no longer an option but a requirement that provides a strategic advantage. Despite ambitions and continued investment, procurement and supply chain executives continue to struggle with sensing and mitigating risk linked to the external supply base.
Many firms have tried off-the-shelf technology solutions, but reality has not lived up to the hype. It isn’t about the tech; it’s about delivering real impact by building a strong inherent category risk management capability within procurement.
Dealing with volatility is an imperative for procurement teams requiring leaders to incorporate ‘just-in-case’ scenarios and contingency planning with suppliers without creating a drain on productivity. Additionally, we have seen an uptick in the introduction of alternative sources (such as low-cost countries/resilient sources) to reduce reliance on single vendors/geographies/trading partner nations. Understanding tier 1 to tier 1-N suppliers and managing risks across the tiers is more critical than ever before.
Procurement must keep a close eye on government policies, which could impact supply chains and pricing. Governments often influence economic conditions through regulatory interventions that can affect supplier profitability and market dynamics. With a wide spread of suppliers, it’s important we think more broadly about industry dynamics and responsible pricing to maintain a healthy and competitive market.
3. Higher appetite for tech and innovation to improve decision-making and productivity
The latest RBA outlook highlights weak near-term productivity growth, with current levels at 0.8 percent and only gradual improvement expected. This sluggish recovery is driving supplier pricing increases, posing significant challenges for procurement teams.
The increasing reliance on technology, data analytics, AI-based negotiation tools and predictive models is transforming procurement by enhancing forecasting, risk management and decision-making. For instance, AI-driven forecasting helps mitigate price volatility, allowing more effective planning and closer integration with suppliers.
By leveraging such technologies, procurement can achieve greater efficiency, improve collaboration and make more informed, strategic decisions that align with long-term business goals. However, technology or AI alone is not a silver bullet. Without evolving and adapting processes, procurement risks losing value from these tools, potentially undermining productivity rather than enhancing it.
4. Desire to deliver on both sustainability and value outcomes
Procurement teams are caught between lofty corporate targets and internal stakeholders that are hesitant to change.
Emphasising total cost of ownership (TCO) rather than upfront costs uncovers long-term savings from sustainable practices like energy-efficient technologies or durable materials.
Collaboration with suppliers to innovate – such as redesigning products, adopting circular economy principles or optimising materials – can reduce waste, improve efficiency and lower costs. Similarly, optimising the supply chain through local sourcing, shipment consolidation or low-carbon transportation achieves financial and environmental benefits.
Integrating affordable sustainability into procurement processes, such as incorporating ESG criteria in RFPs, aligns supplier incentives with organisational goals. Companies are now taking a more customer-centric approach to this, accepting higher cost in areas critical to CX and offsetting this with an aggressive focus on cost reduction elsewhere.
Reducing consumption or streamlining workflows further contributes to cost reductions while supporting sustainability. Transparently communicating progress and educating stakeholders builds trust and ensures accountability. By embedding sustainability into every stage of procurement, organisations can create long-term competitive advantages while meeting targets in a dynamic reporting and regulatory landscape.
5. Demand for ‘business problem solvers’
Procurement has long moved past simply managing contracts, achieving cost savings and maintaining compliance. Today, procurement is expected to solve complex business problems like margin optimisation, mitigating supply chain volatility, addressing cybersecurity threats and meeting sustainability targets. This shift reflects the growing need for a dynamic, problem-solving approach over traditional category management.
Leaders are seeking to hire talent that brings diverse expertise in areas like hypothesis-based problem-solving, financial modelling, AI and analytics. These hard skills, combined with soft skills like collaboration, influencing and strategic communication, empower procurement teams to align stakeholders and tackle critical challenges effectively.
Attracting and retaining top talent is tough, as other functions also seek similar skills in AI, cybersecurity and analytics. To stay competitive, procurement teams must invest in training, foster collaboration and restructure for the right mix of seniority and skills – and in some cases, consider hiring internally to bring the right capabilities. Organisations that do so will unlock procurement’s full potential to navigate today’s complexities.
Learn more about Kearney here.
