In his first PASA column, Gordon Donovan, VP of Global Procurement Research at SAP, provides a handy expert summary of recent global procurement research. Save your own time reading research when you can get the key takeaways in one place!
Read on to find out what are the key forces reshaping procurement, what is it that makes high performing teams successful in procurement, and why companies are not feeling confident about reducing scope 3 emissions.
Watch out for Gordon’s monthly window on the world of procurement research.
Supply Management: Using Technology to Make Better Data-driven Decisions
This ‘special’ whitepaper from Supply Management, authored by S&P Global, offered interesting insights around how technology can be used to drive better data driven decisions for sourcing.
Sourcing workload seems to have increased recently as buyers seem to increase numbers of suppliers to mitigate risk.
Yet, according to the paper, only 52% of survey respondents felt their organisation ranked medium or low in sourcing performance. A quicker job but lower standards, maybe? Or over-reliance on manual approaches, perhaps?
The research states that failing to address the entire spend of an organisation is one issue, with many organisations overlooking indirect or ‘tail-end’ spend in their sourcing management activities, where significant potential savings can be achieved using tools such as reverse auctions.
One factor that could hold businesses back is their technology.
S&P Global’s research also states that just 31% of organisations say their sourcing functions make full use of sourcing technologies for all types of spend.
This means many may have sophisticated platforms and technologies which they are failing to use to their full functionality, in some cases using them for no more than a platform on which to share spreadsheets or Word documents.
Are you using your full suite’s capability?
VIZIBL: Procurement Decarbonisation
This report identifies that most companies, despite having pledges to reduce scope 3 emissions, may not be ensuring that these are capable of being achieved.
In fact, only about a quarter feel confident that they will happen.
According to the report, the reasons include many responders struggling with education (only 6% feel well educated), understanding the strategies (around half feel that strategy has been well communicated) and appropriate incentives.
The report reveals that only 8% feel that they are fully incentivised to achieve them and, as we know, incentives drive actions.
Scope 3 emissions reduction up the supply chain through proactive procurement work is a key area of focus in future for PASA outputs and content. Stay tuned ….
BCG: The Seven Forces Reshaping Procurement
A Boston Consulting Group (BCG) article recently explained their seven key forces reshaping procurement.
From geopolitical tensions and sustainability to mining the market for risks and opportunities, the article suggests that procurement leaders must understand trends and be prepared to adapt quickly.
The specific trends identified are:
1) Geopolitics elevating risks
a. Procurement leaders must actively monitor and manage their exposure to geopolitical risks
2) Natural disasters occurring more often
a. Natural disasters can severely harm commercial property, assets and raw materials.
Procurement functions must help to mitigate the associated risks to resource availability, shipping and the speed & quality of production
3) Inflation and recession cause uncertainty
a. An inflation-ready procurement function comprehensively considers categories of all sizes, utilises strategies like hedging and price-indexing, and scrutinises every price change
4) Adoption of climate and sustainability is accelerating
a. Procurement functions play an essential role in helping companies achieve their climate goals. For example, a company must involve strategic suppliers in its sustainability initiatives. This includes requiring suppliers to commit to implementing green practices and reducing scope 3 emissions as part of the tender process
5) Companies strengthening commitment to social equity
a. Procurement strategies should include goals for giving opportunities to diverse suppliers—that is, businesses that are majority owned and operated by individuals or groups who are traditionally underrepresented or underserved. This might entail, for example, asking for information about a supplier’s diversity in RFPs or setting a target for the percentage of diverse suppliers used by the company
6) Next Gen Tech promotes efficiency
a. In a 2022 survey, IDC asked more than 1100 procurement leaders which technologies they planned to implement during the next 12 months and three years. AI and blockchain showed the biggest increases in implementation over three years versus 12 months
7) Procurement faces talent shortage
a. Procurement leaders must assess their operating model and create a talent development plan that can support the overall procurement strategy. A well-balanced procurement team focuses on category management while striving to automate routine tasks, such as buying and contracting
Ardent Partners – State of Procurement
The State of Procurement annual report from Ardent Partners, a US centred advisory firm, has become a mainstay of procurement strategy. Now in its 18th year, this year’s report is as insightful as ever, based upon input from over 300 respondents.
For 2023, the report identifies that cost savings (46%), managing risk (43%) and digital transformation (38%) are key priorities, with complimentary strategies of pursuing digital transformation (39%), collaboration internally (38%) and cash–liquidity management (33%) as key strategies to deliver against the priorities.
Also in the report was the state of procurement performance, showing that whilst spend under management on average at 65% was trending down, targeted savings at 6.6% was trending up (though delivery was flat at just over 6%).
Chapter 4 identifies that procurement seems at a crossroads on many questions, from data strategy to digital transformations and change management strategies.
Procurious: Driving High Performance Procurement
This report looks at what it is that makes high performing teams in procurement and uncovers some concerns, especially if you read alongside either of the Deloitte or Ardent (or Economist Impact) reports.
There are some startling numbers.
75% of respondents doubt the accuracy of the data they present, which means that nearly 80% of non-procurement leaders are not confident in using data that comes from procurement. This will clearly negatively impact our credibility internally.
In the recent Economist report (Decoding Confidence in the Procurement Function), it states that whilst many C-suite executives recognise the importance of procurement, only around half believe that procurement collaborates well internally.
This paper confirms that 43% don’t collaborate with manufacturing and even less with sales.
When it comes to reporting, it’s still cost savings that dominate the reporting with over 70% saying negotiated or realised savings are KPI reported, with other areas such as sustainability under half.
Perhaps a driver for both, is that spreadsheets still dominate the tools used to track and manage procurement performance with nearly 75% of respondents still using them.
Deloitte CPO Report
The 12th edition of this report was published recently from Deloitte .
There are some really interesting takeaways, which in many ways confirm the Ardent report, as well as the Economist reports recently.
Procurement’s remit is broadening, with not much to choose between the top priorities from driving efficiency, ESG, cost, digital transformation and risk – all within 5% of each other in terms of priorities.
However, it does identify that procurement performance has dropped.
Under 70% hit their targets last year, and self-perceived performance in partnering with other areas (i.e. collaboration) dropped by up to 11%.
So, it makes sense that in terms of top strategies being employed to achieve these priorities is collaboration (#1) – both internally and externally, with suppliers and a renewed focus on category management renegotiation at number four.
Demand management and digital transformation make up the remaining top four.
There is a detailed discussion on operating models, which most reports identify as evolving as organisational operating models change, as well as a focus on supplier management as a key part of value delivery.
Like Ardent, the report shows a marked difference between top performers (in this report called ‘orchestrators of value’) and the rest.
Some of the areas in which these top performers concentrate include SRM, market intelligence, scenario planning, digital deployments and standardisation of approaches.
Stay tuned for Gordon’s round-up of August’s research coming later this month.
