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Gordon’s Window: February Research

Gordon Donovan

This month, in his exclusive PASA column ‘Gordon’s Window’, Gordon Donovan, VP of Global Procurement Research at SAP, provides a handy expert summary of February’s global procurement research. 

Save your own time reading research when you can get the key takeaways in one place!

The Hackett Group: Key Issues Report

This was one of the most influential reports launched this month. 

With an uncertain economic and geopolitical outlook, organisations are focused on protecting growth and building margin. 

Procurement, in its efforts to align and be a strategic advisor to the business, needs to look at the top three priorities for procurement, namely: improving spend cost reduction, ensuring supply continuity and combatting inflationary price increases.

In the drive for efficiency, it’s not surprising that digital transformation is in the top 10, and this is aligned with many other research reports recently.

As per last year, there is a productivity gap (i.e. workload is increasing, headcount is either static or increasing at a slower rate) with the expectation that technology will need to help. 

Within technology, the prediction is for double-digit growth in core technologies for pretty much all areas, as well as for supporting tech (category management, pipeline management, risk, etc).

A new entrant to the top 10 was ‘operating model transformation’ as technology matures and new technology (Gen AI – which is likely driving the renewed fervour around digital transformation) operating models are adapting to meet these. 

In the Economist survey for 2024, we at SAP asked a direct question about the type of operating models that are evolving for procurement, so stay tuned for that!

Supporting these priorities are the top 10 improvement initiatives, which include better data, talent and service design (category management, sourcing, SRM) as these three main stays of procurement deployments begin to coalesce and deliver their potential value.

Overall, it’s worthwhile reading (as always!).

RS/CIPS: Indirect Procurement Report 2024

In the 7th edition of the Indirect Procurement Report, it identifies that the top business pressures reported are the need to ensure sustainable and ethical procurement (32 percent), improving asset performance (32 percent) and coping with reduced operational budgets (30 percent). 

Pressure to reduce inventory costs (28 percent) and the increased cost of indirect materials such as MRO (27 percent) are also significant.

Key procurement challenges for the next 12 months were identified as inflation and cost management (37 percent), managing risk in the supply chain (31 percent) and supply chain disruption (30 percent), which in many ways echoes the Hackett report and others which explore the key issues/challenges for procurement.

Interestingly, the day-to-day challenges identified (separate to the broader strategic challenges) include ensuring contract compliance and delivering cost savings. 

This pressure to drive efficiency and to minimise internal complexity is seen as the top reason for adopting new technology.

The report then links this to the digital procurement service, identifying that the benefits of this include reduced time, better spend visibility and off-contract spend identification. 

The report has a section about ESG which is again rising in the agenda as the economic headwinds slowly ease.

Like the Economist report last year, it identifies that less than 40 percent had confidence in procurement to deliver ESG outcomes. 

It also reports that the biggest challenges for delivering on ESG outcomes were the cost saving challenge (and priority as earlier mentioned), not enough specialist skills and misconceptions around ESG (which is interesting seeing as one of the misconceptions is the price premium!).

Art of Procurement: Procurement Transformation

This whitepaper is a write up of both a podcast and the KPMG report that we covered in detail last month. It is worth reading as it adds a compelling narrative around the numbers in the report.

The key points that jumped out at me, beyond the numbers, are:

  • Supply chain fragility is still top of mind (and I suspect will be for a while yet)
  • Supplier relationships are critical for procurement to deliver its objectives and these are being recognised beyond the procurement walls
  • Having a roadmap for development is critical. These roadmaps should include operating model evolutions, talent and skills as well as technology, and should go beyond the next 18 months
  • Whilst ESG may be more of a priority down the line, it’s crucial to prepare for this now

AQPC: Procurement in the Cloud & Benchmarks

AQPC released a couple of reports this month.

The first, Procurement in the Cloud, surveys how procurement technology is deployed, identifying that cloud technology (31 percent) now leads on premise (21 percent). However, most (48 percent) run a mix of deployments. 

Of those who run cloud (either mixed or sole), public cloud (31 percent) leads on private cloud (19 percent) but the majority (50 percent) is mixed.

What does this mean?

AQPC stated that cloud gives greater benefits including enhanced data security and resilience, lower costs, ability to drive scale and more reliability. 

The report also identifies that whilst private cloud offers better security, it is also less scalable, so these are some of the tradeoffs discussed.

The second report is a cross-industry report (there are also industry-specific reports) into benchmarking efficiency metrics. Timely considering that many procurement studies are stating the need for improved efficiency.

The benchmarks included are:

  • Electronic PO – 80 percent, cycle time to issue PO (1.0 for services, 2.0 for goods)
  • P2P cycle times – 45 days for goods, 58 days for services

Beroe/Rob Handfield Interview

It’s always worthwhile listening to what Rob, Professor of Supply Chain Management at North Carolina State University, has to say on global supply chains and this interview is no different.

Here, Rob discusses key supply chain trends such as supply chain resilience, plus technology such as GenAI and digital twins and their uses for procurement, as well as the geopolitical climate and its impact on strategies such as nearshoring/reshoring.

It’s a quick five-minute read that will get you thinking for a lot longer!

Prevalent: Third Party Risk

This paper looks at six third-party risks and provides strategies for managing them. 

The six risks are:

  • Cybersecurity – the rise of ransomware attacks and new data breach notification rules mean that companies need to understand how their vendors secure critical data
  • Supplier reputational risk – consumers and business customers are more likely to react poorly to corporate missteps, which could have a significant negative downward pressure on revenues
  • Business continuity – continuing to grow in the face of the rising tide of business bankruptcies and reorganisations
  • Safety and reliability – understanding the safety and reliability records of vendors and suppliers can have a substantial impact on the company’s operational resilience
  • Supplier ESG – more regulators worldwide have inked new ESG laws to shed light on corporate business practices
  • Bribery and corruption – as the US Foreign Corrupt Practices Act remains enforced worldwide and more governments monitor their businesses for corruption, companies would do well to understand their exposure to this risk category

On a recent webinar I attended with Jason Busch of Spend Matters, we discussed the number of suppliers heading towards bankruptcy.

According to Prevalent, 25 percent of organisations have been impacted by the failure of a supplier over the past year while Chapter 11 bankruptcies grew by 72 percent.

Cyber is on everyone’s agenda and, in the report, they identified that 41 percent of companies had experienced an impactful third-party data breach over the last 12 months.

It’s a very handy how-to guide to get you thinking if any of these areas are on your agenda while acting as a starting point.

Proxima: CPO Report

This report is a little different from the other CPO reports, in the respect that it’s not a survey but the experience of Proxima in their dealings with clients, containing in-depth interviews with a range of procurement leaders.

Unsurprisingly, the themes of risk, cost and sustainability rank highly in the paper and in the minds and agendas of many procurement leaders.

It’s very interesting to read the in-depth interviews from each of these leaders:

  • Thomas Udesen, Bayer discusses being efficient and pragmatic with practices and protocols, plus a drive to simplify rules to add value
  • Sandra Brummitt, NI Source discusses resilience in terms of balancing supply in the face of conflicting headwinds. She also talks about digital and momentum in sustainability (potentially lost due to the economic headwinds of the previous year)
  • Laura Cook, Primark discusses technology and its impact on operating models and the need to develop relationships with suppliers as well as internal stakeholders
  • Tim Herrod, Albermarle discusses being ready and flexible to cope with whatever comes next, as well as using data, digital and partnerships to find solutions
  • Gareth Rhys Williams, Cabinet Office UK Government discusses being outcome focused, as well as regulations and sustainability

Overall, it’s a good read to see how these leaders are thinking about procurement for 2024 and beyond.

The Conference Board: C-Suite Outlook 2024: Leading for Tomorrow

Thanks to Pierre Mitchell at Spend Matters for sharing this.

It’s a study of over 1200 C-suite executives including 630 CEOs, and provides valuable insights into organisational pressures and how procurement leaders can align themselves to help solve issues.

The top external issues that will impact companies are economic downturn, inflation and global political instability, as the Hackett Key Issues study revealed earlier. 

As a result, most CEOs say they are making supply chain adjustments, including two-thirds of CEOs globally and more than half in the US who say they either plan to alter their supply chains in the next three to five years or are already doing so. 

Their number one adjustment: introducing AI and digital technology.

Foundry: State of the CIO

This report from Foundry, which is now in its 23rd year, was formed from a survey of 800+ global IT leaders and 250 LOB leaders.

Although it’s not exclusive to procurement IT, it is worthwhile understanding the broader context, especially if you want to put a business case up.

There are some interesting stats that jump out immediately:

  •  43 percent identified that automating business processes is the top priority with 32 percent stating that implementing or creating AI apps is top
  • There is a strong drive for cybersecurity investment increases and increasing operational efficiency, which are the top two business priorities driving IT investment
  • The expectation from 54 percent is an increase in budget with 35 percent saying it will remain the same as last year
  • 63 percent of CIOs stated that they plan to work closer with LOB leaders over the next 12 months

Keelvar: Voices of Sourcing 2024: The AI & Automation Boom

In our final report, we have a Voices of Sourcing survey report from Keelvar. 

In line with reports reviewed in both this month’s and last month’s Gordon’s Window, supply chain disruption, market volatility and inflation were the major challenges for the previous 12 months, while the drive for 2024 will be all about cost management and efficiency.

The pressure to increase savings is getting bigger and procurement teams, according to the report, are looking to automation for non-strategic spend and optimising strategic spend to help deliver.

It was interesting to note that 49 percent are looking at initiatives such as dynamic discounting, as working capital featured highly on the business priorities but sometimes doesn’t make it into procurement’s priorities.

Digital transformation is at the top of procurement’s agenda, echoing reports from KPMG, Hackett and others.

Watch this space for Gordon’s Window on March’s research, coming soon!

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