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Gordon’s Window: January research

January Gordons Window

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 January’s global procurement research. 

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

Read on to learn about technology’s impact on procurement, supply chain priorities for 2024 and what the next 12 months will look like for procurement. 

SIA: Global Gig Economy

In a recent article, SIA estimates that the global gig economy was worth USD $3.8 trillion in 2022. SIA treats the gig economy as synonymous with contingent work.

Breaking this down a little more into the subsets:

  • Temporary workers assigned through a staffing agency make up 14 percent of the total
  • Temporary workers sourced directly make up 24 percent of the total
  • Self-employed with no employees (independent contractors) is by far the largest category of contingent work responsible for 50 percent of the total
  • Statement of Work (SOW) consultants employed by consulting firms make up 10 percent of the total
  • Temporary workers via talent and work services platforms make up less than 1 percent of the total

The report also goes into more detail on a country-by-country assessment of the market size per type of worker.

Hackett: 2023 Procurement Value Measurement

This study identifies the trends in value measurement and what elements of value that procurement is tracking today. 

In news that shocks no one, year-on-year cost savings and cost avoidance are the top two elements in a procurement scorecard.

What is interesting, is that of those savings, on average 50 percent hit the bottom line for direct and 40 percent for indirect. 

As the report states, ensuring that the savings are realised (and real) is essential for a procurement team’s credibility. 

So, thinking about what makes a saving and how they are treated is, therefore, important.

Price reduction is largely taken as a saving (97 percent), though 3 percent identified it as cost avoidance.

Interestingly, only 59 percent identified early payments and rebates as savings, with 17 percent saying they were cost avoidance and nearly a quarter not counting them as savings. 

Whether this is because there is no guarantee that they will be taken or not is interesting. 

Working capital is basically excluded as a savings calculation, with 79 percent not counting it as a saving.

Demand management, touted by many to reduce costs (it is), is excluded (largely) from savings calculations with 65 percent not counting it as a saving. 

This is also true for revenue uplift following collaboration with suppliers, with 86 percent not counting it as a saving.

Savings from RFx to final price are largely cost avoidance – or ‘hypothetical savings’ as one enterprising CPO once said to me!

Changing spec had just over 50 percent casting it as a saving, with around a quarter identifying cost avoidance.

Again, the number that doesn’t count this as a saving is interesting, as 56 percent don’t do anything after savings are identified – i.e. no further measurement of hitting the bottom line and being realised. 

With just under a quarter verifying that it does hit the P&L, and just over 20 percent reducing budgets accordingly.

Gartner: Predicts 2024

This paper is about technology’s impact on procurement, with the “predictions” reaching a little further than 2024 but worth considering. 

Knowing where technology is going, its impact on how work is getting done, who is doing it, and what skills will be required are critical for CPOs to build sound long-term staffing plans. 

It is clear that AI and automation will change the nature of how work is undertaken and, to that end, when planning Gartner suggests the following assumptions/predictions:

  • By 2026, virtual assistants and chatbots will gain traction, being used by 20 percent of organisations to handle internal and vendor interactions
  • By 2026, advanced proficiency in data and technology competencies will be equally as important as social and creative competencies (i.e. soft skills) for procurement staff
  • By 2027, 40 percent of sourcing events will be executed by non-procurement staff
  • By 2027, 50 percent of organisations will support supplier contract negotiations using AI-enabled contract risk analysis and redlining tools
  • By 2029, 80 percent of human decisions will not be replaced, only augmented by GenAI, as humans will maintain their comparative advantages in ingenuity, creativity and knowledge

Gartner: Supplier Management Market Guide

The 2023 Gartner Balancing Sustainability and Resilience Survey found that 53 percent of respondents reported their supply chains were facing disruptions 50 percent of the time or more. 

Buying organisations that have supplier risk management technology can monitor and analyse supplier risk events in real time or near real time.

Supplier risk management is a key competitive advantage, while enhanced supplier risk management enables sourcing and procurement professionals to impact a company’s continued success. 

Supplier risk comprises a variety of risks, however the paper identifies the seven below as the most common categories:

  • Risk event monitoring — refers to supply chain disruptions caused by weather, geopolitical events and other hazards
  • Financial — identifies the financial viability of a supplier
  • Sustainability/ESG — enables companies to track and manage corporate goals, improving their impact on social and environmental goals
  • Performance — this refers to the creation and management of supplier performance dashboards that can track many metrics, including risk, to provide a holistic supplier view
  • Compliance — refers to regulatory and compliance mandates often managed by a category of software called third-party risk management
  • Capacity — refers to what end users often cite as a top risk when mentioning suppliers
  • Cyber-risk monitoring — refers to the ability to evaluate a supplier’s or prospective supplier’s designed cybersecurity maturity, current cyber-risk posture and cyber hygiene effectiveness

Beroe/GEP: Category Forecast 2024

These are both good resources that detail market trends in differing industries to inform category strategies for direct, indirect and services, especially as many procurement teams look to increase their internal and external collaboration. Having this market analysis is a great input for those strategies.

Whilst the Beroe paper is pure categories with commentary on the specific category, the GEP paper does have some broader context, such as the geopolitical & supply chain disruption and factors that underpin much of the category analysis. 

As such, in my opinion, they should be read together.

SIA: Must Haves

This article is a summary from a webinar held by SIA, exploring trends from 2023 that will continue into 2024 for external workforce. 

They identified some key improvements for each of the subsections within the external workforce. 

One of the biggest areas that was identified for improvement was SOW management, with issues identified being rogue spend, scope creep, supplier selection without competitive bidding, headcount difficulties and missed onboarding compliance. These are risks that come with letting SOW projects “do their own thing.”

This was similarly identified in the soon-to-be-released Art of Procurement study on services procurement that SAP sponsored and worked with.

A good read for the wider external workforce when planning external workforce priorities.

AQPC: 2024 Supply Chain Priorities and Challenges

This report of 350+ respondents is a cross-industry look at all aspects of supply chain priorities for 2024. 

It starts by looking at broader trends with big data and analytics having the biggest impact over the next three years followed by digitisation and data management (all around 60+ percent). 

The report also makes the point that compared to 2023, the proportion of respondents anticipating major impacts from those top trends has increased substantially, meaning that these three will have an outsized impact on the next three years.

Over half of the respondents (55 percent) expect their organisation’s budget for supply chain management tools, technology, innovation and initiatives to increase in 2024.

Overall, sourcing and procurement is the second top area of focus for the broader supply chain (after supply chain planning). 

Within sourcing, the op focus area was identified as supplier relationship management (32 percent) followed by risk management.

When we isolate down to priorities (i.e. the things that will deliver the focus areas), we see that there is a reliance on technology as the top three are all related: implementing new technologies and capabilities, standardising processes, and identifying and implementing best practices.

Compared to 2023, a larger proportion of organisations are planning to put in place new technologies and capabilities (51 percent in 2024 vs. 38 percent in 2023).

Improving supplier relationships was fourth overall at 40 percent, tieing with visibility into lower-tier suppliers. 

KPMG: Global Procurement Survey

This study was conducted during the middle of last year with 400 procurement leaders, and has some interesting points emerging from it.

The report identifies that most procurement teams have created roadmaps for their development that mostly cover 1-3 years (84 percent), while over half have a plan that covers 3-5 years. 

The short term plans identified SRM (70 percent) as a priority, followed by 66 percent for strategic sourcing.

Longer-term (3-5 years) focus moves to sustainability (56 percent) and strategic sourcing & value generation (54 percent). 

This means that the short-term concerns and priorities remain longer-term as the emergence of sustainability is expected to grow.

According to the report, implementing technology, followed by rationalising the supply base and improving business partnering are the top three agenda items for the next 12 months.

However, these move down one spot for the longer term, as ESG moves to the top for activities being planned.

The types of tech that procurement expects to have the biggest impact in the next 12-18 months are predictive analytics followed by Gen AI.

These positions are reversed in the longer term. 

In a throwback to the Economist Impact paper last year, the most challenging aspect of supplier management is performance management, specifically getting the right data.

Procurecon: 2024 CPO report

This survey and report, sponsored by Icertis, is from 100 respondents who are mainly based in the US and Canada.

Similar to the other reports reviewed, the top three focus areas are:

  • Process improvement
  • Supply chain disruption
  • Tech implementation and transformation

In order to meet these focus areas, the high priority activities are reducing costs (53 percent), ESG (46 percent) and increasing speed & efficiency (46 percent).

The technologies identified that would help drive that speed and efficiency (and deliver on the focus areas) include digital tools to reduce manual data entry (32 percent), process orchestration across systems (28 percent) and data enrichment (27 percent). 

Therefore, the actual tech that was identified was digital procurement platforms (34 percent) and CLM (27 percent).

GEP Outlook 2024

The GEP Outlook is, as the title suggests, GEP’s thoughts on what the next 12 months (and in some cases longer) will look like and what the impact on procurement will be. 

The main headlines are:

  • Supply chain volatility is declining, specifically in relation to shortages in the supply chain
  • Digital and AI arrive: when we look at the surveys recently completed, and reviewed in this report, digitisation is certainly one of the top priorities with the possibilities that AI presents being clearly intriguing
  • ESG is back (did it leave us?): 2023 saw that ESG was susceptible (in terms of momentum) to economic headwinds, now that these are easing we expect to see the re-emergence of ESG as a priority, especially in the longer term
  • Talent is perpetually on the agenda, however the skills needed in a digital world are radically different from traditional procurement skill sets. Availability of talent and skill sets means that these strategies need to evolve

The report also goes into some of the global business and macro trends that will impact organisations, and can be read in tandem with the category outlook from both GEP and Beroe to give a broader understanding.

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

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