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 June’s global procurement research.
Save your own time reading research when you can get the key takeaways in one place.
The reports were good again this month!
A great range, from the importance (and challenges) of AI to the evolution of category management and the future direction of external workforce. What is interesting, is how well many of these reports tie into the Economist research that was covered last month.
Gartner: 2024 Chief Procurement Officer Leadership Vision
This key issue guide from Gartner looks at the three top issues impacting CPOs and their teams. Namely:
- Gen AI – Where and when to prioritise investments
- Change Fatigue – Balance aspirations with frameworks to overcome fatigue
- Procurement Transformation – Faster than ever
The prism that is used to describe the value versus feasibility of Gen AI opportunities is excellent, though I would argue the feasibility is linked to the maturity of the function and the tech stack.
I really like the visual showing how much more complex the procurement value proposition has become and linking this to the change framework is a useful idea.
And a nice stat to finish!
CPOs who design simplicity into procurement transformations enjoy a 42 percent increase in transformation success over those who don’t.
GEP: 2024 Guide to AI-First Digital Procurement Transformation
Continuing the AI theme, this research covers insights into the importance of AI for competitive advantage.
After recently attending the World Procurement Congress, many conversations centred around this topic, and how to prioritise, what are the benefits, where are the constraints, what are the positive and negative impacts, and where could it lead?
The research suggests that in terms of adoption, the landscape is diverse across multiple stages from exploration, pilots and implementations and, I think, showcasing the newness and polarising views that many have.
Barriers have been written about previously, notably in a World Commerce & Contracting paper earlier this year. However, it’s interesting to note the consistency around data management, technology itself and cultural implications.
Cultural resistance within organisations is a notable challenge, identified by 36 percent of professionals.
Overcoming apprehension or reluctance towards AI adoption is essential for the successful integration of AI into procurement processes.
Much has also been written about automation and augmentation. This shows up again here, with 42 percent identifying automation assistance as a key outcome, and the same number identifying augmentation (enhancement) as an outcome.
As identified in the ‘barriers section’, data was a big barrier and the report has a readiness section on infrastructure that again shows a very diffused readiness landscape.
The report reveals that 26 percent are working with basic digital systems that need an overhaul and 21 percent are starting at the beginning. Perhaps this is a key driver of the recent Economist Impact report that identified digitalisation was a top priority for procurement in the next 12-18 months.
Another big takeaway, both from this report and also recent events, has been the AI skillset. This is covered, identifying that 31 percent have some familiarity with AI while 19 percent have none.
Skills, and how to develop them, will be at the forefront of many procurement leaders’ agendas, as they have been for some time.
Kearney: COO Study 2024
This study is the second done by Kearney into COOs. The reason I’m including it, is that it does give some valuable insights that procurement leaders will need, in order to consider their alignment.
As pointed out by the recent Economist Impact research, CPOs now report into COOs more than previously.
Some key takeaways:
- Over 90 percent of respondents are prioritising new customers and new channels to drive growth
- 51 percent of COOs are targeting 5-7 percent cost savings in 2024 (and 22 percent are targeting 8-9 percent)
Cost still wins versus risk but the gap is closing across four areas: inventory, single sourcing, nearshoring and transportation.
70 percent (an increase over the previous year) identified forming alliances with key existing suppliers as the top way to mitigate inflation.
AQPC: Spend Analysis
AQPC has produced two pieces around spend analysis. Spend analysis was identified by the Economist as the top driver of digitalisation in procurement for the last two years, so it’s worthwhile taking a look at this.
The current state document identifies that 43 percent of respondents indicated their classification is semi-automate and 48 percent automated, while 47 percent report that their data cleaning is semi-automated and the same number fully automated.
As per the GEP report mentioned earlier, 60 percent of respondents identified a significant or very significant impact of data quality on their outcomes, confirming the core essentiality of spend data.
The ‘what supports accurate spend analysis’ article identifies steps to improve spend data quality, from standardisation of coding systems to full automation of spend analysis and cleanliness.
AQPC: Accounts Payable Key Benchmarks
The cross-industry AP key benchmarks report was also released by AQPC this month and is a great resource to benchmark against.
I have compared these versus the SAP Ariba Benchmarks and (depending on your view on DPO) it shows the improved performance that SAP can deliver versus these benchmarks.
SIA: Workforce Solutions Buyer Survey 2024
This is an annual study that I have compared with last year, as it’s interesting to note some of the changes.
In terms of who owns contingent labour programs, it has moved a little more towards being HR focused, compared to 2023. This year, 49 percent stated HR compared to 46 percent last year. Procurement sat at 37 percent.
You may remember from last year that we asked the same question in the Economist research for large enterprises, and the result came back as 42 percent for HR and 40 percent for procurement.
Overall (including mid-sized) it was a 46/30 percent split. Whilst the SIA report doesn’t give organisation revenue sizes, it does give contingent labour sizes and is more skewed toward LE than mid-sized.
Looking at the size of contingent labour again, I explored the comparison with last year, which reveals that the SIA numbers are meeting what they said in the previous year.
Both note around 26/27 percent in 10 years’ time. These numbers represent the percentage of the workforce that is contingent.
When we look at the Economist data, we see it as a percentage of organisational spend. It shows that it’s between 5-15 percent of total organisation spend (including employee spend) and that is shared by 75 percent of 2300 respondents.
To put that in perspective, if an organisation’s spend is $1billion, then they will spend between 50 million and 150 million on their contingent workforce spend. According to SIA, that number is growing every year.
So, why is it growing? What are the priorities for contingent workforce?
According to the report, reducing and controlling costs is the top answer, and then implementing technology to manage (and deliver) those cost savings.
Within the Economist research, we asked a similar question (with differing options). The top answer from a contingent perspective was balancing internal and external workers and direct sourcing.
You can see the balancing twice in the priorities from the SIA report – integrating into corporate planning and total talent management.
SIA reports on direct sourcing separately and, interestingly, the Economist direct sourcing was identified by 62 percent of respondents as the top priority over the next three to five years (and 59 percent of CHRO).
You can see the expected growth in that area from 12 percent today to 27 percent in 10 years’ time, suggesting that direct sourcing and talent networks will be more heavily relied upon in the future.
Future Purchasing: 2024 Global Category Management Report
This report is a bi-annual look into category management which, as you will know, has consistently appeared in the Economist surveys as both a driver of digitisation (fourth this year) and as a top tech trend to be implemented in the next 12-18 months (top last year, fourth this year).
The report is detailed and has some interesting insights:
The trend for leaders and starters has been a reduction in their category management capability index scores (by 9 percent for leaders and 5 percent for improvers).
This may be due to the sample of respondents, additional questions we have asked or a slight removal of focus on category management while dealing with operational challenges, but there is an overall trend downwards of some outcomes.
- This year, 86 percent said stakeholders didn’t know their role. Two years ago it was 80 percent
- Average savings rate has fallen from 7.4 to 7.1 percent, but this is likely due to inflation
- Average spend per category management is €101m up from €73m
- Technical category management skills is the number one area to improve, two years ago it was behavioural skills
- 68 percent of value remains untapped
The team at Future Purchasing has segmented their 300+ responses into an order that is based on outcomes generated.
Essentially, this is the starters (majority of respondents at 74 percent), improvers next at 19 percent and leaders at the top at 7 percent.
Early in the report is a summary of some key metrics:
Spend per supplier: Category management is often thought of as a mechanism to increase leverage through consolidation. It is notable that the spend per supplier for leaders of €1.06m is 5x that of starters and 3x that of improvers. This concentration of spend not only increases leverage, but also allows increased intensity of SRM improvement activity with key suppliers — an additional source of value that leaders can access.
Spend per procurement team head: The efficiency of the leaders is demonstrated by the fact that €76m spend is managed per member of the procurement team, versus €34m for starters and €27m for improvers. This equates to 55 percent and 64 percent fewer resources for the spend managed — reducing the cost to procure. The drop-off in efficiency for improvers versus starters is consistent with previous surveys and may be due to the intensity in which they are pursuing value delivery, i.e., effectiveness versus procurement team efficiency.
Percentage of staff focused on category management: Leaders have a higher percentage of staff focused on category management than starters or improvers (43 percent versus 32 percent and 36 percent). Hence, they have more time to spend creating and actioning high quality category strategies, engaging stakeholders and strategically managing suppliers.
Spend per category manager: Leaders’ category managers are responsible for €177m spend versus €106m for starters and €75m for improvers. This equates to 40 percent and 58 percent fewer category managers for the spend managed and reinforces the resource efficiency of leaders.
Looking at overall capability:
HIGHEST SCORING CAPABILITY AREA
Across all maturity groups, CatMan strategy is the highest-scoring dimension, with an average of 3.2. This may be a result of procurement being able to control most of the levers in this area.
LOWEST SCORING CAPABILITY AREA
Stakeholder engagement is the dimension with the joint lowest average score at 2.7. Practices in this dimension are critical for procurement teams to influence, such as stakeholders having sufficient time for category management, making it a core business process for stakeholders and category strategies being co-created with business stakeholders.
The joint lowest score is process & technology where even leaders show a considerable variation in the way that category management is deployed. Building a strong process and ensuring consistency of application through good governance and review can help significantly with quality, stakeholder communications and adoption.
Interestingly, process management was the second highest response in improvements needed in category management for CPOs in the latest Economist research.
I’ve pulled out three interesting stats from the tech section of the report:
- 86 percent of improvers (and 100 percent of leaders) include process change and supplier management as well as sourcing in their implementation options versus 47 percent in our process, category of starters, showing that as organisations become more mature, their strategic options expand away from just sourcing
- 34 percent of improvers (and 50 percent of leaders) use a digitalised category management process and toolkit versus 8 percent of starters
- 14 percent of improvers (and 20 percent of leaders) have a category management process and toolkit that uses artificial intelligence to recommend value levers versus 5 percent of our category management of starters
As always, reach out to discuss more. I’m always happy to hear your thoughts!
Watch this space for Gordon’s Window on July’s research, coming soon!
