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 March’s global procurement research.
Save your own time reading research when you can get the key takeaways in one place!
What can you expect this month?
Whilst supplier diversification is still in vogue, there are some areas where supply base reduction is re-emerging to improve relationships. AI is a thing – no, really it is everywhere as Ardent states.
Environmental concerns – scope 3, carbon footprint – are taking priority as focus areas, maybe as more legislation is driving this.
Cost management is still – and realistically always will be – a priority for many reasons, from funding the current and future business to providing alignment opportunities for procurement.
Gordon is presenting a LIVE Gordon’s Window at the CPO Exchange on 22-23 August on the Gold Coast. Request an invite to this invitation-only event!
Ardent: Predictions & Trends
To start this month, we have a couple of papers that identify mega trends and predictions.
I’ll discuss more about the trends than the predictions, but both are good reads.
To pull out some interesting and connected trends, savings remain a top priority and cost of capital is making procurement more important.
When the cost of capital is high, it costs more to run a business, hence the importance of savings remaining key, even though one of the other trends is that inflation has stabilised.
Geopolitical tension and deglobalisation will make supply chains interesting, which may drive the increase of friend-shoring or at least duplication of supply chains.
The explosion of contingent/external workforce spend is important and, as SAP’s study with Art of Procurement identified, has the potential to return great value to organisations.
Clearly the war for talent, not just in procurement but across the organisation, driven by new technology and the changing nature of “core” means that there are many avenues which lead to the increase in the use of external workers – however you define them.
AI of course is, as the paper identifies, everywhere!
Efficio: Megatrends – Procurement of the Future
Hot on the heels of the Ardent report came this article from Efficio that looks at the mega trends for the future of procurement.
To summarise, the four areas include:
- Digital disruption, AI, collaborative platforms and cyber security: The report projects that AI will be critical for organisations by 2025 (39 percent of respondents to a Statista survey as opposed to 11 percent in 2022)
- The war for talent increases – both for attracting new and for retention
- Sustainability: 70 percent of C-suite members state that ESG topics are important strategic priorities for their companies, however the spend profiles on where the companies are directing efforts doesn’t necessarily match
- Geopolitical disruption: Being agile in the face of disruptions becomes the new normal for procurement
PWC: Global Digital Procurement Study
This is my read of the month!
The fifth edition of PWC’s Global Digital Procurement Survey has increased responses to around 1000, making it one of the largest procurement studies – although not the largest. Hold on for the Economist Impact sponsored by SAP.
Here are the key takeaways:
The top five strategic priorities identified in the report are procurement performance (read cost control) at 65 percent, digital transformation at 46 percent, CSR at 35 percent, sourcing at 35 percent and SRM at 32 percent. There is a drop off post this top five in terms of percentage.
So, we see a continuing theme – as outlined in several other start-of-the-year papers – around the importance of digital transformation as organisations seek greater efficiency and more speed to their operations.
This is confirmed in the drivers and benefits section where 70 percent of respondents identified that efficiency gains were a driver, while 62 percent said that they had seen the benefits of these efficiency gains.
The report also reveals that user experience is emerging as a new driver of digital, which is something that we have identified in the Economist Impact study over the last few years.
The expectation is that the digitisation rate for the next three years will increase to around 70 percent by 2027. This is despite the actual rate being quite static between the last two reports (2022–24).
Data analytics and source to contract are the top two investment areas by 2027, although the overall set of use cases seem to be consolidating together.
Risers of use cases include contract lifecycle management, e-invoicing and Gen AI (shocking!)
There are a couple of deep dive areas. ESG, for example, showed that 59 percent of organisations prioritised environmental risks (E, as opposed to the S and G), with carbon footprint management identified as one of the larger areas of concern.
There are great focuses both from a region and sector perspective that make for interesting reading as well.
World Commerce & Contracting: AI in Contracting
One of the mega trends we identified earlier was that AI is everywhere, so having this report from World Commerce and Contracting (WorldCC), that looks into the use of AI in the contracting process, is timely.
This study draws from over 500 responses globally and sees an increase in those planning to implement AI in the contracting process by 25 percent over the last six months.
However, whilst this rise may seem impressive, it still only represents 20 percent of responses, with those not planning to implement also increasing to 61 percent.
What is interesting is this stands in opposition to the personal enthusiasm for AI, which has more than doubled and stands at 80 percent.
The top reason given for this apparent disconnect is concerns over data privacy and security (57 percent), especially since AI systems process large volumes of data.
This is followed by the quality of the output and general lack of trust in the data (46 percent), which is dependent on how the large language models are trained.
I did find it interesting that the authors asked ChatGPT for what it believed the benefits would be, and whilst similar in ranking, the number one reason by practitioners was to analyse risk and compliance which was number two for ChatGPT.
Number one for ChatGPT was freeing up time for more strategic work, which was number four for the practitioners. The other disconnect was assisting in contract negotiations which practitioners ranked second, whereas ChatGPT ranked fifth. This could be a negotiating position by ChatGPT though.
Ecovadis: Sustainable Procurement Barometer 2024
Similar to AI, sustainability made it into the megatrend reports, and I always welcome the Ecovadis barometer reports. There is a connection to the digitisation importance from the PWC (and other) reports.
Only 6-25 percent of sustainable procurement programs digitally integrate ESG into procurement processes, according to the report.
The most mature area in terms of digital integration is spend analytics, closely followed by ordering systems and catalogues. Manual integration is at 53 percent for sourcing and new supplier selection.
Top drivers for running a program include delivering on corporate goals (I personally read this as aligning to the business, something always at the top of procurement agendas), compliance with regulations and reducing risks (which could be complying to legislation), and building resilience.
Focus areas include net zero and scope 3 emissions (see the PWC report), and human rights/social practices.
The report identifies certain practices which leading sustainability programs use at a greater rate than non-leaders. These include risk and hotspot mapping, targeting both strategic and high-risk suppliers in activities such as self-declarations, use of third party databases, onsite audits and corrective action programs.
Economist Impact: Trade in Transition 2024
This series, started in 2022, tracks how global trade and supply chains evolve in response to changing economic conditions.
It’s important to understand this, as the mega trends earlier identified that the geopolitical climates are driving some change.
Key findings from this report (for procurement) show that whilst supplier (and supply chain) diversification is still the most prevalent strategy for organisations, there is the early identification of the next wave of reconfiguration as organisations seek to balance the increase in the number of suppliers, with a concentration on creating better partnerships.
AI has become an indispensable tool for 98 percent of executives, impacting at least one aspect of their supply chain operations.
As the WorldCC report also identified, reducing costs is a key expected benefit of AI, with this report identifying that 34 percent of companies are banking on AI to curtail overall trade expenses.
The favoured just-in-case models are being refined as companies strive to strike the right balance between building resilience and managing efficiency (costs).
In 2023, companies maintained 9.0 weeks of inventories, compared to 10.1 in 2022 and 8.9 in 2021.
This signals a slight recalibration in 2023, likely due to the capital intensity behind higher inventories and – as we identified from the Ardent report earlier – the cost of capital is increasing.
In the face of geopolitical shocks, friend-shoring and the creation of parallel supply chains emerge as the go-to strategies for business resilience. Geopolitical shocks continually disrupt global trade, driving the restructuring of supply chains to centre stage.
BCG: What Leaders Are Saying About Costs and Growth in 2024
This BCG report looks at C-suite strategic priorities in 2024, and there are some important takeaways for procurement and supply chain leaders to note.
A critical success factor for organisations achieving success in 2024 is enduring cost management – i.e. building continuous improvement organisation wide rather than the one-and-done cost reduction programs.
This is viewed as the most critical strategic priority across all regions and industries.
It’s all aspects of costs, according to the report, which will firmly be in focus; direct and indirect procurement, labour and non-labour overhead.
The report stresses that it’s not the initial cost savings but the need to sustain these cost structures over time.
This isn’t the rush for profit priority according to the report, but the need to invest further into specific programs for other priorities (in other words, procurement funds the organisational improvement programs), such as increased digitisation and AI, talent management, sustainability, future supply chains and business expansion.
Everest: Procurement Transformation in the Age of Generative AI
We have mentioned several times in this and previous reports about the re-emergence of digitalisation as a priority, especially to access greater efficiency through AI.
This report looks at procurement transformation through the prism of AI and how AI will impact procurement transformations.
Discussing current levels of adoption and AI use cases across source to contract, the report also compares AI capabilities with GenAI capabilities. Of most interest to me was the framework identified for prioritising AI implementation, using impact and adoption as the two axes.
Impact includes financial, operational and business, whereas adoption includes criticality, constraints and complexity.
I think this is a pretty good way to look at prioritisation of use cases. Overall, the top right quadrant – i.e. high adoption potential and high impact includes spend analytics, market intelligence guided buying, support and supplier onboarding, and ID.
This follows several AI use case reports I’ve reviewed previously. Obviously, each organisation’s impact and constraints will be different, but I think the concept is sound.
Watch this space for Gordon’s Window on April’s research, coming soon!
