Something a little different this month!
Rather than reviewing multiple reports, I’m summarising a major piece of research that SAP has commissioned with the Economist Impact.
This survey asked over 2,000 respondents at C-Suite level about their views on the current and future state of procurement and external workforce, and the results were fascinating.
The full report will be available in early June, together with an interactive barometer of confidence in the procurement function and dynamic infographic. You can access this here.
In this article, I’ll summarise at the top level, but we also have data that is broken down country by country, region by region and industry by industry at statistically significant levels, which I look forward to sharing with you all throughout the year.
Demographics
As indicated, this report surveyed 2,307 C-Suite practitioners, including chief procurement officers (CPOs), chief financial officers (CFOs), chief supply chain officers (CSCOs), chief operations officers (COOs), chief HR officers (CHROs) and chief innovation officers (CIOs).
We also expanded form last year and included responses from the Nordics and Middle East, building on responses from North and Latin America, Europe and Asia Pacific.
We covered 12 industries, including industrial manufacturing, consumer goods, chemicals, financial services (excluding banking), life sciences, automotive, oil and gas, banking, public sector, high technology, mill products, aerospace and defence.
This is one of the (if not the actual) largest procurement studies in the world.
Procurement Confidence and Operational Trends
You may remember, from last year’s report, that although the insights that procurement provided to the business were seen as critical, procurement’s ability to collaborate with the rest of the business was a problem.
The good news this year is that both the insights and collaboration numbers have improved!
Collaboration this year is at 75 percent, with respondents stating that procurement collaborates well – this is up from 53 percent. Elsewhere, 84 percent state that the insights are essential for org strategy (up from 70 percent).
The issue we have is how well these insights are applied, which is at 64 percent, showing a 20 percent delta between value and delivery.
The other area of concern is the way that procurement manages external risk (suppliers, markets, etc). Concerningly, this has reduced from 62 percent last year to only 41 percent this year.
When thinking about why, it’s clear that the amount of disruption over the past few years, specifically the last 12-18 months, is driven by monetary uncertainty which was identified as the biggest reason why priorities may change.
The other move is the confidence in procurement’s ability to deliver against ESG objectives. This has risen significantly this year, from 49 percent last year to 68 percent this year. It’s worth keeping this in mind when we look at the movements in strategic priorities.
This year, we returned to look at reporting lines and operating models. Continuing the trend, we see that 44 percent of procurement teams now report to the COO, moving further away from the CFO at 23 percent.
This represents the broadening of procurement’s value delivery, away from being purely cost management to include risk, sustainability and quality.
Operating models moved as well, with 32 percent showing a COE and 28 percent being centre led, which complement each other well. Only four percent now show completely centralised, possibly a reason why the collaboration score has improved.
Strategic Priorities
The report goes into significantly more detail about the evolving priorities, but the headline is that overwhelmingly the top strategic priority for the next 12-18 months is to fast track the digitalisation initiatives for procurement.
Why? The top two drivers of digitalisation were identified as spend analysis (continuing from last year where it was also number one) and developing an AI strategy for procurement.
Clearly, you can access the power of AI without being digital, so driving this digital initiative is critical for companies wanting to access AI.
The second short term priority is sustainability. Previous years have shown that there was a disconnect in terms of priority between the rest of the C-suite and CPOs.
CPOs have always had sustainability in the top three, however the rest of the C-suite didn’t have it as high for procurement.
This has changed this year, potentially driven by the increase in confidence in procurement to deliver ESG strategies. I’ll go into more detail on sustainability in the section below.
Longer term, whilst sustainability maintains its position as the number two strategic priority for the next three-to-five years, the top priority is supplier diversification.
In fact, the first, third and fifth-placed priorities are all risk focused, aimed at heading off the disruption caused by the over reliance on single sources of supply.
Diversification, multi-source and re/nearshoring were identified as the longer term priorities of procurement, clearly showing the longer term nature of these objectives.
Technology & Digitalisation
As mentioned above, digitalisation is the top strategic priority for the next 12-18 months, according to 57 percent of respondents.
The top two drivers (tied at 44 percent) were spend analytics (for the second straight year), joined this year by the adoption of AI (not just Gen AI but total AI).
So, we asked what companies wanted from AI, with the answers revealing that the biggest improvements expected were the automation of procurement processes at 48 percent, alongside better guidance and optimisation at 45 percent.
We asked a similar question last year and the answers largely correlate, as it was all about generating greater efficiency.
User experience and category management were again present in the top four drivers of digitalisation, continuing this trend of the last three years.
We again took the latest trends identified by the Gartner Hype Cycle’s innovation trigger and this may shock you, but apparently Gen AI may be a thing! It was identified by 34 percent of respondents as the top tech trend that was set to be piloted or implemented in the next 12-18 months.
Risk & Sustainability
Uncertainty is driving risk management within companies and impacting strategic priorities.
Over 70 percent of those surveyed identified macroeconomic and legal/regulations as the top two factors that could impact the strategic priorities of organisations.
When looking specifically at organisational risks for procurement to focus on, similar to last year, supply chain visibility (the number one last year) is high on the priority list at number two.
Uncertainty comes through again, as the top area is monetary uncertainty (e.g. inflation) with 49 percent of respondents identifying this as a critical focus area. Geopolitics is at third with 34 percent.
Sustainability continues its importance as the fourth highest area of concern for risk which, coupled with the second position in strategic priorities, really cements its importance for procurement leaders.
Within sustainability, two areas came through as high priorities. Compliance to legislation and carbon reduction (scope 1&2) both were identified as the top priorities by 39 percent of respondents, with waste reduction third at 32 percent.
External Workforce
Over three-quarters of respondents said that they spent 5-15 percent of TOTAL organisation spend on contingent labour.
This was a fascinating statistic, revealing the size of the contingent labour community may be higher than previously thought.
Previous studies have identified the reasons for this as cost reduction, flexibility and risk reduction.
This year, we dug into the risk area a little further and found 53 percent identified the top risk that was reduced by the use of contingent labour (and service providers) was fewer legal and financial obligations, with short term talent gaps being the second highest answer (36 percent).
Interestingly, the size of the third-party service provider is estimated to be the same, with two-thirds identifying total spend at 5-15 percent for third-party service providers.
When coupled with a previous Art of Procurement services study, which showed that 50 percent used phone calls or emails to manage this, it raises some alarm!
Overall, the report identified 50,000 data points, so there’s way too much to discuss here. However, I look forward to sharing more with you throughout the year, either at events or through other blogs and social media activities.
Please do download the report, it’s a fascinating read. As always, reach out to discuss if you wish. I’m always happy to hear your thoughts!
