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Gordon’s Window: November research

Gordons Window November

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 November’s global procurement research. 

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

Read on to find out how procurement has been changing over the last few years, more about the decision making process behind supply chain reshoring, and the changes that executives expect to make to their supply chains to manage challenges over the coming year.

IDC: Supply Chains for Mid-Market

In this IDC brief (sponsored by Open Text), the paper uses data from its supply chain survey, which was conducted earlier in the year and focuses on mid-market responses (defined as under $1billion). 

The paper examines the differences between large enterprises and mid-market companies, identifying that they are held to the same business process standards by their customers as large enterprises. However, they lack broad resources.

In the near term, efficiency and resiliency (both visibility and agility to see it and respond) are the top two priorities, as both are ways to ensure margin improvements and more reliable operations. 

IT modernisation is on the radar as an important driver of performance but takes a back seat for now.

Responding more quickly to supply disruptions or changes remains top of mind in the shadow of recent global supply chain disruptions. Notably, collaboration is a bigger priority for larger mid-market organisations.

In the medium term, efficiency remains a top priority as mid-market companies see margin erosion and input cost pressure continuing.

IT modernisation increases in importance to drive better business performance, while operationalising sustainability joins the list of top priorities.

Over the next decade, almost 40% of mid-market companies view labour availability as a persistent problem, while the top priority for these companies in 2023-25 is to reduce cost/eliminate waste to mitigate the effects of persistent inflation.

Risk and speed of response are big issues for all, but are more keenly felt in mid-market. 

Meanwhile, supply diversification is a strategy that many are following. However, the paper suggests that it brings more suppliers, more documents and more exchanged information, which means there’s more things that can go wrong.

AQPC: Benchmarks & Procurement is Changing

In the first report from AQPC, they published their benchmarks for procurement FTE to perform procurement activities. Where they exist, SAP benchmarks have also been included (see diagram below).

FTE benchmarks

In the previously covered Hackett world class digital procurement report, it mentions that the more digitally enabled functions there are, there is a reduction in total procurement FTE – but more strategic procurement people within this.

The second AQPC report covers how procurement has been changing over the last few years, with over 71% of 1,181 respondents stating that they have seen significant transformation of their processes and systems. 

The report goes on to state that procurement’s strategic objectives have been shifting in line with broader changes in the business environment. 

In the past, cost reduction and maintaining or improving margin would have been the two most important objectives for procurement. 

However, the study found that avoiding supply disruption is now the most common strategic objective, followed by reducing procurement costs (there’s about a 2% differential) with increased emphasis on sustainability and improving supplier relationships (though there is a clear distance between the top two and next few).

Within supplier relationships, the key areas identified were supplier’s ability to deliver (25% of respondents), supplier capabilities (22%) and sustainability (16%).

The report concludes that whilst cost is always important, the ability to collaborate with suppliers, and better measure and manage suppliers to both avoid disruption and improve relationships, are becoming more critical.

World Commerce & Contracting: the Secrets of Successful Contract Lifecycle Management Implementation

This report looks at the impacts of contract management technology, plus some of the pitfalls of implementations (and indeed technology), suggesting actions that organisations can take. 

It makes the point that there is so little usable data associated with the contracting process. 

In a typical midsize organisation, contract-related data sits in 24 different systems with three spread across multiple business functions.

Often, there is no single repository where contracts are stored. Therefore, data analysis, to the extent it occurs, is largely manual and reactive.

The report goes on to identify the benefits and good practices for implementation of contract lifecycle management technology. 

The secret is to understand the foundations for success and select a system that is adaptable, easy to use and supports a wider set of use cases, allowing a reduction in the overall number of systems deployed.

Deloitte: Time to Consider Supply Chain Reshoring?

The read of the month!

A lot has been written about reshoring since the start of the pandemic. Generally, it has taken longer for organisations to achieve this than was first thought. 

There are a lot of reasons as to why, but this paper dives into the decision-making process. 

This is going to become more important, as the wave of “friend shoring” may well increase over the next few years if current geopolitical issues continue.

According to the report, in a Deloitte database review of 98 major reshoring events over the past four years, 19% of companies involved in reshoring events used some form of an M&A transaction, including joint ventures or partnership, to execute in the new supply chain strategy.

Before tackling the analysis of total costs involved in a reshoring decision, it’s important to consider the full range of factors that may come into play. 

The drivers of supply chain disruptions seem to fall into three broad groups: quantitative, qualitative and risk-related.

Quantitative drivers include: 

  • Labour costs
  • Transportation costs
  • Lead time
  • Working capital requirements
  • Taxes and duties
  • Defect rates

Qualitative drivers include:

  • Intellectual property management
  • Environmental, social and governance (ESG) improvement
  • Cross-functional complexity
  • Brand reputation

Risks can include:

  • Regulatory changes
  • Geopolitical developments
  • Natural disasters
  • Financial and economic volatility. 

These are issues mostly out of a company’s control and difficult to quantify.

Whilst this paper looks in depth at four categories (of which they identified in three of them the factors around the decision to reshore or not, which have made reshoring more attractive), the factors identified and calculations made can be applied to any category.

The report identifies the following questions to consider when making decisions around reshoring:

  • How long and complex is my global supply chain (geographically and logistically)?
  • What competitive advantages or disadvantages does my supply chain confer in the marketplace?
  • How does the total cost of sold goods change by shrinking the supply chain closer to the end consumer?
  • How is my supply chain a result of price elasticity, and how does customer price elasticity impact decisions?
  • What are the risks to my supply chain, and how can I control or mitigate them?
  • Is there unpredictability in my supply chain that could affect business continuity?
  • What’s the impact of regulations or the potential arc of future regulations (e.g. EU’s Carbon Border Adjustment Mechanism [CBAM], Corporate Sustainability Reporting Directive [CSRD]?

Chief Executive: CEO Briefing

This month, we examine two recent Chief Executive CEO Briefings, including one on AI stating that the majority of CEOs polled (53%) said they are now finding business uses in the new capabilities of generative AI, which is a whopping 130% increase from those who were considering using AI just eight months prior.

CEOs in industries like advertising, marketing, media and PR, tech and professional services have the highest rates of positive responses when asked if they are finding business use out of generative AI.

In the second briefing, Chief Executive’s October CEO Confidence Index finds CEOs outlook for 2024 at its lowest level in a year, with 87% of the 240 CEOs polled saying they expect business conditions to either remain flat (29%) or turn negative (58%). 

The growing probability of a recession, many said, will lead to further increases in unemployment, sticky inflation and a prolonged high-rate environment.

Thomson Reuters: 2023 Corporate Global Trade Survey Report

Similar to the above, the Reuters report stated that an environment of almost constant disruption continues to hinder global-trade efforts, and these disruptions come from familiar sources such as inflation, rising costs, supply chain shortages, international conflicts, regulatory changes, transportation troubles and compliance challenges.

Not surprisingly, these sources of disruption and uncertainty also comprise the global trade profession’s top strategic priorities over the next 12 months.

Key takeaways from this study include:

  • 46% of companies say they are impacted by retaliatory tariffs between the United States and China
  • 28% of companies say they are affected by Russian sanctions — down from 39% in 2022
  • 88% of businesses collect information for ESG purposes from their suppliers at least once a year

 The decision to collect ESG data is driven by three main factors:

  1.  to comply with local laws
  2.  to support the company’s or owner’s values and ethics
  3.  to mitigate reputational risk

More than two-thirds of businesses take ESG considerations into account in their decision to use a supplier, while 62% of respondents rated “supply chain security and data protection” as their top technology priority – up from 54% in 2022.

Ardent Partners: State of Payables 2023

In addition to the state of procurement report, Ardent also delivered a state of e-payables report aimed at AP. 

It’s easy to forget that the second P in P2P is all about payments, so this is critical for procurement leaders, not just because of the increasing amount of AP and procurement teams now reporting through the same lines, if not to the same person (see the AQPC report featured last month).

In fact, an early part of this report calls that out in terms of strategic priorities. 

Efficient collaboration between finance and procurement is the key to optimising spend management and supplier relationships. 

50% of AP teams leverage data and intelligence to improve collaboration.

Other key takeaways include:

  • A focus on eliminating paper invoicing and enabling more suppliers to submit invoices electronically
  • Driving greater automation and reducing processing costs. 

Meanwhile, hurdles include payments taking too long and a high percentage (47%) of exceptions. 

Clearly, these two are linked with each other. 

Late supplier payments (as a result of the above two) are the consequence and also do not help with improving supplier relationships which was called out earlier, as a key part of collaboration between AP and procurement.

Whilst adoption rates haven’t improved much since last year’s report, the section on adoption is interesting for a couple of reasons:

  1.  The inclusion of travel and expense management solution for the first time
  2. Network more adopted than portals!

University of Mannheim: State of the Procurement Profession Survey

In this annual survey of around 400 procurement professionals, some interesting points emerge.

Cost and uncertainty are the top two priorities for procurement. 

Cost is more dominant, with procurement focusing more on cost (than top management) in their evaluation criteria. 

This also shows up in procurement’s involvement in top level discussion. Cost, delivery and quality are the points procurement is involved in, but when talk turns to innovation, flexibility and (worryingly, though this is consistent with many reports) sustainability, procurement is less involved.

Strategies are evolving, with localisation of supply increasing, as well as more dual/multi-sourcing outcomes becoming the norm. A focus on driving better relationships, as well as increasing inventory to combat the uncertainty, are also being implemented.

Economist Impact: The Cost-Plus World of Supply Chains

If there could be two reads of the month, then this would be the other one!

This report derives from a survey of 400 executives earlier this year, and is written by Economist Impact (sponsored by GEP).

It reveals that 59% of survey respondents believe that they will have to make changes to their supply chain to manage challenges in the coming year.

These changes include adopting technology to increase supply chain visibility (63%), followed closely by digitally transforming supply chains (57%).

As stated by a couple of other reports, the biggest impact on supply chains is geopolitical events (ahead of trade protectionism).

Responses highlight the importance executives are placing on inventories in 2023, with 68% stating increasing inventories are a moderate or high priority, and 55% stating decreasing inventories as a low priority. 

Yet, although inventories can decrease certain risks, they require more capital investment. 

Elsewhere, 68% of respondents confirm there are additional costs associated with increasing inventories. This shows that executives are focused on factors beyond cost.

External supply chain financing is another way to offset cost, identified by 34% of respondents as a top three approach.

Substitutability is another supply chain strategy being adopted by businesses to weather short-term disruptions. 

In fact, 84% of respondents rated substitutability of moderate to high importance in managing procurement and supply chain disruptions in 2023. 

By employing input substitution, certain firms will be able to minimise inventory holdings whilst preserving output levels, as versatile inputs can be utilised across different products.

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

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