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 October’s global procurement research.
Risk, cost resilience, data, AI and digital. These are the main themes that emerge from this month’s reports.
Procurement is gravitating to much more of a risk-based function. Organisations everywhere are wanting to at least pilot AI use cases, mainly to concentrate more time on risk and complexity, and whilst inflation may be coming down, worries of recession and geopolitical uncertainty are still dominating agendas.
Procurement Leaders: Plotting the Path to Net-Zero – Developing Scope 3 Data Capabilities
This study of the Procurement Leadership membership looks at how procurement functions are measuring and managing Scope 3 emissions and some of the potential problems they are facing.
The paper suggests four steps to help tackle the challenge:
- Build the capability to progress data quality
- Partner internally to incorporate data into the process
- Segment suppliers and tailor engagement methods
- Explore working with competitors to lighten the load
As you can see from the four steps, one of the biggest challenges on Scope 3 is the accuracy (and relevance) of the data, with the paper stating that 33 percent identified this as the main barrier for calculating Scope 3 emissions.
The report also identifies that you can’t impact Scope 3 without your suppliers, as it’s they who are creating the emission!
Currently, the top engagement method is emails with 87.5 percent, followed by training at 75 percent and events & policy just over 50 percent. Only five percent of respondents said suppliers were not engaged, which is a good outcome.
APQC Procurement: Sourcing and Procurement – 2024 Blueprint for Success
This pretty comprehensive 74-page book covers a range of benchmarks and findings from the various surveys that APQC carry out.
Some interesting stats: total cost to perform procurement (this is P2P) is 2.80 per $1,000 in revenue, cycle times are one day for issuing goods or services PO, 90 percent of POs are approved electronically and 1,473 POs are processed per FTE.
There are also some data points for supplier management, risk management and supply chain visibility that is worthwhile diving into, as is the SAP Benchmarking report as well for comparison.
CIPS: Q3 Pulse Results
One of the biggest impacts this year has been the risk of inflation, and the amount of political events that could impact both inflation and potential recessions.
Dr John Glen, Chief Economist for the Chartered Institute of Procurement & Supply (CIPS), reviews a quarterly pulse survey from (mainly) UK and Europe CPOs.
The key takeaways are:
- Headline risk is declining (slowly) from a very high point (4.53 to 4.02) over the last six months
- Geopolitical factors continue to be the primary driver of experience shortages in supply chains with over 70 percent of experience shortages being attributed to this factor
- Labour shortages continue to drive 43 percent of experience shortages in supply chains, which reflects high levels of employment in many economies
Inflationary pressures in the global economy have abated. Inflation is moving into or close to central bank targets in Europe, the US and throughout the rest of the world.
From the supply chain perspective, it is unlikely that the disruption in the Red Sea is likely to be resolved any time soon. As a result, sea cargo will continue to transit around the Cape, increasing both transit times and cost.
It is therefore not unsurprising that is where procurement costs have increased by more than 10 percent, with one-in-five of the drivers of these cost increases associated with logistics costs.
Given the level of risk still existing in global supply chains, the key strategies that procurement managers and supply chain professionals are going to deploy to mitigate risk have not changed.
Specifically, supply chain managers will continue to try and diversify the number of suppliers, extend contracts and hold more stocks. These three strategies have been the top ranked strategies in all three pulse studies conducted in 2024.
Oliver Wyman: The Priorities and Trends Shaping Procurement Strategy
In this survey, the authors sought a detailed perspective on the most important issues for procurement professionals and the tactics they’re employing to tackle them effectively.
From a sourcing perspective, these priorities were unlocking supplier relationship value, mitigating inflation, and adjustment and refining of processes and strategies.
It wouldn’t be a survey unless it includes some aspect of AI! In this study, the barriers for adoption were the lack of expertise and integration with existing systems, followed by data quality and (interestingly) resistance to change from within procurement teams.
Contract management, planning and renegotiation led the functionality of AI being implemented or considered.
Procurecon: The 2024 European CPO Report
Another survey, this time from Procurecon, focusing on European CPOs, was released this month.
The research indicates the CPO’s influence on C-suite decision-making has increased in 91 percent of organisations. Notably, no respondents reported a decrease. This follows The Economist’s reports of the last couple of years, so it’s good to see this consistency.
Apparently AI is a thing! It features prominently in CPO strategies moving forward, to free up resources and focus on ‘higher-level’ targets. The survey reveals 49 percent of respondents have already implemented AI solutions into select processes.
Echoing the CIPS report earlier, the report stated that supply chain disruptions were cited as the most significant challenge by 26 percent of respondents, and inflation was the most challenging for 19 percent.
There is an interesting section around AI, both with priorities and also on how to measure, which I think is really interesting as procurement seeks to measure the value it brings beyond savings alone.
The areas for AI that respondents are prioritising include supplier risk management (54 percent), strategic sourcing & supplier selection (50 percent) and contract negotiation & management (47 percent), with measures including increased efficiency, better/faster decisions and improved supplier relationships leading the way.
I was surprised to see cost savings come in low at 28 percent (as a benefit of AI), bearing in mind sourcing was so high as an area where it will be deployed.
The demand for cost management persists (and, in my opinion, always will). According to the research, spend analysis and category management (40 percent), supplier performance management (40 percent) and technology for automation & data analysis (38 percent) are the most effective methods deployed for managing costs within organisations.
EY: How to Reclaim Supply Chain’s Influence As a Driver of Growth
This supply chain survey about supply chain influence was released this month from EY.
Modernising the supply chain through technology and digitalisation is one of the most pressing challenges for supply chain leaders over the past year.
Leaders, overall, consider supply chain modernisation through tech/digital a key priority today. There is, however, some disconnect between C-suite and leaders.
There is a notable gap between the expectations of C-suite and supply chain executives regarding digital maturity within the organisation, and the timeline for their organisations’ supply chains to become mostly autonomous, with the C-suite more conservative and sceptical compared with supply chain executives.
- The C-suite (26 percent) say that their organisation’s digital connectivity with suppliers is limited to email and sharing spreadsheets (vs. 16 percent of supply chain executives)
- The C-suite (25 percent) are less likely to believe their organisation’s supply chains will be mostly autonomous by 2030 (vs. 39 percent of supply chain executives)
Risk management and revenue growth, supply chain resilience and agility have become paramount.
Resiliency is firmly established as a top supply chain objective, with 87 percent of supply chain leaders overall saying their organisations have made significant investments to improve it. Yet, 24 percent of supply chain leaders report that their organisation is not very or at all prepared for a pandemic or widespread health crisis.
A further 19 percent are similarly unprepared for supply shortages, signalling the need for further enhancement of supply chain robustness.
Supplier.IO: State of Supplier Diversity
The seventh iteration of this report was released this month, revealing that reporting to the executive level is increasing, with 56 percent now saying that these results make it to the board (2x increase from 2021).
Key drivers are also changing, with one of the new ones this year being the ability to win new business for their organisations (48 percent), which really does help procurement with the business value and contribution to growth targets that many now have.
It’s notable that customer requirements as a key driver has increased, as has compliance.
Total spend is still the standard metric with impact (both for your business and an economic impact of the program being key measurables as well.)
Tracking suppliers leans much more toward third party accreditation, rather than self-certified being included in the data.
Gartner: Supply Chain Technology Trends
This article is based on a few studies that Gartner has carried out over recent periods.
The top trends this year have two broad themes: “control and protect” and “humans and machines.” These trends are interconnected, and their importance differs not only by organisational maturity but also by industry, business needs and previously devised strategic plans.
Understanding the business strategy and deciding how procurement will support it are critical for identifying which capabilities need to be enabled or matured with technology.
The number one motivating factor for investing in supply chain technology for organisations is the need to make the decision-making process faster, more intelligent and of higher quality.
I also found it interesting that supporting new operating models was number two. This supports research from the Economist about the direction of travel of operating models leading to differing models and, well, what can I say about trading partner networks!
Art of Procurement: Procurement’s Orchestration Readiness
This report from Art of Procurement & Oro looks at how tasks are currently and potentially orchestrated in the future. By understanding how everything connects, procurement can design a user experience that supports what the business needs.
“Orchestration is enabling and empowering people and tools. It’s all about making their lives easier with the user experience.”
53 percent identified spreadsheets as a way to coordinate processes, while 48 percent said email. These two, whilst useful, still contribute far too much in procurement, which as a result slows down and makes most processes at least semi manual. This is reflected in only 2.9 percent having completed automated procurement processes, with nearly 38 percent being 50/50.
With all of that said, I’m not surprised that around 40 percent do not agree that procurement is easy to work with (in fact, I’m surprised it’s not higher)!
IDC Worldwide: Market Analysis Perspective – Worldwide Procurement Applications, 2024
One of a few reports released by IDC this month.
Two notable takeaways for me include: users identified risk management (14 percent), the sustainment of cost savings (13 percent) and spend data analytics (10 percent) as the top three functions on which they spend their time.
Risk management rose to the top identified function, again reflective of supply chain challenges.
I mentioned spreadsheets earlier and this report also identifies the top functions used by procurement, with analytics and spend data at 40 percent, spend visibility at 35 percent and supplier data at 31 percent.
If procurement is to truly concentrate on adding value, it must digitise these processes to both get better insights, more time and single views ASAP.
As always, reach out to discuss more. I’m always happy to hear your thoughts!
