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 September’s global procurement research.
Save your own time reading research when you can get the key takeaways in one place!
A quieter month on the report front, largely because it was summer holidays in the northern hemisphere, but what we lack in quantity, we make up for in quality.
First, we start with a very handy buying guide, giving insights into a range of categories that will help us understand the issues many of these buyers are facing.
Then we look into the range of trends and challenges that companies and procurement face, and for many it’s time to reinvent their strategy, as the disruption and geopolitical climate has impacted existing effectiveness.
One of the main areas that will always be on the table is supplier management and performance, and whilst there are several reports that conflict, the importance is undeniable.
If companies want to embark on cost out programs, they will need the support of the suppliers and supply chain to be successful.
Finally, what does ‘great’ look like? Well, ‘digital great’ is outlined in the final report and, for me, that’s the read of the month!
S&P Global: Q3 Buying Strategies
This was from a webinar I attended. One of the resources was a really interesting guide into a whole variety of commodities, categories of spend and events over the last few months. The commodities include energy, metals, steels and building materials.
It gives a really good and broad understanding of some of the pressures across the market, such as…
“The two primary causes of this are the divergence of the construction spending outlook for different sectors and the size of price growth throughout the pandemic.”
Whilst it doesn’t cover all of the sub areas, it does give you considerable background into what’s happening broadly and, of course, you can reach out to S&P for a more detailed review.
APQC: Direct & Indirect Procurement Trends
This report provides a cross-industry snapshot of the current state of direct and indirect procurement, including procurement challenges, supplier relationship management, deployment of purchasing applications, cloud environment and use of technologies in procurement processes.
APQC surveyed 285 participants in the research, which is a great number.
The report stated that over two-fifths of respondents identified shortages or delays in raw materials and/or cybersecurity risks amongst the top three challenges in procurement, currently experienced by their business entities. Complexity in data management is the third most common challenge.
Whilst there was commonality in the focus areas for supplier relationships, they were inverted depending on direct or indirect.
Quality and delivery were the top two in that order for direct, whereas for indirect it was delivery that was more important.
It’s interesting to note that price focus was two percent and one percent, respectively, which is different from many other studies.
Other key takeaways include 71 percent of organisations tracked tail spend (I’m surprised it’s not more).
When it comes to emerging tech, most organisations are in the evaluation phase rather than piloting or implementing. Whereas for more mature tech like RPA, more are in the piloting phase for direct but in the considering phase for indirect. It’s interesting how few are in the operating or implementing phase.
CAPS
If you haven’t heard of CAPS, they are the Centre for Advanced Purchasing Statistics (right up my street!)
They produce a regular stream of research that is available to members (I’m not a member, sadly) but you can still get the top sheets.
This month, they have had a couple of top sheets that lead back to a metrics of supply management study.
One is an average cost savings per sourcing employee, which averages $6.9 million per employee and ranges from $6.3 million for manufacturing and $8.8 million for services.
They also shared their organisational design statistics which has 49 percent centre led, which is similar to the Economist study showing CoE as the lead followed by centre led.
ProcureTech: Elevating Performance
This 100-person study sought to explore the strength or absence of current supplier engagement strategies and how they manage their relationships with suppliers to deliver high performance.
Some interesting key takeaways:
- 37 percent analyse supplier performance on a monthly basis
- 72 percent state that supplier performance data has unlocked improvements in supply resilience
- 100 percent use at least three tools to integrate performance data
Over two thirds of respondents (68 percent) named optimising cost and cash flow as a leading priority. This was shortly followed by strengthening supplier or partner collaboration (55 percent) and improving environmental and social impact (53 percent).
Interestingly, in contrast to the APQC report earlier, respondents of this report selected commercial and price performance (47 percent) as the highest ranked importance area for supplier performance, with only 16 percent focusing on quality and delivery (each).
Another interesting takeaway was that 37 percent analysed the supplier performance data monthly, with 28 percent doing so quarterly.
One of the biggest improvement strategies identified was to have regular feedback sessions with suppliers (59 percent).
I personally was surprised that the monthly review was only 37 percent, as I expected that number to be higher, especially when the report also says 73 percent said that supplier performance data positively impacted business credibility and 72 percent said it improved supply resilience.
Makes sense then that the top improvement area was to have more regular meetings!
Gartner: Business Quarterly
The business quarterly is a great read for getting a handle on how businesses are reacting to the world around them. It delves into huge amounts of differing areas.
In this report’s “navigating a world without truth”, it goes into detail about AI and trust in the technology, how to boost organisational culture and what organisations are doing to cope with all the disruption.
For the latter, basically they are adapting their strategies, with 79 percent planning revamped strategies by the end of 2024. Therefore, procurement leaders will need to be across these changes, to see how their category strategies will need to pivot to adapt.
AI is a big area (wait, what?!) and this report covers it in a number of ways, from identifying where their survey thinks headcount reductions will be (customer service, finance and product/service ops) to the fact that 84 percent are engaged in or planning AI initiatives over the next three years.
Meanwhile, a poll revealed 42 percent said the biggest AI concern was data privacy.
There was also a section on organisational culture and, as someone who spent a bit of time studying Charles Handy and understanding organisations for various qualifications, organisational dynamics and culture is an interesting area.
Some stats jumped out from this section:
- 82 percent of board members agree organisational culture is very or extremely important
- Only 53 percent of employees trust their organisations
- Only 63 percent of organisations trust their employees
This means there may well be mutual mistrust. Trust is as critical for buyer-seller dynamics as it is for employer/employee, and there are some interesting case studies from PayPal, DSM and Laurentian Bank as to how their organisations seek to build trust and improve culture.
The Hackett Group: Digital World Class
This annual study into benchmarking Digital World Class® procurement organisations against their peers is always well received, especially when so many research pieces call out the digitalisation drive that many organisations are prioritising now.
Digital World Class® procurement organisations run at a 21 percent lower cost than the peer group, with 32 percent fewer full-time equivalent (FTE) staff. Yet, they deliver much more: greater spend influence, faster time to value and more focus on value creation.
It’s no surprise that they are 1.7 times more likely to be considered a valued business partner.
These organisations returned two times more overall cost savings and increased the savings contribution from 2023 to 2024 at a rate that is 4.5 times faster than the peer group.
Digital World Class® procurement organisations invest 15 percent of their total operating budget in technology. A closer look at the composition of procurement operating cost as a percentage of spend highlights a 32 percent greater technology cost for top-performing procurement organisations compared to the peer group.
Some other numbers that jumped out to me:
Digital World Class® procurement organisations had 21 percent more spend influence, were 15 percent more likely to get involved earlier, and had 59 percent less savings lost due to maverick spending.
It’s a great read and worth spending the time to go through and consider what it means.
As always, reach out to discuss more. I’m always happy to hear your thoughts!
