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!
Read on to find out about the impact of trust on supply chains, the issues surrounding procurement’s ability to focus on broader objectives other than cost management, and a look at how companies are managing their suppliers amid the backdrop of recent global challenges and economic uncertainty.
Deloitte: Is Your Supply Chain Trustworthy?
Organisations are looking for ways to increase trust in the supply chain, as a way to manage the volatile environments they are trying to navigate.
This article (and survey) from Deloitte looks at the areas that organisations are struggling with and how they are trying to manage the situation.
For leaders of large, complex supply chain networks, the seismic challenges from the COVID-19 pandemic may have eased but, for many, significant challenges still remain.
Having worked so hard to weather the storms of this decade, an important question remains: how do you continue to earn or rebuild stakeholders’ trust in your supply chain in this uncertain environment?
The report points to several critical factors, including investing in technology to better forecast demand and drive visibility, and aligning with customer and employee values.
While bottlenecks may have improved, continuous supply chain volatility is expected.
When Deloitte surveyed more than 1,000 executives from large global organisations operating complex supply chains, they found supply chain disruptions are ubiquitous, as 77% acknowledged experiencing an adverse supply chain event in the last 12 months.
Furthermore, almost half of global supply chain executives (44%) expect more shocks in the coming 24 months — and this likely understates the true risk.
The primary challenges that executives are planning for in the next 12 months include price volatility, inflation, resource shortages (labour and materials) and geopolitical instability.
Notably, these findings are relatively consistent for organisations operating supply chains across the North American, European and Asia Pacific regions.
While companies in Europe, the Middle East and Africa (EMEA) are more likely to cite geopolitical instability as a top challenge, price volatility and inflation are top concerns across global regions.
Generating trust in the supply chain has been identified by many studies (including one from the University of Tennessee as being critical to managing volatility in supply chains).
The Deloitte study performs a series of analysis to identify improving trust with improving relationships and performance, and suggests that “an intentional focus on trust can help supply chain leaders better understand stakeholders’ needs and prepare their organisations to develop and implement the initiatives that will generate the greatest impact and value over time.”
Art of Procurement: Operating Models and Spend Visibility
Agility In Motion: Your Guide to Procurement Operating Models
This whitepaper followed an AoP live event, giving a summary of the different types of operating models and how they can drive changes needed for any transformation.
The paper covers the three most popular models (centralised, decentralised and centre-led), giving summaries of each together with pros and cons.
It states that “choosing the right operating model for the business is a nuanced and strategic decision that should consider multiple factors, goals, challenges and even the company’s culture”.
It then goes on to discuss a procurement Centre of Excellence (CoE), something that is becoming more prevalent — especially as technology is allowing procurement activity to be done close to the point of need — but as the paper states, can fit within any of the main operating models.
The CoE will drive market intelligence, category management and process improvement, as well as taking a holistic view of the data and helping to inform overarching strategy.
Building Procurement Value Through Spend Visibility & Unlocking Procurement’s Opportunity in Complex Spend Categories
A busy month for the AoP team as two other papers — around spend visibility and spend categories — were published.
Spend analysis was the primary driver of digitisation in procurement, as recently identified by an Economist Impact study so the topic is very relevant.
The first paper looks at the importance of spend visibility and analysis, and the criticality of aligning to corporate vision.
Meanwhile, the second paper looks at complex spend categories, offering suggestions for how to segment and, therefore, identify complexity.
The information in both the case studies are where great ideas live; from waste management, packaging, food production, media and creative, highly regulated and manufacturing environments.
July’s Window saw a review of a report by Procurious, where one line stood out: nearly 80% of procurement stakeholders did not trust the data.
These reports make similar points; unless the data can be trusted procurement won’t make the business alignment it seeks.
Gartner Hype Cycle: Procurement & Sourcing
The Hype Cycle — which is available to download from a number of different vendors — was released recently and reveals a number of changes between 2022 and 2023.
Unsurprisingly, generative AI makes an appearance at the early stage with an expected time to mature of 2-5 years, while conversational AI rises the innovation trigger stage to the “peak of inflated expectations”.
Predictive analytics and supplier sustainability solutions have moved further up, as expected, past the innovation trigger to the top of inflated expectations.
In fact, conversational AI and supplier sustainability are starting down that slope, so expect expectations to be tempered somewhat.
Becoming more mature are external workforce, AP invoice management and RPA, suggesting that expectations are being met and adopted.
Leaving the hype cycle are freelancer management — potentially being included now in the HR hype cycle — and smart contracts, as Gartner stated that interest from procurement organisations was limited.
Procurement Leaders: Purpose-Driven Procurement: Entering an Age of Holistic Value
This paper looks primarily at the issues surrounding whether procurement can focus on broader objectives other than cost management.
Whilst clearly procurement’s agenda and workload is broader, many of the objectives and measures are still primarily linked to cost management.
This was also identified in the Economist Impact survey, where cost management was the overwhelming main value area of procurement (more so for the rest of the business than CPO).
The opening identifies that 70% of procurement leaders thought their biggest impact was on cost savings over the last three years, whereas sustainability came in at 23%.
Meanwhile, 93% stated delivering cost savings and 82% identified cost avoidance as having metrics attached to them.
Improving sustainability was third with 73% stating that metrics were attached to that objective.
The risk is that as disruption and inflation begin to ease, CPOs find themselves at an inflection point.
Does the function return quietly to the back office?
A Gartner poll suggests that may be the view of leaders in other parts of the business, as the perceptions of supply chain teams as a strategically important function peaked at 56% in 2020 but has since dropped to 47% — lower than it was in 2019 (49%).
Forrester: Procurement: A CEO’s Secret Weapon for Growth and Resilience in Turbulent Times
This study from Forrester, on behalf of Ivalua, explores how the procurement function can become more agile and help organisations adapt to any changes in the market or business environment.
It covers 470 procurement responses; however, some are at lower levels than CPO/level 1.
Procurement has competing priorities that create challenges.
To ensure supply continuity, 76% of respondents compromised on supplier due diligence and 73% compromised on other objectives.
According to the report, procurement is looking to technology to examine supplier risk and performance management solutions to help manage that issue.
In fact, 78% collaborate more with suppliers today than three years ago and 50% increased collaboration/info sharing with suppliers.
As outlined in the Deloitte report and the University of Tennessee report, this drive for collaboration, plus the recognition of becoming a customer of choice, means it’s crucial for buying teams to manage the volatility that many experience.
As suggested in the Economist Impact report, supplier visibility was identified as a key goal and 69% of respondents identified that they will increase this.
Cash flow management (as identified later in the McKinsey CFO survey) was also a topic of interest for organisations, which gives procurement an opportunity to align with treasury.
Risk was a key area looked at in this report with nearly half of respondents stating that they had diversified their supplier base to minimise disruption. Although, over 75% compromised on due diligence which is a concern.
Data was identified as a barrier for many, with access to ad consolidating identified as a primary challenge that may need to be solved to increase effectiveness.
McKinsey: AI & CFO survey
McKinsey produced two studies this month.
The state of AI in 2023: Generative AI’s breakout year
This study on generative AI serves as a background to larger use cases.
According to the survey, whilst marketing and sales were the functions largely using AI, supply chain and procurement has some use cases as well.
In fact, respondents identified reducing costs in core business as a core activity of generative AI.
By far the biggest expectation from organisations is the impact of AI on workforce size.
43% of the survey’s 1600+ respondents suggested that up to 20% of the workforce would need to be reskilled over the next three years.
Meanwhile, within procurement and supply chain management, 45% of respondents expected the workforce to decrease in size over the next three years due to AI.
In the face of volatility, CFOs—and their organisations—adapt
The second study was born from a CFO survey. It identified that economic volatility, inflation and weakening demand were the biggest risks to the company’s growth — noticeably rising interest rates decreased in importance — and that raising prices and reducing exposure to fixed costs were primary strategies of organisations.
Working capital was identified as a third strategy and this was also mentioned in earlier reports.
GEP: Global Supply Chain Volatility Index
With all the talk about volatility, there was a recent article in Supply Management about the status of supply chains.
Global excess supply chain capacity has grown as low demand conditions — driven by economic turmoil — have left suppliers without orders and warehouses without stock.
During the pandemic and the resultant scarcity crisis, safety stockpiles of goods were built up. These have now fallen below the long-run average last month, while reports of item scarcity are now in line with historically normal levels according to the GEP Volatility Index.
The index fell to -0.50 in July from -0.26 in June, indicating an “accelerated rise in excess capacity”.
Excess capacity in supply chains is at high levels compared to recent years, so both the article and various reports all suggest now is a good time to be renegotiating.
Ecovadis: Are You Sustainability-Ready?
This study from Supply Management/Ecovadis looked at how ready organisations are for current and upcoming legislation.
When it comes to preparedness, participants were asked to share how ready their organisations are to address new or proposed regulations that most affect them.
Less than a quarter were confident that they were equipped, while around half said they were partly ready with more than 20% claiming they were fully ready.
Organisations from different regions were anticipating the impact of regulations from outside of their home countries, which shows these regulations are having far-reaching consequences.
Reasons for lack of preparedness include resources, data, awareness, and engagement with suppliers and internal stakeholders.
There are some good examples of how organisations are preparing, including mapping stakeholders, jointly building business cases and constancy of communication.
Many companies have incorporated ESG criteria into their procurement processes, covering human rights, decarbonisation and ethics, while many are also planning to invest in technology around due diligence and risk mapping.
Interos: 2023 Annual Global Supply Chain Survey
This survey of 750 supply chain leaders from the US and Europe reveals that, on average, organisations suffer four disruptions per year — that’s up from three last year.
The report also states that organisations only assess just over half of their critical suppliers for risk, and over 90% wouldn’t be aware of disruption in all/any tiers of their supply chain within 48 hours.
In regards to supply chain visibility, it has improved since last year’s report, but there’s still room for further improvement — 27% have good visibility into tier 3 now, considering the origins of disruptions emerging from tier 3 and beyond.
However, most companies know they aren’t there yet, with 75% stating that they can’t comply without data, analytics and risk management software, especially with all the emerging regulations.
These risks cost organisations loses ranging from between $43 to $47 million in each of six distinct risk categories:
- Financial, including supplier health and insolvency
- Catastrophic, including extreme weather, natural disasters and factory fires
- Geopolitical, including wars, terrorist attacks and global trade disputes
- Cyber, including data breaches, ransomware demands and attacks on critical physical & digital infrastructure
- ESG, including environmental factors such as carbon emissions and pollution, plus social factors such as forced and child labour
- Restrictions, including sanctions and export controls imposed on named entities, individuals and technologies
The report also looks at the top risks that procurement leaders are concerned about, which is similar to the list from Deloitte earlier (supply, inflation, etc.) but also identifies cyber risks in the top three.
Similar to Ecovadis, it identifies that legislation will have a material impact for organisations and is a top risk (i.e. being compliant to legislation). Also, like Ecovadis, it states that legislation is helpful for CPOs to improve TPRM capabilities.
Economist Impact: Building Bridges: How to Strengthen Procurement/Supplier Relationships
This report builds on The Economist survey earlier this year of 500 C-suite leaders, taking a look at how companies are managing their suppliers amid the backdrop of recent global challenges and economic uncertainty.
While the respondents recognise the role procurement plays, the survey also reveals that nearly 40% identified room for improvement in the way that supplier relationships and performance are managed.
The paper identifies that limited visibility into the supply chain will hamper organisations as they seek to build relationships. It also reports that technology has a real role to play in helping.
The paper is written using the data from the survey alongside key subject matter experts and practitioners.
Watch this space for Gordon’s Window on October’s research, coming soon!
