How Procurement is Becoming Indispensable for Businesses

The 2024 report, Across the procurement-verse: Changing trends in the procurement function, shows how procurement and its strategic importance are managing a range of areas across business functions.

From risk management to driving sustainability, procurement is seeing its prominence in the C-suite grow thanks to the critical role it plays in driving resilience, including with environmental, social and governance (ESG) objectives.

In the Economist Impact report, which is sponsored by SAP, executives surveyed shared increased confidence in procurement to deliver against risk-mitigation objectives.

There was particular strength when it comes to internal risk, which involves stakeholder management and strategic alignment; confidence levels rose to 83% this year from 64% last year.

This illustrates that procurement is becoming more aligned with key stakeholders across the organisation.

But a "state of permanent crisis" has shaken executives' confidence in procurement's ability to manage external risks such as geopolitical shifts, supplier threats and liquidity risks.

While procurement and the role it plays in business strategy continues to grow, it is more vital than ever for it to stay agile.

Heightened attention to risk management

Ongoing inflation, global conflicts and fluctuating commodity prices have placed risk management at the centre of business strategies, with its vital role in efforts to find high-quality alternative products and services while limiting costs.

Despite this, respondents noted concerns over procurement's ability to manage external risk factors, as only 41% of respondents said they are highly confident in its ability to control vulnerabilities.

Last year, 62% of business leaders showed assurance in how procurement is handling these factors, like supplier shortages, market fluctuations and supply chain disruptions.

There are a range of drivers in this trend, as the report highlights; organisations are experiencing four supply chain disruptions every day.

While inflation carries on affecting organisational decision-making – with monetary uncertainty listed as the top organisational risk priority for procurement – other key external factors impacting organisational strategy over the next 12 to 18 months are macroeconomic (71%) and legal and regulatory risks (70%).

Diversifying supplier relationships

With fears around shortages, businesses are moving away from that sole sourcing supplier model.

The survey found that 40% of executives aim to prioritise supply chain diversification to build trusted and long-lasting relationships. In fact, three of the top five strategies listed in the survey are focused on mitigating risk, including reshoring/nearshoring and multi-sourcing.

The visibility of these businesses is also a high priority for the second year running, which is evidence of the urgent need for organisations to invest in technology which increases access to supply chain metrics, develops connections with suppliers and finds alternative sellers. 

Programmes which take advantage of technology like automation, AI and advanced analytics are another way to enable procurement teams to make data-driven decisions that improve efficiency and reduce risk.

Sustainability: Procurement's green thumb

ESG has seen a rise in demand and will be a priority for the next 18 months, going up to second in the list, where it was just fifth 12 months ago.

"Procurement's work at the convergence between the business and wider supply-chain ecosystem thus offers it a unique strategic opportunity to lead the sustainability agenda," the report states.

Through talking and working with suppliers, the two vital stakeholders in finding success with sustainability KPIs, procurement can use its role to translate companies' green ambitions into tangible results.

New regulations such as the European Sustainability Reporting Standards (ESRS) and Corporate Sustainability Reporting Directive (CSRD) have driven companies to enhance their sustainability practices.

According to the Economist Impact report, procurement has taken hold of this opportunity to gain the confidence of executives across the C-suite, with 68% of business leaders expressing belief in procurement's abilities to deliver against ESG objectives. This is an increase from 49% in 2023, signalling that procurement's remit has expanded beyond cost management.

Sustainability has also become a critical risk category, as 39% of respondents listed compliance as a driver to becoming greener. Not following through on these policies means companies face potential penalties and fines which can stifle growth.

Leveraging technology for sustainable sourcing

Engaging its buyers and suppliers is pivotal to procurement's ability to drive sustainable practices. CPOs can then set the standards for sustainable sourcing, reducing carbon footprints and helping to reach those ESG benchmarks.

As procurement becomes more aligned with C-suite priorities, it is seen through the increased focus on sustainability and risk management.

The shift in reporting lines toward COOs and the greater involvement in strategic discussions highlights the growing influence of procurement in decision-making in organisations.

As procurement is expanding its role, it has been at an inflection point, with heightened expectations to deliver results beyond cost mitigation. But how will procurement leaders rise to meet these new demands?

By investing in technology, it can offer a solution for uncovering valuable insights that demonstrate procurement's value.

Coupled with developing people and processes, this approach allows procurement leaders to successfully fulfil their increasing remit.

Utilising SAP business network for strategic priorities

With leaders looking for platforms to bridge the gap between companies and their buyers and suppliers, enhancing visibility, collaboration, efficiency and compliance.

By leveraging such a comprehensive solution, companies can streamline their procurement processes, reduce silos, mitigate risk and achieve substantial time and cost savings.

SAP Business Network can align these benefits with the strategic priorities of risk management and sustainability.

The technology has facilitated 780 million B2B transactions and US$5.8tn in annual commerce, highlighting its vast influence across 190 countries.

There has also been a 13% growth in transacting relationships and a 7.3% increase in B2B transactions over the past 12 months, a testament to our growing global community.

Embracing the future of procurement

With growing confidence from executives and risk-focused strategies, procurement is well-positioned to lead organisations through today's complex business environment.

The Economist Impact report underscores this belief, but procurement teams must aim to ensure long-term success by leveraging digital transformation.

Through in-depth interviews and targeted research, the Economist Impact report provides a broad analysis of the state of procurement.

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