Procurement's Year in Stories: July 2024

McKinsey Report: Where Procurement is Going Next

In its report published in July, McKinsey has outlined the future procurement operating model and where it may go.

The company’s first procurement benchmarking survey nearly two decades ago uncovered a clear link between greater procurement maturity and higher business profitability.

That link still holds up. Despite all the recent turbulence, the latest benchmark analysis shows that companies with top-quartile procurement maturity have earnings before interest, taxes, depreciation and amortisation (EBITDA) margins at least five percentage points higher than their less mature peers.

Riccardo Drentin, Partner at McKinsey & Company and Co-lead of Asia Procurement and Product Development Practice, who wrote the report, said on LinkedIn when sharing it: “Leading procurement organisations are using a combination of digital tools, data analytics and new ways of working to unearth new opportunities for value capture.”

This was seen throughout the pandemic, particularly in the automotive industry, which faced unprecedented challenges during the pandemic, highlighting the critical role of effective procurement capabilities.

As COVID-19 took hold and disrupted international supply chains, the automotive sector experienced significant setbacks.

With 2020 seeing demand plummet, automakers reduced production and cut orders for parts. When that demand rebounded, procurement teams struggled as semiconductor manufacturers had shifted production capacities elsewhere.

During this peak, lead times for automotive chips quadrupled, creating severe supply chain disruptions. As some procurement teams quickly shifted to adapt to the volatile semiconductor market, others failed to secure critical components.

In 2021 and 2022, semiconductor shortages resulted in the estimated loss of production for 13 million vehicles worldwide.

Although lead times have normalised, vehicle production and sales volumes are not expected to return to pre-pandemic levels until the end of the decade.

Olympics 2024: Paris Raises Sustainable Purchasing Criteria

Paris 2024, this year's Olympics organiser, purchased around €2.5bn worth of goods and services to host the games.

This figure raises to €5bn when including the contracts that Solideo, public contracting authorities and private customers will award.

Paris "aimed high" in its procurement of these services, particularly in its environmental and social standards.

For the 2020 Summer Olympics, organisers also aimed for maximum sustainability by collecting 4.38 million tonnes of carbon credits, covering 150% of the games' emissions.

Despite this, a University of Lausanne report suggests Tokyo may be one of the least sustainable Olympics in recent history.

The report evaluates all Olympics since 1992, considering economic, ecological, and social factors, including budget balance, venue viability, and minimal displacement.

Tokyo ranks just above the 2014 Sochi and 2016 Rio games, known for budget overruns and displacements. Making it unlikely to be among the most sustainable Olympics such as the 1992 Barcelona and Albertville games and the 2002 Salt Lake City games.

Time will tell how Paris' procurement plan works towards its sustainability ranking. 

Paris has emphasised that all organisations, of any size, are welcome to apply for the games' contracts.

Through platforms like ESS2024, in collaboration with Les Canaux, the organisers have aimed to inform SMEs about these opportunities, ensuring every business had an equal chance. 

This broad participation was ensured through the publication of a procurement map, the allowance of joint ventures, and the reservation of certain contracts for organisations supporting those with disabilities or job-seekers. 

It has also encouraged supplier applications from organisations which emphasise five key ESG commitments. 

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