The Evolving Influence of Procurement in Organisations

In a broad study sponsored by SAP, Economist Impact examines procurement’s growing role, interviewing 2,307 C-suite executives from January to March 2024, spanning multiple countries, regions and industries.

The report finds that external pressures have compelled procurement teams to break down silos and collaborate with other departments to deliver value to organisational goals.

This is not only enhancing cross-functional collaboration but also positioning procurement as a key function in shaping and executing business strategies.

In the past, procurement teams have not been given the same access to strategic decision-making as other departments. They were limited within the scope of the supply chain and forced to make choices based on company policy.

However, this attitude is shifting as procurement executives have more input on long-term company planning.

The report, “Across the Procurement-Verse: Changing Trends in the Procurement Function,” touches on what trends are impacting the growing expectations for procurement.

Gordon Donovan, Global Vice President for Research, Procurement & External Workforce at SAP says: “The research indicates that the trajectory of procurement’s relevance continues.

"The procurement function is increasingly becoming pivotal in shaping and executing business strategies. By breaking down silos and fostering cross-functional collaboration, procurement is not only enhancing operational efficiency but also driving significant value across the organisation.

"However, the opportunity to drive a bigger impact is clear. While the report indicates strong collaboration, with more than 80% of respondents stating that procurement’s insights are essential for their organisational strategies, a gap remains (20%) between value and delivery of these insights. Thus, procurement teams have considerable work to do to ensure that their voice is heard and applied clearly across the business.

“As procurement continues to embrace digital transformation and AI, it is crucial for these teams to align their insights with the needs of various stakeholders. This alignment will further build trust and confidence within the C-suite, ensuring that procurement remains a key player in achieving our long-term organisational goals.”

Interviewees cite lasting effects from the pandemic, inflation rates and other supply chain disruptions as reasons for the increasing reliance on procurement.

Effective collaboration with Chief Operating Officers

With macroeconomic conditions constantly fluctuating, procurement teams are finding themselves reporting to Chief Operating Officers (COOs) rather than Chief Financial Officers (CFOs), reflecting the expanding scope of the procurement team beyond cost reduction to operational risk management.

According to the Economist Impact survey, 75% of respondents agree that procurement collaborates effectively with the rest of the organisation to achieve the company vision, a significant increase from the previous year.

However, with only 18% strongly agreeing, there is still some scope for improvement in procurement collaboration and value creation. “Procurement has often operated in this bubble that was in service of its own goals as opposed to in service of the goals of the wider business,” the report adds.

The survey also suggests that executives in procurement are now increasingly focusing on generating insights that align with the needs of a variety of stakeholders, creating cross-functional collaboration to improve outcomes across the organisation.

AI as a driver for digitalisation

AI is demonstrating it can be used to harness efficiency across the business. Within procurement, AI and generative AI are being used to optimise spend, enhance supplier management, create cost-saving opportunities and allow procurement professionals to focus on value-adding activities.

The Economist Impact data suggests that AI is a significant driver of digital transformation. Accelerating digitalisation is tied as the top procurement priority over the next 12-18 months, with 44% of respondents identifying AI as a crucial technology focus.

Respondents anticipate that AI will bring about significant enhancements in two areas: the automation of procurement processes (48%) and improved guidance and optimisation (45%).

CPOs are witnessing first-hand the direct impacts on business outcomes through increased technology investment. To realise the value of AI, procurement executives must formulate roadmaps for change management, adopt new ways of working and invest in developing new skills for their workforce.

The survey states that 69% of respondents believe a lack of vision and business alignment poses a major change management challenge in procurement transformation.

Inflation’s lasting impact

Cost management for companies remains a high priority on the procurement agenda, especially as high inflation rates become a growing concern for CPOs, with 49% of executives citing monetary uncertainty as their top priority compared to other risks – a 29% jump from 2023. Even while inflation rates have dipped, costs for materials and items remain high.

It is no shock that 71% of the CPO respondents identify macroeconomic risks as one of the primary external factors influencing their organisations’ strategic priorities over the next 12-18 months.

Despite this, it is still difficult to predict when and if the economic turbulence currently being experienced will settle down. Once it does, procurement leaders are expected to divert their attention to risk management, with 40% citing supplier diversification as a priority over the next three to five years.

However, “diversifying from suppliers is not as easy, especially if the supplier is the sole provider of the goods or service, or if they are deeply embedded in the supply chain,” the report says.

Technology can help the team to easily spot alternative sources of materials, ensuring supply chain resilience and minimising the risk of disruptions.

The sustainable buyer

There are also external pressures mounting from internal stakeholders and regulators for companies to act on environmental issues. Procurement teams have placed a much larger emphasis on sustainability.

With 70% of executives saying that legal and regulatory non-compliance is a key external risk, procurement teams have responded accordingly, as 32% of executives list sustainability as a top priority, a 7% increase from 2023. Additionally, the top priority for sustainability among executives is compliance, demonstrating an increased focus on regulatory risks.

This increased attention on environmental, social and governance (ESG) has been successful, as 68% of executives expressed confidence in procurement consistently meeting ESG goals, a 21% increase from last year’s survey.

With long-term sustainability measures in place, procurement teams may serve as a model for regulatory compliance.

Shaping the procurement function of the future

The Economist Impact research shows procurement’s growing value for organisations, with CPOs and the teams they run gaining a seat at the table. But to maintain this position, procurement must address critical areas for improvement, such as spend management and cost control capabilities, where a third of C-suite executives lack confidence in procurement’s abilities.

There are still deeper issues which the survey illustrates, including gaps in procurement’s visibility into stakeholder risks and priorities, limitations in creating accurate spend data, developing clear roadmaps and forging deeper relationships with stakeholders.

Collaboration and improved communication are crucial for building trust and sustaining engagement with procurement’s insights.

Investing in procurement technology, such as SAP Ariba Procurement solutions, can help address priorities and enhance the procurement function. These solutions can span various aspects of procurement and include new integrations and generative AI features to help automate and streamline processes.

Additionally, enhancements to SAP Business Network aim to reduce silos between and within organisations and can result in significant time and cost savings.

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