Taking a step into the spotlight in the last two years, organisations are turning to their procurement professionals to navigate the murky waters of continued disruption, increasing costs, materials shortages, sustainability targets, evolving regulations and rapidly changing customer demands.
Couple this with the standard day-to-day tasks of a procurement professional and many heads are spinning. SAP Ariba highlights 10 key challenges for procurement leaders in 2022 and how they can navigate them to drive success.
Supplier risk and supply continuity
It is a well-known fact that risk is everywhere. Battling the likes of COVID-19, price fluctuations, labour shortages, trade tariffs and natural disasters, supplier risk for the first time has topped the list of pressing concerns for leaders above spend reduction.
With disruption expected to continue in 2022 and beyond, SAP Ariba reports the need for significant improvement in supplier risk management.
- Only 49% of executives regularly refresh their risk mitigation plans to address potential disruptions.
- Only 32% of executives report that their supplier risk management is highly effective.
- Only 50% of executives can quickly find alternative sources of supply.
It is clear from SAP Ariba’s findings that years of optimisation has increased the reliance on a limited number of suppliers, a risky strategy for critical products.
So what can be done?
It is clear that organisations need to start learning how to anticipate and manage evolving risks in order to maintain business continuity.
“You shouldn’t focus only on your tier 1 suppliers. You need to keep tier 2 and tier 3 suppliers on your radar because if they experience issues, there will likely be a ripple effect on your business,” said SAP Ariba.
Having a robust risk management strategy can help to identify vulnerabilities and address potential disruptions, as well as evaluate suppliers to ensure they meet the needs of customers.
Having the right kind of technology can also benefit the procurement function to stay on top of risk. Technology can help to identify high-risk suppliers, as well as help anticipate disruptions with real-time threat monitoring and increased visibility.
Already a delicate environment, the economy has been shaken up by the events of the last two years, 42% of organisations expect higher prices and cost volatility in 2022 for goods, materials and labour.
In the hopes of not passing increased costs onto consumers, organisations are seeking procurement’s help to reduce spend.
Six ways to drive down spend:
- Optimise the supplier base
- Develop category plans
- Strengthen involvement in supplier negotiations
- Collaborate with suppliers
- Tame tail spend
- Analyse off-contract spend
Becoming a strategic advisor
Stepping up to the mark in times of crisis, procurement functions have been driving agility, resilience and adaptability into their organisations.
All while continuing to conduct its traditional responsibilities, the function is also helping to address changing customer demands, accelerate time to market, and meet ESG objectives.
SAP Ariba’s research in this area identified the following:
- “Leaders are more likely to say that procurement ‘somewhat’ or ‘significantly’ helps the organisation achieve key goals, such as improving profitability, driving innovation, improving product quality, and bringing new products or services to market faster.”
- “Leaders are more likely to say their chief procurement officer (CPO) has a vision and road map for transforming the procurement function to provide more strategic value to the business.”
How to position procurement as a strategic advisor
SAP details six starting points for those in procurement looking to position the procurement function as a strategic advisor:
- Build closer relationships in the business and with suppliers
- Ensure a clear understanding of all stakeholders’ needs
- Speak the business language
- Having executives present at planning and budget meetings
- Better manage supplier performance
- Showcase ways in which procurement can drive change
Playing a pivotal role in helping organisations achieve sustainable objectives, decisions made by procurement professionals helps to deliver net zero emissions, reduce and reclaim waste materials, empower a diverse workforce, and achieve compliance.
How to drive corporate sustainability
While procurement previously focused on improvements to drive cost savings, organisations today are being tasked with the need to not only drive sustainability across the organisation but its supply chain too.
Examples of ways to be more sustainable:
- Build a fair, resilient supply chain by establishing a supplier code of conduct that incorporates ESG
- Encourage procurement from diverse suppliers
- Reduce company carbon by collaborating with direct spend trading partners for accurately forecast demand
- Trim excess buffer stock and avoid unnecessary shipments
- Assess a supplier’s environmental impact and labour practices
Accelerate digital transformation
There is no organisation where digital transformation isn’t somewhere on the agenda.
61% of companies are currently working on enterprise digital transformation and 39% are planning to upgrade a major technology platform or introduce new technology, according to The Hackett Group.
“This is a step in the right direction. After all, accelerating digitalisation helps procurement functions better steer their organisations through disruption. Lean, automated processes can help them react promptly to the unexpected. Meanwhile, greater use of data, analytics, and AI can enable better-informed decisions and stronger results,” commented SAP.
Insights from SAP revealed that:
- Many organisations are having mixed success with automation, 37% of executives report that most if not all of their processes are manual
- Organisations are not utilsiing data and analytics to their full potential, only 45% are making data-driven spend decisions with technology
- Many companies have been slow to adopt AI, 51% are currently using machine learning or AI-based analytics technologies to analyse data
- Adoption is a key issue, 41% of executives say low adoption of new processes and technologies within procurement is a barrier to digital transformation
- Companies are struggling to find champions to promote innovation making it hard to secure investment in new technologies
How to accelerate digital transformation
SAP recommends that procurement professionals take three core actions to mirror what leaders in this space are doing to drive success:
- Embrace data and analytics
- Unlock the power of AI
- Drive adoption
Improving analytics, modelling and reporting
Technology has enabled a multitude of capabilities when it comes to analytics, modelling and reporting. Despite appearing in many business functions, this technology appears to be lacking in procurement.
As such, the function is playing catch up, with 74% of organisations currently implementing an initiative to enhance and develop their data, insights and analytics. Currently, only 17% of procurement functions have large-scale deployments of advanced analytics, and only 38% have large-scale data visualisation tools.
How to improve analytics, modelling and reporting
“When procurement invests in digital transformation, it pays off,” says SAP. “ As procurement functions digitally transform, they’re automating and digitalising more of their processes, which will create treasure troves of data that companies can analyze to gain valuable insights.”
Organisations must look to implement robust data management to ensure that analysed data is comprehensive and trustworthy. Organisations should also look at the potential added value of third-party data, and chose solutions that can unlock the right kind of insights from the data.
Aligning skills and talent
Among many leading consultants in the procurement field, there is a consensus that procurement professionals should develop new skills to play a more strategic role within businesses. In doing so, organisations will be able to strengthen their agility and rapid response to disruptions.
To source the skills needed procurement professionals are seeking the talent from contingent workers and services providers, key findings from SAP include:
- 42% of workforce spend is being utilised for continent workers and services providers
- 63% of executives report that contingent workers and services providers help the to compete in the digital world
- 62% of executives state that contingent workers and services providers deliver extra capacity to help manage the peaks in demand - particular sudden shocks
How to align skills and talent
Fundamentally it is important to have the right strategy and the right technology to align skills and talent with changing business needs.
“Quite often, procurement functions attempt to manage contingent workers and services providers like financial transactions [...] but they don’t look at things such as each worker’s skills, responsibilities, credentials, and security access. But unless you can manage these aspects of contingent workers and services providers, your business remains exposed to significant risk,” said SAP.
The company added: “Contingent workers and services providers often slip through the cracks because they sit outside traditional HR systems used to manage employees. While procurement systems can help you manage contracts and POs, they typically don’t help manage other aspects such as compliance and security. For that, a vendor management system (VMS) is needed.”
Essential to creating efficient processes, customer-centric workflows, and user-friendly interfaces, procurement functions are striving to modernise their IT landscapes.
Many are replacing legacy systems with cloud-based core procurement application suites, SAP has seen this adoption rise by 29% year-on-year).
How to modernise procurement
Providing professionals with the opportunity to better support end-to-end procurement processes, organisations are increasing their use of cloud-based and best-of-breed solutions.
“Process digitalisation helps increase compliance with procurement policies and reduce maverick spend. Critically, process automation also boosts efficiency. It enables procurement professionals to spend less time on routine tasks so they can focus more on driving value and innovation,” said SAP.
In order to be more strategic, procurement needs to be more agile.
Procurement needs to be able to respond rapidly when internal stakeholder objectives change, and they must be able to react to changes in the market to accelerate time to market.
While this is the goal, many procurement functions need to improve, currently:
- Only 50% of executives can quickly find alternatives to spruces of supply when it's needed
- Only 48% have visibility into near-real-time or real-time inventory levels in their facilities, and 46% in supplier facilities
- Only 56% of procurement functions interpret and make recommendations automatically based on third-party data about shipping disruptions for Tier 1 and 37% for Tier 2
How to boost agility
While are many to boost agility, and make processes faster, more flexible and more user friendly, SAP highlights that the top priority should be gaining visibility in order to anticipate risks and provide more time to respond.
SAP also highlights the importance of, collaborating with suppliers, using third-party data, and building redundancy into the supply chain.
To become a modern, stratic, business-enabling function, procurement must focus on the needs and expectations of stakeholders.
“Procurement needs to view itself as a service organisation, with stakeholders as its customers. It needs to sell its services to the business and deliver real value. Critically, its solutions and processes must be easy to use, otherwise people will circumvent them,” explained SAP.
How to improve stakeholder centricity
To become more stakeholder-centric, procurement needs to develop a deeper understanding of stakeholder objectives; ensure that those that engage with stakeholders have the right skill set; redesign its culture and operating model; develop more flexible processes; and introduce self-service capabilities.
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