Though the world has already begun reopening, the Covid-19 pandemic has continued to have a profound impact on the economy. As a result, businesses need to maintain flexibility to adapt to the challenge of disrupted supply chains and minimize operation costs to remain competitive as economic uncertainty persists. Procurement departments often bear much of the weight of managing cost control, supplier management, and supply chain readiness to meet urgent demands and minimize future disruptions.
Procurement leaders have typically approached the initial disruption by focusing on managing relationships with their strategic and mid-tier suppliers. However, as the economy comes out of the pandemic, leaders must now adjust their focus to help their team be more agile and resilient. The change in focus has accelerated the need for digital transformation and forced many to look to industry trends to help shape their procurement budget allocation and future strategies.
ConvergentIS has considered market predictions and SAP strategy to help guide procurement leaders as to what they should be planning for. Below are eight of the top procurement predictions for the second half of 2022 and beyond.
1. Greener Procurement
According to the Sustainable Procurement Barometer 2021, a joint effort by EcoVadis and the Value Chain Innovation Initiative at Standford Graduate School of Business, sustainability procurement is more than a trend. In fact, according to 63% of corporate respondents and 71% supplier respondents, they reported that their sustainable procurement initiative was crucial to helping them endure the Covid-19 pandemic.
Therefore, in addition to an initiative that “does the right thing,” going green has proven to be valuable for business continuity.
2. Managing Robust, Non-Linear Supply Chains
The lack of collaboration on strategic sourcing has proved to be ineffective in times of change. Therefore, senior managers will continue to expand their sourcing, purchasing, and inventory options beyond linear supply chains to more diverse supply networks. More diverse partnerships support greater agility in the development of new products and prove essential for businesses to adapt quickly to changes in their supply chain, spreading the risk across many parties to ensure that the supply chain is not halted if a single supplier is affected.
Procurement teams will then need to consider how they can detect risks and adapt quickly to the supply chain changes. The agility of procurement will continue to be key to the organization's success, especially as data-driven intelligence improves collaboration efforts and opportunity detection.
3. Procurement Teams and Suppliers Will Develop Closer Relationships
According to a 2020 Chief Procurement flash survey from Deloitte, six months into the pandemic, only half of all procurement leaders had high or very high visibility into their largest (Tier 1) suppliers. More profound knowledge of vendors will be critical for a business' survival in the future. Procurement teams will need to understand the reputation, financial and operational risks (i.e. quality, financial, political, natural disasters, environment) associated with their supplier relationships (extending to Tier 2 suppliers) and work closely with partners to avoid unexpected disruptions.
Proactively listening and understanding suppliers will help procurement leaders take necessary action to improve their business by securing critical supply and achieve savings that may be overlooked when communication is limited. Improved collaboration can be facilitated by supplier networks to share information up and down the supply chain to help plan for unanticipated problems.
4. Transparency into Payment Terms Will Become Essential
In a global supply chain, any critical suppliers' inability to meet an obligation can harm the rest of the supply chain down to the customers since payments have a cascading effect that hurts business’ margins and result in financial problems. Businesses have the responsibility of providing transparency around when they will pay suppliers and follow through on payment terms. Increased transparency will give suppliers a chance to survive and boost the economy through cascading purchases/transactions.
Procurement technology that enables transparency will also play an essential role in restoring confidence in organizations struggling to gain their competitive edge. Clear insight into future cash flows can help businesses plan and forecast with increased confidence.
5. Holistic Solutions to Procurement Will Replace Spot Offerings for Individual Processes
Many businesses have now recognized the role that the procurement department has in finance operations and overall strategy. Procurement leaders have noticed that spot solutions resulted in duplicated data, repeated procedures and added costs within the procurement process. Businesses who recognize procurement as needing an end-to-end solution that connects individual steps can capitalize on process efficiencies and take advantage of dynamic discounting. Procurement leaders can then begin adopting the mindset that procurement is a revenue-generating center rather than a cost center.
Chief Procurement Officers who have already started taking a proactive approach to developing a comprehensive end-to-end process often consider:
The total cost of ownership for every purchase throughout all stages of the value chain
Aligning procurement capabilities, goals and practices with organizational priorities for improved planning
6. Touchless Procurement Process
The concept of a touchless procurement system is not new. Many organizations running SAP have already been able to use innovations like Evaluated Receipt Settlement (ERS) to eliminate the need for people to create an invoice manually. With additional tools for real-time tracking and other analytics capabilities, and Fiori applications to autofill known fields, steps in the procurement process can be reduced from primarily manual to virtually touchless in a matter of months. According to the Hackett Group it is only the top performers that have their core procurement processes automated. Companies in the “peer group” still have manual processes or data that is not received electronically, limiting their ability to increase value for their department.
When processes are digitized and automated, employees can then be reallocated to work on value-added activities such as strategic planning and be leveraged as a final set of eyes on a mostly digital process.
7. An Increase in Contingent Worker Management
SAP supply chain predictions have suggested that contingent workers and service providers can help organizations rebound from losses resulting from previous disruptions. Since these workers can be ramped up quickly, to cover key capabilities as needs arise. The flexibility gained from using contingent workers can help businesses regain a competitive edge when future cash flows might not be guaranteed. As more companies take this approach, procurement leaders should consider statement of work (SOW) services and contingent labour management solutions to maintain these relationships and maximize human capital.
8. Improved Risk Management Strategies Based on Next Generation Technologies
To successfully manage risk, agility has become a part of a greater strategy to anticipate volatility and develop systems that help navigate disruptions. Most organizations already have plans to gain a 360-degree view of suppliers through performance history, market data and external data on the supplier's performance. Historical data combined with digitization using next-gen technologies, including advanced analytics and machine learning (both of which are deployed from SAP Business Technology Platform), is believed to enable organizations to establish supplier risk profiles accurately. With clear insights into most common risks, consideration can be made into mitigation strategies that may help businesses identify alternate opportunities as they arise.
It's true nobody knows precisely what the rest of 2022 will hold for your procurement team. However, those leaders who have taken note of emerging trends and taken steps to improve the agility of how their teams work are well-positioned to navigate the uncertainty that lies ahead.
To learn more about our holistic solutions to SAP procurement and how your business can take advantage of these trends, we encourage you to read about Work Zone in SAP and what it means for your business.