For procurement teams, 2023 is going to be a more demanding year. In addition to dealing with the ongoing pandemic, inflationary pressures, and greater supply chain risk, they will also have to face an evolving team staffing model.
If procurement doesn’t change soon, it will become increasingly irrelevant and eventually die out. In other words, the only thing standing in the way of obsolescence is transformation. And that’s where CPOs come in – they are responsible for ensuring that their organization meets users’ needs going forward. But the big question remains: what does the future hold for procurement? To answer this, we need to take a closer look at the latest trends.
Future of Procurement
The past few years have been a time of great upheaval, and many businesses are now in danger of failing. With the outbreak of COVID, employers have had to face a new challenge unlike any other. Because of this, more and more CEOs see the procurement department as being vital to the company’s success.
In the past, procurement was often seen as an impediment to progress. This is because many procurement organizations struggle with customer satisfaction. At the same time, CFOs are questioning the value that procurement delivers to the organization.
Meanwhile, new technologies (such as artificial intelligence, blockchain, and advanced analytics) and businesses (like Amazon Business Services and Alibaba) are rapidly displacing low-value repeatable work. It’s clear that the future of procurement is uncertain.
However, one thing is certain – if procurement doesn’t change, it will become irrelevant and eventually die out. In order to ensure that your team is prepared for whatever the future holds, it’s important to stay up-to-date on the latest trends and developments.
Top Trends in Procurement
Procurement Scale and Speed
The procurement function can no longer work as it always has, with the various changes brought on by disruptors. As a result, the procurement function is going through a unique level of scale and speed to address these disruptions.
The crucial aspect here is to actively plan on how to turn these current disruptions into assets, or at least into opportunities.
Manual procurement processes can be rather cumbersome, and lead to inconvenient delays. This has become more obvious in this age when consumers can purchase products at the touch of a button. These delays in procurement are no longer tolerable, which means more extensive use of digitalization for procurement.
Procurement is increasingly using digital platforms and analytics along with an agile working model to help integrate the organization with its suppliers and customers more seamlessly.
3rd-Party Centric Procurement
The majority of interactions today are only concerned with the here and now, without any thought for future consequences. This is why an increasing number of procurement functions are looking at 3rd-party alternatives that consider long-term risks and benefits. The goal is to improve supplier and 3rd-party relationships while also boosting performance levels through innovation.
Not too long ago, companies were not really invested in category management. Category management is the act of combining similar products into one comprehensive group so that various initiatives for individual products can be addressed as a single entity. These initiatives include things like the procurement process, merchandising, retailing, and sales efforts.
Category innovation, however, can help the business deliver the optimal commercial model for the company. It’s not about reacting to the market, but acting ahead of the market.
Category innovation can involve harnessing analytics and big data so that the procurement functions can offer helpful information for the category managers. This will require the implementation of the right people, processes, and systems. With the use of technologies such as predictive AI and automation, procurement functions can now offer helpful information on demand, which can then be used for cost analysis modeling, demand planning, and other forecasting tasks.
There are a lot of things to criticize about old-school procurement processes. It’s accurate to say that these processes use obsolete technology that doesn’t integrate well. Policies and procedures aren’t easy to understand. Insights on purchases being made can be very limited. In other words, the old-school procurement processes can be very frustrating.
With a customer-centric approach, procurement functions might alleviate frustration instead. This customer-centric approach can then be applied to processes and systems, to help anticipate changing customer expectations. Procurement is then no longer just a monitor for spending, but a truly helpful function for the company.
An increasing number of companies are incorporating “sustainable” procurement and investment into Environmental, Social, and Governance as part of their long-term plans.
Procurement functions aiming to be more sustainable and more efficient are developing in these 4 crucial areas:
- Drive ecosystems
- Innovation and circular business models
- Predictive analytics to recognize risks
- Transparency in procurement
Digital Procurement Platform
More procurement organizations realize that technology and automation will continue to improve all aspects of the procurement operating model, especially in enhancing effectiveness and efficiency.
This leads to a rather pronounced trend in procurement—the use of new automation technology to replace manually-intensive and administrative tasks, which frees the workers to concentrate more on other tasks with higher values.
Many more companies are going with digital procurement platforms to modernize and adapt to the changing business environment. This trend is marked by greater use of AI, lots of integration and automation, and value-added services.
Insights and Analytics
Category innovation, customer-centricity, and supplier-centricity are all less likely without data and analytics. To achieve these goals, procurement functions have to integrate data sources seamlessly and also provide accurate, easily-digestible data points in real time.
This turns procurement functions from mere descriptive tasks into predictive tasks. The procurement functions won’t just report actual costs in the past but predict future costs accurately. They won’t just audit, but provide proactive compliance monitoring and mistake-proofing. And the procurement can involve automated sourcing and bid evaluation.
New (and Augmented) Set of Worker Skills
With the foreseeable technical advances in procurement, workers must, therefore, have the skills to work with these technologies. That means the minimum requirement for workers won’t just require commercial acumen. The workers have to be analytically fluent, technology-conversant, and emphatic as well.
Agile Operating Model
With the changing business landscapes, more businesses are recognizing the need for more flexible operating models that can adapt to sudden changes. The effectiveness of an operating model won’t just be about the savings, but will also take into account the feelings of customers and suppliers regarding procurement.
This trend is also marked by a move away from traditional, linear procurement processes to more iterative, agile processes. These agile processes are much better equipped to deal with the uncertainties of the business world.
The future of procurement looks bright. It is evident that procurement will continue to exist and even play an even more important role in companies. To stay relevant, procurement functions have to future-proof themselves by being more customer-centric, innovative, ethical, digital, and agile.
What is your company doing to future-proof its procurement function?