The procurement industry is in a constant state of flux. Since the Financial Crisis of 2008, changes have occurred at an unprecedented rate. With an ever-increasing adoption of technology into the industry, the changes have accelerated and Chief procurement officers are most affected with these new challenges.
In this post, we will be investigating certain future trends and challenges for CPOs that have been identified by a number of surveys conducted over the last couple of years, most notably the Capgemini Consulting’s 2015-16 Global Chief Procurement Officer Survey (still very much current) and The Deloitte Global Chief Procurement Officer Survey 2018 The Deloitte Global Chief Procurement Officer Survey 2018.
Compliance Management Improvement
Compliance to established procurement strategies has long been identified as one of the most impactful aspects of procurement and non-compliance being one of the biggest sources of savings leakage.
According to Capgemini, obstacles to procurement compliance provide some of the most urgent challenges for CPOs, with a third of CPOs seeing them as being of high or even critical importance. These obstacles range from internal (undefined guidelines, limited accountability of stakeholders, aversion to change, technology barriers, etc.) to suppliers’ resistance to change and cost considerations.
In 2018, CPOs will, once again, be at the forefront of removing these obstacles through a number of practices such as strengthening of policies, emphasizing accountability across the procurement process, improving non-compliance detection, reporting and addressing it, educating staff on compliance, improving supplier relationship management, and implementing new technologies.
New Technologies
One of the most impactful future trends in procurement is the rapid acceptance of digitalization. According to Deloitte’s survey, 75% of CPOs considered digital strategy an increasingly important part of their jobs. In 2018, CPOs will definitely have to meet the challenge of emerging technologies and utilize the existing ones better.
A technology area that was identified as the most impactful in Deloitte’s survey is analytics. The increasing number of data points across the procurement process and the growing volume of data collected by procurement departments hold the potential for better analysis and subsequent improvement of procurement within an organization.
In order to do so, CPOs will have to overcome certain obstacles, such as poor quality of data (unstructured and/or duplicate) substandard collection of data, lack of data integration, lack of analytics skills and talent, as well as organizational barriers.
Researching the industry and analytics tools will be an integral part of this, as well as educating existing staff and sourcing new talent if needed. Truly adopting the analytics capabilities will most likely require involvement of other departments and decision makers within an organization.
Other emerging technologies such as machine learning, automation, artificial intelligence, 3D printing (of supplier samples, for example) and blockchain also pose a significant challenge for CPOs who wish to stay informed and ensure that their organizations do not miss out on potentially revolutionary advancements.
Enhancing Supplier Relationship Management
According to Capgemini’s survey, supplier relationship management (SRM) is a key priority for 97% of respondents, but only 15% of them indicated that they have a unified corporate SRM strategy guiding structured processes. In 2018, one of CPOs’ main challenges will be to move in that direction.
Two interconnected obstacles for effective SRM that have been identified as the most difficult by CPOs surveyed are the problems with internal stakeholder alignment (over 50%) and no clear business case for SRM (41%). In short, the inability to demonstrate and quantify the direct and indirect benefits of a unified SRM strategy makes it extremely difficult to engage main stakeholders within a company and, ultimately, align them so as to make a comprehensive corporate SRM strategy possible.
Technological capabilities and talent-related obstacles have also been pointed out by more than a third of CPOs surveyed, together with an unmanageable number of suppliers and the lack of proper supplier segmentation.
Over the upcoming years, the value gained from supplier relationship management (better choice of suppliers, better management of supply base), will most likely eclipse that provided by traditional savings. In combination with increased data availability, this should help CPOs demonstrate the value of investing in SRM and formulate corporate SRM strategies that will involve marketing, finance, and IT departments and the C-suite.
Better supplier segmentation, another crucial aspect of SRM, will also be a challenge for CPOs in 2018, entailing improved structuring of the supply base, assessment and development of supplier relationships and integration of suppliers. This will involve utilization of new tools, improved collaboration with suppliers, increased use of analytics and smart procurement outsourcing which can result in huge gains in supplier relationship management.
Changing Global Trends
Procurement is affected by a variety of external factors, including many global trends that affect the marketplace on both macro and micro levels. All indications point to 2018 being yet another eventful year as procurement reacts to global influences.
For example, the noticeable shift in Chinese economy from manufacturing to service-based industries has already started affecting CPOs around the world and across the industries. Rising prices in China and emergence of new players such as Vietnam, India and Bangladesh have to be addressed by forward-looking CPOs who will want to research those new marketplaces and grow their supplier base in those parts of the world.
Certain political trends that move in the direction of isolationism and protectionism (Brexit, Trump administration, certain political campaigns in EU countries such as France, Italy and Germany) will also have both direct and indirect effects on the procurement industry and CPOs will need to stay informed in order to anticipate events that might adversely affect their work.
Closing Word
Chief procurement officers will be faced with a number of challenges in 2018 and the years to come. Compliance management, new technologies, improved SRM strategies and external global trends will be the major challenges they will have to face, and will be better able to address them as soon as they start acknowledging them.