Summary
Some quality reports this month, with the release of 3 staple reports that I look forward to, namely the trade in transition, the digital procurement report and the Sustainable barometer. What’s interesting is the trends reports all lead quite nicely to the deeper dive reports (suggesting that they really are trends!!)
Some quick takeaways, whilst supplier diversification is still in vogue, there are some areas where supply base reduction is re-emerging to improve relationships.
AI is a thing, no, really it is everywhere as Ardent states.
Environmental concerns (Scope 3, carbon footprint) are taking priority as focus areas, maybe as more legislation is driving this.
Cost management is still (and realistically always will be) a priority for many reasons, from funding the current and future business to providing alignment opportunities for procurement.
I hope you enjoy the summary and links are provided for downloads.
Ardent Predictions & Trends
To start this month, we have a couple of papers that identify mega trends and predictions, the first of which is from Ardent Partners. Ill discuss more about the trends than the predictions, but both are good reads.
To pull out some interesting and connected trends, Savings remain a top priority, and cost of capital making procurement more important. When cost of capital is high, it costs more to run a business, hence the importance of savings remaining key, even though one of the other trends is that inflation has stabilised.
The geopolitical tension, and deglobalisation will make supply chains interesting, which may drive the increase of friend shoring or at least duplication of supply chains. Finally, the explosion of contingent/external workforce spend is important, and as out study with Art of Procurement identified has the potential to return great value to organisations. Clearly the war for talent not just in procurement but across the organisation, driven by new technology and the changing nature of “core” means that there are many avenues which lead to the increase in the use of external workers, however you define them.
AI of course is, as the paper identifies, everywhere!
Procurement Mega Trends – Efficio
Hot on the heels of the Ardent report came this article from Efficio, that looks at the mega trends for the future of procurement. To summarise the 4 areas:
- Digital Disruption, AI, Collaborative platforms, and cyber security. The report projects that AI will be critical for organisations by 2025 (39% of respondents to a Statista survey as opposed to 11% in 2022).
- The war for talent increases – both for attracting new, but also for retention.
- Sustainability – 70% of c suite members state the ESG topics are important strategic priorities for their companies, however the spend profiles on where the companies are directing efforts doesn’t necessarily match.
- Geopolitical disruption – Being agile in the face of disruptions, becomes the new normal for procurement.
PWC Digital Procurement Study
This is my read of the month!
The 5th edition of the PWC digital procurement survey, has increased the responses to around 1,000 making it one of the largest procurement studies (though not the largest. Wait for the Economist Impact – sponsored by SAP).
Key takeaways
The top 5 strategic priorities identified in the report are: Procurement performance (Read cost control) 65%, Digital transformation 46%, CSR – 35%, Sourcing 35%, SRM 32%. There is a drop off post this in terms of %.
So, we see this continuing theme as outlined in several other start of the year papers around the importance of digital transformation as organisations seek greater efficiency and more speed to their operations and this is confirmed in the drivers and benefits section where 70% identified that efficiency gains were a driver, and 62% identified that they had seen the benefits of these efficiency gains.
The report also identifies that user experience is emerging as a new driver of digital, which is something that we have identified in the Economist Impact study over the last few years.
The expectation is that the digitisation rate for the next 3 years will increase to around 70% by 2027, this is despite the actual rate being quite static between the last 2 reports (2022 – 4). Data analytics, and source to contract are the top 2 investment areas by 2027, although the overall set of use cases seem to be consolidating together. Risers of use cases include Contract Lifecycle Management, E invoicing, and Gen AI (shocking!!)
There are a couple of deep dive areas, ESG, for example showed that 59% of organisations prioritised environmental risks (E, as opposed to SG) with carbon footprint management being identified as one of the larger areas of concern.
There are great focusses both from a region and sector perspective that make for interesting reading as well.
AI In contracting – World Commerce & Contracting
One of the mega trends we identified earlier was AI everywhere, so having this report from World Commerce and contracting that looks into the use of AI in the contracting process is timely.
This study draws from over 500 responses globally and sees an increase in those planning to implement AI in the contracting process by 25% over the last 6 months. However, whilst this rise may seem impressive it still only represents 20% of responses, with those not planning to implement also increasing to 61%. What is interesting is this stands in opposition to the personal enthusiasm for AI which has more than doubled and stands at 80%
The top reasons given for this apparent disconnect are concerns of data privacy and security (57%), especially since that AI systems process large volumes of data, the quality of the output and general lack of trust in the data (46%) which is dependent on how the large language models are trained.
I did find interesting that the authors asked ChatGPT for what they believed the benefits would be, and whilst similar in ranking, the number 1 reason by practitioners was to analyse risk and compliance which was number 2 for ChatGPT. Number 1 for ChatGPT was freeing up time for more strategic work which was number 4 for the practitioners. The other disconnect was the assisting in contract negotiations which practitioners ranked second, whereas ChatGPT ranked 5th, this could be a negotiating position by ChatGPT though………..
Sustainable Procurement Barometer – Eco Vadis
Similar to AI, Sustainability made it into the megatrend’s reports, and I always welcome the Eco Vadis barometer reports and there is a connection from the digitisation importance from the PWC (and other) reports. Only 6-25% of sustainable procurement programs digitally integrate ESG into procurement processes. As the rate of digitisation increases, then you would hope this would increase accordingly, however I think that this is a critical piece for ESG to truly solidify into becoming business as usual that its digitally integrated. The most mature area in terms of digital integration is spend analytics, closely followed by ordering systems and catalogues. Manual integration is at 53% for sourcing and new supplier selection.
Top drivers for running a program include delivering on corporate goals (I personally read this as aligning to the business, something always at the top of procurements agenda), compliance with regulations and reducing risks (which could be complying to legislation) and building resilience. Focus areas include Net Zero and scope 3 emissions (like the PWC Report) and human rights/social practices.
The report identifies certain practices which leading sustainable programs use at a greater rate than non-leaders, these include Risk and hotspot mapping, targeting both strategic and high-risk suppliers in activities such as self-declarations, use of 3rd party databases onsite audits and corrective action programs.
Trade In Transition – Economist Impact
This series starting in 2022, tracks how global trade and supply chains evolve in response to changing economic conditions. Its important to understand this, as the mega trends earlier identified that the geopolitical climates are driving some change.
Key findings from this report (for procurement) show that whilst supplier (and supply chain) diversification is still the most prevalent strategy for organisations, there is the early identification of the next wave of reconfiguration as organisations seek to balance, the increased in the number of suppliers with a concentration on creating better partnerships.
AI has become an indispensable tool for 98% of executives, impacting at least one aspect of their supply-chain operations. As the World CC report also identified reducing costs are a key expected benefit of AI and this report identifies that, 34% of companies are banking on AI to curtail overall trade expenses.
The favoured just-in-case models are being refined as companies strive to strike the right balance between building resilience and managing efficiency (costs).
In 2023, companies maintained 9.0 weeks of inventories, compared to 10.1 in 2022 and 8.9 in 2021. This signals a slight recalibration in 2023, likely due to the capital intensity behind higher inventories, and as we identified from the Ardent report earlier, the cost of capital is increasing.
In the face of geopolitical shocks, 'friend shoring' and the creation of parallel supply chains emerge as the go-to strategies for business resilience. Geopolitical shocks continually disrupt global trade, driving the restructuring of supply chains to centre stage.
Executive Perspectives – BCG
This BCG report looks at the c suite strategic priorities in 2024, and there are some important take aways for procurement and supply chain leaders to note.
A critical success factor for organisations to achieve success in 2024 is enduring cost management, i.e. building continuous improvement, organisation wide rather than the one and done cost reduction programs. This is viewed as the most critical strategic priority across all regions and industries.
Its all aspects of costs according to the report, direct and indirect procurement, labour and non-labour overhead, which will be firmly in focus. The report stresses though that its not the initial cost savings but the need to sustain these cost structures over time.
“There were cost reductions at the start, but the cost eventually crept back”.
This isn’t the rush for profit priority according to the report, but the need to incest further into specific programs for other priorities (in other words, procurement funds the organisational improvement programs), such as increased digitisation and AI, talent management, sustainability, future supply chains, and business expansion.
Everest –Procurement Transformation in the age of AI
We have mentioned several times in this and previous reports about the reemergence of digitalisation as a priority especially to access greater efficiency through AI. This report looks at how procurement transformation through the prism of AI and how AI will impact procurement transformations.
Discussing current levels of adoption, and AI use cases across source to contract, the report also compares AI capabilities with Gen AI capabilities. Of most interest to me was the framework identified for prioritising AI Implementation, using Impact and adoption as the 2 axes.
Impact includes, financial, operational and business. Adoption includes criticality, constraints and complexity.
I think overall this is a pretty good way to look at prioritisation of use cases. Overall, the top right quadrant (i.e. high adoption potential, and high impact, includes spend analytics, market intelligence guided buying support and supplier onboarding and ID. Which follows several AI use case reports I’ve reviewed previously. Obviously, each organisations impact and constraints will be different, but I think the concept is sound.
As always reach out to discuss more, links to the reports are included and always happy to hear your thoughts!
