Each month i'll review the procurement research reports, articles, and webinars and summarise here
Supply Chains for Mid-Market – IDC
In this
IDC brief (sponsored by open text) the paper uses data from its supply chain survey earlier in the year and focusses on mid-market responses (being defined as under $1billion). The paper looks to the differences between large enterprises and Mid-market companies identifying that they are held to the same business process standards by their customers as large enterprises, but they lack broad resources.
In the near term, efficiency, and resiliency (both visibility and agility to see it and respond) are top two priorities, as both are ways to ensure margin improvements and more reliable operations. IT modernization is on the radar as an important driver of performance but takes a back seat for now.
Responding more quickly to supply disruptions or changes remains top of mind in the shadow of recent global supply chain disruptions. Notably, collaboration is a bigger priority for larger mid-market organizations.
In the medium term, efficiency remains a top priority as mid-market companies see margin erosion and input cost pressure continuing. IT modernization increases in importance to drive better business performance, while operationalizing sustainability joins the list of top priorities.
Whilst over the next decade, almost 40% of mid-market companies view labor availability as a persistent problem, the top priority for these companies in 2023-25 is to reduce cost/eliminate waste to mitigate the effects of persistent inflation.
Attempting to predict major disruptions, the black swan events, if you will, have proven to be an almost complete waste of time for us. What we need is the visibility and integrated systems to be able to respond more quickly than our competitors.
Risk and speed of response are big issues for all but are more keenly felt in mid-market. Supply diversification is a strategy that many are following, but according to the paper, that brings more suppliers, more documents, more exchanged information, and therefore more things which can go wrong.
AQPC Benchmarks & Procurement is changing.
In the first report from
AQPC they have published their benchmarks for procurement FTE to perform procurement activities. Where they exist, I’ve put the
SAP Benchmarks in.
MEASURE |
Metric |
SAP |
Number of FTEs that perform the process group “Procure materials and services” per $1 billion revenue |
36 |
29 |
Number of FTEs that perform the process “Develop sourcing strategies” per $1 billion revenue |
4.1 |
11 |
Number of FTEs that perform the process “Order materials and services” per $1 billion revenue |
18.8 |
10.6 |
Number of FTEs that perform the process “Manage suppliers” per $1 billion revenue |
5.5 |
NA |
An interesting piece here, in the previously covered Hackett world class digital procurement report, it mentions that there is a reduction in total procurement FTE the more digitally enabled functions were, but more strategic procurement people within this.
The second report covers how procurement has been changing over the last few years with over 71% of respondents, (from 1,181) stating they have seen significant transformation of their processes and systems. The report states that Procurement’s strategic objectives have been shifting in line with broader changes in the business environment. In the past, cost reduction and maintaining or improving margin would have been the two most important objectives for procurement. However, the study found that avoiding supply disruption is now the most common strategic objective, followed by reducing procurement costs (there’s about a 2% differential) with increased emphasis on sustainability and improving supplier relationships (though there is a clear distance between the top 2 and next few)
Within supplier relationships, the key areas identified were supplier’s ability to deliver (25 percent of respondents), supplier capabilities (22 percent), and sustainability (16 percent)
The report concludes that whilst cost is always important, the ability to collaborate with suppliers, and better measure and manage suppliers to both avoid disruption and improve relationships are becoming more critical.
World Commerce & Contracting - Implementation
This report looks back at the impacts of contract management technology, some of the pitfalls of implementations (and indeed technology) and suggests some actions for organisations to take. The report makes the point that here is so little usable data associated with the contracting process. In a typical midsize organization, contract-related data sits in 24 different systems,3 spread across multiple business functions. Often, even today, there is no single repository where contracts are stored. Therefore, data analysis, to the extent it occurs, is largely manual and reactive.
“The risk landscape has changed dramatically over the last decade, especially since the COVID-19 pandemic. All these aspects – digitalization; innovation of new products and services; technology; market competition; environmental, social, and governance (ESG); geopolitical conflicts; and more – not only represent new risks but also require a completely new perspective and, therefore, a change of mind in our approach.”
The report then goes on to identify the benefits, and good practices for implementation of contract lifecycle management technology. The secret is to understand the foundations for success and select a system that is adaptable, easy to use and supports a wider set of use cases, allowing a reduction in the overall number of systems deployed.
Deloitte Reshoring
This month’s read of the month!
Lots has been written about reshoring since the start of the pandemic, and generally it has taken longer for organisations to achieve this than was first thought. Lots of reasons as to why, but this paper goes into the decision-making process. This is going to become more important, as the wave of “friend shoring” may well increase over the next few years if the current geopolitical issues continue.
According to the report,. In a Deloitte database3 review of 98 major reshoring events over the past four years, 19% of companies involved in reshoring events used some form of an M&A transaction, including joint ventures or partnership, to execute in the new supply chain strategy.
Before tackling the analysis of total costs involved in a reshoring decision, it’s important to consider the full range of factors that may come into play. The drivers of supply chain disruptions seem to fall into three broad groups: quantitative, qualitative, and risk-related.
- Quantitative drivers include labour costs; transportation costs; lead time; working capital requirements; taxes and duties; and defect rates.
- Qualitative drivers include intellectual property management; environmental, social and governance (ESG) improvement; cross-functional complexity; and brand reputation.
- Risks can include regulatory changes; geopolitical developments; natural disasters; and financial and economic volatility. These are issues mostly out of a company’s control and difficult to quantify.
Whilst this paper looks in depth at 4 categories (of which they identified in 3 of them the factors around the decision to reshore or not, have made reshoring more attractive) the factors identified, and calculations made can be applied to any category.
The report identifies the following questions of consideration in making decisions around reshoring.
- How long and complex is my global supply chain (geographically and logistically)?
- What competitive advantages or disadvantages does my supply chain confer in the marketplace?
- How does the total cost of goods sold change by shrinking the supply chain closer to the end consumer?
- How is my supply chain a result of price elasticity, and how does customer price elasticity impact decisions?
- What are the risks to my supply chain, and how can I control or mitigate them?
- Is there unpredictability in my supply chain that could affect business continuity?
- What’s the impact of regulations or the potential arc of future regulations (e.g., EU’s Carbon Border Adjustment Mechanism [CBAM], Corporate Sustainability Reporting Directive [CSRD])?
CEO Briefing
2 recent CEO briefings, one on
AI stated that the majority of CEOs polled (53 percent) said they are now finding business uses in the new capabilities of generative AI—a whopping 130 percent increase from those who were considering using AI just eight months prior. considering using AI just eight months prior.
CEOs in industries like advertising, marketing, media and PR, tech and professional services all have the highest rates of positive responses when asked if they are finding business use out of generative AI.
In the
other briefing, Chief Executive’s October CEO Confidence Index finds CEOs outlook for 2024 at lowest level in a year, with 87 percent of the 240 chiefs polled saying they expect business conditions to either remain flat (29 percent) or turn negative (58 percent). The growing probability of a recession, many said, will lead to further increases in unemployment, sticky inflation, and a prolonged high-rate environment.
Thomson Reuters – Global Trade
Similar to the above,
the Reuters report stated that an environment of almost constant disruption continues to hinder global-trade efforts, and these disruptions come from familiar sources — inflation, rising costs, supply chain shortages, international conflicts, regulatory changes, transportation troubles, and compliance challenges.
Not surprisingly, these sources of disruption and uncertainty also comprise the global trade profession’s top strategic priorities over the next 12 months.
Some key points from this study stated that:
- 46% of companies say they are impacted by retaliatory tariffs between the United States and China
- 28% of companies say they are affected by Russian sanctions — down from 39% in 2022.
- 88% of businesses collect information for ESG purposes from their suppliers at least once a year.
- The decision to collect ESG data is driven by three main factors:
- i) to comply with local laws.
- ii) to support the company’s or owner’s values and ethics; and
- iii) to mitigate reputational risk.
- More than two-thirds of businesses take ESG considerations into account in their decision to use a supplier.
- 62% of survey respondents rated “supply chain security and data protection” as their top technology priority, up from 54% in 2022.
Ardent Partners – State of Payables 2023
In addition to the state of procurement report, Ardent also delivers
a state of e payables report aimed at AP. I think we forget sometimes, the second P in P2P is all about payments, so this is critical for procurement leaders, not just because an increasing amount (see the previous AQPC report last month) of AP and procurement, are now reporting through the same lines, if not to the same person.
In fact, an early part of this report calls that out in terms of strategic priorities. Efficient collaboration between finance and procurement is key to optimising spend management and supplier relationships. 50% of Ap teams leverage data and intelligence to improve collaboration.
Some other key takeaways, a focus on eliminating paper invoicing and enabling more suppliers to submit invoices electronically, driving greater automation and reducing processing costs. Hurdles include payments taking too long, and a high percentage (47%) of exceptions. Clearly these two are linked with each other. Late supplier payments (as a result of the above 2) are the consequence and also does not help in improving supplier relationships which was called out earlier, as a key part of collaboration between AP and procurement.
Whilst adoption rates haven’t improved much since last years report, the section on adoption is interesting for a couple of reasons.
- The inclusion of travel and expense management solution for the first time, and
- Network more adopted than portals!
University of Mannheim – State of procurement profession
In
this annual survey of around 400 procurement professionals, some interesting points emerge.
Cost & uncertainty are the two top priorities of procurement. Cost is more dominant, and procurement are focussing more on cost (than top management) in their evaluation criteria. This also shows up in procurement involvement in top level discussion, when cost, delivery and quality are the points procurement is involved, when talk turns to innovation, flexibility and (worryingly though this is consistent with many reports) sustainability, procurement are involved less.
Strategies are evolving, with localisation of supply increasing, as well as more dual/multi sourcing outcomes becoming the norm. A focus on driving better relationships as well as increasing inventory to combat the uncertainty are also being implemented.
The Cost-Plus World of supply chains
If I could have 2 reads of the month, then this would be the other one!
This
report derives form a survey of 400 executives earlier this year and is written by Economist Impact (sponsored by GEP)
- Fifty-nine per cent of survey respondents believe that they will have to make changes to their supply chain to manage challenges in the coming year.
Some of the changes include adopting technology to increase supply chain visibility (63%), followed closely by digitally transforming supply chains (57%).
As stated by a couple of other reports, the biggest impact on supply chains is geopolitical events, (ahead of trade protectionism)
Responses highlight the importance executives are placing on inventories in 2023, with 68% stating increasing inventories are a moderate or high priority, and 55% stating decreasing inventories as a low priority. Yet, although inventories can decrease certain risks, they require more capital investment. Sixty-eight per cent of respondents confirm there are additional costs associated with increasing inventories. This shows that executives are focused on factors beyond cost.
Managing cost is critical to offset, these actions, and benchmarking pricing, supplier consolidation (though in the risk mitigation, it talks about increasing number of suppliers, so this is a category v category approach). External supply chain financing, is another way to offset cost, identified by 34% of respondents as a top 3 approach.
Substitutability is another supply chain strategy being adopted by businesses to weather short-term disruptions. Eighty-four per cent of respondents rated substitutability of moderate to high importance in managing procurement and supply chains disruptions in 2023. By employing input substitution, certain firms will be able to minimise inventory holdings whilst preserving output levels, as versatile inputs can be utilised across different products.
As always reach out to discuss more, copies of the reports mentioned are linked above,
