In the post-pandemic world, procurement holds paramount importance for business as it delivers measurable value. The evolution in the procurement functions is targeted towards more significant payoffs related to cost savings, innovation, category management, and innovation powered by digital transformation.
Since 1990, procurement functions’ rapid and continuous growth hints at its greater credibility among stakeholders and businesses. As it is said, with greater credibility comes more significant responsibilities and any other challenges.
In January 2021, almost 100 CASME members participated in a poll related to challenges faced by procurement functions. The poll results depicted that people from various geographical regions of the world indicated similar challenges impacting the respective organization. Here are a few challenges faced
Procurement has managed sourcing, supply chains, stakeholders, and suppliers very well during the pandemic; therefore, it has gained a lot of credibility. Pandemic has led to many changes in procurement function; consequently, it is high time to revisit this category and update strategies.
The pandemic outbreak has highlighted all the discrepancies in the existing risk management systems. The five significant sub-sectors of procurement risk management or areas of concern are:
Sustainability concerns surrounding procurement have evolved into increasing social, economic, and corporate governance concerns. The leading issues are
Diversity has been a trending topic for quite a while in the USA; it has found its footholds in other regions like Europe and APAC. The current challenge to find a supplier who meets diversity criteria and protocols is quite a challenging task.
Managing a diversified workforce and procurement sources are equally challenging. Diversification needs suppliers to meet the varied demands of all customers. Especially in the wake of covid 19, it is a daunting task as there is immense pressure to meet the rising demand under available resources.
Many companies are focusing on upgrading their contracts with suppliers so that payment terms and conditions are optimized. Furthermore, companies are considering options for supply chain financing rather than lengthening payment terms. Resolving agreement terms through careful relationship management with suppliers has become vital.
Building a long-term relationship with suppliers and focusing on sustainability; procurement encourages innovation. Some companies have introduced lite versions of their terms and conditions to facilitate growing start-ups. Procurement innovation has the following benefits:
Procurements processes have proven their worth during the time of the pandemic. Now is the time to invest in tools and systems that improve the efficacy of the organization’s procurement functions.
Selling procurements to stakeholders require having a high skilled category management staff. Keeping all category managers and stakeholders on board by ensuring smooth communication is essential. The success of procurement projects depends on the development of relationships. Similarly, it is necessary to incorporate stakeholder management techniques that will help you to separate the most critical stakeholders. Stakeholder management can be done in the following ways.
How has data analytics contributed to digital transformation in procurement?
In the enterprise world, digital transformation is the most emphasized and most minor understood term. Digital transformation is the fastest and most obvious route towards the automation of businesses. Operational functionality like procurement hasn’t been linked with digitization from the first day, but it is catching up slowly and steadily.
Digital transformation in procurement
Digital transformation relates to the automation of procurement processes that enhance the function’s efficiency, compliance, and value. Artificial intelligence, robotic automation, and algorithms improve procurement processes and applications.
But the digital transformation in the procurement sector does not mean replacing human expertise with analytics and data. Human expertise lies at the base of a true digital transformation. Digital transformation and the latest trends are rejuvenating procurement processes.
Evolution of procurement digitization
Procurement analytics has evolved over the past three decades. Here is the short evolution of procurement analytics:
Generation 1 (the 1990s): analysis was primarily done using Microsoft excel by businesses and leading experts
Generation 2(the 2000s): introduction of data analysis software
Generation 3(2010- ): introduction of business- intelligence level visualizations, for example, saas dashboards.
Generation 4(2015- ): introduction of artificial intelligence into procurement analytics solutions. It leads to combining any data sources encrypted and hosted on the cloud.
Procurement analytics: from insights to action
In the early decades of procurement analysis, leaders mostly stayed focused on annual or semi-annual appraisal of procurement performances. Businesses don’t have extensive procurement data to connect to digital automation in those days. The. introduction of data analytics has enabled the procurement sector to shift its focus from cost-approvals and reporting into long-term futuristic forecasts.
Procurement analytics falls into the following categories
Diagnostic: the reason why something happened in the Past?
Descriptive: what happened in the Past?
Predictive: trends and patterns in the Past
Prescriptive: future decision to cater for changes
Procurement pandemonium: applications of procurement transformed by analytics
Here are the most common examples that depict the application of data analytics in procurement:
Use of analytics in procurement category management
Category management allows managers to save opportunities, prioritize supplies mitigate risks, and facilitate innovation. Systematic risk and opportunities measurements can be done only when the previous data in the silos will be analyzed appropriately.
Procurement analytics in strategic sourcing
Strategic sourcing explains the best and the most appropriate areas to run sourcing activities. Also, it defines which sourcing suppliers need to be incorporated to provide rich information related to suppliers’ quality and positions.
Procurement analytics in contract management
Procurement analytics provide insights to contract life cycle management. It issues alerts, and lets executives know when a contract needs to be renegotiated and details about suppliers’ negotiations. It improves compliance and contract coverage.
Role of procurement analytics in sustainability and CSR
In determining corporate social responsibility and assessing sustainability within the supply chain. Procurement analytics unveils the impacts of decisions on the environment and society.
Procurement analytics and risk management
Analytics can help to mitigate risks within the supply chain and procurement. The complex relationship between CSR, price, and environment can be simplified using procurement analytics.
Procurement COVID-19 response
The whole world experienced macroeconomic repercussions due to the outbreak of the covid-19. In the post covid world, managing procurement-related risks and cashing opportunities would be vital for leading supply chains.
The situation of procurement in the post covid world
In 2021, the economic downturn and inflation were the most significant challenges. The global economy has faced a 32% decrease in the total volume. Similarly, most CPOs view that procurement-related risks have also increased.
Uncertainty of demand has increased complexities related to procurement
An increase in demand in the post-pandemic scenario has spurred inventory challenges and created imbalances. Long and short-term uncertainties related to top-tier suppliers are also a source of uncertainty.
Risk management and disrupted supply chains
Risk reduction was the top priority for CPOs even before the outbreak of the covid-19. Heavy reliance on china in terms of procurement was an imminent threat.
Challenges relating to procurement and sourcing predicament
Covid unveils that most businesses around the globe lack proper strategic planning when it comes to sourcing and procurement functionalities. Furthermore, the impacts of procurement challenges on risk management are another factor that has been neglected.
Procurement pandemonium and covid-19: long term strategy and capacity building
Some critical infrastructure had a unique onus to continue working despite the onset of covid-19. Hence infrastructural development and procurement remain a top priority for governments and businesses. Here is how leading enterprises responded to the challenge
The importance of the value chain is illuminated.
Illuminating an extended supplier network highlights the dependencies and bottlenecks in the supply chain.
Keep a close look at the status quo until the bottleneck is removed.
Focus on Optimizing models proactively by buffering risky supply nodes.
Making sourcing sustainable and resilient
Restructure and bolster the supply network to build long-term resilience.
We are redefining the procurement operating models involving ecosystem changes.
Prepare continuity plans for businesses.
Establish open communication channels with customers.
Introduce processes to elevate customer information sharing
Use the opportunity to deploy innovative solutions.
Building a resilient sourcing organization
When it comes to the transformation of procurement and sourcing, procurement and supply chain teams are unique. They are striving to introduce new technologies and significantly improve the functionality of businesses, but they are also looking forward to securing the businesses against future shocks.
Category managers play a vital role in procure-to-pay and end-to-end processes. Procurement teams and leaders also have access to comprehensive analytics that helps them to draw insights and dictate actions. Digitization of procurement function is still in operation. To complete the procurement functions, CPOs need to have a distant view of objectives that support their business strategy. Leaders need to go beyond cost-saving and focus on outcomes like user experience, risk mitigation, operational efficiency, and working capital.
Only then will the businesses align goals with digital technologies that the procurement sector requires. Incorporation of these functions and updating procurement processes will elevate user experience and improve operational efficiency. not only this it will help businesses to maximize profits and manage risks efficiently
JHelmy&Co. will help you develop sustainable procurement and sourcing plans that will help you factor in risks and acquire operational agility while maintaining cost-effectiveness. We help you create long-term, state-of-the-art procurement techniques, and strategies that will look to the future.