Shortages in raw materials, energy, shipping, and labor required that CPOs performed at the top of their game to ensure business continuity. However, as 2023 starts, CPOs have a new range of challenges to tackle, such as soaring inflation and a looming recession. So, the question remains: What are the key challenges and agenda items for procurement leaders in 2023, and how will they adapt to these challenges? Zycus recently conducted a virtual event for CPOs, Procurement Leadership Agenda and Narratives (PLAN 2023), where we invited industry experts and procurement thought leaders across the Europe to discuss the upcoming technology trends and procurement strategies for 2023. Key thought leaders included Jacob Gorm Larsen, Ex-Director of Digital Procurement, Maersk Group; Prof. David Loseby, Ex-Group CPO, Rolls Royce, and Frederic Thielen, President, AristaQ as the speakers for the event along with Thomas Bioud, Regional VP, Europe and Andreas Schwarze, Regional VP, DACH at Zycus.
With new legislation being introduced for 2023 in Europe, such as the Supply Chain Due Diligence Act (SCCDA), CPOs and other procurement and sourcing leaders need to devise an agile procurement strategy to ensure compliance. As per the experts “PLAN for 2023 requires a synergy between people, process and technology aspects.”
This is essential to build a bold, agile and flexible procurement function. Investment in technology is crucial and requires even more during the time of an economic downturn. “Now, more than ever before is the time for enterprises to invest in technology. Without having the appropriate digital solutions in place, they simply would not be agile enough”, says Jacob, Ex-Director of Digital Procurement, Maersk Group.
5 Big Ideas for CPOs: Unleash your Procurement Potential in 2023
The agenda for 2023 has a lot more on the plate for CPOs in terms of challenges than last year. As per the expert views, below are the 5 Big Ideas for CPOs to consider while building procurement strategies for 2023:
1) Synergy between People, Process, Technology aspects to prepare better for future disruptions
The mantra for 2023 is for CPOs to take a step ahead to create an optimum balance between the organization’s people, process, and technology requirements. But how can this be achieved? Let us look at each aspect:
People: Enterprises should focus on hiring people who can interpret the pain points of business partners with their fact-based, decision-making skills. Procurement professionals who can define, execute and implement strategic planning processes are required for resilient and innovative procurement functions.
Process: CPOs must plan on how to leverage next-generation technologies such as AI, ML, RPA to automate repetitive tasks and derive insights and structured data for making the right decisions. They must collaborate with business leaders to establish strategic plans, which support enterprise goals of strengthening relationships with existing and new suppliers.
Technology: CPOs should look for an integrated platform to manage all the spending and processes, such as third-party risk, sourcing, supply chain, invoicing, contracting, and payments.
2) Effective risk management should be a priority
After the Covid-19 pandemic, enterprises have been firefighting to manage risks and have invested in developing supply chain resilience. As per Zycus’ Pulse of Procurement Survey, risk management was the top procurement priority for CPOs in 2022. Still, 50-67% of the companies failed to change their risk management standards.
Budget overspend, disruptions and shortages, inflation and recession risk, new sustainability expectations & compliance and resistance to digitalization & poor e-procurement adoption are the top 5 challenges in this context.
But how to tackle these risks effectively?
- Standardizing procurement processes: Standardization helps in streamlining the processes for all team members, it helps in clear communication with suppliers and vendors. It also enables better performance management and data capture.
- Automating tedious tasks: Many complex tasks consume a lot of time and effort of the employees; it also provides room for miscalculations and poor judgement. Key processes to automate include contract management, vendor management, invoicing, purchase orders, purchase requisitions.
- Tracking supplier performance: For improvement, measurement and analysis is important. Key metrics to analyze include compliance rate, lead time, on-time delivery, and product defect rate.
- Sourcing with alternative suppliers: Apart from negotiating with current suppliers to reduce costs, it is a good strategy to look for more affordable alternative suppliers to provide a cushion for the procurement function in case of inflation and unreasonable pricing surges.
- Adopting e-procurement solutions: Investment in adoption and implementation of next-generation technologies is crucial for sailing through 2023. It will ease out the processes of analyzing spend, managing relationships with customers/vendors and suppliers, automating source-to-pay (S2P) workflows, and fostering internal collaboration.
3) Focus on a more-structured approach to supplier relationship management
Enterprises, for long, have spent their time and energy in building healthy supplier relationships. However, the coming years will see a shift towards a more-structured approach to supplier relationship management. The Supplier Collaboration Index by McKinsey assesses the five dimensions to focus on for boosting supplier collaboration:
Source: McKinsey/MSU Supplier Collaboration Index Team
4) Change management is critical for achieving digital transformation
“Many times, digital transformation is equated with buying technology”. As rightly said by Jacob, Ex-Director of Digital Procurement at Maersk Group, it is much more about driving a mindset change and introducing a new way of working in the procurement function. He refers to it as the situation where CPOs are underinvesting in the change management aspects of major digital procurement initiatives.
Key points to consider for devising a change management plan include:
- Driving adoption through process standardization: Create a standardized process flow for people to instill new habits and avoid the old ones while transferring to a new software tool.
- Identify the right communication channels: Implementation success is highly dependent on the channels you adopt to communicate with your team. Coordinating and working together in a transparent manner is crucial for achieving success.
- Do not follow a one-size-fits-all approach: There is no one-size-fits-all approach. Depending on your company, industry and maturity stage, you need to adjust your roadmap.
- Design integrated processes: It is very crucial for CPOs to link their tech investments to their procurement strategy. Implementation and adoption should happen side-by-side in both the functions and not in isolation.
5) Hiring the right people with the right skill set is key for driving success
In order to adopt next-generation procurement technologies and achieve digital transformation, CPOs must focus on hiring the right people with the right skills.
A good case in point is explained very well by David Lose by, Ex-Director of Procurement at Rolls Royce, he says, “Do not design your digital transformation journey based upon a boat that sits on the harbor, but to go out in a storm, where you are unsure about what the storm may throw at us!”. So, enterprises need to be well prepared and “agile enough” to respond faster.
Here are the three key focus areas for training the newly hired employees:
- Reskilling: Helping employees accept changes and move away from old habits and processes.
- Upskilling: Introducing new techniques for employees to work more efficiently and effectively.
- Onboarding: Introducing new features and software systems for employees.
Watch on-demand panel discussion of PLAN 2023 to gain deeper insights on EMEA-specific procurement trends and challenges for 2023. You can also read the key learnings which will help you in making innovative procurement strategies in our exclusive eBook: 5 Big Ideas: Procurement Trends & Insights for EMEA region in 2023