Even during the times of a thriving global market, Procurement Leaders are weighed down by major challenges that are capable of impacting the profit margins.What are these issues? What are the trends that a Procurement professional needs to be mindful of during this digital age?
In this edition of the Key Issues Study, procurement leaders indicate they are focused on deepening collaboration with suppliers to meet growth expectations and manage risk. There are a few focus areas that the respondents have mentioned are key:
Key Focus Areas for the CPO
Cyber Security: 75% of the respondents have stated that cyber security is one of the top risks in the year 2018. While these organizations are focused on remaining competitive, they are aware of the persistent threat looming in the form of attacks on the data.
Revenue Growth: As seen in the figure below, two initiatives that have gained prominence for 2018 are customer-focus improvement and product expansion. Both areas pivotal to the growth of an enterprise’s revenue.
Cost Reduction: Accelerating the savings captured has always been one of the primary goals for a Procurement professional. That being said, the strategies to ensure savings have always been siloed. A cross-functional collaboration among functions like Finance-Procurement will ensure a more centralized approach to savings and identification of more savings opportunities.
Agility: Agility here means finding new ways to harness the power of digital technology and rapidly adapting to changing stakeholder demands. The major challenge here will be ensuring agility despite the reductions in operating budgets averaging 0.3% in 2018.
Internal Stakeholder Satisfaction: The importance given to internal stakeholder satisfaction has also increased from 5% in 2017 to 23% in 2018, indicating the significant increase in focus to this factor.
Four Key Capabilities for Procurement Improvement:
Apart from focusing on the factors mentioned above, there are four areas that procurement must work on developing:
Aligning procurement skills and talent with changing business needs: In 2018, 77% of respondents consider alignment of procurement skills and talent with changing business needs to be of “high” or “critical” importance compared to 73% in 2017. The two aspects to enhancing and optimally using the procurement function are Human capital and Technological capital. While adoption of digital technologies like IOT and Block chain are on the rise it is essential that the right people are employed to become proper enablers to these technologies
Measuring and managing procurement performance and business value: Procurement’s current role is that of a strategic advisor to the organization, hence the docket of responsibilities doesn’t remain limited to increasing cost savings through gaining reductions on price. It has expanded to managing relationships with internal as well as external stakeholder, negotiations and risk management. This expanded scope of responsibility will require leaders to identify more avenues to generate and contribute value.
Obtaining more value from existing suppliers through relationship management: Today 74% of respondents acknowledge the importance of obtaining more value from existing suppliers through SRM, but 51% have only a low or moderate ability to meet this objective. The Key Issues Study indicates a keen inclination in linking supplier centric efforts to key source-to-pay efforts thereby gathering supply market intelligence.
Obtaining more value from existing categories through category management: 83% percent of Key Issues Study respondents consider obtaining more value from existing categories through category management to be of high/critical importance. Using a category-centric strategy execution framework can help organizations apply the appropriate value drivers, techniques and tools to meet the value objectives in other areas including strategic sourcing, SRM, value engineering, process reengineering, demand management, and compliance management.
The Impact of Digital Transformation On Procurement
Procurement leaders are aware and are acknowledging the major impact digital initiatives will have on the function. 95% survey respondents have stated that the use of digital technologies will transform the way procurement services are delivered in two to five years. Procurement organizations have also increased their investments in mainstream technologies like transferring their data to the cloud so they can leverage the available data and analytics better. Organizations that have adopted emerging technologies have also increased in number as shown in the table below.
The Implications of the shift
Inferring from this report titled “The CPO Agenda in 2018: Expanding Procurement’s Influence Through Change and Innovation” it is visible that the focus of CPOs has clearly shifted to assume the role of a strategic advisor and the harbinger of the digital technologies. However, 2018 must be a year where the function must not only work on increasing its strategic and analytical capabilities like supporting supplier innovation and category management but also fulfill its basic responsibilities and strike a balance between both.To stay abreast of the recent developments in the Procurement industry, the top priorities of practitioners and the technologies that will have a major impact on Procurement read the “Pulse of Procurement | Part 1” and “Pulse of Procurement | Part 2“. This report is an outcome of analyzing the views of 400+ Procurement professionals and practitioners on various topics and trends.