5 Impact Areas For Procurement Leaders

By 2024, we expect to witness major transformations in the way procurement is carried out by businesses

With global pandemic receding, supply disruptions, war zones and growing importance on sustainability, procurement professionals and industry leaders are increasingly leveraging intelligent procurement tools and tactics, to manage critical challenges.

“Research done by Regina Corso Consulting suggests that 90% of U.S. supply chain professionals, believe procurement has assumed more significant influence in tackling supply chain and sustainability issues. 50% of the respondents, to another survey, mentioned on transparency and visibility in procurement chain being critical to handling unforeseen issues, and 48% stated the criticality of procurement in managing supplier relationships. An impressive 33% of survey respondents shared that adapting payment terms helps in bolstering trading partner liquidity, while 21% felt that reskilling resource talent is a way to prioritise higher-level business needs.”

Though cost reduction will always be a major KPI globally and not only in India, but a recent Deloitte CPO survey indicates a growing importance on operational excellences, automation, supplier collaboration and ESG footprints. CPOs across geographies are equipped for the next disruption and are completely averse to citing the next pandemic as a reason for business discontinuity. Procurement is building sustainable competitive edge for organizations in cost, capability and speed and CPOs have identified 5 areas of impact.

Accelerate agility and amplify resilience through intelligent technology integration

As companies evolve, it’s critical to ensure that their technology is integrated end-to-end. This integration provides real-time visibility, allowing all systems to work together seamlessly.

1. By tracking the transporter every step of the way, businesses maintain flexibility and react quickly to changes in the environment. To achieve this level of agility, procurement managers must leverage the power of technology integrations.
2. These integrations allow data-driven insights into supplier performance metrics, pinpoint potential risks before they become an issue, and mitigate vulnerabilities associated with procurement.
3. With access to actionable data, procurement managers are increasing transparency and streamline operations, reducing costs and driving productivity.

As businesses emerge from the pandemic, it becomes vital to ensure that they have the resilience they need to survive. By integrating technology and data-driven decision-making, organizations are ensuring they stay adaptable and are able to face challenges head-on, increasing their agility and driving business growth.

1. Recent market analysis reveals that the Global Procurement Software Market, esteemed at 4.7 billion USD in 2021, is projected to expand with a robust CAGR of 10.17% and hit the 10.2 billion USD mark by 2027.
2. This growth is fueled by the rising demand for automation in the procurement process the swift uptake of e-procurement technology.
3. A detailed study by Deloitte on eProcurement – New Capabilities from Digital Technologies highlights how digitalization has transformed the procurement domain. The research indicates that many firms are adopting a variety of fundamental procurement technology platforms. These platforms often consist of a mix of eSourcing, spend analytics, eProcurement, and contract management technologies. SaaS-based procurement technologies are gaining momentum due to their ease and speed of deployment.

“A Gartner survey recently revealed that only 21% of respondents have a resilient network equipped with great visibility and the capability to easily switch their sourcing, manufacturing, as well as distribution activities. The survey results indicate that over 50% of respondents anticipate achieving high levels of resiliency in their procurement processes and supply chains within two to three years.”

By leveraging data-driven insights into supplier performance metrics, companies are detecting potential risks before they become an issue and mitigating vulnerabilities associated with procurement.

Better forecasting to reduce rushing, costing, unfulfilled orders etc.

Accurate forecasts, coupled with in-depth data analysis, are enabling companies to anticipate customer needs and reduce their risk of costly mistakes such as overstocking or understocking products. Additionally, businesses are hedging against current market conditions to ensure that their entire supply chain remains strong. Companies are taking these steps to predict future demand and respond to changing conditions properly, and hence, are better equipped to meet customer expectations.

1. With accurate decision-making based on reliable data, businesses have a powerful tool to help them make well-informed decisions that lead to improved profitability.
2. Through leveraging data, businesses are able to forecast better and identify customer trends, anticipate future demand and adjust their strategies accordingly.
3. By collecting and analysing customer data points such as purchasing history, customer segmentation and purchase timing, companies are gaining valuable insights.
4. With this information at their disposal, businesses are developing predictive models that help give them a competitive edge when responding to changing market conditions.
5. Additionally, businesses are able to adjust their forecasts according to seasonality or other external factors.

“Remarkably, the software’s predictions exhibit a minimal error rate of just 3-4% or lesser, which underscores the effectiveness and dependability of this innovative instrument for informed decision-making among top executives.”

Having an effective demand forecasting system enables companies to plan ahead by hedging against current market conditions. This minimizes the pressure on the supply side, allowing businesses to strengthen their partnerships across their entire supply chain because, ultimately it is as strong as its weakest link.

De-risking supplier operations – understand the supplier’s supplier

In the complex world of procurement and supply chain management, de-risking supplier operations has become an essential responsibility for all organisations. It involves understanding all issues that are likely to hinder the operations and fixing them before they become major concerns.

1. It benefits greatly to have a deep understanding of the supplier’s supplier, i.e. the Tier 2 supplier. Engaging with Tier 1 and Tier 2 suppliers enables companies to mitigate risks, enhance their resilience, and ensure continuity of their operations.
2. The process of fully understanding the Tier 2 supplier landscape begins with identifying all potential suppliers and properly evaluating their reliability and trustworthiness.
3. A comprehensive risk assessment helps determine which suppliers should be included in the procurement process and any potential risks or issues that may arise from using them.
4. Understanding each Tier 2 supplier’s unique capabilities and limitations is important. For example, an analysis of their production capacity, quality control processes, lead times and other factors helps a company assess how they might contribute to the overall efficiency of operations.
5. In addition, understanding the geographic reach of each supplier provides insights into potential delivery related issues, such as customs paperwork or delays due to transportation.
6. All these factors must be considered when negotiating contracts with Tier 2 suppliers to ensure no unexpected disruptions to the supply chain. It helps to consider their financial stability and solvency.

Organisations are already using various methods to verify a supplier’s financial health, such as conducting credit checks or obtaining third-party reports. These help determine if the supplier is able to meet their contractual obligations and provide timely payments when required. This information is then used when negotiating contracts with suppliers to ensure they maintain sufficient liquidity levels throughout collaboration. Finally, companies need to implement a monitoring and evaluation system for all suppliers within the network. This allows them to assess performance on an ongoing basis and take steps to mitigate any issues that may arise. Companies should also be aware of any changes in the supplier’s operations, such as new personnel or shifts in product offerings, and take appropriate measures to address them. Organisations are maintaining competitiveness and reducing the risk of costly disruptions by investing time into properly de-risking their suppliers and understanding their supply chain dynamics.

The engine utilized in the Innova Crysta, for example, is produced domestically, with approximately 85% of the components being sourced from local manufacturers.

Over time, Toyota India has progressively increased the localization of gearboxes and other vital components, exemplifying the efficacy of such strategies in fortifying procurement processes within the automotive industry.

Value analysis and value re-engineering helps drive the most cost savings.

As important as it is to identify cost savings opportunities, it is equally necessary to create a framework that incentivizes suppliers to contribute towards these objectives actively.

1. One strategy that organizations are increasingly using is sharing their cost savings with suppliers in order to demonstrate their impact on the bottom line. The fundamental principle behind this approach is simple – when a supplier feels invested in an organization’s goals, they are more likely to continue putting forth efforts for mutual benefit.
2. This ensures better collaboration between buyers and suppliers, resulting in improved service quality further driving down operational costs over time. Thus, not only is this approach helping generate immediate cost savings, but it also helps foster long-term partnerships that are beneficial to all parties.
3. In order to ensure optimal implementation of this strategy, procurement teams ensure they have a clear understanding of the value of their suppliers and how much savings could be achieved by working with them.
4. This requires an in-depth analysis of supplier performance metrics, such as prices and discounts provided as well as responses to orders placed. Once these have been established, an organization are able to develop comprehensive strategies for sharing the cost savings generated by each supplier with them.

This modification, along with other strategic alterations, enabled the corporation to achieve savings of about INR 9 crore, an amount that is roughly five times greater than the savings BHEL realized through energy conservation efforts in the year before they undertook this value-reengineering exercise.

These sharing strategies vary from company to company depending on their organizational goals and size. For example, some companies may opt for simple rebate systems where suppliers receive a fixed percentage or dollar amount based on their created savings. Others might opt for more specific strategies that assign different incentives to various products or services supplied by a supplier. In either case, it is important to ensure that any sharing strategy implemented is aligned with an organization’s overall business objectives and that its ultimate purpose is to strengthen the buyer-supplier relationship while also driving down costs in the long run.

1. Similarly, commodity trends have an impact on the availability and price of materials needed for production.
2. To tackle this problem, procurement teams use a variety of tools to monitor market trends such as commodity prices and shipping container availability in order to anticipate any issues that might arise.
3. It is also essential to focus on identifying and mitigating risk factors that affect procurement cycles.
4. One of the most common risk factors is the temporary unavailability of capacity, which increases costs significantly.
5. By using these insights, organizations are better able to plan for potential cost spikes and adjust their strategies accordingly
6. Additionally, they should be aware of any forex fluctuations as well as changes in international shipping prices since these too impact purchasing decisions greatly. These have significant impacts on global procurement and must be considered when devising cost-saving schemes with suppliers.

Unlock a strong authority in determining your organisation’s ESG footprint.

As the world becomes more conscious about the impact of business operations on the environment, companies are shifting towards making their supply chains more sustainable.

1. One way to for procurement officers to approach this is by rewarding suppliers based on their green initiatives and factoring these into their supplier rating system.
2. Procurement teams are working towards sourcing from eco-friendly suppliers, and logistics managers are focussing on using more sustainable transport options for transportation and reducing emissions.
3. It is crucial to ensure that all aspects of the supply chain, including packaging and storing methods, are sustainable. By doing so, companies are able to unlock a strong authority in determining their ESG footprint and contribute to creating a better future for the planet.

In 2021, Unilever reported that 53% of its plastic packaging was reusable, recyclable, or compostable, and the firm successfully recycled 633,344 tons of waste out of a total 658,665 tons generated within the same year.

This shift towards sustainability requires a collaborative effort among all stakeholders involved in the supply chain management process. By prioritizing ESG initiatives in procurement and logistics, procurement officers help ensure businesses become more responsible and gain a competitive edge in the market.