By Peter Smith, Business Author, Managing Director at Procurement Excellence Ltd, former Managing Editor, Spend Matters UK/Europe.
In my recent webinar for Proactis, 10 Procurement Priorities for 2022, I discussed the factors that are set to make 2022 particularly challenging for Procurement professionals and functions. Most of us would have settled for avoiding the “challenges” of Covid over the last two years, that’s for sure, but with challenges come positive opportunities.
Covid has actually brought some rather unexpected consequences, which I discussed in in my webinar. As we entered the first lockdown in early 2020, most business experts thought that we would see an economic slump, which would lead to deflation, unemployment and perhaps a house price crash. Well, they were very wrong. Whilst there were negative consequences for many individuals, we have seen inflation rising quite rapidly, shortages of many key raw materials, supply chain bottlenecks, energy (and house) prices shooting up, and even labour shortages in certain key areas and countries.
So, procurement in 2022 will need to focus strongly on what we might call the fundamentals of our role. Assuring supply of goods and services for our organisations is absolutely key of course, and that means looking at risk and resilience in our supply chains, taking both a short and a longer-term perspective. One consequence of that is how organisations are swinging away from some major business trends of the last 20 or 30 years. To address vulnerabilities, through 2022 many organisations will be increasing stock levels, relying less on “just in time” supply approaches, insourcing rather than outsourcing services, and focusing on local suppliers rather than global low-cost country sourcing.
The other fundamental role for procurement that will come under challenge in 2022 is cost management. Many professionals have never experienced inflation running at around 7% overall as it will be in early 2022 – and it will be much higher in certain spend areas. Resisting supplier demands for price increases has been relatively easy through the years of very low inflation, but it will be harder in 2022. That is going to test negotiation skills, and drive the need to look analytically at your BATNA (best alternative to a negotiated agreement) y to prepare for those potentially tough sessions with suppliers who are demanding 10%, 20%,or even greater price increases.
But, where price increases are inevitable, there are other approaches that can help organisations preserve value. Procurement can work with internal stakeholders to implement demand management measures. That might be as simple as extending the life of equipment or repairing rather than buying new. Or it might mean putting controls and “gates” in place to manage expenditure more tightly in areas such as consulting services, temporary labour or business travel. In all cases, Procurement will need to work with other internal stakeholders to make such initiatives successful.
The same applies to managing specifications to offset inflationary pressures. It may be possible to move to more cost-effective specification to avoid price increases, but be careful you are not degrading your final product or service in terms of what you offer your own customers. Suppliers can often help in this – asking them what could be done in terms of specification that allows them to offer you a better deal can bring surprisingly positive results.
The challenge for Procurement will be to make sure these fundamental tasks and roles are delivered successfully, without losing sight of the more strategic aspects of our role. For instance, the focus on sustainability and “procurement with purpose” is only going to increase through 2022. This is something you can learn more about in my a recent session I delivered at the Proactis ReThink conference – available on demand here.
Procurement simply cannot succeed and deliver this agenda without the right technology. That doesn’t necessarily mean the absolute latest, whizziest “AI-enabled” platform, but if you don’t have the right basic support in place across P2P, sourcing, supplier management, risk and contract management, then you need to address this as a priority in 2022.
Finally, as the” war for talent” continues, doing what you can to make your organisation as attractive a place as possible for the best and brightest professionals will be key. That’s not just about money, other factors such as providing opportunities for personal growth and development come into play as people make career decisions.
So good luck to everybody, let’s just hope 2022 is the year we come through the worst of Covid, and procurement continues to demonstrate its value to our organisations.