The Future of Procurement as we move towards 2030 and beyond

By Dave Jones, Procurement leader and founder of Proctopus, the online Procurement networking community
 
It is a challenging but fascinating time for procurement.
 
Much focus has been on supplier relationships, and conversations have changed from cost-based to how organisations can actually get products! There was, and still is, the effects of Covid, the tensions in the Ukraine, not to mention the previous problem with the Suez Canal, where 12% of the world’s trade passes through.
The Future of Procurement as we move towards 2030 and beyond


More recently we have had huge inflation, which is a fascinating challenge as most of us working in procurement have never lived through such a huge inflationary period. We have to get our teams ready for dealing with this, along with the additional labour challenges. With the additional challenges of Brexit it is a very interesting time as our employers increasingly need us to drive things forward. It has been vital to get people used to an environment that is volatile, uncertain, complex and often ambiguous.

Procurement is now at the forefront of business decisions, and forward-thinking procurement professionals need expertise, category knowledge, and a robust view of what’s going on in the market. So not just budget control and cost savings but value creation and relationships.
 


Trends influencing procurement

There are four key trends that are influencing procurement:

  • ESG - sustainability, social values and the circular economy.
  • Availability and securing supply
  • Digital transformation, acceleration and automation
  • Talent - not just in terms of retaining and developing your own talent but also attracting talent.
If we take the circular economy, procurement sits right at the centre. We’ve got customers that are demanding more and spending their money with ethical companies.

There is a need to identify ethical supply chains in terms of modern slavery, sustainable products and minimising carbon counts. The need to be working extremely closely with suppliers to influence this ESG agenda is really one of the main trends that is going to influence procurement over the coming few years. This is proven by the number of CFOs that are talking about ESG in their quarterly calls. Investors now know that consumers are moving in this direction, so companies with strong ESG credentials can deliver really powerful returns for investors. The triple bottom line - people, planet and profit - was borne from this. Where, historically, procurement focused predominantly on profit/quality, this is no longer enough.

Increasingly, the magic of procurement is balancing the three elements of the triple bottom line. Not only do you need to find products that are profitable and of high quality, you also need to find products that are good for the planet and also have a positive impact on society as a whole.

A few years ago, Vodafone said that 20% of their tender selection criteria will be based on purpose environment, sustainability, diversity and inclusion. This is an excellent aspiration but remember to be realistic with your goals. Don’t make promises that you can’t fulfil. Nationwide Building Society developed procurement for mutual good, following a brainstorming session internally where they thought about the areas that they could influence. They decided to focus on climate change, and they’re working with someone called Carbon Intelligence and Ecovardis to support their supply base. They’ve tasked all their larger suppliers with working on a carbon reduction plan.

Remember to:
  • Set the scene - have a look at your company's annual report. Does it mention sustainability? Has it committed to a carbon zero target within a particular time? Has it committed to any social value metrics? Develop the vision and aspiration for it - identify quick, visible wins. Start somewhere that is achievable
  • Prioritise and plan – have a brainstorming session with your team and key stakeholders. Focus on actions that will have the most significant impact on the sustainability agenda with the lowest effort. Build some success metrics.
  • Get started - before your stakeholders internally ask you to! Get ahead of the curve because this is one of the key trends that will continue to evolve procurement as we go forwards.

The next consideration is availability and securing supply.

This is a huge issue for procurement and businesses. For example, at the beginning of the pandemic, car manufacturers decided to stop ordering components because they weren’t selling any cars. In parallel to this, the consumer electronics industry boomed as people needed laptops extremely quickly. This meant that those factories that were manufacturing for cars started making more money out of the PCs and laptops. When demand for cars resurfaced, manufacturers really beat up the suppliers on component pricing, and they can no longer get the components they need because suppliers have moved into a more profitable industry.

But this also allows procurement to broaden its role. The focus is no longer just on savings, it’s about adding value – starting with getting the product – and on mitigating inflationary increases. For many years we’ve had very, very low inflation rates - we had price rises but typically these were eased before we’d have priced-based pressures. But what you’ve got now is a really vicious circle which is going to be around for quite a while. You’ve also got people demanding wage increases. Prices are going up everywhere.

Look at your forecasting. What have you got? What are you looking to buy over the coming year or so? Can you bring any of it forward? Would it make sense to bring forward deliveries? Can you use air rather than the sea? From a risk perspective, you’ve got to assess the risk of your spending from an availability and inflation point of view. Identify those with high spending and a high risk of availability/influence. Look at those high-risk contracts, what is the ability of the suppliers to increase cost in those contracts? And can you do forward ordering deals with them, etc.? Review historical contract increases. By identifying those high-risk areas, you can mitigate them before it’s too late. Work with suppliers on lead times and advanced ordering. Consider potentially expanding your supply base too. What are the areas that you can influence in your control? And how can you address them to keep your business going?

So, work more closely than you ever have before with business partners - it’s a great opportunity to get closely involved in planning and risk assessments. Have you got strong forecasting? Can you plug into one of the risk and supply chain visibility products out there? Really deepen relationships with your critical suppliers - but also widen your supply base because if you’re reliant on one geography or one supplier, you will have a risk if that supplier can’t supply anymore.  

You’ll hear a lot about digital transformation if you haven’t already, as it’s going to have a huge impact on procurement. Technology is being applied to procurement, and many tasks we do can now be automated using existing technology. For example, running tender processes, reviewing contracts, invoice scanning, and invoice matching can all be automated. But the power is about joining machines and humans together to free up procurement professionals to add more value. If we don’t automate, and we don’t have digital systems in place, there is an increased risk of maverick buying – a challenge from a cost, process, risk and compliance perspective! Manual processes create bottlenecks and paperwork. The systems and tools that Proactis, and other providers offer automate and streamline many procurement tasks.

There is also the data management aspect of digitisation. Managing spend data is certainly no longer as challenging as it was. We’ve got robotics and automation coming into play. Technology provides more insight to our end stakeholders, as well as allowing us to move from being reactive to proactive. We can create data hubs and be the centre of data that’s needed for dealing with, for example, inflationary challenges, availability challenges, and the sustainability agenda.

As a procurement function we need to understand how any technology can add value. We’re likely to be implementing it ourselves nowadays, and we need involvement from the whole team so users understand how to get value from the systems. So, have a look at your processes, end to end. What are your pain points? What are the problems and assurance gaps that you’ve got in your current strategy? Work with finance and other functions on better reporting and analysis. You could also work with experts such as Proactis to identify and automate processes. And if your whole team can be digitally literate and think about driving inefficiency out, you will deliver more value to your organisations.
 

Finally, we must not forget that people and talent underpin procurement. Without good people, organisations will fail. But there is a challenge now. We hear about the great resignation, about the challenges of retaining good people and recruiting new people. Much of this is driven by the changing skillset of procurement. While we can establish some of the skills that procurement functions are going to need in the future, many of the people that are currently working in procurement don’t have those skills, so they either need to be retrained or coached.

As a function, we need to have people who can influence and have presence with the new agenda. We’ve got to really help our team with learning and development because traditional procurement skills, such as leading a tender process, are not as relevant anymore. It’s now about data and digital. We need people that really understand the data, and decisions that are made on the triple bottom line.

To attract forward a forward-thinking procurement professional, strong and clear career paths are required. This is what they’re looking for, an organisation that is socially conscious and has a real purpose. People won’t work for organisations that don’t. You’ve got to get the balance of old ways, new ways and future ways. For example, demanding that people come into the office is no longer acceptable, but the office needs to be there for people that want to be in the office. It’s a tricky balancing act to get right.

You also need to invest in digital because if you don’t, your best people will leave. People expect modern systems in their workplace and want to be working with digitally powered procurement teams. They don’t want to be doing the manual procurement tasks of old. For your current team, have a look at your gaps. Assess your team against the skills increasingly needed in procurement and your vision.

With the complexities of this volatile world we’re working in, organisations need procurement more than ever before. We would welcome the opportunity to discuss this further with you.