10 Procurement Priorities for 2022
By Peter Smith, Managing Director at Procurement Excellence Ltd. and former Managing Editor at 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 organizations 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 organizations are swinging away from some major business trends of the last 20 or 30 years. To address vulnerabilities, through 2022 many organizations will be increasing stock levels, relying less on “just in time” supply approaches, insourcing rather than outsourcing services, and focussing 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 organizations 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 labor or business travel. In all cases, Procurement will need to work with other internal stakeholders to make such initiatives successful.