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Summary
The reports were good again this month!
Great range this month, from the importance (and challenges of AI) to the evolution of category management and the future direction of external workforce.
What is interesting is how well many of these reports tie into the economist research covered last month.
Gartner CPO E Book
This key issue guide from Gartner looks at 3 top issues impacting CPO and their teams. Namely
Gen AI – Where and when to prioritise investments.
Change Fatigue – Balance aspirations with frameworks to overcome fatigue.
Procurement Transformation – Faster than ever.
The prism that is used to describe the value v feasibility of the Gen AI opportunities is excellent, though id argue the feasibility is linked to maturity of the function and the tech stack,
I really like the visual showing how much more complex the procurement value proposition has become and linking this to the change framework is a useful idea.
And a nice stat to finish!
Chief Procurement Officers who design simplicity into procurement transformations enjoy a 42% increase in transformation success over those who don’t.
GEP AI Guide for procurement transformation
Continuing the AI theme this research covers insights into the importance of AI for competitive advantage.
After recently attending the world procurement congress many conversations centred around this topic, and how to prioritise, what are the benefits where are the constraints what are the positive and negative impacts, and where could it lead?
The research that in terms of adoption, the landscape is diverse across multiple stages of adoption from exploration, pilots and implementations, I think showcasing the newness and polarising views that many have.
Barriers have been written about previously, notably in a world commerce and contracting paper earlier this year however its interesting to note the consistency around data management, technology itself and cultural implications.
“Culture eats strategy for breakfast”.
Cultural resistance within organizations is a notable challenge, identified by 36% of professionals. Overcoming apprehension or reluctance towards AI adoption is essential for the successful integration of AI into procurement processes.
Much has also been written about automation and augmentation. This shows up again here with 42% identifying automation assistance as a key outcome, and the same number identifying augmentation (enhancement) as an outcome.
As identified In the barriers section data was a big barrier and the report has a readiness section on infrastructure, that again shows a very diffused readiness landscape. 26% working with basic digital systems that need an overhaul and 21% are starting at the beginning. Perhaps this is a key driver of the recent Economist Impact report that identified that Digitalisation was a top priority for procurement in the next 12-18 months.
Another big takeaway both from this report and also the events recently has been the AI Skill sets, and this is covered in this report identifying that 31% have some familiarity with AI and 19% have none. Skills and how to develop them, will be at the forefront of many procurement leaders’ agendas, as it has been for some time.
Kearny COO Report
This study is 2nd study done by Kearny into the COO’s. Reason I’m including is that it does give some valuable insights into organisations that procurement leaders will need to consider their alignment, and as pointed out by the recent Economist impact research, CPO now report into COO more than previously!
Some key takeaways:
Over 90% of respondents are prioritising ew customers and new channels to drive growth
51% of COO are targeting 5-7% cost savings in 2024 (and 22% targeting 8-9%)!
Cost still wins v risk but the gap is closing across 4 areas (Inventory, single sourcing, nearshoring, transportation)
70% (an increase over previous year) identified forming alliances with key existing suppliers as the top way to mitigation inflation.
AQPC Spend Analysis
AQPC have produced 2 pieces around spend analysis. Spend analysis was identified by the Economist as the top driver of digitalisation in procurement for the last 2 years so its worthwhile taking a look at this.
The current state document identifies that 43% of respondents indicated their classification is semi automate and 48% automated, and 47% report that their data cleanings is semi aut0omated and the same number fully automated. As per the GEP report earlier, 60% if respondents identified a significant or very significant impact of data quality on their outcomes, confirming the core essentiality of spend data.
The what to do about it article identifies steps to improve spend data quality, from standardisation of coding systems, to full automation of spend analysis and cleanliness
AQPC AP Benchmarks
The cross industry AP key benchmarks report was also released by AQPC this month and is a great resource to benchmark against. I have compared these v the SAP Ariba Benchmarks and (depending on your view on DPO) shows the improved performance that SAP can deliver v these benchmarks.
SIA Workforce Buyer Survey
This is an annual study, and ive compared this with last year as its interesting to not some of the changes.
In terms of who owns contingent labour programs, it has moved a little more toward being HR focused, compared to 2023 with 49% stating its HR compared with 46% last year. Procurement was selected 37%.
You may remember from last year we asked the same question in the Economist research for large enterprises it was 42/40 for HR and procurement. Overall (including mid-sized) it was 46/30, and whilst the SIA report doesn’t give org revenue sizes it does give contingent labour sizes and it is more skewed toward LE than mid-sized
Looking at the size of contingent labour again I show the comparison with last year which shows that if you look just at the SIA numbers, they are meeting what they said the previous year with 21% today, 22% in 2 years from 2023 and in 2024 today is at then 22% indicated to be hit in 2 years from last year.
Both have around 26/27% in 10 years’ time. These % represent the % of workforce that is contingent.
When we look at the Economist data, we see it as a % of org spend, and it shows that its between 5-15% of total org spend (including employee spend) and that is shared by 75% of 2300 respondents. To put that in perspective if an org spend is $1billion, then they will spend between 50 million and 150 million on their contingent workforce spend and according to SIA that number is growing every year.
So why is it growing?! What are the priorities for contingent workforce –
According to the report, reducing and controlling costs is the top answer and then implementing technology to manage (and deliver) those cost savings.
Within the Economist research we asked a similar question (with differing options) and the top answer from a contingent perspective was balancing internal and external workers and direct sourcing.
You can see the balancing twice in the priorities from the SIA report – Integrating into corporate planning and total talent management.
SIA reports on direct sourcing separately, and interesting in the Economist direct sourcing was identified by 62% of respondents as the top priority in the next 3-5 years (and 59% of CHRO) and you can see the expected growth in that area from 12% today, to 27% in 10 years’ time, suggesting that direct sourcing and talent networks will be more heavily relied upon in the future.
Category Management – Future Purchasing
This report is a biannual report into Category management which as you will know has consistently appeared in the Economist surveys as both a driver of digitation (4th this year) and as a top tech trend to be implemented in next 12 -18 months (top last year 4th this year).
The report is detailed, and has some interesting insights:
The trend for leaders and starters has been a reduction in their category management capability index scores (by 9% for leaders and 5% for improvers). This may be due to the sample of respondents, additional questions we have asked, or a slight removal of focus on category management while dealing with operational challenges, but there is an overall trend downwards of some outcomes.
- This year 86% said stakeholders didn’t know their role, 2 years ago it was 80%
- Ave savings rate fallen from 7.4 to 7.1%. But this is likely due to inflation.
- Ave spend per cat man is 101M Euro up from 73m Euro.
- Interesting that technical category management skills is the number one area to improve 2 years ago it was behavioural skills.
- 68% of value remains untapped.
The team at future purchasing have segmented their 300+ responses into an order based on outcomes generated and essentially this is the starters (majority of respondents at 74%), improvers the next 19% and leaders which are the top 7%
Early in the report is a summary of some key metrics:
Spend per supplier: Category management is often thought of as a mechanism to increase leverage through consolidation. It is notable that the spend per supplier for leaders of €1.06m is 5x that of starters and 3x that of improvers. This concentration of spend not only increases leverage but also allows increased intensity of SRM improvement activity with key suppliers — an additional source of value that leaders can access.
Spend per procurement team head: The efficiency of the leaders is demonstrated by the fact that €76m spend is managed per member of the procurement team, versus €34m for starters and €27m for improvers. This equates to 55% and 64% fewer resources for the spend managed — reducing the cost to procure. The drop-off in efficiency for improvers versus starters is consistent with previous surveys and may be due to the intensity which they are pursuing value delivery, i.e., effectiveness versus procurement team efficiency.
% of staff focused on category management: Leaders have a higher percentage of staff focused on category management than starters or improvers (43% vs 32% and 36%). Hence, they have more time to spend creating and actioning high quality category strategies, engaging stakeholders, and strategically managing suppliers.
Spend per category manager: Leaders’ category managers are responsible for €177m spend versus €106m for starters and €75m for improvers. This equates to 40% and 58% fewer category managers for the spend managed and reinforces the resource efficiency of leaders.
Looking at overall capability
HIGHEST SCORING CAPABILITY AREA
Across all maturity groups, CatMan strategy is the highest-scoring dimension, with an average of 3.2. This may be a result of Procurement being able to control most of the levers in this area.
LOWEST SCORING CAPABILITY AREA
Stakeholder engagement is the dimension with the joint lowest average score, at 2.7. Practices in this dimension are critical for procurement teams to influence, such as stakeholders having sufficient time for category management, making it a core business process for stakeholders, and category strategies being co-created with business stakeholders.
The joint lowest score is process & technology where even leaders show a considerable variation in the way that category management is deployed. Building a strong process and ensuring consistency of application through good governance and review can help significantly with quality, stakeholder communications, and adoption.
Interestingly process management was the 2nd highest response in improvements needed in category management for CPOs in the latest Economist research.
Ive pulled out three interesting stats from the tech section of the report:
86% of improvers (and 100% of leaders) include process change and supplier management, as well as sourcing in their implementation options versus 47% in our process, category of starters, showing that as organisations become more mature their strategic options expand away from just sourcing.
34% of improvers (and 50% of leaders) use a digitalised category management process & toolkit versus 8% of starters.
14% of improvers (and 20% of leaders) have a category management process and toolkit that uses artificial intelligence to recommend value levers versus 5% our category management of starters.
As always reach out to discuss more, and always happy to hear your thoughts!
