A little different this month, rather than go through multiple reports, I’m summarising a major piece of research that SAP has commissioned, with the Economist Impact.
This survey asked over 2,000 respondents at a C Suite level about their views on the current and future state of procurement and external workforce and the results were fascinating.
The full report will be available in early June, together with an interactive barometer of confidence in the procurement function and dynamic infographic. You can access this here.
In this blog, ill summarise at the top level, but we also have data country by country, region by region and industry by industry at statistically significant levels and I look forward to sharing more with you all throughout the year.
Demographics
As indicated this report surveyed over 2,000 (2,307) C Suite practitioners, including Chief Procurement Officers (CPO), Chief Financial Officers (CFO), Chief Supply Chain Officers (CSCO), Chief Operations Officers (COO), Chief HR Officers (CHRO) and Chief Innovation Officers (CIO). We also expanded form last year and included responses from the Nordics and Mid East building on responses from North and Latin America, Europe, and Asia Pacific. We covered 12 industries, Industrial manufacturing, Consumer goods, Chemicals, Financial services (excluding banking), Life sciences, Automotive, Oil and gas, Banking, Public sector, High technology, Mill products, Aerospace and defence.
This, then is one of the (if not the actual) largest procurement studies in the world.
Procurement Confidence and Operational Trends
You may remember from last years report, that although the insights that procurement provided to the business were seen as critical, procurements ability to collaborate with the rest of the business was a problem.
The good news this year is that both the insights and collaboration numbers have improved!
Collaboration this year is at 75% state that procurement collaborates well, this is up from 53%, and 84% state that the insights are essential for org strategy (up from 70%). The issue we have is how well these insights are applied which is at 64% showing a 20% delta between value and delivery.
The other area of concern is the way that procurement manages external risk (ie suppliers, markets etc). Concerningly, this has reduced from 62% last year to only 41% this year. When thinking why, its clear that the amount of disruption over the past few years, specifically the last 12-18 months with the monetary uncertainty is driving this. (it was identified as the biggest reason why priorities may change).
The other move is the confidence in procurements ability to deliver against ESG objectives. This has risen significantly this year from 49% last year to 68% this year. Its worth keeping this in mind when we look at the movements in strategic priorities.
“Rather than increasing the spending it directly manages, procurement’s objective should be guiding and advising the business on how it should be buying things.” Phil Ideson – Art of Procurment
This year we returned to look at reporting lines and operating models. Continuing the trend we see that 44% of procurement teams now report through to the COO moving further away from the CFO at 23%). This represents the broadening of procurements value delivery away from being purely cost management, to include risk, sustainability, and quality. Operating models move as well, with 32% showing a COE and 28% being centre led which complement each other well. Only 4% now show completely centralised, possibly a reason why the collaboration score has improved.
Strategic Priorities
The report goes into significant more detail about the evolving priorities, but the headline is that overwhelmingly the top strategic priority for the next 12 – 18 months is to fast track the digitalisation initiatives for the procurement. Why – The top 2 drivers of digitalisation were identified as spend analysis (continuing from last year where it was also number 1) and developing an AI strategy for procurement. Clearly you can access the power of AI without being digital, so driving this digital initiative is critical for companies wanting to access AI.
The second short term priority is Sustainability. Previous years have shown that there was a disconnect in terms of priority between the rest of the C Suite and CPO. CPO have always had It in the top 3 however the rest of the c suite didn’t have it as high for procurement. This has changed this year potentially driven by the increase in confidence in procurement to deliver ESG strategies. Ill go into more detail on Sustainability in the section below.
Longer term whilst sustainability maintains its position as number 2 strategic priority for the 3-5 years the top priority is for Supplier Diversification. In fact, 1, 3 & 5 priorities are all risk focussed aimed at heading off the disruption caused by the over reliance on single sources of supply. Diversification, Multisource and re/nearshoring were identified as the longer-term priorities of procurement, clearly showing the longer-term nature of these objectives.
Technology & Digitalisation
As mentioned above, digitalisation is the top strategic priority for the next 12-18 months accrding to 57% of respondents and the top 2 drivers (tied at 44%) were Spend Analytics (for the second straight year) and joined this year by the adoption of an AI (not just Gen AI but total AI).
So, we asked what companies wanted from AI, and the answers show that the biggest improvements expected were the automation of procurement processes at 48% and better guidance and optimisation at 45%. We asked a similar question last year and the answers largely correlate as it was about generating greater efficiency.
User experience, & Category management were again present in the top 4 drivers of digitalisation, continuing this trend of the last 3 years.
We again took the latest trends identified by the Gartner hype cycles innovation trigger and this may shock you but apparently gen AI may be a thing!
It was identified by 34% as the top tech trend that was planned to be piloted or implemented in the next 12-18 months followed by Intake management and following the trend of the last couple of years category management.
Risk & Sustainability
Uncertainty is driving the risk management within companies and impacting the strategic priorities. Over 70% identified macroeconomic and legal/regulations as the top 2 factors that could impact the strategic priorities of organisations.
When looking specifically at organisational risks for procurement to focus on, similar to last year Supply Chain Visibility (the number 1 last year) is high on the priority list as the 2nd highest priority. Uncertainty comes through again though, as the top area is monetary uncertainty (ie inflation) with 49% of respondents identifying this as the critical focus area. Geopolitics is at 3rd with 34% of respondents identifying this.
We found that many teams did not have a clear grasp of the supplier risk they carried, some worked with a single, reliable supplier [of key inputs] for 20 or so years but were suddenly presented with steep price increases or delivery cutbacks due to the supplier’s capacity constraints. Businesses have been disrupted as a result.” Roman Belotserkovskiy, partner, McKinsey & Company
Sustainability continues its importance as the 4th highest area of concern for risk, which coupled with the 2nd position in strategic priorities really cements its importance for procurement leaders to focus on.
Within sustainability two areas come through as high priorities.
Compliance to legislation and carbon reduction (scope 1 & 2) both were identified as the top priorities by 39% of respondents with waste reduction 3rd with 32%.
External Workforce
Over ¾ of respondents identified that they spent 5-15% of TOTAL organisation spend on contingent labour. This was a fascinating statistic revealing the size of the contingent labor community maybe higher than previously thought.
Previous studies have identified the reasons why were cost reduction, flexibility and risk reduction. This year we dug into the risk area a little, and the 53% identified the top risk that was reduced by the use of contingent labor (and service providers) were fewer legal and financial obligations, with short term talent gaps being the 2nd highest answer (36%).
Interestingly the size of the 3rd party service provider is estimated to be the same with 2/3 identifying total spend being 5-15% for 3rd party service providers, which when coupled with a previous Art of Procurement Services study showing that 50% used phone calls or emails to manage this provides some alarm!
Overall, the report identified 50,000 data points so way too much to share here, however I look forward to sharing more with you throughout the year either at events or through other blogs, and social media activities and please do download the report, it is a fascinating read and goes into some more detail than I’ve shared here.
As always reach out to discuss more, and always happy to hear your thoughts!
