This article was originally published on Spend Matters.
Continuing our market predictions for 2021, let’s look at what intelligent sourcing platform Fairmarkit foresees, from Co-founder & CEO Kevin Frechette.
Procurement takes the driver’s seat
The pandemic was barely a few months old when business leaders began to realize that the crisis would have a more profound impact on the economy than initially expected. Along with minimizing costs, procurement teams have always played a role in mitigating risk. In 2020, they did both at a much higher level as logistics broke down and lockdowns wore on. Even after the pandemic is behind us, this will continue.
Risk mitigation will become increasingly central as the types and extent of risk continue — supply interruptions or discontinuities, critical technology failures, cyber-attacks and vendor fraud. Teams will need to develop innovative ways to help their businesses survive and thrive through better sourcing, purchasing and negotiation. As more organizations push for enterprise digital transformations, better technology for risk management will become a higher priority.
Get ready for more robust supply chains
A November survey by Deloitte made one thing clear: The old ways don’t work in a time of crisis. For decades, companies have focused on reducing their supply base and cost-cutting while streamlining the procurement strategy. But with few suppliers and small inventories, many organizations simply couldn’t react swiftly or confidently enough during the pandemic. Instead, they ran out of stock and failed to meet customer demand.
One of the most significant threats to any organization today has become logistics and supply disruption. A primary lesson learned in 2020 was that relying too heavily on a small number of vendors can be crippling. As a result, senior managers will continue to look hard at sourcing, purchasing and inventory.
A renewed focus on supply chains will require procurement teams to rethink their fundamental role. They will need to consider more local options and a digital transformation strategy to detect risks and inform decision-making. The agility of procurement will become key to the organization’s success.
Digital transformation will become table stakes
Companies still using paper-based acquisition and invoicing systems suffered greatly during the pandemic. If they couldn’t find their suppliers’ order records or contact details, even the smallest tremor of a problem could turn into an earthquake. But even moderately digitized procurement teams often encountered challenges if they didn’t also have transparency and analytics built into their systems. Pinpoint information on orders and digital tools for managing spend (including tail spend) became vital for businesses plotting a course through lockdowns and supply-chain disruption.
In the post-pandemic world, digitization will become almost mandatory — a penny-ante that simply gets you a seat at the table. Digital transformation technologies will need to include more than just online purchasing portals. Automation technology for reporting, artificial intelligence for analysis and cloud-based record-keeping that can be accessed anywhere will all be must-have technologies going forward.
Supplier diversity programs will become business-critical
We believe a large part of de-risking your supply chain is diversifying your providers. Geographic diversity is a vital method for protecting against logistical disruptions. But also important is the range of partners on the roster. Supplier diversity — adding minority- and women-owned businesses to your supplier base — has become crucial to a company’s ability to survive major disruptions. And as the Black Lives Matter movement brought prominence to systemic racism, the need for greater supplier diversity has become a focus for business leaders. Procurement teams should lead the way in these initiatives.
Procurement teams will require closer relationships with partners
According to the Deloitte survey, six months into the pandemic, only half of all procurement leaders had high or very high visibility into their largest (Tier 1) suppliers. And a vast majority (90%) rated supply network visibility as moderateto very low. A deeper knowledge of your vendors will be critical for survival in the future. The C-suite will expect procurement teams to have a more comprehensive understanding of relationship risks and to work with partners to find solutions to unexpected disruptions. Sharing information up and down the supply chain will become a crucial way to enhance transparency and anticipate future problems.
Procurement leaders will require a broader skill set
In 2019, research group Gartner forecast that by 2021, most procurement staff will need additional business, digital and analytical skills to “realize business innovation and growth.” They probably didn’t realize just how true that statement would be. Guiding purchasing and inventory operations through the pandemic required strong interpersonal and communication skills. Teams needed to deal with external suppliers and communicate strategy to internal stakeholders.
Atop the list of new skills needed for a post-coronavirus world will be relationship management. But that’s not to belittle technical savvy. Organizations will expect their procurement departments to master a host of new technology and become experts on and leading advocates for digital innovation. This will include process automation, machine learning and AI, scenario planning and data-based analysis. Professionals with these skills will be in high demand.
Process becomes paramount for risk mitigation and smooth operations
Repatriating supply chains — a trend initiated in response to the disruption caused by the pandemic — will continue into 2021 as organizations aim to lessen supply and logistical risks. At the same time, buyers are looking for more visibility and control over sourcing. This year, lean, just-in-time inventory strategies became a liability rather than an asset. Against this backdrop, CPOs are rethinking their operations, aiming to streamline the purchasing process and putting the decision-making power into buyers’ hands across the organization. This won’t mean relinquishing responsibility or letting other departments do whatever they want. Instead, the trend will be to eliminate some of the bureaucracy by using technology and purchasing templates to empower people to run more sourcing events themselves.
It will also mean reassessing what spend is essential for Procurement to manage. We may have to revisit the age-old Pareto Principle — that 80% of your expenditure will likely come from 20% of your purchases. In 2020, things that don’t make it into most people’s 20%, like PPE for instance, were top-of-mind for many companies. To better manage risk, the 20% becomes nearly 95% of your spend. And that means dramatically rethinking your process.
To succeed in 2021, discussions about processes, measures and budgets must be happening now, so that teams can be proactive in their engagement models with the rest of the organization.
Platforms will inherit the procurement ecosystem
In the next few years, machine learning, big data analytics and robotic process automation are likely to transform every facet of business. And procurement will not be immune. Platforms that utilize these technologies are not only here to stay, they’re going to disrupt the current ecosystem.
Thanks to technology, activity reports that once took a day can now take an hour without sacrificing quality. Evaluating 1,600 suppliers takes the same amount of time as evaluating six. The intelligence behind these systems is improving, and decisions are becoming more automated and more data-driven. Platforms allow teams to get more done in less time.
Procurement teams will retrain and retool
As processes improve and platforms are rolled out, top of the talent list will be people who can best use these new tools. Yet operating budgets are likely to be less in 2021, and staff will be leaner. Hitting the business’s goals under these conditions will be a crucial challenge, and without the proper skills and talent, your team might not be up to the task. In this environment, data analytics and dashboard building will become important competencies. These new aptitudes don’t necessarily require fresh staff. They are teachable. With the right training, CPOs will find they can take their existing talent pools to deliver different outcomes for their organizations.
Enhanced people skills will also be needed. Work and business relationships in a remote working environment have taken on a significantly different nature during the pandemic and this is set to continue. Distributed workforces working from home have introduced a new paradigm. Procurement staff now collaborate with colleagues via Microsoft Teams, Zoom and WebEx. Staff members must be able to influence and persuade suppliers and negotiate contracts without the advantage of eye contact or body language.
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