Procurement Leaders Navigate Old Challenges, Embrace Change with a New Playbook

In the midst of a “perma-crisis” marked by persistent inflation, increasing regulations, geopolitical turmoil, and supply-chain disruptions, lies an opportunity for procurement leaders to redefine their strategies and thrive. 

That’s the genesis of a recent study conducted by Procurious in collaboration with Ivalua, where 185 procurement and supply chain leaders shed light on the pressures and transformations in their field. These challenges are reshaping the procurement landscape. More importantly, forward-thinking procurement leaders are rewriting their playbook to thrive in this “new normal.”

New Year, Old Pressures

Inflation has emerged as the most significant business pressure for procurement teams, with 93% of respondents feeling squeezed. Soaring prices are affecting industries from automotive and consumer electronics to food and beverage. The pressure to cut costs, increase savings, and drive efficiency gains across supply chains has never been more intense. While inflation may be receding (3.7% in the US in October 2023), businesses continue to grapple with increased spending on goods and services.

Surprisingly, sustainability expectations and regulations have surpassed supply-chain disruptions as the second-highest pressure for 2023, coming in at 66%. Environmental, social, and governance-related laws and regulations continue to pass at the state, national, regional, and international level, which puts increased pressure on procurement teams to drive environmentally and socially sustainable business practices and relationships. 

The Great Procurement Reset

The last few years have witnessed a significant transformation in the procurement landscape , which is pushing procurement teams to rethink their strategies. Key changes include moving from just-in-time inventory to building buffer stock, transitioning from single-sourcing and offshoring to multi-sourcing and reshoring, and focusing on local or near-shoring to fulfill sourcing requirements. This adaptability has earned procurement a seat at the C-suite table, with C-suite trust of procurement at an all-time high.

Procurement leaders continue to seek collaborative and innovative solutions to business pressures and challenges. These include collaborating more closely with suppliers, sourcing alternative suppliers that offer cost-effective solutions, and implementing technology-based solutions to lower labour costs and enhance efficiency.

Supplier-Based Strategies

Building trust with strategic suppliers remains essential vis-a-vis inflation. Unsurprisingly, 86% of procurement teams continue to take a collaborative approach with their suppliers to manage higher commodity costs. This includes aligning contracts with the intent of the relationship and specifying mutual goals – specifically:

• 39% are negotiating longer-term contracts with suppliers, 
• 38% are consolidating suppliers or spend categories, and 
• 37% are renegotiating contracts to reduce costs. 

Driving transparency into buyer-supplier relationships is a top strategy for supporting supplier development, with 63% of respondents endorsing this approach. This, however, raises concerns about cyber- security, data privacy, and intellectual property.

ESG Capabilities and Regulatory Compliance

Environmental, Social, and Governance (ESG)-related factors have become paramount in procurement, ranking as the second biggest pressure facing procurement teams (66%). More organisations are receiving requests for sustainable goods and services, and there are incentives for companies to deliver. 

For example, a 2022 joint-study conducted by Bain & Company and Verlinvest found that 70% of consumers are willing to pay a 10%-15% premium for sustainable fashion products. In 2023, a joint Bain-EcoVadis study found that highly rated natural resources, transportation, and industrial goods companies use more renewable energy and have a 3% higher EBIDTA margin over industry laggards.

Thus, more procurement teams are establishing their supply-chain sustainability programs, with 88% now having such programs. As they slowly mature these programs, many teams are struggling to achieve visibility into the sub-tier supply chain and address budget constraints.

The Procurement Workforce Nears its Breaking Point

The “great resignation” continues to impact the procurement workforce, with 58% of respondents feeling pressure from staff shortages and skills gaps. Of these, 47% reported a decrease in the size of their procurement teams. To combat these changes, procurement teams have been implementing flexible and hybrid work structures and restructuring their teams. It remains to be seen, however, whether these strategies and approaches are just band aids for a more complex and systemic problem.

Embracing Digital Transformation

Chief procurement officers and other business leaders continue to turn to technology to over- come these dynamic market conditions. They see technology as the most significant change in procurement, with 45% of leaders expecting this transformation. Specialised source-to-pay suites and platforms have been gaining traction, with 30% of leaders favouring them for their data access and seamless process flows.

The Main Takeaways

In the fast-paced world of procurement, adaptation is key. Procurement leaders must remain vigilant amidst continuous market challenges and supply-chain risks. To be a true procurement change-maker, they must aim to drive continuous improvement across their supply chains and supplier relationships, gain visibility as deeply and as widely as they can, and push the envelope on performance. The current environment, with its unprecedented volatility, uncertainty, and complexity, provides an opportunity for procurement teams to redefine their strategies and deliver value that exceeds stakeholder expectations.

The pressures and challenges facing procurement today are significant, but they also provide an opportunity for transformation and growth. By embracing change, building stronger supplier relationships, and investing in and leveraging more innovative technologies, procurement leaders can navigate the perma-crises and emerge as change-makers in their organisations. 

Remember: the “new procurement playbook” is about resilience, adaptability, and innovation in a world of constant change.

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