What Other Business Leaders Really Think About Procurement
Significant supply chain disruptions to production are now predicted every 3.7 years on average. While it’s a troubling outlook, it’s also a trend that is pushing other department leaders to really reevaluate procurement’s role in the business.
In fact, a recent Economist Impact survey of 500 C-suite executives validates this shift in perspective, revealing that a majority of executives now view procurement less as a transactional function and more as a strategic partner vital to business resilience. As one executive noted, “Procurement is no longer about getting the lowest price; it’s about ensuring our supply chain can withstand unexpected shocks.”.
Let’s draw on the survey to explore this changing dynamic, and what it all means for you, the modern procurement professional.
The Challenge and Opportunities
Procurement leaders know all too well the inner workings and objectives of supply chain management, and how their activities radically contribute to an organisation’s success. Yet gaining recognition within the organisational hierarchy has been an uphill battle. Despite managing 20-40% of annual revenue through suppliers and service providers, procurement typically receives less than 1% of budget allocation. The disconnect between procurement’s value and its perceived importance has stubbornly persisted.
But then along came some pretty big global events – like the pandemic, the US-China trade war and the Russian invasion of Ukraine. These events quickly exposed vulnerabilities in supply chains and highlighted the need for procurement strategies that can adapt to sudden changes. Or as one executive put it: “Procurement is our first line of defence against disruptions that could jeopardise our business.“.
Government policies like the US Inflation Reduction Act and the European Green Deal added even more complexity. This required adjustments in sourcing strategies and deeper engagement with suppliers to meet these new standards. Procurement was the obvious vehicle to facilitate these changes.
Refreshingly, the survey backs up this shift. Over 70% of executives now view procurement as a strategic partner rather than just a transactional function. And 65% believe that procurement plays a critical role in driving business resilience amid global disruptions. When it comes to involvement in sustainability initiatives, 60% acknowledge that procurement is essential for meeting Environmental, Social, and Governance (ESG) goals.
It’s great to learn that executives are recognising that effective procurement is not just about cost savings but also about contributing to the organisation’s overall agility and competitiveness. But as C-suite leaders’ perception changes, what exactly are the new roles being assigned to the procurement function?
Enhanced Risk Management
With significant supply chain disruptions on the rise, 68% of executives expect procurement to proactively identify and mitigate risks. They are calling for procurement teams to develop strategies that can withstand geopolitical tensions, pandemics, and other unforeseen events.
Driving sustainability initiatives
As ESG considerations become more critical, 62% of executives say they are looking to procurement to source from suppliers who meet stringent environmental and social standards. Procurement is expected to ensure that the supply chain aligns with the company’s sustainability commitments.
Fostering innovation
55% of leaders see procurement as a catalyst for innovation. Executives expect procurement professionals to collaborate with suppliers on developing new products, services, and processes that can give the company a competitive edge.
Leveraging technology and data analytics
59% of executives expect procurement to adopt advanced technologies. Looking ahead, procurement must stay ahead of emerging trends such as increased automation, sustainable sourcing, and greater emphasis on circular economy practices. They should also be considering utilising data analytics for better supplier management, incorporating AI for forecasting, and using blockchain for enhanced transparency. Anticipating and acting on these trends shows procurement professional’s ability to innovate and adapt their strategies.
Improving supplier relationships
Executives are emphasising the importance of strong supplier partnerships. They expect procurement to nurture these relationships to ensure reliability, foster innovation, and negotiate better terms.
Bridging the CFO / CPO divide
CFOs are prioritising cost management more intensely, with 46% emphasising it compared to the survey average of 35.8%. This indicates a potential mismatch in expectations between CFOs and procurement leaders. Addressing this gap requires procurement to build better communication and collaboration between departments to ensure aligned financial and procurement goals.
Building skills and capabilities
As procurement’s role expands, so too does the need for specialised skills. Executives expect procurement professionals to be adept in areas such as data analytics, strategic sourcing, and sustainability. This, in turn, requires investment in training and development programs that will equip procurement teams with the skills to meet these evolving demands and contribute effectively to the organisation’s strategic objectives.
Addressing regulatory compliance and governance
Navigating complex government policies – like the US Inflation Reduction Act and the European Green Deal – requires procurement teams to stay informed and agile. Ensuring compliance with these regulations will help avoid legal pitfalls while supporting the organisation’s sustainability and ethical goals. Procurement leaders should be prioritising the implementation of robust governance frameworks to get ahead on top of these responsibilities.
The Time to Act is Now
Even though the survey results reveal that executives have confidence in procurement’s abilities, this alone won’t ensure that companies will enhance their procurement practices or fully utilise procurement during crises. In fact, results from the survey indicate that organisations need to dedicate more attention and take proactive steps to evolve their procurement departments.
Now, more than ever, is the time for procurement to step up and speak out, and ensure that procurement strategies are closely aligned with organisational goals and that the function delivers enhanced value.
