Low-sulphur fuel regulations could cost customers up to $40bn in extra transport costs © Getty Images
Low-sulphur fuel regulations could cost customers up to $40bn in extra transport costs © Getty Images

Tech will create 'new procurement ecosystem'

A “new procurement ecosystem” will emerge as technology becomes more involved in the function, according to a report.

GEP’s 2020 Outlook predicts that through a combination of secure, cloud-powered technology solutions and the introduction of artificial intelligence and automation, manual and time-consuming activities can be streamlined and improved.

Procurement will soon be able to completely track profit and loss within organisations, meaning that as budgets are created, procurement will connect directly into a company’s financial planning and analysis processes.

“A new procurement ecosystem will emerge as companies increasingly depend upon suppliers for data risk management, innovation to drive revenue and broader industry alliances. This will require companies to modernise the way they do supplier segmentation, among other things,” said the report.

“Supplier management should no longer be an exercise linked only to sourcing and contract timelines. With a new ecosystem of companies and new technologies to power interactions, procurement can continue to transform its role and purpose from transactional to strategic.”

The report said a tendency over recent years to outsource non-critical functional activities to low-cost country providers and other third-party solutions will lead to risk management becoming an increasingly dispersed and problematic area.

However it adds that procurement can play a major role in introducing technology to bring this under control.

While analytics has been a buzzword for the last decade, with many companies investing in data systems and analysis teams without receiving real insights, predictive analytics is likely to make a far bigger difference to the field.

Pointing to wider trends that will affect procurement, the report said global energy costs are growing at an average rate of 1.2% per year, down from over 2% per annum in the previous two decades, thanks to slower population growth and faster improvements in energy intensity.

The share of electricity in total energy use is expected to increase to almost 50% by 2050, up from 20% today.

The renewable power sector is increasingly attractive as a source of energy in transport, buildings and industry, with predictions that by 2050 the cost of solar photovoltaic technology will fall by 50% and wind power by 40%.

Meanwhile a growing number of business leaders consider regulatory and environmental impact to be a key element of their business strategy for performance improvement.

The study cited Unilever’s belief that the successful delivery of the UN’s Sustainable Development Goals (SDGs) will create market opportunities of at least $12tn a year.

Last year saw the introduction and tightening of multiple regulatory environmental requirements across the world that could impact procurement.

For example China, the world’s biggest steel producer, ordered mills in key regions to meet ultra-low emission standards by 2020, affecting 60% of the steel capacity in the country. Dozens of new environmental laws and guidelines have been issued in the US.

Meanwhile, the International Maritime Organization’s low-sulphur fuel regulation for shipping (IMO 2020) came into effect at the beginning of the year and could cost customers up to $40bn in increased transportation costs.

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