The continued evolution of procurement means the function is gaining even greater credibility with stakeholders and the business.
With that comes greater responsibilities and several more challenges. Cost-saving targets are not going to disappear, they must be achieved, but procurement’s value is essentially realised by working on projects that deliver additional benefits beyond monetary savings.
In January 2021, more than 100 CASME members participated in a poll aimed at determining the hot topics and challenges currently facing procurement. The poll results showed a consistent pattern in the responses from procurement teams located in different geographic regions and working in a range of industry sectors – proving that similar challenges impact all organisations.
First published in 2017, and read by over 100,000 procurement professionals on Supply Management, The top six challenges facing procurement article has been updated for 2021 with some new entrants and some familiar responses.
1. Pandemic initiatives
Procurement has gained significant credibility in the way it has managed sourcing, supply chains, stakeholders, and suppliers during the pandemic. It is now time to revisit all category strategies and update them to reflect the changes that have taken place.
2. Risk management
The pandemic has highlighted the inadequacies of previous risk management activities. The focus now needs to be on a broader scope of risks. The top five concerns are:
- Financial stability of critical and high-spend suppliers
- Issues that may cause reputational damage concerns
- Breaches of GDPR and other data protection/security regulations
- Supply chain certainty
- Bribery and corruption.
Sustainability concerns have evolved into an increasing global interest in issues of economic, social and corporate governance (ESG). The top five issues are:
- Ethical and sustainable sourcing
- Prevention of bribery and corruption
- Human capital practices including modern day slavery
- Reduction of energy and water use
- Reduction of CO2 emissions.
Diversity has been a hot topic in the US for some time, but more recently it is finding its way onto the agenda in the Europe and APAC regions. Procurement is supporting the business by establishing a level playing field for diverse suppliers to compete with other suppliers. This encourages innovation into the business. The current challenge is identifying those suppliers who meet the diversity criteria, particularly when there is no mandatory policy for suppliers to identify their diverse status within company reports and accounts, or other publicly-available business documents.
5. Working capital
Many organisations are adapting their policies for payment terms so agreements are optimised with suppliers. Rather than lengthening payment terms, options for supply chain financing and implementing an invoice discounting process are being negotiated. It is important to protect the supply base to ensure continuous trading. Resolving and agreeing terms through careful relationship management remains the most effective approach when seeking to maintain working capital.
By building relationships with suppliers, procurement has a unique external perspective to tease out and encourage innovation. Some organisations have begun to implement a reduced or ‘lite’ version of their terms and conditions, which is more suitable for encouraging start-up suppliers in the market.
To embed innovation in the procurement process, action can be taken in the following four areas:
- Organisational alignment throughout the procurement process
- Early market engagement, with action that is transparent, honest and fair, as well as clear instructions on how to manage information, communication and intellectual property
- Early supplier engagement at the sourcing stage, building on information gained from the early market engagement activity
- Innovation support activities: pilot projects, inducements and rewards, risk sharing, briefings/seminars/workshops, and unsolicited proposals.
7. Digitalisation projects
After building credibility during the pandemic, now is a good time to justify investment in systems and tools to improve efficiency. Organisations are investing in:
- Cloud-based applications
- Systems that sit on top of company ERP platforms to cover risk, supplier relationship management and other procurement-specific requirements
- Robotic process automation
- Data visualisation tools
- Catalogues to manage tail spend.
8. Stakeholder management
Category managers need to be equipped with the right skillset with which to sell procurement to internal stakeholders. Communicating with each one in the right way can play a vital part in keeping them on board, which is critical to the success of procurement projects.
Relationship development continues to grow in importance, so it is beneficial to use stakeholder analysis techniques to identify important stakeholders, and take the following steps to maintain good relationships:
a) Summarise each stakeholder’s status. Add each stakeholder’s level of influence and area of interest in the task/project, noting whether they are an ‘advocate’, ‘supporter’, ‘neutral’, ‘critic’, or ‘blocker’
b) Establish what’s required from each stakeholder. High, medium or low-level support; full-time technical support or ad hoc advice; specific actions required and why these are important
c) Identify the key message to each stakeholder. Persuade stakeholders to support and engage with the project by highlighting the benefits to the organisation or individuals concerned, and focusing on key performance drivers such as delivering improvements or increasing profitability
d) Determine the necessary actions and strategy for stakeholder communications. Focus on the most important stakeholders, leaving the less critical ones until later; options could be to ‘manage closely’, ‘keep satisfied’, ‘keep informed’, or ‘monitor’. Devise a simple and effective communication plan, with just the right amount of appropriate information at the right time. Consider how often each stakeholder will want to receive updates, and in what form. Use strategies to neutralise opposition, perhaps by asking another influential stakeholder to present the project
e) Implement and review the stakeholder management plan. Integrate stakeholder management as part of projects, rather than a side task. Implement through small, achievable steps and review the plan regularly as the project changes over time.
9. Delivering value beyond savings
Using case studies and story-telling techniques, procurement must inform the business of its successes. It is perfectly well-positioned to act as the interface between the supplier and the business and can manage the relationships accordingly.
The aim is to develop trust and relationships so that procurement is involved early enough to make an impact at the right time. By creating an environment of collaboration and mutual respect, procurement can focus on accelerating the ‘path to delivery’, introducing innovation, enhancing sustainability, boosting revenues through supplier-led initiatives, and by doing so will continue to gain credibility within the business.
☛ Graham Crawshaw is services director at CASME, a membership association of global procurement professionals.
• Crawshaw discussed these findings in the SM Just In Time podcast.