8 Procurement Predictions for 2020 & Beyond
1. Sourcing at speed
Procurement has three major levers to deliver the ‘sourcing at speed’ opportunity whilst keeping cost under control.
Firstly, we need to continue purposefully seeking innovative solutions and doing things differently. Procurement, as all functions, needs to keep its fingers on the pulse of the market and categories to scope out opportunities, approaches, and relationships to improve speed.
Secondly, in terms of our core activities, procurement needs to ensure maximum efficiency and coverage in sourcing activities. Procurement will have to endeavor to become more agile, empowered, and collaborative.
Finally, procurement needs to aspire towards new delivery models through partnerships, self- service, automation, and knowledge / insight augmentation.
2. Creating a Zero-based culture
The number of large companies that employ ZBB has been increasing 57% year-on-year since 2014. Some companies have evolved to apply the principles across their organization, they may even zero-base headcount and tools, not just external spend. Others are still grappling with the appraisal of procurable requirements – they do not have the appropriate data base to feed their zero-base analysis. Proactive demand management is only a start of this from procurement’s view.
Zero based consumption and culture with ZBB at its core will only become more prevalent. Procurement is a natural catalyst to test budget assumptions and, depending on the spend category, to establish them. ZBB is not only about cost assumptions but rather about fundamentally and culturally questioning what is required and whether this suits the company strategy. This will help procurement professionals to change their company’s and their own mindset in their approach to buying.
We expect and recommend that, in the next few years, and as data clarity and skills improve, ZBB will continue the path to become a predominant budgeting approach, applied cyclically across categories and business units, to ensure dynamism and responsible costing are maintained.
3. Commercial champions
Working capital has, following direct EBITDA levers, often be dubbed as the next value driver. Working capital management and addressability via procurement is no longer a technical business school staple but is rather becoming a more accessible way to realize tangible impact. It is further a gateway to deep assessment of stock and inventory levels and management.
The last few years have seen the advent of several payment intermediaries in both the consumer and the b2b space, one example being Klarna, the EU’s most valuable fintech of 2019 and essentially a centralized non-network buy ‘now, pay later’ credit service.
In a similar fashion and as end-to-end platforms, with integrated analytics capabilities, including for finance, become ubiquitous working capital improvement and the application of supply chain finance will become more sophisticated and impactful. This enables both suppliers and buyers a better cash flow outcome via payment intermediaries as credit checks, histories and approvals are carried out in real time. This will extend procurements role as company commercial champions.
4. Sustained and sustainable Triple Bottom Line impact
We, naturally, view procurement as a particularly exciting and impactful function. It controls up to 75% of a company’s expenditures. It is helping the firm innovate and, simultaneously, must continue re-create its own role and value-add. Inclusion of sustainable supply base management is the most significant step change that procurement can make to impact the triple bottom line of people, planet, and profit.
Changing customer and employee preferences, in addition to the business and political engagement in global issues such as climate change mean sustainable procurement is accelerating. In 2020 and the 2020s companies will become yet more serious about their societal and ethical responsibility and procurement will become more directly involved, beyond certifications and figures. Companies that truly engrain and apply this purpose will perform better in both Total Shareholder Value and Total Societal Impact to build sustainable companies and brands versus those that let sustainability pass.
5. Hyper Supplier Collaboration & Innovation
Procurement has undergone nearly a decade of strong cost-focus while modernization and advancement carried on in parallel. Procurement is on the spot to not hamper, through death of process, but rather aid and accelerate innovation. We are seeing a continued rise in supplier-led strategies such as category captaining, supplier-managed inventories, and collaborative knowledge exchange and solutions.
We view this as the natural progression to long-term supplier partnering. Innovation is not just a new solution as part of RFPs and improvement is not just a rarely monitored commercial continuous improvement clause.
Instead suppliers are, more and more, handed ownership of their direct supply chain links to a company. This will incentivize improved product development, better investment approaches, and pricing to deliver significant value as it is linked to the overall joint effectiveness. It also drives open collaboration between supplier and buyer so both sides make use of relationship, best practices, and tools. In the sharing economy pan-industry partnerships will become more prevalent to keep suppliers close and terms even.
6. Trade leaders
Trade continues to be unstable. The world economy is not yet out of the woods with regards to recession and conflicts. The UK’s post-Brexit relationships are long to be hashed out. Even before Trump’s trade war there were signs of gradual decoupling of US and China supply chains. Following the latest positive developments this risk has not yet been averted. The downward adjustment of trade volume predictions by the WTO are thus unlikely to be reversed. We take a bearish stance with our outlook as we believe the global economic and political climate still offers itself to new tensions and 2020 will not usher in consistent growth recovery.
Procurement will need to continue to lead on risk management, tighten supplier relationships and contracts, and at the same time keep viable alternatives in hand. There is also a continued need to understand new opportunities, such as the new silk road, and the re-positioning of hubs such as Dubai and how businesses can concretely benefit.
7. Digital Procurement & Ecosystems makers
Digitalization has been a buzzword in procurement since the early 2000s. For several years, the question has not been “why to go digital,” but “when?” While digitalization has accelerated in the 2010s, we believe in the 2020s it will become an inevitability, and advanced analytics and digital procurement will be a reality. Even companies that have not had strategic procurement on their agenda to date will see it is time to invest in digital solutions.
The late 2010s have seen the materialization of true, integrated end-to-end solutions and a ramp up in acquisition activity between established players and disruptors. This trend has enabled providers to demonstrate data transparency, easy cross-functional and cross-regional collaboration gains – benefits that most executives look for, irrespective of the responsible function. At the same time, suppliers are becoming more appreciative of and sophisticated in working with advanced procurement tools.
In the 20s we will also see the rapid evolution of niche digital procurement solutions, which will be integrated into digital procurement ecosystems.
Digital procurement, alliance and ecosystems made by procurement for the business and supply chains.
8. Procurement activism at scale
Leaders at all levels, procurement activists have stepped up and stepped out of our comfort zone to drive company and supply chain change. They have connected their organizational and procurement purpose to their capabilities to deliver exceptional performance. Over the next decade procurement activists will be all in, creating a multiplier effect, amplifying to radically scale change and impact.
Most of our clients C-level contacts have procurement on their front-page agenda, with the above points in mind. At the same time P&L impact often still reigns supreme.