COVID Adjusted Procurement Predictions 2021 and beyond
As COVID continues to have a profound effect on procurement and supply chains, we want to share key procurement predictions for 2021 and beyond:
1. Sourcing at speed
71% of companies in our raw materials study cited no price reductions despite decreasing raw material prices. This implies terms were not aligned with indexes, uncertainty about the financials across the supply chain, and lack of capacity to capitalize the abundant opportunities.
Similarly, across other categories, particularly indirects that are often controlled by business units, only 30% of companies have made significant and sustainable adjustments. 2021 will see continued specialization and augmentation to address these gaps by, for instance, employing specialty category insights and sourcing tools.
For many organizations, 2021 will be a year to adjust, while driving forward digitalization and other resilience measures that pre-empted speed at sourcing.
2. Sustaining a zero-based culture
2020 has forced organizations to adopt zero based principles across their businesses. For example, office spaces became temporarily redundant, business travel halted, investments were reprioritized and restricted, while budgets on the day-to-day spend-and outlay- side had to be revised downwards. To sustain this, CFOs and CPOs will need to:
- Firstly, sustain the momentum and augment their assumptions for 2021, with procurement challenging requirements and creating cost transparency
- Secondly, ensure greater flexibility and reporting tie-in to provide a quicker response and breadth of options for any critical adjustments – although we hope these will occur with less severe global implications in the future
3. Triple bottom line impact
2020 showed an increased seriousness towards societal, ethical and environmental responsibilities. For example, when lockdowns first commenced, we saw a drastic improvement in air quality. In many places, it was safe to say the planet took a brief gasp of relief. The shift to concerns for the triple bottom line has been a long-term development, borne out of political climate and real concern for planet and people. We believe in 2021, it will accelerate based on last year’s phenomena.
As procurement professionals, it will remain incumbent upon us to ensure an ethical supply chain and to become more directly involved beyond certificates and figures. This will not only create a more trusting and integrated supply chain, but also put us in better stead with customers.
4. Digitalization and ecosystem
According to INVERTOs 2020 COVID survey, we identified that 86% of companies were already in the middle of a digital transformation in procurement pre-COVID. However, the impact of COVID has not changed this course but accelerated it. This trend has enabled data transparency, easy cross-functional and cross-regional collaboration gains – benefits that most executives look for towards decision making.
Beyond that, procurement departments and boards will continue to search for opportunities for holistic data transparency and category tools. Procurement needs to meet this challenge and remain educated on the new requirements.
5. Renewed focus on supply chain risk management and resilience
Organizations are now drilling deeper to gain a more thorough understanding of their supply chain risks and level of resilience. As a result, the next few years will see a resurgence in risk management strategy professionals. Risk reporting and stress testing of the entire supply chain in a joint and traceable manner will become a more integral and more sophisticated business process.
6. Shift to local/regional supply
We will see greater physical de-risking, such as setting up of dual sourcing to decrease supply risks. COVID has taught us how fragile global supply chains are. This broadened the understanding of the need for transparency across the board. However, transparency is less challenging to ensure in local or regional markets, which also lowers the supply chain’s carbon footprint.
We must adapt to balance out and cater to these requirements while retaining a manageable cost base.
7. Shift to niche and specialist IT and tools over large-scale transformations
In recent years, we have seen the rapid evolution of niche digital procurement solutions, which are being integrated into digital procurement ecosystems.
However, the acceleration of digital transformation programmes in 2020 has increased the success of niche digital procurement solutions.
While markets will undergo consolidation, procurement professionals and businesses alike, out of the new ways-of-working, will be encouraged seek long term benefits from digital solution players instead of applying sledgehammer transformations.