Procurement departments in the worldwide high-tech and industrial manufacturing sectors are tasked to manage relationships with qualified suppliers and distributors to purchase parts and components. These relationships ensure their supply chains are efficient and resilient.
Many of these companies are transitioning to a digital procurement model, intending to make them more efficient and accelerate time-to-market. Also substantial is the evolution of procurement’s role to increase shareholder value, address environmental sustainability, manage risk, and the resilience of the company’s supply chains.
Recovering From The Challenges of Recent Years
Procurement departments are the drivers of adapting to the ever-changing supply-chain landscape, such as transitioning from a global model to a set of regional supply chains. Part of the reason for the transition is that manufacturers that rely heavily on their global supply chains have struggled recently with suppliers that are not always compliant.
A significant reason is the global COVID-19 pandemic, which in 2020 triggered the sharpest economic downturn since the Great Depression. From modest global economic growth of 2.8% in 2019, GDP declined by 3% in 2020, 3.2% in 2021, and 2.7% in 2022, according to the International Monetary Foundation (IMF).
The “Great Resignation” of 2021 contributed to the economic slowdown as well, which left thousands of unfilled jobs, including procurement jobs. According to the Pew Research Center, the “quit rate” set a 20-year high. Sixty-three percent of respondents to a Pew survey said they were leaving their jobs because of “low pay” and “no opportunities for advancement.” These are reasons employees in procurement departments might relate to.
Another consequence of the economic disruption of the last few years has resulted in high-tech and industrial companies reducing their dependence on long-distance global supply chains and shifting to a regional supply chain model, according to GEP.
This transition will elevate the role of procurement professionals tasked with managing relationships with suppliers. First thing, they will not be number crunchers. Instead, procurement departments will become cross-functional teams, including IT professionals, business analysts, data experts, and experienced artificial intelligence (AI) specialists focused on driving greater value and sustainability.
The New Procurement Model
As organizations seek to transform their procurement, here are four megatrends driving the future of procurement ecosystems:
1. An increasingly multipolar world that challenges the interconnectedness of global value chains. Procurement leaders are therefore shifting focus from cost improvement alone toward resiliency and assistance to businesses that are adapting to volatile market conditions.
2. Advances in artificial intelligence and machine learning will enable procurement departments to extract deep insights from previously unstructured data quickly. Procurement can make a crucial contribution by enhancing transparency and capitalizing on movements in supply markets.
3. Demographic shifts, including shrinking workforces and rising skill gaps, will intensify competition for digital talent. The task for procurement departments is to attract and nurture candidates with the analytical skills and data competence needed to unlock value from agile ways of working and digital operating models.
4. The transition to low-carbon energy will upend existing resource and energy systems. Procurement can take the lead to minimize value chain emissions, securing high-demand green materials, and managing the capital expenditure required to achieve net zero.
While transitioning to digital procurement has been a hot topic for several years, the pandemic and geopolitical conditions have accelerated the pace of transformation.
For example, a June 2022 survey of 170 global procurement leaders revealed that 90% believe the digital transformation of their procurement processes would be the top priority for the next three years. The survey also found that 87% prioritize predictive insights and new technologies.
Moving to a Multipolar, Augmented World
The challenges of managing global value chains are prompting procurement professionals to shift their focus from reducing cost to increasing resiliency. It also shifts priorities to help suppliers and other networked companies to adapt to volatile market conditions.
Demographic shifts, including shrinking workforces and rising skill gaps, intensify competition for digital talent. The task for procurement departments is to attract and nurture candidates with the analytical skills and data competence needed to unlock value from agile ways of working and digital operating models.
Transition to low-carbon energy, upending resource and energy systems. Procurement can lead to minimizing value chain emissions, securing high-demand green materials, and managing the capital expenditure required to achieve net zero.
Attracting a New Class of Procurement Talent
Companies that value procurement should consider assembling their teams so top performers can focus on the highest value work, leaving more routine tasks to outside vendors and automation. Integrating traditional procurement talent with new people and new ideas from inside and outside the business is an excellent way to jumpstart a strategic, high-performing sourcing team that gains influence and respect across the organization.
A commitment to building a digital procurement organization enables companies to diversify their sourcing capabilities using real-time data to communicate with suppliers, create shared data, and set collaborative goals and key performance indicators (KPIs).
Businesses that effectively transform digitally will survive supply chain crises and be better positioned to thrive in the coming years with robust and diversified supplier networks. This is done partially through the use of real-time intelligence and solutions that provide key insights for smarter sourcing.
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