In recent years, chief procurement officers (CPOs) have become valuable members of the C-Suite and decision-makers within the corporate hierarchy. Procurement teams are sources of strategic value, drivers of digital transformation, and often the first line of defense against disruption. Recently, CPOs have expanded from focusing on a transactional, cost-conscious role they performed just a few years ago.
With the responsibility and importance comes new challenges, from tightening environmental, social, and governance (ESG) restrictions to managing the impact of generative AI and measuring how sustainably a business operates. These trends are already creating challenges for procurement management and will evolve in the years to come.
The Three Elements of Procurement Management
1. Operationalizing Risk Management
Market fluctuations often cause cost spikes, material shortages, and delays, all of which are front-of-mind for procurement teams. Procurement’s success in managing third-party risk is vital for the team’s ability to respond to threats. Corporate management expects the CPO to find solutions to manage these dangers.
The COVID-19 pandemic in the early 2020s was a major disruption for many supply chains over the last few years. One consequence Covid has had on procurement organizations is to rely less on “just in time” and more on “just in case.” That is, a willingness to carry more inventory than is immediately required.
Increasingly, procurement teams are asked to take the lead in risk mitigation. This requires rapid access to intelligence, such as lead times, costs, and the lifecycles of parts. To succeed, procurement departments must be proactive, collaborative, and transparent with engineering and manufacturing teams. The quality of the data will play a significant role in supplier relations. It can help mitigate risk and eliminate redesigns. These efforts lower operationalize risk across the organization and become more proactive.
2. Transparency and Data Quality
Whether from an ESG perspective or simply to shock-proof the value chain, procuring teams must attain a lot of good data about the supplier ecosystem and the market forces that affect it.
One concern for many companies is the consequence of poor-quality internal data used in decision-making. Bad data often results in a company missing crucial opportunities. Likewise, a lack of understanding of suppliers’ operations can cause Scope 3 emissions to skyrocket. Scope 3 can represent over 90% of a company’s emissions in the supply chain from producing the materials a company purchases, for example, from outsourced manufacturing.
The growing demand for generative artificial intelligence (AI) will likely worsen the problem before it gets better. AI has become the most widely discussed technology in many industries. While many organizations are keen to explore the potential for generative AI to automate functions, create new sources of value, and do many other things, the technology can have just as many adverse effects on the industry as good ones.
3. Regulation, Compliance, and Scope 3 Emissions
Whether tied to sustainability reporting or the movement of goods across international borders, the global regulatory landscape is becoming more stringent, and the penalties for violation are more severe.
Procurement teams must stay ahead of the fast-moving compliance landscape and remain current on the requirements. If they are not compliant, their operations will be disrupted, and the company will potentially face costly fines. Automation and AI have a role to play in this process, potentially monitoring, analyzing, and completing compliance documentation without the need for tedious manual work.
Many organizations face increasingly strict regulatory and reporting standards regarding ESG. The KPMG survey found that 66% of respondents believed these growing regulatory and ESG demands would heavily influence strategic sourcing decisions over the next three to five years.
Consequently, businesses must demonstrate that their production operations and supply chains produce low carbon emissions, are environmentally friendly, and ensure employees’ fair wages and good working conditions. This trend spans many industries, including financial services and government sectors.
What’s Ahead in 2025
As industrial companies integrate digital procurement, cloud-based solutions are expected to become the norm in 2025. This shift allows multiple teams to collaborate within a single source of truth – a living BOM – that reflects all changes and market dynamics. These cloud-based solutions allow teams to be mobile and dynamic as they can access the latest insights and changes while on the move, including employees who work from home or have a hybrid office-and-home schedule.
From Scope 3 emissions to data quality, the biggest challenges procurement teams will face in the coming years include:
- Making a shift from just in time to “just in case.”
- Being more proactive and collaborative and able to take the lead in risk mitigation
- Transparency and data quality will be significant, especially in supplier relations.
- Procurement teams will engage with reliable sources of external intelligence for lead times, cost, and the status of the lifecycle of components.
- By collaborating more closely with engineering and sourcing teams, procurement leaders can help mitigate risk and delays due to redesigns or unforeseen issues in the supply chain.
- These initiatives will lower risk across the organization and become more proactive.
Staying on Top of Sustainability Regulations
Supplyframe helps teams stay ahead of the curve with our PCF capabilities, helping procurement teams better understand their scope three emissions. As government regulations surrounding sustainability become more strict in 2025, procurement teams must stay updated on the regulatory landscape, focusing on their operations and suppliers.
Not tracking these regulations could lead to significant penalties, especially regarding scope three emissions produced by suppliers and logistics. Cloud-based platforms will become the norm in 2025 as digital procurement takes hold across more industries. Platforms like these will allow multiple teams to collaborate within a single source of truth or a living BOM that reflects all ongoing changes and market dynamics.
Cloud-based solutions allow teams to be mobile and dynamic, allowing them to access the latest insights and changes while on the move. These services support more efficient teams in organizational structures, including those working from home.
Artificial Intelligence and Automation
AI capabilities are finding their way into procurement processes by automating manual tasks like tendering, auctioning, contract management, and risk assessment. Pulling insights from massive amounts of data allows procurement professionals to make faster, more effective decisions that reduce cost and risk. Machine learning (ML) algorithms are also being used to pinpoint patterns within the data, allowing for more reliable forecasts of critical trends for specific commodities.
Applying AI tools to internal and external intelligence allows teams to improve their quoting and price negotiations by giving them a high-level overview of past contracts and the current market landscape.
AI capabilities are finding their way into procurement processes by automating manual, straightforward tasks such as tendering, auctioning, contract management, and risk assessment.
The ability to extract insights from massive amounts of data allows procurement professionals to make faster, more effective decisions that account for cost and risk. ML algorithms can also pinpoint patterns in data, allowing for more reliable forecasts of critical trends for specific commodities.
Applying AI methods to internal and external intelligence allows teams to improve their quoting and price negotiations by giving them a high-level overview of past contracts and the current market landscape.