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Introduction
Procurement departments are transforming their organization in response to emerging external impact factors in recent years, coupled with internal pressures from stakeholders and customers. Primary impact factors are geopolitically, socioeconomically, and macroeconomically including prospective regulations, technological advancements, sustainability imperatives, evolving customer requirements, and digitalization trends.
Moreover, organizations are increasingly relying on Procurement for strategic advice and guidance to navigate the complexities of the evolving external impact factors. The procurement function develops into a strategic advisory role, encompassing the acquisition of new technologies and partnerships, adaptation to organizational-wide regulations, and the enhancement of strategic capabilities through organizational growth as well as mergers and acquisitions (M&A).
This initial article, drawn on Opticos’ expertise, will examine and exemplify the major impact factors influencing the role of Procurement. The subsequent article will explore the essential capabilities required to transition into a strategic procurement function.
In recent years, the business environment has been associated with volatile economic conditions, geopolitical tensions, natural disasters, and global pandemics, which heavily disrupt global organizations and supply chain operations. The challenge for Procurement will be to ensure a stable risk management process and guiding the organization in strategic advisory dialogues. The risk management approach involves conducting assessments encompassing financial, new innovations, geopolitical impacts, and supply chain considerations for all suppliers and their sub-suppliers to ensure stable operations and managing daily uncertainties. Furthermore, global Procurement departments drive organization-wide advisory dialogues on strategic targets such as central vs local sourcing decisions as well as offshoring vs. nearshoring of operations to enable closer operations of supply chain and to limit sustainability impact of supplier chain.
The Procurement organizations’ way of working has also evolved as their work becomes more highly impacted by uncertainties and global risks. Uncertainties and flexibility towards global impact factors make business evaluations and fast adoption of business plans a key in the current business environment. Procurement leaders and employees need faster embrace new digital technology to become more effective, such as proactive supplier risk management solutions. The mindset of being a networker to collaborate with internal stakeholders and suppliers will strengthen the way of working with changing circumstances and new pre-requisites. Procurement leaders will need to advise on guidelines for overall processes, determine roles and responsibilities and policies for regulatory new areas. The way of working could change into empowerment of strategic procurement advisory functions to be able to cooperate with all changes and uncertainties at larger companies.
The positives of global networks, stable operations and digitalization will further enable Procurement to promote the value of moving beyond a transactional way of working. Strategic supplier relationships require effective supplier collaboration and communication, which can drive innovation and foster optimal outcomes for both parties during volatile macroeconomic conditions. Through stable risk management process based on technology and strategic relationships Procurement can bring hard facts to the decision-making forums.
The procurement function has gained more mandate and strategic advisory post-covid as of the crisis management need for strengthening M&A processes, rapidly changing organizational targets, and increased technology initiatives. During the macroeconomic volatility as well as new regulatory demands Procurement has established itself in a unique position as the bridge between the internal organization and external environment. This bridge within the company must quickly manage the cross-functional collaboration to investigate usage of new technology (internal and external), provide insights into policies on new regulations, investigating business benefits for the organization to enable strategic vision for the organization.
Digitalization of procurement processes is vital for building trust of fact-based decisions towards business insights. The growth in data management and its extract of key insights on base data for procurement are vital today as technologies for contract management, purchase to pay, and supplier relationship management are well mature technologies. The systematization of these processes into touchless automated purchase-to-pay, smart contracts, and supplier assessment for sustainability will be considerable for effective procurement organization. Adopting new technologies and automation play a key role in building and ensuring stable operations. Predictive intelligence can empower organizations to enhance resilience in the face of disruptions and enable Procurement to proactively identify alternative sources for business.
This unique position requires Procurement to deliver more market intelligence reports, engage on supplier consolidations and drive digitalization programs as well as organizational-wide regulatory data reporting. The availability of data and advanced analytics has transformed procurement into a data-driven function.
Procurement needs to quickly adapt to future legislations within sustainability, digital/technical product evolution and truly understand the impact in new business scenarios by establishing value beyond cost focus. New business scenarios will set new category management approaches allowing for tailoring the supplier strategies to be flexible and adopted. Some categories are experiencing downward product or service cost pressures, and fewer regulatory incentives, while other categories are facing tougher supply constraints and the high impact of regulatory legislations.
Customer demands drive increased requirements of embedding sustainability into Companies’ operation. Sustainability is today an integral part of Procurement ways of working, with the latest EU Green Deal, many initiatives steer organizations towards increased sustainability efforts. Procurement needs to drive with both internal and external processes to ensure transparency into supply chain operations and to comply with sustainability regulations. Furthermore, Procurement is often responsible by executive management to lead implementation of processes, follow up suppliers’ compliance as well as maintain supplier communication to align on reporting of sustainability efforts and targets. Incorporating new regulations will be part of continuous improvement work for procurement organizations.
Organizations are today, more than ever, under pressure from customers to also deliver a high degree of service simplicity as well as sustainable products. Procurement’s internal activities range from streamlining processes by automating manual tasks to become more effective, to utilizing analytics for identifying trends, developing sourcing strategies and managing supply chain visibility and resilience. Digitalization and availability of data has opened several new ways of working and taking care of rote procurement activities, leaving procurement teams with the more strategic and value-adding activities. Procurement must continue to capitalize of being a data-driven organization to empower as an advisory function that make informed decisions, ensuring sustainable supply chain, and long-term high-quality products/ services by continuous improvement.
In a world filled with uncertainty, important qualities for Procurement are resilience, adaptability, and innovation when transitioning towards a strategic advisory function. This sets the tone for Procurement’s transformation, evolving from a transactional function to a strategic powerhouse guiding organizations through challenges like geopolitical shifts, technological advancements, and sustainability imperatives.
The pace of change in the business landscape is never ending and to remain effective Procurement needs to commit to continuous learning and improvement. Organizations that excel in these areas can position themselves as strategic drivers of business success and contribute beyond cost savings by enhancing supplier relationships, mitigate risks, and support sustainability goals. An Autonomous Procurement way of working seems to be the next step in our digitalization, and it is probably some technological changes away. In our next article, we will present the future Procurement Capabilities to ensure a competitive edge in the dynamic world of modern business. Stay tuned for the next release.
Mattias Johansson & Marie Lund
