It’s the start of a new decade and a new era for procurement and supply chain that is as exciting as it is somewhat intimidating. Beset by volatility and uncertainty, functions that traditionally focused on cost savings and transactional operations are now being asked to shift to a value-delivery model. Cutting-edge technologies are coming to the fore, pushing the evolution of business strategies and recasting disruption as an opportunity to uncover new competitive advantage in long-established markets.
This is the landscape that informs the eighth edition of GEP’s annual Outlook report for procurement and supply chain. The GEP Outlook 2020: Essential Trends and Impacts in Business and Technology offers compelling insights and perspectives for procurement and supply management leaders looking for a strategic edge to take their enterprises to new levels of growth, innovation and value realisation.
The centrepiece of the report is a detailed listing of seven areas of significant change and impact — effectively, seven ’megatrends’ on which business leaders need to focus in 2020 and onward into the new decade:
As a movement towards sustainability picks up momentum, regulations on environmental business practices are tightening and enterprises are facing a slew of new pressures. To successfully manage environmental, regulatory and social expectations from multiple factions, including stakeholders and members across the company to activists and the public, enterprises must maintain agility. Taking a hands-on approach in risk planning and supply chain management that balances initiatives for sustainability and low environmental impact while maintaining top-line growth will be key.
The adoption of digital technologies in procurement and supply chain is continuing to pick up speed. In 2020, it is expected that five digital technologies will rise into the spotlight. These include:
In particular, automation and artificial intelligence are seen as creating the most significant value creation opportunities across procurement and supply chain.
Automation is helping to create “smart workflows” for both upstream and downstream procurement processes. In one example mentioned in the report, a large financial services institution restructured its contract repository with a combination of robotic process automation (RPA) and optical character recognition (OCR).
Artificial intelligence (AI) — a key technological advancement underpinning automation — will be key to elevating procurement and supply chain’s strategic prominence. The three main areas in which AI can be particularly useful are: spend classification; spend and contract analytics; and predictive modelling.
Should-cost modelling helps determine fair prices for goods and services and facilitates more effective negotiation with suppliers. Many organisations lack a consistent methodology for performing accurate should-cost modelling; lack of cross-functional collaboration, static data sources, and incomplete analyses can undermine accurate cost assessments. A centralised, digital solution is the better way, with AI and real-time intelligence enabling deeper insight into cost drivers.
The source-to-pay (S2P) process framework is poised to extend its reach to budget-to-pay (B2P). B2P will help procurement and finance jointly develop cost-control measures as opposed to just collaborating on profit and loss cost-reduction impact. Industries such as manufacturing, automotive, CPG and retail, with their aggressive cost-reduction targets, will benefit significantly from B2P. By prioritising budget availability ahead of spend, CFOs and CPOs can drive financial discipline and more surgically separate good and bad costs.
Data is, in many ways, the cornerstone of the functions of procurement and supply chain but data in raw form offers little merit. Extracting meaning from data is the key to realising its strategic value. Predictive analytics is increasingly becoming a critical, strategic tool to enhance visibility into data across spend, contracts, suppliers, operations, accounts payable/finance and market intelligence. As a means of heightening the effectiveness of decision-making, it is invaluable to future-proofing the enterprise, as well as driving growth.
Digital disruptions, elevated consumer expectations and shorter product life cycles are pushing procurement far beyond its historical, traditional role. Procurement leaders will need to extend their considerations to new areas such as supplier prioritisation, data risk management and alliance management. With a new ecosystem of companies and new technologies to power interactions, procurement can continue its fundamental shift from transactional to strategic.
As firms increasingly rely on outsourcing to catalyze cost reduction and focus on core competencies, they face unprecedented risk in the regulatory, operational and reputational realms. Staying up to date in this sensitive domain is crucial, and procurement and compliance professionals need to stay aware of the major trends. Third-party risk management is a board-level issue that affects all industries and is rapidly transforming into a global phenomenon; however, leading firms are starting to rely on technology and automation to create advanced risk-monitoring capabilities.
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.