Historically, procurement teams have not been granted the same access to strategic decision-making as other departments. They’ve been limited within the scope of the supply chain and forced to make choices based on company policy. That is finally shifting as procurement executives have more input in long-term company planning.
In a broad study sponsored by SAP, Economist Impact examines procurement’s growing role, interviewing 2,307 C-suite executives from January to March 2024, spanning multiple countries, regions, and industries. The report finds that external pressures have compelled procurement teams to break down silos and collaborate with other departments to deliver value toward organizational goals. This is not only enhancing cross-functional collaboration but also positioning procurement as a key function in shaping and executing business strategies.
The report, “Across the procurement-verse: Changing trends in the procurement function,” touches on what trends are impacting the growing expectations for procurement.
“The 2024 survey results unmistakably point to an expanding role for procurement in businesses and a growing perception of the function as a value generator,” the report states. Interviewees cite lasting effects from the pandemic, inflation rates, and other supply chain disruptions as reasons for the increasing reliance on procurement.
Effective Collaboration with Chief Operating Officers
With macroeconomic conditions constantly fluctuating, procurement teams are increasingly reporting to chief operating officers (COOs) rather than chief financial officers (CFOs), reflecting the expanding scope of procurement beyond just cost reduction to operational risk management. According to the Economist Impact survey, 75% of respondents agree that procurement collaborates effectively with the rest of the organization to achieve the company vision, a significant increase from the previous year.
However, with only 18% of strongly agreeing, there is still room for improvement in procurement’s collaboration and value creation. “Procurement has often operated in this bubble that was in service of its own goals as opposed to in service of the goals of the wider business,” the report states.
Fortunately, the survey suggests that procurement executives are increasingly focusing on generating insights that align with the needs of various stakeholders, fostering cross-functional collaboration to improve outcomes across the organization.
AI as a Driver for Digitalization
AI has shown that it can increase efficiency across many business use cases. Within procurement, AI and generative AI can optimize spend, enhance supplier management, create cost savings opportunities, and allow procurement professionals to focus on value-adding activities.
The Economist Impact data suggests that AI is a significant driver of digital transformation. Accelerating digitalization is tied as the top procurement priority over the next 12-18 months, with 44% of respondents identifying AI as a crucial technology focus. Respondents anticipate that AI would bring about significant enhancements in two areas: the automation of procurement processes (48%) and improved guidance and optimization (45%).
Chief procurement officers (CPOs) are seeing direct impacts on business outcomes through increased technology investment. However, to realize the value of AI, procurement executives must create a road map for change management, adopt new ways of working, and invest in developing new skills for their workforce. The survey cites that 69% of respondents believe a lack of vision and business alignment poses a major change management challenge in procurement transformation.
Inflation’s Lasting Impact
Cost management continues to remain a high priority on procurement’s agenda, especially as high inflation rates become a growing concern for CPOs, with 49% of executives citing monetary uncertainty as their top priority compared to other procurement risks – a 29% jump from 2023. Even while inflation rates have dipped, costs for materials and items remain high.
It is no surprise that 71% of the CPO respondents identify macroeconomic risks as one of the primary external factors influencing their organizations’ strategic priorities over the next 12-18 months.
It is difficult to predict when and if the economic turbulence we are all experiencing will settle down. But, once it does, procurement executives expect to shift their attention to risk management, as 40% cite supplier diversification as a priority over the next three to five years. However, “diversifying from suppliers is not as easy, especially if the supplier is the sole provider of the goods or service, or if they are deeply embedded in the supply chain,” the report states.
Technology can help procurement teams easily identify alternative sources of materials, ensuring supply chain resilience and minimizing the risk of disruptions.
The Sustainable Buyer
As external pressure mounts from internal stakeholders and regulators for companies to act on environmental issues, procurement teams have placed a larger emphasis on sustainability.
In fact, 70% of executives say legal and regulatory non-compliance is a key external risk. Procurement teams have responded accordingly, as 32% of executives list sustainability as a top priority, a 7% increase from 2023. Additionally, the top priority for sustainability among executives is compliance, demonstrating an increased focus on regulatory risks.
The increased attention on environmental, social, and governance (ESG) has been successful, as 68% of executives express confidence in procurement consistently meeting ESG goals, an increase of 21% from the 2023 survey. With long-term sustainability measures in place, procurement teams may serve as a model for regulatory compliance.
Shaping the Procurement Function of the Future
The Economist Impact research indicates procurement’s growing value within organizations, with CPOs and their teams gaining a seat at the table. However, to maintain this position, procurement must address critical areas for improvement, such as spend management and cost control capabilities, where a third of C-suite executives lack confidence in procurement’s abilities.
The survey points to deeper issues, including gaps in procurement’s visibility into stakeholder risks and priorities, limitations in creating accurate spend data, developing clear road maps, and forging deeper relationships with stakeholders. Collaboration and improved communication are crucial for building trust and sustaining engagement with procurement’s insights.
Investing in procurement technology, such as SAP Ariba Procurement solutions, can help address priorities and enhance the procurement function. These solutions can span various aspects of procurement and include new integrations and generative AI features to help automate and streamline processes. Additionally, enhancements to SAP Business Network aim to reduce silos between and within organizations and can result in significant time and cost savings.
Through in-depth interviews and targeted research, the Economist Impact report provides a broad analysis of the state of procurement. View the infographic and download the report.
Baber Farooq is senior vice president for Market Strategy Procurement Solutions at SAP.