Procurement making C-suite progress, but work remains

The procurement function continues to see its value within organizations grow, yet there remains work to do as one-third of “C-suite executives lack the confidence in procurement’s abilities” concerning spend management and cost control capabilities.

That is one of the takeaways in a blog post by Baber Farooq in an analysis of a recent report from Economist Impact that was sponsored by SAP Ariba. Farooq is senior vice president for Market Strategy Procurement Solutions at SAP.

“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,” Farooq wrote.

Still, the report paints a picture of a supply chain function that is growing in importance and has an opportunity to shape its future.

“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 stated. Among the 2,307 C-suite executives surveyed by Economic Impact for the report, Across the procurement-verse: Changing trends in the procurement function, many cited the lasting effects from the pandemic, inflation rates, and other supply chain disruptions as reasons for the increasing reliance on procurement.

One of the interesting dynamics to emerge from the report is that 44% of procurement teams are now reporting to the COO, up from 26% in 2023. Conversely, only 23% still report to the CFO, the more traditional reporting line.

While 75% said procurement collaborates effectively with the rest of the organization to achieve the company vision only 18% strongly agree, indicating that there is room to grow, SAP noted.

Risk factors

The executives—70%—said legal and regulatory non-compliance is a key external risk. Procurement teams have responded to this risk, with 32% of executives listing sustainability as a top priority, a 7% increase from the 2023 report.

Among the top concerns, monetary uncertainty jumped significantly and was cited by 49% to top the list. That is up 20% from 2023. Other concerns also jumped in this report, with supply chain visibility up 16% to 46% and geopolitical dynamics up 11% to 34%. As a result, 40% of respondents are now taking a long-term focus on diversifying their supplier network.

“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.”

Macroeconomic risks will be a primary factor in organizations’ strategic plans over the next 18 months according to 71% of CPOs.

“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,” Farooq wrote.

But, the report found that diversifying from suppliers may not be as easy as it sounds as some suppliers are either the sole provider of the goods or services needed, or so deeply embedded in the supply chain that untangling the relationship is not a simple process.

“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,” Farooq wrote.

AI driving transformation

Artificial intelligence is driving more digital transformation in procurement, according to the report. Digital transformation is tied for the top procurement priority over the next 18 months with 44% of respondents saying that AI will be crucial in that journey.

A survey earlier this year from Boston Consulting Group found that 65% of executives are prioritizing supply chain and manufacturing costs as the biggest levers for organizations to pull for cost savings. This trumps traditional cost-reduction areas such as labor and nonlabor overhead costs (cited by 52%).

The use of AI will help procurement organizations achieve these savings. A 2023 report from Globalitysaid that automating procurement remains the fastest path to reducing costs in the sourcing process.

The report, 2023 Research Insights for CFOs, found that 82% of procurement leaders acknowledge their indirect spend is not well managed and that cost savings is being left behind as a result.

According to Globality, indirect spend is estimated to equal between 20% and 40% of revenue, and is usually recorded under selling, general and administrative expenses (SG&A) category. For a Global 2000 company, that means it could be spending billions of dollars it otherwise might not have to.

Among the primary challenges identified by survey respondents are a lack of connection across teams and suppliers (96%), processes that are not intuitive (94%), impactful (93%), intelligent (89%), or collaborative (87%).

Nearly three-quarters of CFOs (74%) said their companies do not mandate competitive or transparent sourcing processes. These leaders also said that automating the procurement process would make sourcing easier (83%), drive additional efficiencies and cost savings (77%), and improve compliance while mitigating risk (71%).

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