Key Takeaways
While cost savings has always been king for procurement departments, businesses are increasingly expecting their procurement divisions to provide company-wide value beyond just lowered costs.
From risk management to leading the charge on sustainable business practices, the scope and breadth procurement is responsible for has widened considerably in the past few years.
Procurement must evolve with the times and improve their risk management practices to help steer their businesses in the right direction, among other initiatives for the future.
The primary goal of procurement operations since its inception has been cost savings. Negotiating lower prices, sourcing from reliable suppliers, and obtaining bulk item discounts are among the strategies that successful departments have traditionally utilized. However, according to Deloitte's 2023 CPO survey, the scope of procurement work is changing. Firms expect procurement departments not just to reduce expenses on the balance sheet, but to provide additional value to buying operations as a whole. This can look like implementing quality enhancement initiatives, strengthening supplier relationships, and creating new risk management practices. In a field where shaving costs has been the traditional end goal, it's easy to forget that the future of procurement lies not in mere cost-cutting, but in transforming a conventional cost center into a strategic powerhouse that drives innovation, mitigates risk, and propels long-term growth.
Recent Trends
As industry experts are aware, the COVID-19 pandemic precipitated a transformative shift in procurement operations. The supply chain disruptions that ensued have led to overall inflation and sourcing challenges while also disrupting many businesses' budgets. Procurement departments were suddenly spotlighted as the navigators of these rapid global supply chain disruptions. Surprisingly, however, many firms decided to reduce spending on procurement departments to increase operational efficiency and lower expenses, according to Deloitte. As a result, procurement professionals are now tasked with achieving more using fewer resources, a significant challenge as they prepare for potential future disruptions similar to those experienced during the pandemic.
Where is procurement heading?
Let's dive into what the new, modern art of procurement should look like moving forward as procurement departments aim to add value to firms, not just cut costs.
Risk Management
The pandemic has served as a wake-up call for procurement departments worldwide, highlighting the vulnerabilities of global supply chains. Companies that relied heavily on production sites in regions like China found themselves at a standstill when local lockdowns disrupted operations—a stark contrast to manufacturing economies elsewhere that had already begun to rebound. Similar local disruptions had cascading, negative effects on US businesses that had become accustomed to shifting their production and sourcing operations overseas with the goal of cost-savings. Moving forward, a key focus for procurement professionals is mitigating such risks by diversifying supply chains and developing more robust contingency plans to ensure business continuity.
Trends in Risk Management
A notable development in supply chain management by procurement departments has been the rise of reshoring activity. With reshoring, companies shift production and sourcing operations from foreign locations to domestic ones. Operations are then insulated from foreign supply shocks like local lockdowns that halt operations and reduce profitability. A 2022 survey by BCI Global revealed that over 60% of American and European companies are shifting operations from the Asia region to domestic soil. This trend illustrates the current paradigm shift in procurement— from a traditional emphasis on immediate cost-savings to a broader focus on managing supply chain risk and enhancing overall business resilience. Risk management initiatives like reshoring not only reduce dependency on distant supply chains but also align with a longer-term vision of value creation by prioritizing stability, quality control, and the ability to quickly respond to market changes.
Sustainability
Sustainable procurement operations are becoming a priority for many modern procurement departments. The focus on sustainability is a way to act ethically and promote strategic business operations. Corporate social responsibility (CSR) ensures companies work to benefit society and the surrounding environment rather than degrade them. When sourcing sustainability, procurement departments impart a positive brand image to potential customers while promoting regulatory compliance with rapidly evolving environmental legislation worldwide.
Sustainable Procurement
According to Procurement Magazine, sustainable procurement was the #1 trend for procurement departments in 2023. It is becoming more of a requirement, rather than a suggestion, that firms source goods and services while focusing on sustainability. This includes monitoring supplier energy use, waste management, and supplier ethics. In doing so, procurement departments are being asked to do more, shifting from merely a cost-savings machine to one centered around value creation. Supplier relationships must be regularly assessed through the lens of sustainability, while all new supplier negotiations will also factor ESG targets.
Talent Acquisition
The 2023 CPO survey published by Deloitte illustrated a current pitfall affecting the procurement industry – it is now more difficult to hire and retain top talent which helps sourcing departments do more with less. Over 70% (yes, 70%) reported higher difficulty in attracting talent in 2023 compared to earlier years, while only 4% reported that it is now easier to find suitable employees. Additionally, procurement departments that drove the most value creation identified that lack of motivation and burnout were key contributors to employee productivity loss.
Talent Acquisition and Management Trends
Leaders in the modern procurement movement distinguish themselves through a set of shared characteristics reflective of an agile and employee-centric approach. Firstly, these firms have demonstrated an ability to rapidly adapt to changing circumstances, particularly in response to their employees' needs. With the onset of the pandemic prompting a widespread shift to remote work, procurement departments had to embrace flexibility. As operations slowly transition to a new normal, leaders in the field are carefully balancing the benefits of remote work with the reintroduction of in-person collaboration and mandatory travel while always listening to employee feedback to prevent burnout, maintain high productivity and retain existing talent.
Secondly, the approach to recruitment within top-performing procurement departments has evolved significantly. While traits such as passion and curiosity remain valued, there is an increasing demand for candidates who arrive with a robust skill set tailored to the responsibilities of modern procurement. This includes experience working with Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR), strong negotiation skills, and proficiency in digital analytics, especially in capabilities like developing advanced forecasting tools within software suites like Microsoft Excel. Many modern procurement departments are all-in on procurement digitization, as automated tools like cost modeling, predictive analytics, and compliance monitoring all provide significant opportunities for both cost-savings and value creation for their firms.
Next Steps
Knowing these trends above, let’s briefly discuss how procurement departments can evolve into leaders in the field rather than followers.
1. Procurement departments must improve their risk management practices.
Reshoring is just one way businesses are insulating themselves from external supply chain shocks. Another key trend that leaders in the field are following is reassessing supplier relationships. Opting for short-term contracts allows firms to switch to another supplier if rendered services are unsatisfactory without paying early termination or cancellation fees. Additionally, increasing supplier performance/relationship management can give valuable insight into cost-savings and value-creation opportunities. Combining strong negotiation skills and digital analytics will be vital to achieving industry-leading risk management capabilities. Fiona Adams, ProcurementIQ’s Director of Client Value Creation, points to Total Cost of Ownership (TCO) as an increasingly important metric to manage risk. In doing so, “(Procurement’s) focus will shift to tiers within supply, including services, and an examination of what makes the best sense for cost structure and demand.”
2. Sustainability is an integral part of the pathway to becoming a successful, modern procurement department.
Additionally, according to our Fiona Adams, our director of client value realization with over two decades in procurement leadership, sustainability goals have already arrived at the most successful procurement departments. Though many firms have only begun utilizing green engineering practices for new products entering the market, Fiona advocates for identifying sources of sustainable improvement within both business and supplier relationships. Companies that adopt sustainability will reap benefits such as lower overhead costs, enhanced reputations, and high-risk mitigation from non-compliance and reputational damage.
3. Procurement must continue to recruit and retain highly qualified talent.
Deloitte’s 2023 CPO Survey revealed that the most successful procurement departments have adapted their hiring and talent retention practices since the onset of COVID-19. Managers now prioritize their workforce's well-being, encouraging high productivity and retention rates. Additionally, potential employees are now being screened for essential skills used in the procurement space, like negotiation skills and technical ability. In tandem, these new talent retention and hiring practices form a powerful procurement team that can adapt and excel in any environment.
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