Developing a Digital Operating Model: GEP Releases 2018 Procurement Outlook Report

GEP recently published its 2018 Procurement Outlook Report, which provides insight on important business and technology trends for procurement and supply chain professionals. Now in its sixth edition, the report tackles changing political and economic policies, emerging technologies and trends in eight major spend categories.

According to the authors of the report, 2018 will be the year for procurement to develop a new digital operating model. As they write, “the strategic imperative is to understand the new interactions, roles and capabilities that are required to produce effective and efficient procurement and supply chain organizations. The key question for leadership is, ‘Are we shaped, sized and costed right to deliver in the digital era?’”

The report is divided into three sections: global business and macroeconomic trends; source-to-pay disruption and transformation outlook; and a category outlook. In this post, we’ll take a look at some of the highlights of each section.

Global Business and Macroeconomic Trends

While emerging markets will provide a valuable source for growth in 2018, the report suggests that procurement and supply chain professionals should keep the following potential risks in mind:

• Trade barriers. The past few years have been turbulent politically, from the protracted aftermath of Brexit to the withdrawal of the U.S. from the Trans-Pacific Partnership to the South China Sea disputes.
• Financial markets.S. and U.K. corporations will need to identify emerging markets for investment that could offer higher ROI.
• Commodity pricing. Agricultural commodity shortages mean that prices are going to go up this year. Production and transport costs are also expected to grow significantly in the next several years.
• Climate change. Global natural disasters are expected to become more frequent, putting supply chains at higher risk.

On the last point, the issues of sustainability and corporate social responsibility (CSR) will continue to grow in importance as supply chains bear the brunt of climate change and associated risks. The report authors expect to see a “significant shift in investor-driven policies that will influence and change sourcing strategies” during the period of 2018 to 2025.

Transforming Source-to-Pay

While the vast majority of procurement organizations have come to believe that digital technology will transform the sector, only a third actually have a formal digital strategy. Even fewer have the resources for a digital transformation.

In the sphere of artificial intelligence (AI), robotic process automation, natural language processing and predictive analytics are the big three that are driving procurement’s digital transformation, the report notes. We can expect to see these technologies be increasingly used for procurement-related tasks, from market research to recommending purchases to ordering and paying for those purchases.

But blockchain may be the biggest star out of all, with its potential applicability to invoice processing, accounting and contract management. The report authors predict that adoption of blockchain will take longer than other emerging technologies like robot process automation, but advanced procurement organizations are already piloting these technologies, a trend that will only accelerate.

Category Trends

The final section of GEP’s 2018 Procurement Outlook covers trends in eight categories: capital and construction; maintenance, repair and operations (MRO); information technology; marketing; logistics; packaging; general and professional services; and chemicals.

Here are some highlights:

• The smart factory is expected to continue gaining traction worldwide, generating $500 million to $1.5 billion in investments over the next five years.
• The report authors expect the logistics sector to see some major M&A activity this year, after a calm 2017.
• The global packaging industry will continue to expand at 3%–4% year-on-year, particularly in Africa, Asia and Eastern Europe.
• Procurement and IT will need to collaborate to free IT resources from support functions like system maintenance and security to pursue initiatives in AI, cloud and data analytics that can bring competitive advantages to the company.
• The U.S. unemployment rate is expected to drop further to 4.1% in 2018, and the EU is expected to see similar labor trends.
• Facebook and Google will continue to dominate the digital advertising sector, which is expected to grow 14% year-on-year.

Check out the full 2018 Procurement Outlook Report here.