2021 Procurement and Supply Chain Predictions from the market — Inverto

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Continuing our series of procurement and supply predictions, today let’s look at what the procurement and supply business management consulting firm Inverto (a BCG Company) has to say.

With thanks to Raphael Demmer, Project Manager.

COVID-adjusted procurement predictions for 2021 and beyond

In January 2020, Inverto was optimistic about procurement’s future. However, COVID-19 and its various economic and social disruptions have defined this year. Looking back, we might have even been idealistic in our outlook for the year. (Revisit Inverto's predictions here.) We anticipated 2020 as procurement’s year and decade to drive further professionalization and focus on sourcing at speed.

As we know, little turned out as predicted. So, as we close out the year and as some experts see a return to normality in Q3 next year, what does Inverto hope for as procurement professionals?

The preface to our predictions is this: It has not all been entirely bad, as crises and black swan events amplify the extremes. However, we realize procurement remains a function with copious locked-up potential. Thus, while most of 2020 has been about cash, supply-chain resilience and costs, all our previous predictions, while adjusted, remain valid — with some new priorities.

  1. Sourcing at speed

2020 showed that our injunction to continue increasing speed and professionalism will continue to hold true. COVID-19 has had profound impact on the entire supply chain. Unfortunately, most companies are still playing catch-up to align terms and even out the impact with partners. Next year, for many, will be a year to play catch-up, while also driving forward the digitalization and other resilience measures that pre-empted speedy action.

71% of companies in our raw materials study cited no price reductions despite decreasing raw material prices, implying terms not aligned with indexes, uncertainty about the financials across the supply chain and a lack of capacity to capitalize to ensure survival.

Similarly, across other categories, particularly indirects that are often in the control of business units, only 30% of companies have made significant and sustainable adjustments. 2021 will see continued specialization and augmentation to address these gaps by, for instance, employing specialty category insight and sourcing tools.

  1. Sustaining a zero-based culture

As we wrote last year, zero-based budgeting has experienced a renaissance. 2020 imposed an involuntary zero-based outlook, forcing businesses to make tough decisions. Office spaces became temporarily redundant almost overnight, business travel halted, investments were reprioritized and restricted, while budgets on the spend-side and outlay-side had to be abandoned. To sustain this, CFOs and CPOs will need to:

  • Keep the momentum and augment their assumptions for 2021, with procurement reinforced in challenging requirements and total cost of ownership
  • Ensure greater flexibility and reporting tie-in to ensure quicker response and breadth of options for any critical adjustments — although we hope these will occur with less severe global implications in the future
  1. Triple bottom-line impact

When lockdowns began, we saw air quality improvements in major manufacturing hubs, we saw transparent canals returning wildlife in coastal cities, we saw the rush-hour commute turn into empty roads, the list goes on. In many places, the planet took a brief gasp of relief.

As lockdowns were extended, we found different ways of checking up on people’s mental health, privately and as co-workers. We established new office customs to create a sense of teaming normality, and we often returned to classical, simpler forms of entertainment.

The shift to concerns for the triple bottom line has been a long-term development, borne out of political climate and real concern for planet and people. We believe in 2021 it will accelerate based on this year’s phenomena. As procurement professionals, it will remain incumbent upon us to ensure an ethical supply chain and impart this goal as well as check up on mental health of all those with whom we work. This will not only create a more trusting and integrated supply chain but also put us in better stead with customers.

  1. Digitalization and ecosystem

In the digitalization world as well, COVID-19 laid bare the need for what we preach: Procurement is on a path to digitalization and greater value-capture. Less than a third of companies had supplier management systems in place to quickly identify alternatives and substitutes in their existing ecosystem at the beginning of the year.

We touch on the change in our digitalization predictions in a new paragraph below, a shift from large-scale transformations to targeted step change. Beyond that, as the dust continues to settle, procurement departments and boards alike will continue to search for opportunities for holistic data transparency and category tools. Procurement needs to meet challenges and be educated on the new requirements.

New predictions for 2021 and beyond

In addition to our previous predictions, 2020 made it all but certain that the following additional developments will remain with us for a while:

  1. Renewed focus on supply chain risk management and resilience

The next few years will see a resurgence in risk management strategy professionals, something recently primarily engrained in standard reports. We will see greater physical de-risking, such as setting up of dual-sourcing to decrease supply risks (also in line with our next prediction, greater regional/local supply).

Further, risk reporting and stress testing of the entire supply chain in a joint and traceable manner will become a more common occurrence.

  1. Shift to local/regional supply

2020 was filled with stories about companies, and sometimes countries, adopting e-commerce platforms and methods that they previously culturally opposed. Additionally, global supply chains are not seen as fully safe anymore, also because we often found transparency and tracking options were lacking. The events this year have thus broadened expectations for transparency across the board. Customers in areas that were previously not accustomed to a fully digital market now also expect greater traceability. This is easier to create in local markets, which also lowers the supply chain’s carbon footprint, as we mentioned above, a customer expectation, in addition to allowing greater lead-time control and production scaling.

We must adapt to balance out and cater to these requirements while retaining a manageable cost base.

  1. Shift to niche and specialist IT and tools over large-scale transformations

The 2010s have been indubitably about digitalization, in procurement and in categories. Large-scale transformations, coupled with evolving operating models were the name of the game. Our previous predictions expected this trend to continue toward an ever more automated and connected world.

However, the swiftness of deployment required in 2020 increased the success of niche players. Whether it was in productivity video chats, file sharing, big data analysis or entertainment, 2020 saw, if not the emergence, the explosion and elevation of specialist players. While markets will undergo consolidation, procurement professionals and businesses alike — out of the new ways-of-working, new balance sheets and the experience — will be encouraged to seek golden eggs to support leapfrogging instead of applying sledgehammer transformations.

Thanks to Inverto, and look out for more solution provider predictions over the next couple of weeks, with an overall take on the series from our analysts at the end. See all of the 2021 vendor predictions here.

*Please note that the order of vendor predictions in this series is based entirely on the order in which they dropped onto our digital doorstep, nothing more. 

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