2021 Procurement and Supply Chain Predictions from the market — GEP

Continuing our series of procurement and supply predictions, today let’s look at what consulting, software and managed services solutions provider to procurement and the supply chain, GEP, has to say:

With thanks to John Piatek, Vice President, Consulting and Chair of GEP’s Thought Leadership Council and David Doran, Vice President, Consulting in Supply Chain and Logistics.

In summary, we predict:

1. Innovation: Procurement will become a hotbed of innovation to build resilience across the entire supply chain.
2. Diversity: CEOs of many major US corporations have publicly committed to using their purchasing power to help address social inequality. In 2021, procurement will update its practices to realize C-suite commitments.
3. Sustainability: Procurement teams will help show how diversity will also help achieve savings targets, while being accountable for reducing their companies’ impact on the environment and society at large.

1. Innovation and Resilience

Procurement is hardly known as a hotbed of innovation. Truth be told, procurement is seen more like a back office, bureaucratic function that yields organization power like a corporate hammer.

That all changed in 2020. In the last nine months, every global manufacturer’s CEO, CFO and chief operations officer have led virtual war rooms to respond to supply disruptions, demand spikes, supplier risk and to ensure their employees’ well-being. At a time when procurement leaders needed to be front and center identifying and resolving disruptions, most were relegated to advisor roles, focusing on building resilience on the fly and, simultaneously, identifying ways to cut costs.

Why?

Because they didn’t have data-driven insights to systematically predict and mitigate short-term and long-term supplier risk. Multinationals, with complex, multi-step, multi-geography supply chains, have been unable to capture critical data from suppliers and sub-suppliers two or three tiers down in the chain. And instead of leaning on the best of the digital technology toolkits, procurement relies on antiquated spreadsheets, historical data and news reports about continuing disruptions among suppliers and logistical hubs.

In 2021, procurement needs to accelerate its digital transformation and be an organizational-wide driver of innovation and resilience, beginning with:

• Machine learning and artificial intelligence to:

• • Predict supplier risk by combining data from suppliers provided directly with readily available third-party financial information and evaluations, such as creditworthiness.
  • Identify key obligations in supplier contracts, such as renewals, performance and price slippages, support retention of preferred suppliers, and mitigate risk, such as avoiding hundreds of millions of dollars in penalties.
  • Predict price fluctuations in ingredients, commodities and supplies, and make automated buying decisions by combining multiple sources of information, including historical pricing, external commodity pricing indices and sources of supply. Forecasting enables organizations to quickly adjust and optimize their costs to market conditions.
  • Ascertain new suppliers or new sources of supply.

• Automation:
  • Reduce and eliminate human workload by using AI-powered optical character recognition (OCR) to extract key terms and data from contracts, invoices, delivery notes, etc.
  • Automate the categorization of spend by supplier and type of service — marketing, advertising, direct materials, etc. — in real time. Today, spend categorization takes weeks, rendering decisions about what to cut or adjust dated, at best.

2.  Diversity

In 2020, the CEOs and boards of many of the world’s leading companies made real and public commitments to significantly increase the value and volume of opportunities that their procurement teams would offer to diverse businesses. The stark reality to date is that large corporations, though unintentionally, often stack the deck against minority- and women-owned businesses because many don’t have comparable scale, experience, references, capacity or track records of the more established vendors.

In 2021, we expect procurement to follow through on their company leaders’ public commitments by:

• Creating competitive opportunities for more diverse suppliers in each category of spend, and enabling minority businesses to obtain a significant portion of spend through Tier 2 subcontracting relationships.
• Eliminating hurdles in the procurement process by creating a two-by-two framework of strategic importance and contract size to ensure the selection criteria are appropriate.
• Asking diversity and inclusion leaders to help drive procurement specifically to identify gaps in sourcing, craft requests for proposals (RFPs) and selection processes, and mentor the internal procurement team.
• Mentoring diverse suppliers, and helping them understand where they fall short in the RFP process.
• Creating a formal incubator program to proactively develop diverse suppliers’ businesses.
• Prioritizing diverse businesses in the supplier scorecard. By giving significantly more weight to diverse businesses, you will ensure your supplier base becomes more diverse over time.

3.  Sustainability

In 2021, procurement will lead the way in breaking the notion that sustainability is more expensive. Optimizing distribution networks, for example, not only reduces cost, but also reduces the carbon footprint. In 2021, progressive procurement and finance leaders will go beyond looking at price per unit and focus on the bigger picture, whereby scale economies and IT can bring down overall supply chain costs rather than a few cents off a component or activity. Procurement will increasingly include:

• Sustainable Sourcing: Where and how you source your materials are key to being sustainable. This includes not only the price but also the total cost of ownership. What does it really cost you to achieve your procurement goals?
• Sustainable Stakeholders: Your relationship with your partners is probably the most important part of your sustainable procurement strategy. Who are they? Can you trust them and how do you control their quality? A single issue with a key supplier can undermine your whole organization’s reputation.
• Sustainable Labor: Just because you have saved 10% by having your products manufactured in a factory with poor labor standards doesn’t mean lower total cost of ownership.

Thanks to GEP, and look out for more solution provider predictions over the coming week, 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.