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Silver linings from the pandemic — an analyst’s eye on procurement and supply chain predictions for 2021

01/12/2021 By and

Spend Matters has just finished a series of procurement and supply chain predictions for 2021, with commentary from about 20 leading procurement technology and intelligence providers. Together, their foresight runs to 60+ predictions, with the majority of providers unsurprisingly backing supply chain risk mitigation as the forerunner to get firms through 2021 and beyond.

Certain individual themes arose as priorities this year which combine to help procurement and supply chain managers and the organization survive, grow and face the challenges imposed by 2020 and the coronavirus disruption.

If we take a high-level view of the frequency with which certain themes appeared within the overarching goal of risk management, we can see that:

  • Overwhelmingly, talent and workforce management, skills training and the need for diversity, both in-house and in the supply chain, came up more than any other lever for change and resilience, being a key theme mentioned 30% more times than any other.
  • A close second was supplier collaboration, relationship strengthening, and supply chain network/ecosystem building, and that came up alongside ESG, sustainability, ethical sourcing and CSR in equal numbers.
  • A very close third was the issue of payments, prompt supplier payments, embedded systems, and therefore process digitalization.
  • The challenges of creating innovation via your supply chain, the growth of procurement as a more strategic and advisory player in the organization, and investing in human/intelligence interface were the next top themes.

Other subjects such as labor standards, a shift from suite to niche tools and the question of leadership skills also got regular mentions.

Procurement and supply chain predictions: Resilience, Agility and Collaboration

In the remainder of this post, Spend Matters lead analyst Magnus Bergfors uses his analytical eye to distill the recurring themes and identify three overarching areas that he feels will really stand out this year, and he adds his own considerable insight based on what he has seen, heard and learned from the industry.

As we look back at 2020, the first thing we can say is that the year was obviously dominated by the pandemic. COVID-19 pretty much threw all plans and predictions out of the window as people and organizations tried to adapt to brand-new circumstances.

Last year, I summarized our vendor predictions (for simplicity I will refer to both software and consulting companies as vendors) along three themes: data & analytics; UX & automation; risk, sustainability and CSR. And even though the massive disruption caused by the pandemic turned our world upside-down, these three themes have certainly proved their importance even if the predictions didn’t play out as initially imagined.

This year we’ve received a much larger number of predictions across more vendors. Three areas really stand out for me (my colleague Nancy has done a more detailed inventory of them above). The themes, as you will see, are interdependent as well as overlapping in areas, something that really shows that the business case for investing in procurement, both people and technology, is much bigger than we tend to think. So without further ado:

1. Resilience

Nearly all vendors mention resilience in one form or another in their predictions. It’s probably not a surprise to anyone that vendors are picking up on this in times like these. It’s probably equally unsurprising that vendors have different perspectives on resilience depending on whatever the specific vendor focuses on. These perspectives vary from financial resilience to (physical) supply chain resilience to more holistic environmental resilience.

With regards to financial resilience, this shows up as the need for both supporting better cash management internally through extended payment terms on one hand, to being able to pay smaller suppliers more quickly on the other. What’s interesting here is that this is not a traditional area of responsibility for procurement. But as both technology and the P2P process keep extending into the payments area (which is the natural end of P2P, as the name implies) it’s clearly becoming even more important for CPOs to better understand cash management, both internally and externally, and its impact on organizations.

Supply chain resilience is a more traditional procurement responsibility. In many industries it might even be a more important metric than savings, and rightfully so. But for others it can be a rude awakening to the fact that it’s a bigger problem to have to stop production (or service) than to pay a few dollars more. One way of increasing supply chain resilience that occurs frequently among the predictions is supplier diversity. Originally, supplier diversity was a US-centric phenomenon focused on driving business toward minority- and women-owned businesses. But lately it has become a more global concern, and the scope has in some cases grown to making sure there is geographical diversity in the supply base as well. And a good case can be made that by ensuring diversity of any kind will ensure better resilience as you avoid putting all your eggs in one basket.

2. Agility

Another common theme is agility. Again, this is a fairly broad theme but something that I have been preaching for years: Procurement needs to look beyond rigid strategic sourcing processes that take months and make sure that the business gets what it needs when it needs it. This more proactive mindset requires not only different skills in some cases, but the right tools that enable you to find suppliers, rapidly approve them, or proactively approve them before there is an actual demand, negotiate and onboard them. Here we are seeing a renewed interest in supplier discovery that is now often overlapping with other areas like SIM (supplier information management), supplier diversity and sourcing with higher levels of automation to provide recommendations and freeing up resources to focus on more strategic activities.

Agility also supports resilience because the ability to rapidly change a vendor, redirect supply and supply chains, change orders, and so on, is key to making sure you are resilient in the face of disruption.

3. Collaboration

Similar to the other themes, collaboration can take many forms. At one end, we have the operational collaboration in the form of changing orders, using VMI, etc.; at the other end of the spectrum, we have strategic collaboration to harness suppliers’ know-how and innovation. We have for many years talked about the need for more strategic collaboration with suppliers, but let’s face it, few procurement organizations are set up for this. Often this type of collaboration is driven by R&D/product development, and procurement gets involved when contracts need to be signed and orders placed. We are now seeing solutions that are more focused on supporting strategic collaboration, but this is, in my opinion, something that also requires different skills and, perhaps more importantly, different prioritization.

I think there is an opportunity now to use the focus on resilience that is top of mind for company executives to move the emphasis from cost savings toward collaboration and agility since that will enable better resilience. That said, cost will always be one of the main focuses for procurement but only in the right categories under the right context. In other areas, more value will be realized through collaboration and agility even if the initial price/cost might be higher.

The pandemic has proven the business case for procurement technology

So there we are, three pretty obvious themes as we continue to adapt and hopefully start to get back to some sort of normalcy as vaccines start to kick in.

On a very positive note, a silver lining has emerged: The pandemic has proven the business case for procurement technology.

Organizations that have adopted tools for online collaboration, process automation, spend visibility, risk management and so on have been better prepared for this black swan event. And, based on our discussions with both solution providers and end users, following a period in the spring when everyone tried to assess the situation and find their footing, the market has come back strong during the latter half of the year.

Let’s use the silver linings of the pandemic that have really highlighted the significance of procurement, and use the realization of the importance of resilience, agility and collaboration to move the goalposts. Couple this with state-of-art procurement technology that automates basic tasks, enables collaboration and provides visibility and insights, and we can hopefully become the strategic partner to the business that we have talked about for so many years now!

Predictions series

See the full series of procurement and supply chain predictions for 2021.