INVERTO: New Year wishes for the procurement solutions and services marketplace 2022

In our series of New Year wishes (rather than predictions) for the procurement, supply and services market for the year ahead (read more about it here), today let’s hear from Raphael Demmer, Project Manager at international consultancy and strategic procurement and supply chain management specialists, Inverto (a BCG Company).

My 3 wishes 2022:

In our last procurement transformation study we identified three primary areas where procurement progress is particularly in demand: sustainability; digitalization and innovation management. Our predictions for 2020 and for 2021 published on Spend Matters enhanced this list, added more nuance and sprinkled a necessary flavor of Covid-adjustment. While our outlook for 2021 was more optimistic than the reality which materialized (a Q3 stabilization was replaced by a sustained Q3 supply chain crisis that may last until 2025) we stand by our principal prediction that the hardships of 2020-2021 will place procurement in a better position across several layers of analysis. However, continued targeted action is needed to leverage this position for the business and for the function.

1. We wish current hardships are converted into long-term partnerships and a stabilized market

Procurement eternally hunts for lower prices, now more than ever. Everyone will have this wish against a backdrop of exploding indices and a wave of bankruptcies and consolidations.

We hope that procurement and businesses see this as an opportunity to re-evaluate their approach to managing the supply chain. It is time for deep supplier segmentation and honest, boots-on-the-desk conversations. Most are swallowing higher prices; the burning questions are: how do we come out of it and will we be better prepared next time?

We advise our clients and suppliers to work in tandem, in strategic partnerships. Instead of horse-trading over spot buys, consider open book agreements and what a joint move back to ‘normal’ would look like. Use this time to reposition your own sales prices commensurately to the supply chain. Bank the resultant margin to agree continuous improvement opportunities (for better long-term outcomes and to enable our subsequent wishes).

Doing this at speed and more professionally requires digital capability.

2. Therefore, secondly, we wish digital capability and digital adoption in procurement to take centre stage

We posited in 2020 and 2019 alike that digitalization follows basic economic theory. Rarely is there a time to leapfrog the competition in innovation, as with digital procurement. The ordinary course of things is a widening gap between innovators, adopters and laggards, due to the compound returns that early movers reap.

The current procurement ecosystem still offers the opportunity to leapfrog. This requires concerted investment in underlying data feeds and sources, capability and the right systems. We have never seen more requests to understand the actual capability of AI solutions, of niche industry and category suites, or for ancillary topics, such as risk management and should-cost analyses. If this interest translates into action and business buy-in, procurement will not just be further empowered to surmount current hurdles, but also future-proofed to act in a more sophisticated fashion going forward.

While the interest exists, we have found business understanding and sponsorship are still lagging. We recommend partnering with solution providers to build unequivocal business cases. Integration of cloud-based niche solutions is usually a no-brainer and returns of 10x+, whether in process-savings, in tail spend or in supply chain robustness, are within the realm of possibility.

Once we have the right tools and skillset, we will also be in the right bay to fulfil our third wish.

2. We wish that sustainable procurement becomes ingrained as paradigm, not just a greenwashed buzzword

The Covid pandemic and current supply chain crisis, combined with COP26, have brought direct incentives to the fore to operate with a sustainably diminishing eco-footprint. Net zero has become not just an ethical obligation, but a business necessity.

Energy prices are soaring. While this has geopolitical and economic root causes, the result is the same, and the best way to insulate against significant fluctuations isn’t by employing better tick strategies, or tranche hedging, but deploying greener production sites.

Similarly, across modes, logistics costs are through the roof. Existing driver shortages were exacerbated multi-fold. Cargo, largely hidden in commercial flights, as well as container spaces, were first decommissioned, and are now being re-activated sluggishly and even re-oriented to different economic centers of gravity. The short-term resolution is a scramble for rates, the real long-term solution will lie in strategic, more localized sourcing and in greener modes.

While logistics is an accessible, universally applicable proxy, the same applies across categories and industries, whether that be packaging, steel, plastics, yarn, foodstuffs, or microchips — you name it.

Lastly, the regulatory pipeline is long and profound, from CO2 tracking, over plastics removals, to human rights. Visibility and clarity of our supply chains are imperative to recognizing improvement opportunities — and visibility and reportability are required explicitly, at an increasing rate, in the coming years.

Conclusion

To close, we want to reiterate what businesses and procurement need to do to make our wishes come true (unless Santa has been particularly benevolent this year):

1. The market will turn, eventually. We and suppliers alike, case by case, have swallowed significant increases. Nonetheless, we should not be blinkered by pricing. It is time for deeper partnerships and long-term agreements with suppliers.
2. To enable sustainable outcomes, and to become a future-proof function, procurement needs to leverage digital tools. Again, pay-off has never been more easily attainable. This requires bold moves and partnering with senior executives across functions (CFOs, COOs, CTOs, CIOs, etc.).
3. The stars have never been more aligned to make sustainability an intrinsic and extrinsic necessity. Procurement needs to bring its levers and ideas to the forefront and translate them into tangible business outcomes.

Thanks to INVERTO and look out for the remainder of our solution and services provider wishes/predictions later this week with an overall take on the series from our analyst at the end. See more vendor predictions and wishes here.

If you are looking for procurement services providers to help you with your 2022 decisions, look no further than our Procurement Services Market Landscape Directory.