McKinsey: Exploring the Ongoing Evolution of Procurement

Procurement is undergoing rapid transformation as sustainability pressures, digitalisation and geopolitical risks reshape the function.

ESG regulations and Scope 3 emissions reporting are driving sustainable sourcing, while blockchain and AI are improving supplier management and efficiency.

McKinsey & Company is among those leading the discussion on how procurement can become a strategic business driver, exploring how the function is influencing corporate decision-making, leveraging technology and integrating sustainability into supply chains.

The firm contends that procurement is no longer a back-office function focused solely on cost reduction; instead, it has become a critical component of business strategy, helping organisations manage risk, drive innovation and build resilience.

Roman Belotserkovskiy, Partner at McKinsey, highlights: “In many cases, procurement leaders have been elevated to a position of influence and are able to drive a lot more impact for their organisations. The expectations have risen significantly. And that means we need to reimagine procurement.”

Procurement’s strategic shift

McKinsey has positioned procurement as a strategic priority in its own operations and consulting services. The firm supports businesses in optimising procurement functions by helping to improve supplier collaboration, cost efficiency and risk management.

By balancing cost, quality, service and risk, McKinsey ensures smooth operations while helping clients redefine procurement through automation, AI and data-driven insights. Ultimately, the goal is to turn procurement into a driver of innovation, resilience and sustainability.

Jennifer Spaulding Schmidt, a Senior Partner, explains: “Right now what we’re seeing is that procurement is involved very early on, scoping and shaping the demands of the business, and then helping find the partners that the business needs: short-term partners and long-term partners. 

“Over the next ten years, I think that’s only going to become a more central part of how executive teams work and function.”

Technology’s role in procurement

Digitalisation is transforming procurement by increasing efficiency, improving decision-making and enabling greater transparency.

Blockchain technology enhances security in transactions, while AI and machine learning automate contract management, supplier selection and risk assessment. These innovations help businesses optimise procurement and drive cost savings.

Digital procurement platforms are also enabling real-time data insights, predictive analytics and more sustainable sourcing strategies. By leveraging these technologies, procurement teams can streamline operations, identify cost-saving opportunities and reduce supply chain risks.

Jennifer emphasises: “I know Gen AI is a topic on everybody’s mind, and we’ve been discussing it for the last 12 to 18 months. We really do see it making teams more productive. It makes teams smarter, gives people opportunities to find suppliers around the world and qualify new suppliers in a way they’ve not been able to in the past.”

Fellow Partner Samir Khushalani mirrors this message, stating: “Digital is the unlock for the next horizon of procurement excellence. It would be easy if there was one single app or tool that could be all things to all categories to all stakeholders. But there isn’t. Leading procurement functions are starting to invest in an ecosystem of a digital procurement engine.”

Sustainability and procurement’s evolving role

Sustainability is becoming a core focus in procurement as organisations work to meet regulatory requirements and reduce emissions.

McKinsey’s research highlights how retailers can cut Scope 3 emissions – those generated by suppliers and product usage – by up to 50% through new technologies and supply chain strategies.

Its climate roadmap for retailers outlines seven key decarbonisation initiatives that could reduce Scope 3 emissions by 55-65% by 2030:

• Reducing farming emissions from livestock management
• Transitioning to clean and renewable energy
• Adopting regenerative agricultural practices
• Increasing packaging and product circularity
• Improving process efficiency and reducing waste
• Cutting emissions in transportation
• Shifting from animal-based to plant-based protein sources

Procurement plays a significant role in these efforts by sourcing from sustainable suppliers and integrating carbon reduction into purchasing decisions. Companies must align cost-saving strategies with sustainability goals to create greener supply chains.

McKinsey is helping businesses embed sustainability into procurement by using AI, digital tools and strategic supplier partnerships.

Eric Hannon, a Partner in McKinsey’s Frankfurt office, highlights the significance sustainability is beginning to have on the procurement function: “We’re moving now into an era of increasing regulatory pressures for people who operate globally, such as the Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) in Europe, but then also the reporting requirements that are coming across globally.

“One trend we’ve been seeing is actually trying to marry cost programmes and carbon programme together. For most companies, Scope 3 – both downstream and upstream – is on average around 80% of the overall emissions, a massive amount. So procurement actually plays an outsized role in decarbonising companies.

“That provides us some pretty significant benefits. First of all, there are a lot of win-win measures out there. Often when people think of carbon, they think of cost; that it’s very expensive to address. But across industries, around 20% to 40% of decarbonisation can be achieved with cost-neutral or even cost savings if we just find the right measures.”

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