Top Five 2021 Key Procurement and Supply Chain Trends
Supply chain digital was lucky enough to gain some valuable insights from Mark Perera, CEO of on his 2021 predictions on key procurement and supply chain trends. Mark offers us his suggestions on manoeuvring through the rocky roads ahead, the vulnerability points CPOs should look out for and how to build a more resilient and agile supply chain.
So, without further ado, let’s begin.
Trend #1- Procurement with a purpose accelerates
For many, the reality of our climate emergency was brought into sharp focus in 2020, as a result of, and even prior to, the escalation of the COVID-19 pandemic. For example, the worldwide financial sector understands that the investment risk of global warming is real and even before the pandemic, they had started to adjust their behaviour accordingly. This means that Environmental, Social and Corporate Governance (ESG) frameworks have gone beyond a simple tick-box exercise.
In 2021 investors will only increase their scrutiny of organisations’ maturity and approach towards sustainability when analysing opportunities. As a result, ESG ratings are now at the top of the sustainability agenda.
Likewise, the millennial and Gen-Z workforce is not naïve to the impact of climate change. They recognise that profits, process improvements, and product development are necessary objectives for every organisation. However, they are certain that large companies have the resources to do far more when it comes to serving a higher purpose, and as a result, sustainability is high on their agenda.
The step-change that businesses must undertake to meet these sustainability demands in all aspects of their operations – including the supply chain – is now all about building purpose-led ecosystems to deliver on sustainability goals and commitments. This means that organisations need to move beyond simply monitoring supplier compliance, to actively collaborating with suppliers on initiatives to improve environmental, social, and economic performance. They need to move towards a purpose-led procurement approach; we will see that accelerate in 2021.
Amidst a myriad of operational issues that organisations need to prioritise in 2021, as the COVID-19 pandemic continues, organisations must put ESG principles into practice when managing supply chain impact, adopting a ‘Procurement with Purpose’ approach to boost resilience, from both a profit and planetary perspective. With today’s public more socially conscious than ever, businesses must align themselves with this shift towards a sustainable supply chain or risk losing business due to inaction.
Trend #2 – Continued disruption of global supply chains as a result of COVID-19
The shock of COVID-19 will continue to be felt worldwide in 2021 as organisations continue to recover from the initial impact on global supply chains. The unprecedented nature of COVID-19 has forced companies, and industries, to rethink and transform their supply chain models – for good.
Historically, businesses have focused on supply chain consolidation, often resulting in suppliers being squeezed. However, the effect of these measures is that they have removed buffers and flexibility to absorb disruptions such as COVID-19. With no firm timeline on the vaccine rollout – key to containing the virus and minimising supply chain disruption – organisations should continue to build long-term supply chain resilience into their operations.
This will be critical for long-term survival, especially as different territories will continue to adapt at different rates when moving out of the pandemic. Greater visibility into complex supply chain activity will equip organisations with the knowledge to reduce supplier exposure and risk, which will help them vary their supply chains.
COVID-19 has exposed the fragility of long-distance, international supply chains. Building-in a level of resilience will see conglomerates working with a much wider range of suppliers, from global corporations to smaller, regional start-ups to ensure business continuity.
To achieve this resilience, organisations must:
- create cross-functional or cross border teams to deal with supply chain shortages
- build additional buffers of inventory and raw materials
- develop expected-case and worst-case scenarios
- examine additional delivery routes and potential local sources
- explore technologies that can help them to diversify and innovate throughout their supply chain
Trend #3 - The role of the Chief Procurement Officer will evolve in 2021
Having a holistic view of the supplier lifecycle, and the risks to each supplier will be increasingly crucial for CPOs in 2021. The proliferation of data breaches that we’ve seen in the last 18 months – and the subsequent regulatory penalties issued – alongside the unprecedented disruption caused by the COVID-19 pandemic, has been a wake-up call for boards. They are now actively invested in supplier risk, given how susceptible organisations are, and this has given the CPO heightened visibility.
While the problems facing CPOs in 2021 will not necessarily be new, boards and management are shining the spotlight on them, to ensure any further disruption is minimised. Not being prepared for the issues that COVID-19 continues to present is no longer an acceptable position. With supply chains firmly in focus, Boards are pushing for a more proactive approach and level of insight and visibility from the CPO.
During the pandemic in 2020, companies scurried to secure supply. During the recovery phase in 2021, the CPO needs to initiate measures that lead to preparedness. There will be no second chances for CPOs going forward; supply chain management will be top of their to-do-list. Therefore, CPOs should be ready to answer such questions as— is the supply chain prepared?
Trend #4 – Supplier diversity will be more important than ever
CPOs will be under social pressure to ensure supplier diversity by buying from firms with wider diversity and purpose that avoids conditions such as modern slavery and protects human rights. They will also be under increasing environmental pressure with global warming and demand for organisations to reduce their carbon footprint and ensure sustainable procurement. And without a doubt, there will be significant economic challenges facing the CPO including helping to deliver growth through local sourcing, supporting fair employment, avoiding any fraud and corruption, and being acutely aware of sanctions.
Trend #5 - The importance of supplier collaboration in 2021
Going forward, organisations must be seen to be actively driving increased supplier collaboration and innovation (SC&I), utilising technology to build resilience, whilst also unlocking greater value from new and existing partnerships. If this is not on the agenda, it’s entirely feasible that similar worldwide events to COVID-19 will cause major problems for conglomerates getting goods and products through traditional supply chain models, that do not have the desired level of flex.
Since the COVID-19 pandemic started shutting down international borders as early as March 2020, organisations must apply the lessons learnt in 2021, following the below checklist to achieve true SC&I and minimise disruption:
- Ensure alignment – Misalignment causes friction that blocks effective collaboration from happening. It is therefore important to agree to a partnership mission statement that sets the foundation for the relationship in the long-term.
- Implement a governance structure – This is key to fostering successful collaborative relationships. This involves developing a set of cohesive policies, processes and approval levels that act as the framework to your supplier partnership. Without this, collaboration efforts quickly stall.
- Take ownership – Good governance requires everyone involved to be accountable for building a successful collaborative relationship. Failing to implement this framework could quickly plunge a partnership into confusion and stagnation.
- Transparency and visibility – Developing value trackers for every project to determine the ROI for each relationship is key. This could include cost savings from new technology and innovation or sales generated from a new product launch.
- Manage Innovation – It is important to build and manage an innovation pipeline of projects by priority, to forecast potential value creation from partnerships. Partners can then quickly identify blockers and any potential duplication.
- Deploy the right supporting technology – A great strategy can quickly unravel without the right infrastructure in place. Technology is fundamental to the success of any supplier collaboration and innovation strategy.
We thank Mark for his wise words and valuable insights.
EY and Harvard Law discuss barriers in Contract Management
Contract management is a crucial discussion for procurement professionals as negotiations require a more specific outcome. However, some organisations are experiencing significant barriers to developing their contracting processes. Ernst & Young and Harvard Law School Center have discussed survey results in relation to the current state of contracting and explain where the issues arise.
The Legal Profession survey (part of the 2021 EY Law Survey) highlights the perspectives of 1,000 professionals from across the globe in law, procurement, business development and commercial contracting.
Out of all the major companies surveyed, over half of them say they are experiencing significantly reduced revenue and are missing out on important opportunities due to poorly managed contracting processes.
Some of the key findings from the survey:
- 92% of organisations in the survey said they plan to transform their contract handling procedures.
- 98% of respondents said they face critical barriers in the process of developing contract management.
- 38% of organisations said they have tried and failed already to implement a better contract management procedure.
- 57% said they had experienced less positive revenue due to inefficient contracting systems.
- 50% of respondents said they had missed profitable business opportunities.
Kate Barton, Global Vice Chair, EY, has expressed her opinion on the survey, “Revenue growth is a fundamental goal for any commercial organisation and effective contracting processes play a crucial role in making that possible. Contracting teams around the world know the value they can bring, and they are making real efforts to transform, but the survey brings into sharp focus a whole range of obstacles that they must navigate if they are to make the improvements they are aiming for.”
What will organisations need to address to develop their contracting methods?
Many organisations are under pressure to reduce costs, specifically contracting professionals. This is something that nearly all of the survey respondents will be looking to do in the next two years, while a third of larger organisations aim to scale this to a 30% reduction in contracting costs.
There is a certain lack of clarity among organisations as to who is responsible for contract management. It is unclear to most how the contracting process should be managed; perhaps this could be because it involves an agreement between various stakeholders. Around 59% of legal departments believe they have the leading role, while a similar number of contracting staff also share this view. 39% of business developments professionals believe they are to hold the decision-making power.
Utilisation of Technology
There seems to be a lack of capability among organisations to analyse and manage contracts. According to the survey, around 70% of organisations have a technology strategy in place to manage contracts; the majority still lack the necessary data to utilise it to full capacity. This is likely caused by insufficient knowledge for implementation that is likely a direct result of a skills shortage, which 34% of organisations have reported as an issue that limits them.
Insufficient Contracting Processes
A lack of a defined contract drafting process will significantly limit how effective the contract will be. Global Legal Managed Services Leader at Ernst & Young, John Knox, explains, “the importance of getting contracting right cannot be underestimated.”
Around 49% of survey respondents say they don’t follow a defined procedure, and 78% say they do not have a system for monitoring contractual obligations.
Knox says, “with the right transformation efforts focused around people, process and technology, contracting can actually become a business enabler and differentiator. The survey shows that one way in which organisations aim to tackle these challenges is through working with subject matter leaders and external providers.”
Meanwhile, David B. Wilkins, Lester Kissel Professor of Law, Vice Dean for Global Initiatives on the Legal Profession, and Faculty Director of the Center on the Legal Profession, Harvard Law School, says, “Contracts are at the core of every business. They determine how growth happens and how risks are managed. It is therefore absolutely crucial that organisations have effective systems and processes to manage every aspect of the contracting process, from negotiation and execution to termination or renewal, as well as an accurate understanding of the obligations, benefits, and risks across the entire spectrum of their contracts.
For more procurement insights, check out Procurement magazine.