Strategic supplier relationships, sustainability and digitalisaton: five procurement trends for 2019
With 2018 behind us, many organizations will undoubtedly look back and assess the challenges they faced, the hurdles they were able to overcome, and their achievements. From working closely with international businesses across a variety of sectors – manufacturing to retail, CPG to life sciences – I want to share my insights into what procurement can expect in 2019.
Here are my top five predictions.
#1 Rethinking strategic supplier management: According to PwC, the top quartile of procurement functions in 2020 will have gone beyond making incremental improvements, and will have implemented fundamental changes to the way they operate. This includes how they interact with suppliers and shifting focus from cost and value, to return on investment (ROI). The success of these initiatives will depend on organizations’ ability to select best-suited strategic suppliers, their approach to extracting innovation from them (who are seen as partners), and robustness of their supplier relationship and performance management mechanisms. This will be a big diversion from the traditional strategy of launching competitive RFPs and shopping around for new suppliers to secure better deals or improved service levels.
#2 Continued digitalisation: According to Deloitte’s Global CPO Survey 2018, 66% of procurement leaders predict that supplier management (including performance, risk, relationship and innovation), sourcing and operational buying, as well as business planning and strategy development (including spend analytics and research), will undergo the biggest changes due to digital technology over the next five years.
Most procurement leaders have embarked on digital transformation journeys at their own pace, while some are still hesitant about new digital tools and technologies such as artificial intelligence, robotics, and blockchain. This is driven by a lot of hype in the procurement space and selective knowledge about how and when new technologies should be deployed.
The truth is digital will only grow in importance. Supply networks are evolving, connecting all parts of the supply chain, and insight-driven organizations are applying advanced analytical capabilities to enhance performance. Cognitive procurement (which assists supply chain managers in decision-making, especially in a complex and dynamic environment), blockchain, IOT and big data analytics will be further explored by CPOs in the coming year.
#3 Tightening risk management: In this period of uncertainty led by Brexit, trade wars, and increasing protectionism, tightening risk management will be one of the key trends shaping the procurement world. According to Deloitte, by 2020, procurement will become the controller and forecaster of risk in an organization, given where the function sits as the gateway to the outside world – both in terms of inputs and outputs. In addition to supply market-related, supplier-driven, natural calamity and geopolitical risk, procurement organizations will also need to focus on cyber risk – a universal threat that is facing all industries today.
#4 Focus on sustainability: 2019 is expected to see a lot of focus on sustainability. Sustainability, innovation and effective supply chain management can work together to deliver better outcomes for the business and the planet. Support and demand for corporate sustainability programmes is expected to grow significantly in the coming year, as public awareness continues to grow. Procurement, by way of suppliers, can play a crucial role in meeting this agenda, including exploring sustainable sources of raw materials, ensuring suppliers meet CSR criteria, adding sustainability parameters to their RFI/RFQ evaluations, as well as setting measurable indicators for their sustainability progress.
#5 Increasing automation: A study by ISG found that Robotic Process Automation (RPA) could deliver a reduction in resources for tasks including vendor management and invoicing by up to 34%. By 2019, 72% of companies are expected to rely on RPA to improve productivity, increase compliance, reduce costs and compress transaction times. In response, some companies are actively retraining their workforce to help them gain new, much needed skills for areas such as contract management, supplier relationship and risk management, supplier onboarding, and category and spend management. This trend is likely to accelerate as new technology adoption increases.
These are just five trends we can expect to see next year – we are of course living in a very volatile world, where it is hard enough speculating about what next week has in store for us let alone next year.
However, there are certainly factors that will continue to have an impact across all industries – such as Brexit and trade tariffs – while from a digital point of view, it will be about seeing how application of technologies can help solve business challenges, and add value to the supply chain.
By Swarna Rao, Vice President, The Smart Cube
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