Five mega trends indicating that procurement is waking up to its own

co-author Sathya Varadan

The pandemic has brought to the forefront a whole different ball of wax for retail and consumer good companies. It has exposed several weaknesses in supply chains which continue to be unstable and ephemeral. The encumbrance to minimize risk, improve resilience and secure business continuity has provided a new semblance the procurement function. With a newfound importance in the supply chain order, the traditionally slow to change procurement practices are under the anvil with more efficiency seeking and resiliency moves being planned such as re-configuring their supply networks, shortening procurement cycles, reducing risk and adoption of sustainable principles. Changes in SoPs, process automation and digitization newly carved digital and analytics-oriented job profiles and the elevation of the CPO on equal parity with other CXOs point to how the procurement function is expected a play a critical role in the strengthening of the supply chain.

Here are 5 cultural shifts and mega trends in the procurement function that are seen through the lens of the increasing adoption of integrated ProcureTech or Digital Procurement solutions:

1. Intelligence driven expansion and reconfiguration of supplier networks

The pandemic and recent politico economic disruptions have caused supply bottle necks and compelled retail and consumer goods companies to reconfigure their supply chains. Companies are looking to strengthen their alternative supplier base to diversify supply risk and minimize over-reliance on single or few suppliers or on a particular country. Supplier selection practices across companies are seeing 3 major shifts – diversification, reshoring and regional replication:

• Developing multiple supply chains for RM and FG as opposed to a single supply chain.
• The move from reliance from a few preferred legacy international suppliers to developing alternative diverse and minority local Tier 2 and Tier 3 supply network.
• Marketplaces for micro suppliers that can fulfill the long tail of product line assortment.
• Fresh focus on near shoring or back shoring to the home country with emphasis on business continuity and balancing cost, flexibility and quality as opposed to low-cost procurement, supported by government policies and incentives in the form of subsidies and tax relaxation.

The need for faster supplier identification and manage supplier information has led to changes in supplier selection criteria and investment in supplier discovery, due diligence and selection automation tools and platforms like SAP Ariba, Tealbook, Coupa procurement etc.

2. Shortening procurement cycles through self-service, mobility and supplier collaboration systems

There is a fresh drive among most companies to shorten the procurement cycle and improve compliance by providing procurement managers and suppliers control and visibility over transactions and information in real time anytime anywhere. CPOs are implementing technology solutions to shift to digital and touchless sourcing and procurement:

• Supplier collaboration portals for e-sourcing/auctions, supplier evaluation and selection, on-boarding, invoicing, cash flow management contract management etc.
• Digitization and RPA of the OTC and P2p process to automate manual tasks, compliance management and improve the quality and completeness of data that flows into the financial modules.
• Mobility solutions for procurement employees to work remotely and operate on the fly.
• AI-based analytics to identify opportunities for cost savings and improve supplier performance with key capabilities such as decision intelligence, spend analytics, core working capital analytics, supplier performance analytics etc.

 

3. Amplify efficiency of procurement office by automating decisions and manual work

The elevated criticality of the procurement office in shaping supply chain resilience has acted as a springboard to modernize procurement by automating repetitive tasks and decision making to maximize efficiency through frictionless processes thereby reducing costs. Procurement organizations are on a digital and automation drive with renewed focus on reskilling and repositioning talent to boost productivity:

• Moving from paper-based and manual interaction intensive procurement environments to electronic workflows and automated manual interactions with suppliers and third parties including email exchange of data and documents to real-time data access, cloud storage, automated PRs, contract reviews and renewals.
• Reducing errors in document processing and manual data entry by adopting OCR capabilities and RPA to analyze critical data from multiple contracts, bill of lading, waybills to automatically review submitted Invoices or contracts and harmonize data into standard formats.
• Re-engineering procurement as a zero-touch process and allow for interventions by procurement personnel only for exception management

Modernization of the procurement organization through adoption of Intelligent analysis tools, cloud-based eProcurement tools, combining automation with a right dose of advanced analytics, visualization and AI led decision support framework (ex: spend analysis, contract compliance, predictions for input cost/price fluctuations to make smarter sourcing decision) are amplifying the potential of the procurement organizations.

4. Proactive supplier risk management to improve supply chain resilience

A ripple effect of the recent pandemic has coerced a cultural shift in procurement teams towards being risk aware and monitoring & tracking supplier risk. Pressures of predicting disruptions and ensuring recovery have pushed risk management to the spotlight in the sourcing and procurement community. The following capabilities are turning into must-have capabilities that are the responsibility of the procurement function:

• Detecting vulnerabilities and risks early
• Supplier risk assessment and scoring
• Build trust with suppliers through seamless communication and End-end supplier collaboration (from Plan-Source-Make-Deliver-Returns and Financing) and constant renewal of the operating and governance models.
• Determining operational and financial impact of disruptions on operations such as compliance penalties, revenue losses, manufacturing delays, labor shortages, excess inventory pileups
• Protecting the business by taking actions early to build supply chain resilience is becoming a top priority for the procurement function.

Procurement departments are devising SoPs for Risk management and are acquiring cloud-based supplier risk management tools or third-party risk management software to manage various types of supplier risks with risk segmentation, predictive analytics, assessment score-carding capabilities.

5. Sustainable procurement to support corporate ESG Goals

Demand for healthy and green products on retail shelves and the momentum stemming from legislations such as Germany’s ‘Lieferkettengesez’ and Sustainable Development Goals (SDGs) have impacted procurement strategies. Environment friendliness has emerged as one of the major procurement criteria. Global Summits such as the COP26 have issued stricter guidelines for Corporate ESG Goals thus promoting sustainable procurement as one of the top goals for the procurement function. These developments have catalyzed many readjustments in procurement processes, leading to process transformations, new product mixes and business models.

• Identification of socially responsible suppliers with sustainability ratings from ESG companies such as Sustainanalytics, Eco Vadis, Moody’s ESG SG, etc and sustainability policies and roadmap.
• Digitization of processes to eliminate paper and paper printing to reduce carbon footprint.
• Turning to digital twins to review product samples as opposed to manufacturing them.
• Sourcing of right ingredients, materials and use of recycled components or materials and emphasis on transparency in material sourcing.
• Improving demand visibility solutions and Implementation of advanced demand forecasting solutions to procure right inventory quantity and right product mix to meet demand thus reducing waste in the supply chain by reducing excessive production and transportation miles.

Sustainable ProcureTech investments that have upshot from this radical turnover are block chain and supply chain traceability solutions, enterprise ESG analytics, GHG compensation & offsetting etc.

Infosys, a global leader in Technology and Business Consulting helps retail and consumer good companies offers several services, solutions, and platforms to accelerate their journey in establishing Digital Procurement Transformation for smart supply chains by establishing connectivity, intelligence, automation and speed into the procurement function. Infosys helps supply chain organizations to design and build ‘Live Enterprise’ models and digital procurement control towers by establishing a connected enterprise that operates on responsiveness, intuitive decisions, and perceptive experiences:

• Perceptive experiences through experience configurators and collaborative integrations.
• Sentience and intelligence powered by AI and digital brain with observability services, AI services, knowledge graphs and cognitive actions.
• Agility and responsiveness guaranteed by modernization of infrastructure, data, applications and DevSecOps.
• PolyCloud enterprise IT landscape seamlessly connected with internal functions external partners and ecosystems.
• Integrated managed services of business and IT landscape and security.
• 360 degree enablement framework with advisory services, micro change management, distributed agile development, platform playbooks and living labs.