2024: Procurement Challenge, Opportunity and Transformation

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2023 was tough. And if your profession happens to be Procurement transformation, it’s likely – in the workplace, at least – it’s been even more so. A business fighting for survival will always look at its overhead, often meaning the threat of redundancy. In parallel, it will also look at its expenditure meaning it is frequently the case that the Procurement function will be asked to commit incremental cost reduction to that which has already been budgeted, without the luxury of knowing its method of delivery. A smart Procurement Director may even pro-actively offer up a greater level of cost reduction before being challenged, as a means to protect their people. What emerges provides Procurement functions with an unlikely platform to excel, distinguish themselves, and to add value to the bottom line.

Cost Transformation

Necessity is the mother of invention, or so the old saying goes. And it is particularly relevant in moments such as these when business costs are rising, driven by geopolitical conflicts, high inflation in the UK and other external factors. Initiatives that have long been championed by the Procurement function, and previously met with a litany of business objections, are now met with ready ears.

As contrary as it may sound, cost transformation can thrive most when the sun isn’t shining. It will involve accessing both immediate gains and ingraining a revised methodology across business for the future. Not just any port in a storm, but a new route to be navigated as standard. Unnecessary expenditure will be cut. Existing contracts must be revisited and renegotiated – it is often the fastest route to saving money.

But there is a care point here. If the supply partner in question has attracted a wealth of spend, or operates in a sector with few alternatives or high barriers to entry, the Procurement function must ensure that they survive, too. Now is critical, but once we get there, the future will be, too. As a result, cost transformation values the involvement and development of supplier relationships, to collaboratively drive down costs. A benefit to both, and a sustainable future for all.

Intelligent Procurement Software

Uncertain business outlooks shine a spotlight into every function. The right digital procurement technology can centralise spend data, identify trends and compliance to metrics, pinpoint opportunities, and simplify supply chain decisions as a result. All crucial components when knowing exactly where you are, and where you want to be. Additionally, digital tools can manage this process quickly, paving the way for procurement personnel to move from analysis into enactment of their strategic work, with an agility that the situation demands.

The data available to Procurement functions from digital software can also be advantageous to other business areas. Cost trends associated with a particular product or technology may inform future product development strategies, or outline the focussed trend of an industry or the competition. The positive impact of Procurement software can be felt by those that plan, too.

Managing Risk

Senior business managers and Procurement leads must both know their risks, and how they are protected against them. Risk management strategies encourage forward thinking, and the ability to react. This blend of skills delivers longer term security, but identifies immediate benefits as well. In volatile market circumstances, selective expenditure can be a worthwhile insurance, and makes good business sense. A business built on adding value to imports, for instance, will fear the reported risk of delay at seaports. Contracted airfreight capacity – so often an option chosen through gritted teeth – may suddenly appear a pragmatic safeguarding investment.

Risk is also present in the futures of your people. Uncertainty breeds revised outlooks and potentially, a knock-on effect to the vast creativity within the workforce. It is too wasteful to allow this mindset to manifest itself, even more so when people will often be re-tasked in response to the prevailing conditions. The costs to continue the development and upskilling of individuals will quickly be offset by the heightened engagement and creativity that those people will demonstrate within their work as a result – protecting training investment will reap reward.

Procurement Reform

In October 2023, the Procurement Bill received a Royal Decree and became the Procurement Act 2023. The Act is set to come into force in October 2024 and will reform public procurement. Public procurement will become more straightforward, more flexible and more transparent, and small businesses and social enterprises will find it easier to apply for public sector contracts.

Although smaller businesses will welcome a reform that gives them a better shot at securing government contracts, the Act creates greater pressures on anyone working in Procurement. Teams will have to spend the first half of the year preparing for the reform and also check they are complying with the provisions of the new law.

Increasing Environmental, Social and Governance Pressures

Commercial pressures, changes in legislation, contract management pressures and the need for risk mitigation are already creating challenges for procurement teams to meet and manage. The demands of stakeholders are obliging businesses to devise new ESG policies that teams must follow. Policies such as sustainable sourcing are a major responsibility in procurement, and teams must balance their commitment to the company’s ESG policies with successful fulfilment of their other procurement duties and responsibilities in other aspects of their roles. All of this is an opportunity for companies to show their own forward thinking and, by doing so, earn support for their business. Good ethics are attractive to suppliers and to customers.

In a challenging year, the focus for Procurement departments to find sustainable cost reduction solutions has resulted in the opportunity to emerge from the ordinary; reinvigorating working practices through collaboration, innovation and greater strategic thinking. This transformation in both culture and practice now provides a platform for progress, a moment to take hold of, with the opportunity to thrive not merely survive.

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Author: Barkers Procurement