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When times get tough, organizations start to look inward and focus on procurement. Many recent supply chain disruptions emanate from COVID-19. But two years into the global pandemic, companies continue to operate in a state of crisis management as they steer their business through geopolitical tensions, natural catastrophes and shifting workforce trends.
Amid cautious optimism that we're finally turning a corner on the COVID crisis, procurement teams are battling rapid inflation in a market that suppliers control, where demand outstrips supply, and cost savings are hard to find. Such dynamic and complex challenges have inevitably led to a shift in Chief Procurement Officers' plans and priorities for 2022.
According to Ardent Partners' 17th annual State of Procurement report, while some trends continue on the same trajectory as in previous years, many CPO priorities are now notably different in the report's latest iteration.
Here are some top takeaways from CPO Rising 2022: The Data Revolution – download the full report here
Managing Supply Risk is Now The Top CPO Priority
Procurement has ensured business continuity and driven value through these uncertain and volatile times. Unfortunately, however, many businesses ignored the cost of being unprepared for risk in the pandemic's early days, and sourcing professionals who had become accustomed to driving innovation and cost reductions from their suppliers with each successive renewal are now dealing with an entirely new market paradigm.
Having not appeared in any significant capacity in the 2021 report, managing mitigating supply risk (44%) has now jumped to the front of the line:
However, Ardent Partners notes that despite the growing importance of the supply chain and the current CPO focus on risk, a relatively small percentage of the 369 procurement departments included in the research have made the required technology investments and, as a result, lack the visibility needed to successfully enable supply risk management.
Cost Savings Are Back In Focus
Identifying cost savings was once the top priority for nine out of 10 CPOs in Ardent Partners' research, but it experienced a steady decline year-over-year since 2009. This year, by comparison, the percentage of leaders who have prioritized savings has almost doubled from last year's figures: 38% in 2022 versus 22% in 2021.
The recent de-emphasis on cost savings can be linked to a pandemic-related shift to focus on the security of supply at any means and a lesser focus on cost controls. However, now that costs are up and profit margins are down, savings are coming back into focus as procurement professionals look to strategize ways to succeed in the volatile market and contend with the rapid inflation they're dealing with (a top priority for 25% of CPOs).
To succeed, sourcing teams will have to act with greater vigilance and stretch their sourcing capabilities, supply market intelligence, category expertise and core instincts to capacity as they try to manage and/ or avoid major price increases across many categories.
However, with rising inflation, CFOs have tightened their belts, and budgetary constraints are now CPOs' top challenge. "Procurement is rarely at the front of the line when it comes to gaining new investment and resources," highlights the report. "So it falls to the CPO and Procurement leadership team to communicate the value generated by the department."
Digital Transformation Remains High On The Agenda
One of the most common challenges to CPOs' ability to achieve their 2022 objectives is the need to close existing technology gaps (34%) and improve operations and performance.
2021's top CPO priority, "driving a digital transformation" might have been edged into second place (38%) this year. Still, many of the same technology themes in early editions continue today:
The overall findings reveal that adoption continues to increase slowly, technology proficiency levels remain mixed, and the most widely adopted solutions – eProcurement and eSourcing tools – are not yet universally used.
Best-In-Class Teams Use eSourcing
With agility and an ability to drive value from data central to many procurement organizations as they advance through the year, Sourcing optimization solutions may represent ripe low-hanging fruit for procurement to drive both near-term and long-term financial benefits.
For Ardent Partners, best-in-class procurement enterprises – identified as the top 20% of performers in the spend under management metric – achieve top tier performance across a series of critical procurement, sourcing, compliance and supply management metrics.
The report notes that "best-in-class sourcing teams run significantly more competitive sourcing events because they are 51% more likely to have an eSourcing solution in place. These leaders show a dramatic advantage in their advanced (optimization-based) sourcing solutions, deploying them 2.3 times more often."
While savings remain key, sourcing software such as Keelvar's Sourcing Optimizer can also provides many important benefits in addition to price discovery and cost savings – such as improved compliance, productivity and reduced risk. It's one of the many reasons best-in-class sourcing teams implement our technology solutions to help scale their operations and maximize their impact and performance.
While procurement is frequently a bystander in savings results, teams can enable it by using powerful optimization-backed eSourcing technology to control costs and help their companies ride out the storm – all while gaining a competitive edge in the process.
Of course, there is no panacea for handling every challenge in today's volatile supply chain market, but the environment has positioned CPOs to become innovative, cost-cutting leaders for their companies. And when called upon, procurement has generally delivered.
For more insights, download Ardent Partner's CPO Rising 2022: The Data Revolution here. Keelvar is proud to sponsor this year's report.