Was 2023 Procurement’s busiest ever year? If so, what did we truly learn?

 In Cost Management

After a hectic 2023 recovering from the pandemic and its many changes, what are the key lessons for procurement to take in to 2024? – Jonathan Dutton FCIPS, the CEO at PASA, and a non-executive for SUPPLY CLUSTERS, suggests a few learnings from the year’s procurement events … 

Last Christmas, I predicted that 2023 would be exclaimed as procurement’s busiest ever ‘down-under’, only really half-convinced that it would transpire as such. 

In the past, procurement cries for more resources (and a ‘seat at the table’) have felt a bit closer to inefficient management than a manifestly strong business case. 

That article foresaw five key reasons that would drive procurement into its busiest ever year in 2023: 

Five reasons for BUSY 

Every procurement team I have engaged with this year has staff vacancies, the skills-shortage on the supply side is real and procurement is not exempt. Less people: More work per head. 

Moreover, the post-Covid procurement workload is still high, mainly due to the changed volumes for so many categories after the pandemic addition to the sheer amount of contracts that were just rolled-over or ‘parked’ for later attention – which became this last year or so, especially for ‘indirect’ contracts, that now need “re-doing.” 

In addition, many ‘direct’ procurement teams are rigorously readdressing the balance of risk (of non-supply from far-flung places) versus the COST benefits (a bit cheaper) from sourcing from developing countries; which is detailed work. 

The final reason workload is high in procurement this last year is, simply, ESG. That is ESG reframing almost every purchase decision we take. If not at the time of contract award, then inevitably afterwards as stakeholders complain their favoured cause was not supported by a particular order or contract.

Indeed, the ‘most popular slide of the year’ competition at PASA was won by this ESG slide BELOW – forged after the PASA CONNECT CPO Roundtable last February 2023 identified the Top 9 Priorities for ESG on the supply side. If nine priorities sounds like a lot, the CPOs started with a long-list of 30 priorities! You see, the ESG topic offers a “dizzying array of objectives” as THE ECONOMIST newspaper described it in July 2022. Stakeholders, however remote, demand much nowadays.   

ESG Priorities?

The top two priorities listed on the slide are law – The Modern Slavery Act 2018 and the Payment Times Reporting Act 2021; and should be the top priorities of all supply side managers accordingly. 

The next three “almost obligatory” priorities feel next in line, as they are so very widely adopted – or as one CPO said, ‘without these your social licence can be threatened very quickly’  – Net Zero targets, procurement from indigenous owned suppliers and gender equality within suppliers are all topics that carry quantified targets for many procurement teams today throughout Australia, and New Zealand too. 

Actually, the next group of nominated priorities are optional. Yet they don’t feel optional for many. 

Indeed, this goes to the heart of the ESG problem – too much to do. That “dizzying array of objectives.” Several CPOs this year showed me a nice binder of well crafted policies. But few CPOs can showcase real traction or hard impact resulting from their well-crafted policies. That is largely because in most ESG focus areas true impact, even effectiveness, is difficult. These are not easy policy areas. They demand commitment, hard-work and resources. Each of these alone are rare commodities, especially during a skills shortage.

Not to mention the tenth priority – added as an afterthought. The ‘G’ – Governance, usually overshadowed by the E and the S in the clammer for preference in using supply-side leverage for broader ESG outcomes. 

In truth, many C Suite leaders see the supply-side as a good place to manage ESG requirements from; with lower risk perhaps. Yet resources remain thin. 

Perhaps procurement needs the confidence to be more assertive and ‘negotiate’ a ladder of priorities with their stakeholders aligned to brand, values and relevance of what they address? 

We cannot do everything and cannot have 30 priorities for anything – even nine priorities, really. Which is most important and why? What can you tackle and deliver impact upon? What can wait a bit, or be left to others to address maybe? Which are most relevant to you? Where to start? 

Value beyond Cost

The calendar year started with the PASA “theme doc” for 2023. This scopes the themes and content structure for all PASA events and in large part the dialogue around the programme for the year. This year, value beyond simple cost savings ….

Procurement is branded as the cost savings generator. But, in times of higher inflation, making savings becomes tough. And without savings, what is procurement truly for? Wonder some. 

This is the challenge procurement faced as the year of 2023 started and inflation climbed. Sure, procurement does more than save money – it ensures delivery and quality, reduces risk, drives compliance, builds efficiency …. and so on. But these line shave largely become ‘claims.’

Delivering measured value beyond cost savings was the real target in 2023, post-pandemic, and over 150 speakers at PASA throughout the year addressing a cumulative audience of over 2,500 procurement practitioners at PASA Conferences – plus at 65 Roundtables through ‘PASA Connect’ to meet over 1,500 more people – directly addressed this theme with real examples and ideas.    

Four key Questions

At the seven cities regional PASA BIG BREAKFAST events, particularly, this generic theme was distilled into four practical questions:

These align the procurement pressures from the business agenda in most organisations. Chiefly, balancing RISK -v- COST for our stakeholders in our new post-pandemic world of supply fragility. 

Telling Research 

The Hackett Group survey for 2023 addressed the CPO priorities both globally and within Australia and New Zealand (ANZ), laddered them, and gridded their potential action and impact, all whilst setting them into the context of limited procurement resources.  

HCKT Stock Forecast, Price & News (The Hackett Group)

It was interesting to see that globally RISK led the ladder, yet COST led in ANZ – as it has done almost continually since the survey was first started. Sustainable procurement, in its broadest sense, only made the Top 10 priorities listing relatively recently, but sustains. Technology is always in the top ten in various guises. 

eProcurement Technology 

Gaps were apparent in much of the information derived and downloaded from eProcurement technology during the pandemic and, historically, eProcurement has almost always been a tricky subject with many detractors and few consistent admirers. Yet the vendors have worked hard to fill these gaps since it seems; they have certainly been listening to procurement gripes passed on from stakeholders during the pandemic. More vendors have entered the market or expanded lately. 

Yet The Hackett Group 2023 (THG) survey offered a startling insight to pull together technology and resources as separate issues:

This survey suggested workload for procurement would increase by around 11% in 2023, yet CPOs at the PASA CPO exchange in August 2022 and 2023 both unanimously agreed “more than 11% growth in workload” … 

Yet, the survey only forecast a growth in FTE headcount within procurement teams at around 3%, indicating roughly an 8% productivity gap. THG research suggested that CPOs wanted to use technology to fill the gap – automated ordering, USER self-serve, guided buying and greater S2P tech to minimise buyer’s workload. 

A late addition to this debate was the anniversary of ChatGPT launching in November 2022. PASA anecdotal research has highlighted how many people in procurement have already tried ChatGPT in a professional context to reduce workload – close to 100% judging by straw-polls at PASA events. Figuring out how exactly to use AI well, and most productively, will be a challenge for procurement in 2024 – and many others too. 

Poor business cases 

A corollary to this survey was the Gartner research revealed at ProcuretECH’23, and mentioned throughout the year at PASA, that only 17% of business cases put forward for eProcurement technology actually succeed as pitched. Some 34% get through with significant amendment (read reduction) and fully 49% fail completely. 

Half the business cases put up by procurement (for technology) fail. Yet we are relying on technology to fill a current 8% productivity gap. Weak business casing has been a feature of ProcureTECH commentary for some time – justifiably it seems, now. 

Do procurement manage to put up strong business cases for other things? Or, is it just technology that offers a poor case? Maybe not.

Supply Chain Tracking 

The second most interesting slide of the year was presented by Axis Group International at many of the PASA CONNECT BIG BREKKY series of events in seven cities around the region this year. 

They had been briefed in late 2021 and 2022 by a Dubai based UAE construction conglomerate client to map their supply chain for building products they were purchasing from a supplier in France that seemed consistently unreliable and disrupted. Why they asked?

Axis Group tracked their INBOUND supply chain through eight Tiers and eight countries – coincidentally originating in WA, Australia, as the original raw material supplier. The products tracked through perhaps four of the highest risk supply countries in the world – BRAZIL, UKRIANE, RUSSIA and CHINA before ever reaching France. And the UAE client wondered why supplies were often disrupted? 

This slide quickly became a ‘one-slide no-brain’ business case for supply chain mapping of critical supply lines during uncertain times. 

Friend-Shoring 

Of course, spotting the inbound supply chain problem is the first part of the challenge for procurement people – and the supply chain map does that handsomely, in this case. How best to address the apparent risk is the larger question?

In June 2022, THE ECONOMIST research suggested that the Forbes 3000 companies had increased stock by 50% costing over USD$1trillion as a simple single strand strategy to supply shocks after Covid. 

In procurement circles, the debate on the best strategy mostly covered seven core options:

Reconsidering RISK v COST options, especially for the supply of direct supplies from lower-cost countries, has been core procurement work since Covid. The options depend on circumstances. Many considering re-shoring supply clines to be safe and avoid shortages. Others re-stocking. Yet others bearing the risk of far-flung supply lines. 

But one option that became a focus in 2023 was “Friend-Shoring.”  At several key events during 2023, the Moodys economics team presented data that illustrated how some buyers had successfully adopted this strategy. With so many countries offering economic, geopolitical, domestic or other high-risk profiles, it was easy to see the allure of turning to “friends.”  Since Trump in 2016, USA imports from China have fallen significantly, the balance of payments figures indicate, and they still continue to drop. Imports from Mexico and Canada in to the US have risen comparatively. Friend-shoring.    

“A post savings era”

Finally, a telling contribution this August from the CEO of an industrial services organisation based partly in WA but headquartered in NSW. 

At a PASA Connect CPO Roundtable, one member explained how his CEO had told him that he cared less for savings now and that, “we are in a post-savings world now” as the CEO added, “I do not stay awake at night worrying about savings, I do lie awake worried about my supplies arriving on time so that we can service our customers. That is what could kill our business.” The CEO went on to explain fully how that CPOs job had changed, towards supply assurance over savings. 

What was most interesting, right then, was how many heads were nodding around that CPO roundtable in agreement. Others seem to have had a similar message.  

Conclusion

Covid changed the dynamics of business. And showed us again, like the GFC did in 2008, that RISK is the biggest issue in business. That we in procurement particularly have to think more strategically about inbound supply chains – especially at the very tip of the global supply chain here in ANZ. 

The supply side can be a real threat to an enterprise or add enormous value – how you approach this potential for your organisation and think through your best options strategically to ensure continuity and to add value at the same time is the key to success. That is the real lesson of 2023. 

Ready for 2024 YET?

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