While most people will be happy to turn their backs on 2020, even the most optimistic among us would be hard-pressed to believe all our industry’s problems will disappear on January 1. But no one can deny the impact this year has had on procurement and supply chain management. The coronavirus pandemic called into question traditional purchasing practices and inventory management. A growing awareness of social justice issues changed how we thought about supplier diversity. Massive supply-chain disruption and lockdown measures caused a general pivot to a more risk-conscious business environment and a tech-powered remote-work culture. The events of 2020 will change how we approach every facet of our work life for years to come.
So, what will 2021 hold for procurement teams? Is there any light at the end of the tunnel? Or will it be more of the same for the foreseeable future?
The answer may depend on how much we’ve learned over the past twelve months. The pandemic fundamentally changed where and how we work, and it will likely shape sourcing and purchasing for years to come. But that doesn’t mean you can’t be ready for it.
During a recent Fairmarkit webinar, panelists agreed we are truly at an inflection point in procurement. Change was already on the horizon, but if ever there was a time to shift and improve the way we operate, it was this year. Here are our predictions for 2021 and beyond:
The coronavirus pandemic was barely a few months old when business leaders began to realize that the crisis would have a more profound impact on the economy than initially expected. Along with minimizing costs, procurement teams have always played a role in mitigating risk. In 2020, they did both at a much higher level as logistics broke down and lockdowns wore on. Even after the pandemic is behind us, this will continue.
Risk mitigation will become increasingly central as the types and extents of risks continue—supply interruptions or discontinuities, critical technology failures, cyber-attacks, and vendor fraud. Teams will need to develop innovative ways to help their businesses survive and thrive through better sourcing, purchasing, and negotiation. As more organizations push for enterprise digital transformations, better technology for risk management will become a higher priority.
A November survey by Deloitte made one thing clear: The old ways don’t work in a time of crisis. For decades, companies have focused on reducing their supply base and cost-cutting while streamlining the procurement strategy. But with few suppliers and small inventories, many organizations simply couldn’t react swiftly or confidently enough during the pandemic. Instead, they ran out of stock and failed to meet customer demand.
One of the most significant threats to any organization today has become logistics and supply disruption. A primary lesson learned in 2020 was that relying too heavily on a small number of vendors can be crippling. As a result, senior managers will continue to look hard at sourcing, purchasing, and inventory.
A renewed focus on supply chains will require procurement teams to rethink their fundamental role. They will need to consider more local options and a digital transformation strategy to detect risks and inform decision-making. The agility of procurement will become key to the organization’s success.
Companies still using paper-based acquisition and invoicing systems suffered greatly during the pandemic. If they couldn’t find their suppliers’ order records or contact details, even the smallest tremor of a problem could turn into an earthquake. But even moderately digitized procurement teams often encountered challenges if they didn’t also have transparency and analytics built into their systems. Pinpoint information on orders and digital tools for managing spend (including tail spend) became vital for businesses plotting a course through lockdowns and supply-chain disruption.
In the post-pandemic world, digitization will become almost mandatory—a penny-ante that simply gets you a seat at the table. Digital transformation technologies will need to include more than just online purchasing portals. Automation technology for reporting, artificial intelligence for analysis, and cloud-based record-keeping that can be accessed anywhere will all be must-have technologies going forward.
Experts believe a large part of de-risking your supply chain is diversifying your providers. Geographic diversity is a vital method for protecting against logistical disruptions. But also important is the range of partners on the roster. Supplier diversity—adding minority- and women-owned businesses to your supplier base—has become crucial to a company’s ability to survive major disruptions. And as the Black Lives Matter movement brought prominence to systemic racism, the need for greater supplier diversity has become a focus for business leaders. Procurement teams should lead the way in these initiatives.
According to the Deloitte survey, six months into the pandemic, only half of all procurement leaders had high or very high visibility into their largest (Tier 1) suppliers. And a vast majority (90%) rated supply network visibility as moderate to very low. A deeper knowledge of your vendors will be critical for survival in the future. The C-suite will expect procurement teams to have a more comprehensive understanding of relationship risks and to work with partners to find solutions to unexpected disruptions. Sharing information up and down the supply chain will become a crucial way to enhance transparency and anticipate future problems.
In 2019, research group Gartner forecast that by 2021, most procurement staff will need additional business, digital and analytical skills to “realize business innovation and growth.” Gartner probably didn’t realize just how true that statement would be. Guiding purchasing and inventory operations through the pandemic required strong interpersonal and communication skills. Teams needed to deal with external suppliers and communicate strategy to internal stakeholders.
Atop the list of new skills needed for a post-coronavirus world will be relationship management. But that’s not to belittle technical savvy. Organizations will expect their procurement departments to master a host of new technology and become experts on and leading advocates for digital innovation. This will include process automation, machine learning and AI, scenario planning, and data-based analysis. Professionals with these skills will be in high demand.
Repatriating supply chains—a trend initiated in response to the disruption caused by the pandemic—will continue into 2021 as organizations aim to lessen supply and logistical risks. At the same time, buyers are looking for more visibility and control over sourcing. This year, lean, just-in-time inventory strategies became a liability rather than an asset. Against this backdrop, CPOs are rethinking their operations, aiming to streamline the purchasing process and putting the decision-making power into buyers’ hands across the organization. This won’t mean relinquishing responsibility or letting other departments do whatever they want. Instead, the trend will be to eliminate some of the bureaucracy by using technology and purchasing templates to empower people to run more sourcing events themselves.
It will also mean reassessing what spend is essential for Procurement to manage. We may have to revisit the age-old Pareto Principle — that 80% of your expenditure will likely come from 20% of your purchases. During our recent webinar, the procurement thought leader Walter Charles said we’ve been deluding ourselves that managing only 20% of our spend is OK. Charles, the former CPO at Allergan, Kraft, Kellogg’s, and Johnson & Johnson, believes the pandemic has rendered the 80/20 rule obsolete: In 2020, things that don’t make it into most people’s 20%—like PPE, for instance—were top-of-mind for many companies. To better manage risk, the 20% becomes nearly 95% of your spend, says Charles. And that means dramatically rethinking your process.
Rewriting the process also means changing scorecards to match what the organization needs. How the procurement function is measured becomes a critical conversation to ensure that following the process doesn’t mean missing the requirements of the business. To succeed in 2021, discussions about processes, measures and budgets must be happening now, so that teams can be proactive in their engagement models with the rest of the organization.
In the next few years, machine learning, big data analytics, and robotic process automation is likely to transform every facet of business. And procurement will not be immune. Platforms that utilize these technologies are not only here to stay, they’re going to disrupt the current ecosystem.
Thanks to technology, activity reports that once took a day can now take an hour without sacrificing quality. Evaluating 1,600 suppliers takes the same amount of time as evaluating six. The intelligence behind these systems is improving, and decisions are becoming more automated and more data-driven. Platforms allow teams to get more done in less time.
Rendi Miller, VP of strategic sourcing and procurement at Zendesk, says there’s no silver bullet when it comes to new platforms. There is so much technology available that you could have a different application for the entire source-to-pay process and every backend function. But that doesn’t mean you have to buy every tool available. Instead, she says firms in 2021 should first look at the tools they already have and discern how and where to use them. The key will be to understand how to:
As processes improve and platforms are rolled out, top of the talent list will be people who can best use these new tools. Yet operating budgets are likely to be less in 2021, and staff will be leaner. Hitting the business’s goals under these conditions will be a crucial challenge—and without the proper skills and talent, your team might not be up to the task. In this environment, data analytics and dashboard building will become important competencies. These new aptitudes don’t necessarily require fresh staff. They are teachable. With the right training, CPOs will find they can take their existing talent pools to deliver different outcomes for their organizations.
Enhanced people skills will also be needed in the team. Work and business relationships in a remote working environment have taken on a significantly different nature during the pandemic—and this is set to continue. Distributed workforces working from home have introduced a new paradigm, VSP Global Head of Global Corporate Services Greg Tennyson told us during the webinar: Procurement staff now collaborate with colleagues via Microsoft Teams, Zoom, and WebEx. Staff members must be able to influence and persuade suppliers and negotiate contracts without the advantage of eye contact or body language. A virtual conference is a totally different environment, requiring a whole new set of skills.
In 2021 and beyond, your team will need profoundly different aptitudes than they’ve historically required.
With good processes, platforms and people, procurement teams will rise to the challenge of helping their businesses make better decisions, whatever the New Year holds.
2020 was a year the likes of which we have never seen. The pandemic pushed procurement teams to their limits. But this year was also a clarion call: We need to be nimble change managers who are calm under pressure and ready to help lead our companies to mitigate the risks of a progressively uncertain world.
If you want to learn more about what the future holds, watch our on-demand webinar, Procurement predictions for 2021.
An abridged version of this article was published to Supply and Demand Chain Executive on December 23, 2020.