The procurement function is a strategy lever for organisations. As such, the Executive Board sets a course for leaders and procurement managers so they can take part in the company’s transformation. From value creation to digitalisation, there are many challenges to face. By definition, these strategic issues drive procurement roadmaps and help ensure the long-term success of organisations.
Value creation
Nowadays, agility is the common thread of winning strategies to address the unexpected and its consequences. The current period further reinforces the conviction that business models, like the supply chain architecture, need reinventing.
This is why the procurement function must resolutely focus on creating value for all stakeholders (internal customers, partners, etc.). This business-oriented approach must translate into concrete projects:
- Promoting the integration of innovation into the company (through closer cooperation with suppliers, for example);
- Contributing to accelerating the market launch of new products (by sourcing latest-generation components, for instance);
- Becoming more involved in expanding into new markets (by working more closely with sales teams, for example).
Risk management
When describing the business environment, the letters VUCA have become prevalent in recent years. They mean:
- Volatility;
- Uncertainty;
- Complexity;
- Ambiguity.
This is why one of the strategic challenges assigned to the procurement function is risk prevention, especially risks related to company reputation and supply chain issues. In this regard, let’s not forget the correlation between a company’s share price and, for instance, supplier behaviour. From this perspective, the procurement function safeguards the company’s reputation.
It must continuously assess and potentially mitigate risks like supply chain disruption, failure to comply with specifications, cybersecurity, regulatory non-compliance, non-compliance with environmental protection and human rights principles, etc. To achieve this, it needs to implement rigorous supplier selection and clear evaluation policies by conducting regular audits and promoting responsible practices.
Economic performance
All the while focusing on expanding into new business horizons and protecting its company’s reputation, the procurement function still needs to excel in its primary mission: Delivering economic and financial performance.
All these strategic challenges develop on sound, robust financial foundations and shareholder support. The Executive Board therefore expects the procurement function to have a positive impact on operating profit and cash flow.
Reducing the Total Cost of Ownership (TCO) remains central to the mission of the procurement function. It has built its legitimacy on this expertise and its ability to wield strategic influence still relies on its contribution to the company’s economic performance.
Corporate social responsibility (CSR)
Today, value creation must also be sustainable. This is why the procurement function is embracing strategic Corporate Social Responsibility challenges, including reducing its carbon footprint. And for good reason: Scope 3, which is largely fuelled by greenhouse gas emissions from suppliers, accounts for 80% to 90% of total corporate emissions[1].
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The digitalisation of the procurement function
Digital transformation is emerging as a lever to contribute to all of these strategic challenges. This has already begun with the digitalisation of procurement processes (especially Procure-to-Pay or even Source-to-Pay processes), which provides a quick return on investment. The main challenge of such an approach remains optimising processes (i.e. improving efficiency, simplicity and transparency) as well as reducing costs and improving risk management.
Today, companies are also learning to digitalise other steps in their procurement process, including:
- Spend analysis;
- Supplier relationship management;
- Contract life cycle management;
- Performance management and monitoring.
Over time, they will focus more on innovative use cases linked to other strategic challenges, such as supply chain traceability or CSR.
In parallel, the introduction of new technologies is also changing the game. By processing and analysing vast amounts of data, Artificial Intelligence helps boost procurement processes across the board, from supplier sourcing to invoicing.
- Download our “Long Tail Spend: Digitalise your transactions” white paper.
In conclusion, the procurement function is encouraged to move beyond its traditional role to support the organisation’s necessary transformation more closely. To accomplish this, procurement professionals need to combine robustness, agility and efficiency to assert their strategic positioning. However, strategic performance can only be fully achieved by embracing the societal dimension of its mission. As such, the strategic challenges faced by the procurement function are intrinsically linked to companies’ differentiation and competitiveness objectives.
[1] McKinsey & Company, Buying into a more sustainable value chain, 2021