Learnings in Procurement and Predictions for 2023
A Round-up of 2022
Long tail effects of covid compounded by an energy crisis: this year has certainly not been a breeze.
Where consumer patterns and global demand are concerned, 2021 previously already marked a momentous shift with the emergence of the Covid-19 pandemic. Yet, even food and energy security issues have reached new heights this year.
With the war in Ukraine, tension has grown between Russia and the Western World resulting in numerous sanctions and economic counterattacks. The outcome: an energy crisis. As one of the largest exporters of gas, Russia's response to its sanctions, namely by turning off Nord Stream 2, has had far-reaching consequences for the entire world - not just Europe.
But what does this mean for procurement?
Before Covid, rising productivity and lower costs ensured that supply chains functioned well despite the tendency for companies to opt for just-in-time strategies.
However, last year’s disruptions have not only exposed supply-chain weak points but have all together exasperated them. Procurement departments have been forced to evolve.
To find out what the greatest challenges have been in procurement this year, we sat down with Sam Achampong, Regional Head & General Manager of The Chartered Institute of Procurement & Supply at The Chartered Institute of Procurement & Supply for the MENA Region.
Bringing with him more than 20 years of procurement expertise, he is well-equipped to answer the question “which events of 2022 have had the greatest impact on supply chains and procurement workflows?”. Here’s what he had to say:
“While the war in Ukraine undoubtedly represented the single most impactful event in the calendar year, an event the previous year had the largest effect on supply chains in 2022. As the world was recovering from the pandemic, an unprecedented issue occurred when one of the largest container ships ever built blocked the Suez Canal, subsequently choking the most important supply route in the world. This exacerbated supply shortages, price spikes and business continuity and denied the global economy the swift bounce-back we had anticipated.”
Key learnings & Predictions from the Supply Chain Crisis
Looking back on the past year is crucial in order to help us learn from previous mistakes and avoid their recurrence.
“We learned this year that organisations are more resilient and agile than initially thought, due to the skills and capability of their procurement and supply chain teams.” - Sam Achampong, Regional Head & General Manager of The Chartered Institute of Procurement & Supply for the MENA Region.
We have divided our learnings and predictions into three procurement categories, 1) risk management, 2) data and automation, and 3) ESG criteria and sustainability.
1. Risk management
Learnings: As supply chain disruptions have continued to grow in terms of both frequency and magnitude during the course of 2022, risk management has proved itself to be a vital asset. In 2022, companies have been impacted by a broad range of risks ranging from data breaches and unethical sourcing practices to political instability, sanctions, and natural disasters.
“Procurement has become more agile and strategic as a function. Procedures are less static and risk management is more intrinsic in overall business planning.” - Sam Achampong, Regional Head & General Manager of The Chartered Institute of Procurement & Supply for the MENA Region.
A key learning from the past year is that companies must continue regularly identifying, assessing, and mitigating risks to their supply chain. In order to facilitate this companies must have:
- Ample time and resources to carry out risk management.
- See risk management as an ongoing, rather than a static, process.
- Have the right tools to gain full transparency of their supply chain and ensure that risk management extends to all external stakeholders and suppliers.
Predictions: Just in case (J.I.C.) strategies that favour and prioritise risk management will be more frequently opted for. Due to the constancy of supply chain disruptions, it is becoming increasingly essential to use this form of inventory management. Indeed, having more raw materials than is required at any given time ensures that companies have more leeway in times of crisis.
“Over-reliance on Just in Time concepts is a thing of the past and essential commodities are being stored in realistic quantities ‘just in case.’” - Sam Achampong, Regional Head & General Manager of The Chartered Institute of Procurement & Supply for the MENA Region.
If you are interested in learning more about risk management and the steps for successful implementation, head to our [blog post] (https://www.lhotse.de/en/blog/risk-management-in-procurement-fail-to-plan-and-you-plan-to-fail).
3. Data and automation
Learnings:
“Organisations who already had strategic supplier relationships, highly skilled procurement teams, effective technology implementations and good supply chain visibility in place were emerging from the effects of the pandemic much quicker than others.” - Sam Achampong, Regional Head & General Manager of The Chartered Institute of Procurement & Supply for the MENA Region.
A realisation which began during the pandemic has resurfaced in 2022: many companies are simply too poorly equipped when it comes to their eProcurement systems. During the supply chain crisis, the need to collect data in a quick and error-free manner became tantamount to essential. Yet, companies heavily relied on outdated systems and manual processes in 2022. Indeed, a staggering 30% of companies still, to this day, mainly depend on manual procurement processes. By doing so, organisations miss out on the myriad of benefits afforded by digital alternatives, some of which can be ‘make or break’ in times of supply chain crisis. Examples of these include (but are not limited to), the advantages of real-time analysis and time efficiency.
On a positive note, 2022 saw increasing awareness regarding the topic of digital innovation, with more and more companies valuing the part played by automation in optimising procurement processes and creating data insights. Though progress has certainly been made in the past year, there is still room for growth in terms of willingness to implement these new technologies.
The benefits of procurement automation are numerous:
- Lower costs: did you know that a 5% decrease in procurement costs can have up to a 3% decrease on the bottom line?
- Time savings: automation allows employees to spend more time on strategy by reducing their number of manual, repetitive tasks.
- Creates insights: automation gives your procurement team data insights in real-time to help them make better decisions.
Predictions: In 2023, procurement departments will likely embrace automation more than in previous years and be less likely to settle for their existing manual and largely antiquated workflows. As a natural consequence of taking on board the aforementioned learning, third party add-on tools will gain in popularity as companies look to gain spending transparency and increase overall efficiency.
“Adoption and deployment of technology will increase to enable better visibility across all tiers of the supply chain and also to create more efficient operations.” - Sam Achampong, Regional Head & General Manager of The Chartered Institute of Procurement & Supply for the MENA Region.
If you wish to find out more about how Lhotse can help you to optimise your indirect procurement processes, [speak to our experts] (https://www.lhotse.de/).
3. ESG-Criteria and Sustainability
Learnings: It is undeniable that the issue of sustainability and ESG compliance has certainly become a greater priority for procurement departments. The increasing momentum behind this has likely been caused by two factors. Firstly, a societal shift has occurred causing these topics to gain in relevancy. But perhaps even more critically, it has also become compulsory to take these issues more seriously due to legislative action.
With the recent changes in ESG regulations, for example through the Supply Chain Act in Germany, sustainability is deservedly reserving the right to a place on corporate agenda.
Predictions: Whilst this year the main focus, in terms of sustainability, has been on measuring and evaluating ESG ratings, companies will have to divert greater attention to becoming more sustainable. In essence, ESG initiatives will turn into more of a ‘must’ rather than a ‘nice to have’ next year.
“ESG will become fundamental to procurement planning as organisations deploy methods to monitor and measure carbon emissions while also seeking sustainable options throughout the procurement cycle.” - Sam Achampong, Regional Head & General Manager of The Chartered Institute of Procurement & Supply for the MENA Region.
Summary
So what do these learnings mean, practically speaking, and how can they be used going forward in order to build a more resilient supply chain?
Procurement teams should use the crisis as an opportunity to improve their processes. In terms of digitisation and data management, this could include reevaluating existing eProcurement systems, reconsidering data policy, and implementing new software solutions (such as Lhotse!).
With regard to ESG and sustainability, procurement teams need to establish a clear plan in order to comply with internal company policy as well as external legislative changes. As companies face increasing scrutiny, regarding their willingness to support ESG initiatives, businesses must go above and beyond in the efforts.
If you wish to find out more about how Lhotse can help you to improve your procurement processes, book a demo with us today!
