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Rising to the Challenge: Driving Procurement Excellence in 2023

By November 5, 2023No Comments

The pace of change in procurement is accelerating as teams work to keep up with shifts in the macroeconomic environment, supply markets, stakeholder expectations, and emerging technology. 

This theme of ongoing change is one of the key areas of focus in a survey that KPMG recently conducted with procurement leaders in 400 global companies. The study sought to gauge current challenges, goals, priorities, and outlooks for procurement professionals worldwide, offering insights into how procurement will continue to evolve as new challenges and opportunities arise and helping leaders shape their go-forward strategies, investments, and actions.

In the short term, procurement leaders find themselves grappling with an uncertain economy, rising material and freight costs, and supply disruption. These issues have led to a more reactive approach in procurement practices, as organizations must respond quickly to shifting market dynamics. Despite the tactical mentality many procurement teams currently adopt, there remains a focus on strengthening relationships with CXOs and immediate stakeholders to drive strategic change and deliver value.  

Dipan Karumsi, a Principal at KPMG and leader of the Procurement & Outsourcing Advisory practice, noted that, “Procurement always has to be dynamic and aligned with the needs of the CXOs and stakeholders, which means keeping an eye on the market and looking for sources of value. In order to manage perceptions, it has to integrate the broad framework of what procurement is going to do and the capabilities that are necessary to execute on that vision.”

As part of this, procurement roadmaps are becoming increasingly important for aligning with stakeholders and the wider business, as well as ensuring a structured approach to system investments and leveraging emerging technologies, such as generative AI. Roadmaps are crucial for organizations to prioritize and define their investments, build new capabilities, and establish a strategic vision for the future. 

Len Prokopets, a Managing Director in KPMG’s Procurement & Outsourcing Advisory practice noted, “In general, a roadmap is a way that organizations can really prioritize and define their investments and capability building and so on, but it’s also for procurement the mechanism to really align with the broader organization and leadership on the vision, the expectations, the role that procurement will play, and the outcomes that the business will get from procurement.”  

As it stands, 84 percent of the surveyed companies have roadmaps for the next 1 to 3 years, while just over half have the roadmaps extend to the 3- to 5-year time horizon.

With data and insights as well as outdated systems and infrastructure named as key internal challenges for procurement organizations, executives are expected to focus on risk management, supplier management, and contract management solutions. This includes exploring self-service applications, advancing contract lifecycle management (CLM) capabilities, and centralizing document repositories for better accessibility and efficiency.

Procurement functions will also need to invest in new technologies that can help streamline operations, drive efficiency, and deliver value. In particular, advancements in AI technology and machine learning have the potential to radically transform procurement processes. Generative AI, for example, can provide valuable insights into supplier performance and enable procurement teams to make better, data-driven decisions.  

Len Prokopets noted that, “We are extremely bullish on the coming changes from generative AI. Obviously, generative AI is coming on top of orchestration layers and low-code, no-code, and regular AI machine learning. We have identified somewhere in the order of 60 use cases in procurement that really spans the gamut of all the functions of procurement of where the key applications of generative AI are.”

Furthermore, enhancing CLM capabilities can help procurement teams to better manage contracts and mitigate risks. In the KPMG survey, it was revealed that 41 percent of respondents did not have a centralized document repository for contract management. Addressing this issue and embracing CLM technology can lead to significant efficiency improvements and better risk management.

In terms of talent and staffing, procurement teams are expected to focus on streamlining their operating model and utilizing third-party services or outsourcing in specific areas such as third-party risk management, procure-to-pay processes, and outsourcing advisory. This approach can help mitigate some of the challenges related to talent shortages, as well as ensure that procurement teams can focus on higher-value strategic activities.

It is notable that ESG factors, while not yet dominating short-term priorities, are poised to play a significant role in shaping the future of procurement. As organizations continue to prioritize sustainability and social impact, procurement teams will need to adapt their practices to align with these values. This may require moving beyond traditional procurement methods to adopt more sustainable and socially responsible sourcing practices. Additionally, more effective communication with C-suite executives and stakeholders will be crucial for ensuring alignment on ESG strategies and priorities.

In conclusion, procurement organizations face numerous challenges and opportunities in the years ahead, with an increasing focus on ESG factors and the integration of new technologies such as generative AI. By developing and implementing strategic roadmaps that prioritize risk management, supplier management, and contract management, as well as nurturing strong relationships with CXOs and stakeholders, procurement teams can drive lasting change and deliver value for their organizations. 

As always, procurement must actively build awareness and support for the value they bring and the increasingly strategic role that they play. Dipan Karumsi added that, “Selling the value that procurement can bring to the table is extremely critical and, historically, I don’t believe procurement has been that good at marketing their services. They do great work but tend to undersell the value they are delivering.” 

The landscape may be complex and ever-evolving, but with a proactive and future-oriented approach, procurement professionals can adapt, innovate, and rise to meet the challenges of working in an uncertain economy while supporting sustainable growth.

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