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As chief procurement officers (CPOs) and their teams become increasingly indispensable for companies, the role that these individuals play in the enterprise continues to shift and expand. In a new Economist Impact report, SAP and Ariba highlight some of the key changes that are taking place and what procurement teams should be doing now to prepare for what’s ahead.
For the report, SAP and Ariba surveyed more than 2,300 C-suite executives to get a pulse on current and future procurement trends. Some of the key topics covered included procurement priorities and capabilities in risk management, internal and external collaboration, digitalization and sustainability.
Here are five different ways that the procurement function is evolving right now:
1. Procurement is aligning with the broader organization on strategic goals. Reporting is pivoting towards chief operating officers (COOs): This year, 44% of procurement teams are reporting to the COO, compared with 26% in 2023 and 34% in 2022. By contrast, just 23% now report to the CFO, the typical reporting line. “This shift in relationships opens avenues for procurement to align more closely with the strategic goals of the organization,” Economist Impact says, “by involving themselves in discussions on themes like innovation, rather than solely cost containment, for example.”
2. Inflation is driving the need for better cost management. The survey found that C-suite executives view monetary uncertainty—inflation included—as the top risk over the next 12-18 months, for both procurement and business as a whole. Around half (49%) cite it as their top priority compared with other procurement risks, a considerable jump from only 20% last year.
3. ESG is becoming a bigger focus. As key stakeholders become more socially and environmentally conscious, procurement teams are incorporating cleaner, more ethical practices into their key performance indicators (KPIs). “These ultimately contribute to procurement’s expanding remit, particularly around business’ ESG goals,” the publication adds.
4. Effective collaboration remains an elusive goal for many. According to the survey, 75% of executives say procurement collaborates effectively with business on issues of strategic importance (up from 53% last year), but only a fraction of these (18%) have high confidence in procurement doing so, and only 14% have high confidence in the application of procurement insights across the organization. “Procurement has yet to gain the full trust of stakeholders in this area,” Economist Impact states.
5. Digitalization goals aren’t always easy to hit. The survey found that just 32% of executives are highly confident in procurement’s ability to automate procurement and even fewer (16%) are highly confident in procurement’s ability to manage spend, compared with higher levels of confidence for other KPIs, such as strategic sourcing (39%) and category management (55%). “Business stakeholders fixating on return on investment for technologies and skimping on innovation training,” the publication notes, “are leading to the rejection of new capabilities and undermining confidence in procurement’s abilities to manage technology and influence spending.”
AI: The New Frontier for Procurement
Looking ahead, Economist Impact says that procurement’s success on the digitalization front rests on the function’s ability to adopt and master emerging technologies. “Accelerating digitalization is the highest procurement priority for the majority of respondent organizations over the next 12-18 months, and artificial intelligence (AI) adoption is a centerpiece of these efforts, cited by 44% as a top technology priority,” it says. “The respondents make [it] clear that AI should play a key role in improving procurement process automation.”
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