Procurement teams across the globe are stepping up, adapting and innovating amid whispers — and sometimes shouts — of economic uncertainty.
In the U.S., 57% of executives express concerns about the possibility of a recession occurring in 2024. Other parts of the world, including the U.K., Japan and Finland, aren’t just worrying; they’re living this reality, having officially dipped into recession territory this year. And for global companies with connected supply chains, procurement feels the effects.
There’s an essential ingredient needed by chief procurement officers to guide their organizations to remain resilient through market fluctuations, and that’s data accuracy. Insights from data help them better negotiate contract-driven value-adds, minimize cost increases and identify ways to reduce risks. That’s why forward-looking companies view procurement as a change agent to shape business strategy and outcomes.
To be sure, it comes back to data. But getting useful data for strategic decision-making remains a persistent, vexing challenge for many CPOs and their procurement teams, who can miss time-critical insights about spending practices, risk exposure and performance tracking. They miss these insights because data is everything everywhere all at once, in different formats, and not necessarily in “procurement’s language.”
To usher in this change, organizations need CPOs with a modern, data-driven mindset to lead their teams — those who not only know how to harness technological advancements like artificial intelligence to optimize procurement processes, but who also understand how data drives their actions, teams, and results to ensure efficiency, sustainability and competitive advantage as markets and supply chains change.
Using Advanced Technologies
Artificial intelligence is already starting to transform procurement. AI use cases have already proven its ability to revolutionize the procurement data categorization and normalization process, and to automatically generate insights. Traditional obstacles are more easily addressed and solved by AI, such as the fragmented nature of procurement’s data, which is often spread across dozens of business units, and even live in multiple Excel sheets.
Consolidating spend data in multiple and incompatible data formats, for example, is complicated. Normalizing naming conventions is difficult, with possibly hundreds of variations for the same supplier, service, product or part name. Procurement also needs to make its data “smarter” by enriching the spend data with supplier performance, risk and sustainability information. This becomes important as the discipline assumes an elevated role in environmental, social and governance (ESG) initiatives and regulatory compliance. Yet teams often struggle to solve their data problems in time to match enterprise spend behaviors with suppliers’ ESG impact.
Data-driven CPOs are on to this. They’re looking for solutions that can accelerate the data chaos cleanup process. Traditionally, this needed to be taken in phases, but with the combination of AI and advanced analytics, they’re giving themselves and their teams the full benefits of real-time and deeper insights into spending patterns, procurement initiative status and supplier performance. Many best-in-breed tools offer capabilities beyond traditional peer-to-peer suites, so evaluating options is key.
Optimizing Procurement Performance
For the data-driven CPO, the only thing better than gaining accurate spend intelligence in real-time is using it to drive value to stakeholders and finance, without having to toggle between platforms or wrangle data from one system to another. Shifting to a more proactive versus reactive position is the desirable position for a leader.
Procurement performance management (PPM) tools provide a comprehensive measurement of procurement operations, from spend analysis to supplier performance and contract compliance. By integrating these tools with advanced analytics and AI, CPOs can gain deep insights into the efficiency and effectiveness of their procurement strategies.
Integrated with spend intelligence, PPM allows for faster creation of new procurement initiatives in the pipeline. This capacity to quickly turn insights into actions with strong stakeholder buy-in (thanks to the clear data picture) accelerates the execution of procurement strategies and the attainment of organizations’ objectives.
PPM also helps support risk mitigation and compliance to drive both financial and non-financial value. Procurement leadership can centrally track projects for easy control and oversight, communicate financial performance to the C-suite, and track ESG progress.
For CPOs, the ability to measure and manage the performance of procurement activities against predefined key performance indicators and benchmarks creates a continuous improvement loop, where insights derived from performance data inform strategic decisions.
Technology and Mindset
Procurement’s transformation from a traditional, transaction-focused function into a strategic, value-driven pillar of the organization requires more than just technological adoption; it demands a shift in perspective among CPOs and their teams.
Acting like strategists, akin to how sales experts leverage relationships and anticipate future needs, is essential for CPOs to proactively engage with suppliers and stakeholders. They can foster partnerships that go beyond mere transactions, and align procurement’s efforts to the organization’s top- and bottom-line value. By embracing risk, seeking out opportunities for innovation and prioritizing sustainability and ethical practices, CPOs can lead their teams to achieve operational excellence, while contributing to the organization’s strategic goals.
The modern, data-driven CPO sits in the driver’s seat, steering procurement to act as a change agent. By using advanced technologies and embracing a strategic mindset, they tap into data’s potential for turning spend insights and procurement processes into transformative initiatives across the organization.
Scott Macfee is chief executive officer of SpendHQ.