Today’s procurement organizations are facing increased complexity from an array of sources — economic downturns, working with mega-suppliers, global trade issues and digital transformation, said Ryan Flynn, Principal Deloitte Consulting, in a webinar that explored the findings of Deloitte’s 2019 Global Chief Procurement Officer Survey.
While these complexities present challenges for procurement leaders, they can also be a means to increase procurement’s influence across entire organizations.
Deloitte’s survey — this year titled “Complexity: Overcoming Obstacles and Seizing Opportunities” — offers insight into how CPOs can evaluate their current situations and take actions that will secure a more successful future.
The survey defines the four areas of procurement complexity as:
- External complexity:Everything outside the four walls of the organization that procurement must acquire and manage to serve its internal stakeholders
- Internal complexity:The challenges of managing inter-functional relationships and aligning procurement with broader business objectives
- Talent complexity:People, organizational models and how procurement teams execute on their business plans
- Digital complexity:Technology and processes issues that both mediate the other three complexity areas and fuel digital transformation efforts
The 481 survey participants are CPOs from 38 countries representing industries like manufacturing, consumer business, energy and resources, and healthcare and life sciences. The majority of companies represented have revenues up to $10 billion. Only about 25% posted greater revenues.
The overview webinar, presented in conjunction with Spend Matters, highlighted the survey’s key points — most notably how organizations can become “complexity masters” who are able to turn “the risks apparent in complex business scenarios into value creation opportunities.”
The team for the webinar, presented by Deloitte and Spend Matters, includes:
- Ryan Flynn, Principal Deloitte Consulting
- Pierre Mitchell, Chief Research Officer, Spend Matters
- Matt Szuhaj, Managing Director, Deloitte Consulting
- John Myers, Managing Director, Deloitte Tax
- Sean Peasley, Partner, Deloitte Risk and Financial Advisory
Effectively navigating growing external risks
External risk factors include things like economic downturns, working with mega-suppliers and global trade issues. Not surprisingly, a major concern that survey participants expressed was a need to effectively address these external risks, which are often out of their direct control. More than 60% of participants believe the changes in risk have “increased significantly” or “increased somewhat.”
According to Mitchell, mega-suppliers like Amazon have disrupted the supplier landscape, flipping the relationship so it is often controlled by the supplier. The impact of this change is compounded by other factors like Brexit and the rapidly changing global tariff situation.
Companies are creating playbooks that look at “key failure points, risk thresholds, key indicators/key actions, contractual terms and response time” to more effectively address external complexity. They are reducing exposure by looking more closely at their supply base structure and adopting technologies specifically designed to address supply network management.
Updating strategies to include “corporate strategy, long-range planning, fulfillment strategy, location assessment and execution planning” helps companies better align across the organization. Complexity masters, Mitchell said, are farther ahead in creating dynamic supplier sourcing changes and proactively investing in risk and complexity management.
Maximizing internal collaboration to take advantage of ‘good’ complexity
For most companies, balancing the internal and external complexities is a challenge. Factors like an internal talent shortage, Szuhaj said, can be impacted by external factors like economic downturns, geographic locations and political instability.
Companies struggle when they try to resolve these internal matters with tactical solutions that fail to address larger corporate strategies. Creating short- and long-term footprint changes that establish internal partnerships have the potential to bring the best overall outcomes, he said.
Internal collaborations, or “good complexities,” are critical to procurement’s success. When procurement departments evolve and play larger roles in strategic decision making, the survey found, their purview expands beyond traditional cost reduction. This, however, is still at low levels for many companies, with 75% of participants stating that procurement’s effectiveness as a business partner with the company is “fair” or “poor.” The general perception is that IT, finance and operations are “excellent partners,” but manufacturing, tax, and sales/marketing are “poor partners.”
About three-quarters of complexity masters were found to be “three times more likely to be always/usually playing an active role in stakeholder decision making” when compared to all respondents.
“Deep relationships across the organization are really critical to being able to master internal complexity, and that good complexity helps generate incremental value for the organization,” Szuhaj said.
Developing the right talent model to execute procurement strategies
Procurement leaders need to have confidence in their teams’ “abilities to deliver on procurement strategies,” but that has declined, creating a need for more training. The most commonly planned training, according to survey results, are in strategic sourcing/category management, negotiations and project management.
Although CPOs are working to develop the best talent models to execute their strategies, finding the right talent is something they will likely continue to struggle with, Flynn said, in part because of the increasing impact of complexities. Even complexity masters aren’t immune here — they reported only about a 20% greater confidence level in their teams’ ability to deliver on strategy.
Soft skills and digital training are equally as important, with the majority of participants planning business partnering/relationship management, effective manager training, data visualization and predictive analytics emerging as the top two skills in each category, respectively. In some cases, digital training is part of a planned digital strategy that includes “advanced digital solutions like robotic process automation and artificial intelligence,” Flynn said.
Complexity masters, the survey found, have a greater focus on ethical sourcing, which ties into a “broader organizational strategy around corporate social responsibility.”
And why does all of this matter?
There are three intersecting components — physical proximity, automation levels and talent category — that are re-shaping “everything we know about work, the worker and the workplace,” the survey said.
“We’re starting to see much greater levels of human-machine collaboration in the workplace, use of things like artificial intelligence, robotics … to take over some of the work that people traditionally do. We’re also seeing alternative ways for organizations to access talent and really close gaps in their talent bases,” Flynn said.
There is also a greater focus on mobility to allow people more flexible schedules that can improve productivity, he said.
Optimizing use of foundational and emerging digital solutions
As in past surveys, analytics continues be the factor expected to have the greatest impact on procurement solutions over the next two years. Other key factors included the renewal of strategic procurement tools, renewal of operational procurement tools, and ERP platform renewal.
Interestingly, while CPOs understand the need for technology integration, only 5% of participants said they have “fully deployed advanced analytics and visualization.” Nearly a quarter of participants have not started using an analytics solution. Almost no CPOs reported using more advanced technologies like blockchain and AI.
“The biggest message … is that the top solutions in terms of expected impact over the next two years are really largely these foundational tools … which makes sense because you really have to master the basics,” Flynn said.
Most CPOs, the survey found, are not satisfied with their technology solutions. A full 81% reported dissatisfaction with fully implemented supply chain risk and compliance solutions. Supplier management solutions had a 71% disapproval rating.
The more strategic solutions, Flynn said, are more problematic, partly because procurement teams are not able to meet the needs of digital and there is no clear overall enterprise strategy for digital. Core digital solutions like ERP, spend analytics and contract management must also be well-established before companies can successfully implement maturing and emerging solutions, including AI, predictive analytics, visualization, sensors/wearables and blockchain.
With technology comes the risk of cyber threats. It’s no longer enough to protect the enterprise and third parties, Peasley said. Now, companies are relying upon the supply chain and the products and subcomponents of products you might build, he said.
And, he warned, adversaries are patient. They are agile and will use different methods to try and gain access, so companies must consider cyber risk early in every procurement process to be sure the proper protections are in place.