It’s a familiar story: procurement departments don’t have sufficient resources to execute day-to-day business and work on sustainability, resilience and other strategic issues. Technology, including AI, is poised to automate time-consuming tasks, but investment in supply chain solutions is insufficient.
In fact, recent research concludes that procurement departments are under-resourced and face several difficulties regarding funding, digital infrastructure and resource management.
Source: Jaggaer: Rising Influence: The State of Procurement 2024
“Senior procurement leaders understand that more-effective use of data is vital. Yet many procurement functions still struggle to transform themselves into data- and technology-driven organizations,” according to business consultancy McKinsey. Three key problems are holding procurement initiatives back: issues with data quality and access, lack of clarity over the business case for new digital or AI applications, and difficulty driving adoption of the new tools at scale, McKinsey reported.
It’s notable that procurement, the heroes of the Covid-19 pandemic, are now somewhat stymied in regard to digitalization. Some corporations have moved at full speed to modernize their procurement departments while others, facing a challenging economic environment, are at best maintaining their supply chain investments.
Seventy-five percent of organizations worldwide have increased or maintained their budgets for supply chain and procurement technology, according research from Jaggaer, a supplier of digital procurement solutions. However, many investments aren’t going far enough. Nearly half (42 percent) of procurement teams state manual and inefficient processes slow them down and hold them back from fully addressing the C-suite‘s critical business priorities, such as navigating financial pressure.
Gartner also found constraints are hobbling procurement departments, and supply chain leaders face barriers to addressing constrained resources.
Many processes are still manual
Procurement’s biggest gripe? Non-value-added tasks still take up a lot of time. Twenty-five percent of procurement and supply chain teams report having some digitalization across procurement, but many core processes are still manual and inefficient, Jaggaer reported. One-third (33 percent) of sourcing professionals state their team collectively spends 11-20 hours per week creating and sending out invoices alone. Twenty-six percent spend 31-40 hours per week.
Teams focused on supplier or category management spend 21-30 hours (34 percent) collectively on supplier communications each week. This includes everything from aligning on capabilities and sourcing needs to invoicing and payments.
Only a small percentage of procurement teams are almost fully automated, which Jaggaer defines as teams being free to spend most of their time on strategic business initiatives. Only 9 percent of procurement professionals say their function today is completely autonomous, meaning they leverage automation and machine learning to drive predictive and prescriptive analytics, providing actionable insights and recommending optimum courses of action.
At the same time, organizations are increasingly pushing procurement to the frontlines of navigating ongoing financial pressures. Despite the improved economic outlook, inflation, recession risk, and monetary policy changes continue to hit organizations hard. Half of procurement and finance professionals report that these factors are having a major or severe impact on their business.
The view on AI
It’s clear that investment in technology is seen as the path toward more efficient procurement. Digital transformation is a top-three enterprise objective, according to Deloitte. In fact, 83 percent of IT teams that Jaggaer surveyed stated that their companies are aiming to modernize technology infrastructure in the broader business.
Thirty-four percent of companies surveyed said emerging tech such as generative AI is already having a major impact on their business. Procurement professionals foresee generative AI adding value to their work for summarizing supplier performance (16 percent), identifying new suppliers (15 percent), and automating routine tasks like writing standard emails (12 percent).
Source: Jaggaer: Rising Influence: The State of Procurement 2024
As organizations decide where and how to allocate the growing procurement and supply chain technology budgets, generative AI should be part of the conversation as it is incredibly powerful for helping procurement work both faster and smarter, Jaggaer advises.
In addition to writing RFPs and creating POs, contract management is well-suited for AI, Jaggaer’s Vice President of Direct Procurement Strategy Georg Roesch told EPSNews earlier this year. It can identify commonalities across multiple contracts and update those sections when necessary. This is particularly helpful when regulations affecting the contract, for example, change. Some professionals see contract negotiation aided by AI.
Managing constraints
Source: Gartner, Thrive in a Resource-Constrained World
Supply chain solutions are constantly being pressured by events such as terror attacks in the Red Sea or — in the case of electronics — slow demand and high levels of inventory. In a resource-constrained environment, Gartner recommends dealing with immediate crises versus the long term.
In its research, Gartner found three main barriers preventing supply chain leaders from taking sufficient action to address internal constrained resources: Access to labor; fixed or limited capacity; and excessive energy costs. Procurement should focus on immediate threats to business viability, Gartner recommends, and shift strategies to:
Motivate action by de-prioritizing long-term constraints and focus on addressing short-term risks that stakeholders are most focused on. Seek investment and shareholder buy-in on efforts that address the issues their organizations are already facing.
Reprioritize long-term constraints to design solutions. Effective supply chain organizations can exert significant influence in product design that can impact considerations from material use to labor efficiency. Start with a focus on designing resource constraints out of new products, phasing in more sustainable and viable products for the future.
Leverage the marketplace to learn and innovate. Leading supply chains innovate new solutions by creating opportunities to learn and leveraging their standing as customers. Companies should forge partnerships with innovators, startups and solution providers with a clear goal in mind.
Experts reiterate that procurement departments should build clear businesses cases when seeking funding. Whether companies focus on technology or strategy, transformation requires vision, ambition, and sustained commitment from senior leadership, McKinsey concludes. It also depends upon teamwork and engagement.
Jaggaer surveyed more than 220 business leaders worldwide to better understand the role of procurement and supply chain management. Gartner identified the top current resource constraints that threaten business viability via a survey of 143 supply chain leaders.
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