A recent study by Economist Impact and SAP reveals the expanding role of procurement in shaping and executing executive business strategies, with nearly half of procurement teams now reporting directly to chief operating officers.
Procurement’s Evolving Role
Traditionally, procurement’s role was confined to purchasing business materials and supplies. However, recent events such as the COVID-19 pandemic and the increased focus on sustainability have transformed procurement and supply chain from a mere support function to a key value function, according to Klaus Staubitzer, Chief Procurement Officer and Head of Supply Chain at Siemens AG.
Challenges and Opportunities
Despite the recognition of procurement’s value, the report highlights the need for improved collaboration skills within procurement teams. While 75% of executives agree that procurement collaborates effectively on strategic issues, only 18% have high confidence in procurement’s ability to do so, and just 14% have high confidence in the application of procurement insights across the organization.
Digitalization and AI in Procurement
The report also emphasizes the importance of digitalization and AI in procurement’s success. Over the next 12-18 months, accelerating digitalization is the top priority for most organizations, with 44% citing AI adoption as a key technology priority. AI is expected to play a crucial role in enhancing procurement process automation.
Balancing Centralized and Decentralized Models
Procurement teams are striving to strike a balance between centralized and decentralized operating models. The report reveals that organizations are evenly split between increasing the role of centers of excellence (CoEs) and adopting a center-led model.
Supplier Diversification and Consolidation
In the long term, businesses are prioritizing supplier diversification to reduce supply chain risk, a priority cited by 40% of surveyed executives. In the short term, companies are emphasizing supply-base consolidation to build trusted relationships and overcome supply chain challenges.
The Future of Procurement
The report concludes with examples of how procurement and supply chain teams are leveraging new technologies to ensure they procure the right products for their organizations. For instance, Siemens uses a digital twin to analyze the material cost of the parts it purchases and their production process. The tool is also used to determine the CO2 emissions of those parts and the carbon footprint of the supplier’s entire operations.
The report underscores the increasing prominence of procurement teams in business operations and strategy, a trend that is expected to continue in the coming years.
