Procurement In 2024: An Overview Of The Health Of The Sector

Procurement

A survey conducted by Amazon Business helps understand the sourcing environment businesses face today. The answer to the challenges, also given by the global context, is to be found in the optimization of processes, which also involves innovative technologies such as Artificial Intelligence. The topic of procurement procurement in companies is increasingly crucial since procurement teams need to rationalize purchases and make them increasingly intelligent. 

95% of decision-makers in this area believe that there is room for more excellent optimization of these activities; almost all (98%) say they have planned future investments in automation and Artificial Intelligence. These are the findings that emerged from the State of Procurement Report 2024 created by Amazon Business, the division of American Big Tech that offers services dedicated to Procurement in collaboration with KRC Research. 

The research was conducted on a sample of 3,000 buyers, procurement decision-makers, and senior executives in the public and private sectors from France, Germany, Italy, Japan, Spain, the United Kingdom, and the United States. The picture that emerged from the survey highlights the challenges and opportunities that those involved in Procurement will face this year.

The Main Challenges For Procurement

In the current global supply landscape, companies are challenged by a series of internal and external factors, ranging from market fluctuations to continuous changes in regulations to persistent interruptions in the supply chain. All aspects have a profound impact on daily activities related to Procurement. Among the main external challenges that companies must manage, the increase in costs stands out, reported by 36% of those interviewed as the main problem this year. 

Added to this are the difficulties generated by unexpected changes in the global economic context and by obligations linked to ESG (Environmental, Social, and Governance) and CRS (Corporate Social Responsibility) standards, cited by 34%. Another significant challenge, indicated by 33% of the sample, concerns working with suppliers who fail to adequately support digital procurement needs, given the growing importance of digitalization in the procurement sector. 

Inside organizations, the tests that companies are called upon to overcome are no less pressing. The complexity of systems and processes emerges as the main concern for 47% of decision-makers, a transversal challenge that affects companies in all sectors. Furthermore, a third of managers highlight the difficulty of accessing a wide and diversified range of suppliers and products that effectively respond to company needs. 

Hence, the growing importance of a flexible and reactive Supply Chain. Finally, ensuring compliance with spending policies represents a further complication for 31% of interviewees, who aim to have accurate control, as well as increasingly transparent processes in the Procurement area.

The Priorities For 2024

To counteract the increase in procurement costs and other obstacles, such as inflation and geopolitical conflicts, organizations are investing more resources in their procurement activities: 53% declare that the budget allocated to this area in 2024 will increase compared to the previous year. This is in line with the need for an increase in financial resources that is helpful in developing strategies capable of meeting emerging challenges but also for implementing initiatives aimed at improving efficiency and reducing costs. 

By focusing on these priorities, companies thus aim to strengthen their procurement operations and increase their organizational resilience while remaining agile and competitive. Speaking about 2024 priorities in Procurement, Aster Angagaw, Vice President and Head of Commercial, Public, and Strategic sectors of Amazon Business, 

To achieve these goals, leaders must reduce time spent on low-value tasks, such as gathering information for reports, manually entering data into disjointed systems, and trying to contact suppliers for delivery updates. In addition to reducing administrative burdens, buyers need greater visibility into purchasing data and supplier information to cultivate the ability to make quick and confident decisions .”

Opportunities In Procurement

The challenges facing businesses and the global context in which they operate require a change of direction compared to traditional processes in the name of rationalization and digitalization. Corporate purchasing managers must focus on improving and simplifying back-office operations in response to the growing complexity and staffing shortages in the procurement industry. 

This situation represents an opportunity for evolution for the sector, as it can improve efficiency and enrich the experience of employees and collaborators. The most cited problems represent fertile ground for introducing improvements, mainly through the adoption of digital tools, including Artificial Intelligence. 

Although a significant number of organizations have already undertaken digital transformation paths in Procurement, it is clear that there is ample space for further implementations: in 2023, only 50% of organizations used digital invoices, and only 32% integrated procurement processes almost or entirely within a single system.

The Role Of Artificial Intelligence

One of the opportunities to be seized is undoubtedly linked to artificial intelligence and machine learning. Almost all of the interviewees think this way. These technologies are particularly useful in obtaining more efficient data analysis, saving time, and smoothing integration between different systems. Approximately 45 percent of participants said they were ready to implement advanced procurement solutions immediately or within a year, rising to 80 percent within two years. 

But, despite the potential, concerns arise regarding data security and the actual applicability of the technology. There is a clear need to balance innovation with best security practices. This means that considering the physiological delays in the adoption of AI, we could lose ground compared to more agile competitors.

ESG Criteria: Obligations And Urgencies For Companies

Responsible purchasing represents not only an obligation but also an opportunity for companies. The laws of several countries employ regulations to incentivize sustainable practices aimed at improving environmental impact or reducing carbon emissions, both in the public and private sectors. 

Building sustainable supply chains and creating inclusive supplier ecosystems not only helps companies comply with these regulations but also provides a competitive advantage by establishing more valuable customer and employee relationships. Added to this is the importance of access to in-depth information on sustainability and supplier ownership to facilitate informed and responsible purchasing decisions. 

81% of respondents claim to follow internal and external directives to encourage purchases from certified sellers, including those who are sustainable and local, small businesses, or companies belonging to traditionally disadvantaged groups. Interestingly, even among those who are not bound by specific purchasing objectives, 40% still take sustainability and social and economic responsibility criteria into account when selecting suppliers.

Collaboration And Democratization Of Purchasing

Currently, 91% of the companies in the sample adopt a centralized purchasing model, which allows specialized staff to dedicate themselves to tasks of a more strategic nature. Not only. 95% of companies rely on outsourcing, and 70% outsource all or most of their procurement activities. Contract purchasing management and negotiation emerge as significant areas, with 95% of participants considering it part of their managed spend.

On the contrary, the trend towards a democratized approach to purchasing allows us to better respond to the specific needs of the various departments, promoting operational efficiency and allowing for greater organizational agility. This approach reduces the need for excessive outsourcing and frees Procurement professionals from the task of evaluating specific products for company divisions over which they need complete expertise. 

To achieve this result, it is necessary to establish clear purchasing guidelines, which the managers of the different areas can follow to deal with simple and occasional purchases directly, leaving Procurement a central role for higher value transactions. While centralization is still prevalent, decentralization promises time and cost savings, as well as improved agility through initial training on proper purchasing processes.

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