Procurement: What will it look like in 2020?

 

The New Year typically heralds a look at the future and predictions for what lies ahead.  We lay out some predictions for how strategic thinking will evolve quickly as we move towards 2020 and how sourcing will unleash much greater efficiencies in the years to come. The following key trends will dominate change in the next five years:

1. Data-Driven Decision Making  

Relying on intuition as a basis for decision-making has been resoundingly proven to be a poor substitute for evidence-based approaches. Many suppliers use anchoring when pricing because they recognise its importance in benchmarking buyers internal performance metrics. Procurement teams often quote savings in terms of discounts off regular ‘rack rates’ or the percentage price decreases in an eAuction from the initial bids. These are both poor indicators of value and don’t offer worthwhile evidence of good performance, in terms of savings, yet examples of procurement professionals citing savings in this manner abound. We predict that spend analysis will increase penetration levels as CPOs seek evidenced-based assessments of prices paid for goods and services within and outside of their organisations. The objectives will become clearer and more transparent.

2. Centralised Control

Improved software tools will permit Corporate HQ procurement teams to monitor policies and strategy on a global basis even when controls are devolved. By imposing standardised processes and policies via more modern SaaS based procurement tools it will be possible to control strategy centrally so that remote teams operate using best practice go-to-market techniques with appropriate level of oversight and control when necessary.

3. Bid Optimization to Become Standard

For larger sourcing exercises, the predisposition of sourcing professionals to design arbitrary lots in the belief that it is possible to guess in advance how supply contracts could be divided efficiently will be phased out. The problems with this approach are numerous and include: inhibited market entry, poor access for SMEs, implicit cartel formation and higher costs. The lots never allow vendors to describe accurately their strengths or footprints so they can offer best value for money. Optimization involves subdivision into many small contracts and inviting bidders to package according to footprints across product lines or geographies. The finer price revelation and economies of scale communicated unlocks more data and evidence as to how an award may be split among suppliers. It also facilitates the imposition of buyers constraints (e.g. We need at most three suppliers in the South ).

Sectors to Lead the Charge

The transformation in sourcing will be led by sectors with the biggest need, those most receptive to embracing innovation and those with the technical ability to deliver change. Mature industries with lower margins have a disproportionately large incentive to improve procurement performance. These include:

  • Automotive
  • Retail
  • Manufacturing
  • Transportation

Overall, the main theme emerging within sourcing transformation will be increasing sophistication, and also rising recognition of the importance of the function within organisations. The organisations that retrain and re-tool in order to meet these challenges will be better placed to help their organisations become market leaders in their respective domains.

 

Alan Holland is CEO and Founder of Keelvar