Meeting the challenges of a fast-changing world

How should indirect procurement respond to today’s myriad challenges? 

 It’s been described as a perfect storm. War in Europe, extreme weather including heat waves across Europe, the drive to net zero, rising ethical expectations and the lingering effects of COVID-19 and Brexit. There was certainly no shortage of challenges facing Maintenance Repair and Operations (MRO) procurement professionals in 2022. With most of these likely to linger through the mid-2020s, it’s easy to feel powerless in the face of global events. 

Take inflation. More than 80% of the MRO procurement people surveyed for the 2022 Indirect Procurement Report, published jointly by RS and the Chartered Institute of Procurement and ​​Supply (CIPS), identified inflation as the major challenge over the next 12 months. 

The legacy of COVID lockdowns, Brexit and the war in Ukraine is also evident in the results. In the UK, for example, 76% of survey respondents said the most serious challenge procurement faced was supply chain disruption, while 63% believed it to be global political uncertainty. 

Separate research conducted by contract management software provider DocuCollab found that the top five procurement challenges in 2022 were: poor supply chain visibility; risk management; spend control; inaccurate data; and contract compliance. 

So, is this all enough to put MRO procurement people into a tailspin? Definitely not, according to the detailed responses to the RS/CIPS survey. Despite the prevailing conditions, 57% said they were confident they could still deliver on their organisation’s Environmental, Social and Governance (ESG) targets. 

Security of supply
Helen Alder, Head of Knowledge & Learning Development at CIPS, says the key is what’s most important to an individual business. 

“We’ve seen over COVID that there were certain supply chains just stocking out or stopping completely,” she says. “When that’s happening all over the place and in all sorts of supply chains, that’s a big problem.” 

Faced with this situation, it’s vital to talk to suppliers and build relationships based on trust and openness, she says. Procurement professionals often underestimate the willingness of suppliers to innovate to meet their changing needs. 

“Collaboration is a really good idea,” she adds. “You should be looking at not just collaborating with individual suppliers but collaboration within your whole supply chain. A really good vendor understands your business and can add value. It’s about the added value and not just about the price paid anymore.” 

Emma Botfield, Managing Director for the UK & Ireland at RS agrees: “You will never get the best out of your suppliers if you just issue an RFP,” she says. “A trusted supplier, who understands your business, should be able to offer you innovations which will help transform the efficiency and effectiveness of your procurement processes. 

“It’s really important to develop a strong relationship with your key suppliers based on openness about what you are trying to achieve and what they are capable of delivering. Out of this level of transparency, innovation will almost certainly flow,” she adds.  

The extent to which procurement can add value to the whole business is underscored by research from consultants McKinsey which found that companies with best-in-class procurement achieve a return to shareholders that is 42% higher than other businesses.

The consultants echo Alder’s call to get closer to suppliers.  

Procurement leaders should be asking: “Do we deeply understand our suppliers’ industries and their dynamics? How are we sharing our insights with other functions to help protect revenues and margins?” 

 It’s all part of effective risk management, says Jim Bureau, CEO of JAGGAER, a US-based provider of cloud-based business automation technology. “In the past, risk management was more of a reactive process,” he told Procurement magazine.

“True resilience requires a 360-degree view of your supplier ecosystem. Procurement should know who their organisation is doing business with. They need to know their vulnerabilities from every possible angle – quality, value, diversity, compliance, financial health, ESG and performance.” 

The MRO factor
In the current high-risk environment, the way procurement responds to challenges can make or break the whole business. It is therefore essential that procurement teams actively monitor what’s happening in their markets. 

Whatever industry or sector you work in, data is the essential ingredient – you must be able to keep track of how much is being spent by your organisation and what the money is being spent on. Poor data remains a barrier in procurement, preventing many professionals from improving compliance. They just don’t have the data to pick up on early warning indicators from the market.  

In tough times, being close to where the money is being spent is vital too. A hybrid model can work well, with deep category expertise built into where the money’s being spent. For example, the best person to convince a marketing person to spend money more effectively is someone who has previously worked in marketing. The embedded buyers can then report into a lean central procurement function which sets the standards. 

Whichever operating model you choose, McKinsey says that innovation in procurement processes and structures should be based on learnings from the current challenges. “How are we embedding the learnings and improvements from this challenging period into our go-forward operating model?” is the question procurement teams should be asking, it argues. 

The 2022 RS/CIPS Indirect Procurement Report shows that operational budgets are reducing while pressure to deliver annualised savings is growing. Faced with this scenario, it would be easy to hunker down and just try to survive.  

But the only effective response to today’s multiple challenges is to sharpen your risk management, get closer to your suppliers and innovate to transform the way you operate. 

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