Today, we feature our ongoing coverage of Ardent Partners’ annual State of Procurement report that is drawn from nearly 350 chief procurement officers (CPOs) and other procurement executives. The report represents a comprehensive, industry-wide view of what is happening in the world of procurement and captures the experience, performance, perspective, and intentions of global CPOs. This annual study is a passion project for us and it is also a major part of our research calendar each year. It is a report that is available exclusively to members of our community.
Over the coming weeks, we’ll share some of the key findings and dive into the risks, challenges, technologies, and opportunities that CPOs and their teams face in 2023 and beyond. There’s no better time to be in procurement. The potential to extend the function’s influence within the enterprise and across the supply chain all while elevating procurement team performance can be both sizable and immediate. It is also achievable in the right CPO’s hands.
Today’s post explores the leading risks that CPOs are facing in a period marked with great uncertainty and what this means for their procurement team and the enterprise.
Perpetual State of Uncertainty
The perpetual state of uncertainty for procurement leaders that began with the global pandemic three years ago, continues today. According to Ardent Partners’ annual “State of Procurement” survey, almost half (44%) of all CPOs are feeling a “great deal” of uncertainty about what will happen in 2023 and most express at least “some” level of uncertainty. Market and economic factors contribute directly to this feeling of unease as does the continual unraveling of longstanding institutions and societal norms, which have opened the door for extremists, catastrophists, and bad actors to gain more attention and promote their narrow agendas.
What is constant among the various levels of uncertainty is the criticality of identifying the evolving risks facing procurement and the enterprise.
Identifying the Top Risks Facing Procurement in 2023
Supply management is a science of uncertainty and an art of probability. In today’s complex business environment, procurement executives are tasked with managing an ever-increasing array of risks. Procurement professionals are responsible for sourcing materials, services, and goods from suppliers that are located all around the world. These suppliers are often located in areas that are vulnerable to geopolitical instability, climate change, and other disruptions.
The level of general uncertainty that exists among the CPO contingent reflects a series of high- and medium-level risks facing procurement this year. This multitude of risks threatens to disrupt their supply chains, impact their budgets, and hinder their ability to meet business goals. Inflation and supplier price increases, budget pressures on procurement, and a possible recession are identified as the top three high-risk issues. In addition, geopolitical issues, supply assurance, and production constraints were identified as high to medium risks.
Utilizing a weighted average analysis, the top five risks facing procurement in 2023 are:
- Inflation (and supplier price increases). Inflation is the top risk facing procurement in 2023. While inflation has slowed in the United States, it continues to rise rapidly in many other parts of the world. It is important to understand that a large component of the overall price increases experienced over the last two years has been driven by corporations seeking greater profits, rather than pure economic inflation. In some industries, profits are reaching historical highs which means that there are and will continue to be opportunities for sourcing teams to push back and negotiate better pricing.
- Recession. While a deep recession feels unlikely today, market volatility, such as it is, means that it is not off the table. It is unclear if global monetary policies can thread the needle and impact inflation, while avoiding a recession. What is clear is that CFOs have braced for tougher times with budget cuts resulting in reduced resources for procurement teams this year.
- Budget pressure on procurement. Budget pressure is a major concern for procurement departments in 2023, as it was last year. Tighter budgets limit the resources available to procurement teams, making it difficult to meet the needs of the business and maintain quality standards across the operation. Utilizing non-employee talent in both a tactical and strategic way will be an important CPO strategy this year. In 2023, Ardent Partners and Future of Work Exchange research finds that 49% of the average enterprise’s total workforce is comprised of external, non-employee talent.
- Supply chain disruptions due to geopolitical Issues. Geopolitical issues over the last few years have caused many, many problems for global supply chains. Today’s global business environment is fraught with geopolitical risk and uncertainty that has been snowballing for many years. Europe is grappling with war, while leaders like Putin and Xi Jinping are defying the post-Cold War order and aggressively challenging many Western values. The West declared economic war on Russia, and East-West tensions are spiking. This is a new economic era and one that poses new and sizable challenges for procurement leaders in 2023 who sit at the crossroads.
- Supply assurance. Supply assurance is a major concern for procurement departments. Ensuring a reliable supply chain is critical for meeting business needs and maintaining operations. However, the preponderance of supply chain disruptions makes it challenging to push back against incumbent supplier price increases and surcharges.
The risks facing procurement departments in 2023 are numerous and complex and will require CPOs and their teams to stay vigilant and prepared, helping safeguard their organizations. In interviews with CPOs who participated in this study, several larger themes emerged when asked to discuss what they were doing to combat the top risks facing their teams and enterprises in 2023.
- Supply risk management: Many CPOs are initiating formal risk assessment/management processes in 2023 while working to increase their sources of supply and generating alternative designs/specs for key categories. Those with programs in place stated that they plan to enhance their supply chain risk management and monitoring.
- Collaboration and communication: Most CPOs that were interviewed said that they are trying to build a more collaborative culture and open communication within the sourcing team and with internal stakeholders/functions and strategic supply partners. They want their teams to work proactively to prioritize the development of stronger relations with critical suppliers.
- Supply diversification: Some CPOs are expanding supply localization plans to reduce imported goods, developing dual sourcing on important local projects/business, increasing supplier alternatives in different geographical areas, and diversifying suppliers in different zones of geography.
- Staff development and training: Several CPOs are providing basic procurement introduction training to all senior staff and managers and setting higher expectations for their teams.
- Strategic alignment and process improvement: CPOs are simplifying processes, removing waste, improving accountability, providing team training, developing new business continuity plans in light of evolving enterprise risks, and introducing more meaningful metrics and procurement policies.
Next week, we’ll dive into the CPO’s agenda and examine where chief procurement officers’ leading priorities (e.g., cost savings, supply risk, digital transformation, etc.) lie.
RELATED RESEARCH
CPO Rising 2023: CPO at the Crossroads
CPO Rising Listicle: Five CPO Strategies to Help Manage Uncertainty
Skills for the Modern Procurement Pro – Supply Risk Management
The Macro-Level Issues Impacting the CPO Right Now: Supply Assurance
