CPO Rising 2023: Procurement’s Biggest Challenges « CPO RISING – THE SITE FOR CHIEF PROCUREMENT OFFICERS & LEADERS IN SUPPLY MANAGEMENT

Today, we feature our ongoing coverage of this year’s 18th-annual CPO-themed report, where my team and I continue our nearly two-decade-long dialogue with chief procurement officers (CPOs) and other procurement leaders.

The report is based on research by Ardent Partners and represents a comprehensive, industry-wide view of what is happening in the world of procurement and captures the experience, performance, perspective, and intentions of 341 CPOs and other procurement executives.

Our post today looks at the challenges that chief procurement officers face in executing on their enterprise objectives in 2023 and beyond.

In 2023, the state of procurement remains strong. The function is continuing to drive operational efficiencies and cost containment in a tighter economic market, while more enterprises recognize its value following three difficult years.

Procurement’s Biggest Challenges

While the barriers to success in 2023 are not nearly as large as they were during the pandemic, CPOs believe that there are sizable hurdles ahead. In this year’s survey, respondents were asked to select the top three challenges to achieving their procurement department’s objectives over the next 18 months and their answers are enlightening.

Budgetary constraints (38%) were the leading challenge cited by CPOs. Inflation and the cost of capital are hitting enterprise budget-holders, making procurement more important to them this year than in recent times. The somewhat counter-cyclical nature of procurement has not made the CPO’s budget immune to these same challenges this year. As a result, hiring and investment decisions will be subject to increased scrutiny. CPOs will be smart to deliver clear, consistent communication to the enterprise leadership team, in general, and the CFO, specifically, about specific opportunities that procurement could tackle, given additional investment in 2023. Create a compelling business case that explains what could be delivered if procurement had more resources. Remember that in tough economic times, investments in procurement become more attractive relative to other options.

The challenges managing supplier performance and/or supply assurance remained constant with last year at 35%, revealing both a hangover effect of the pandemic and the permanent criticality of supply chains for innovation and market competitiveness. According to the survey, more than half of all procurement organizations believe that their efforts have directly improved supplier performance. If there’s value in the spend, there’s value in managing it better. That said, supply assurance remains difficult for several industries that rely on semiconductors and similar components. While production and shipping delays are easing in some industries, others continue to face challenges with supply assurance, prompting more CPOs to consider secondary sources of supply or onshoring/nearshoring of suppliers for tighter integration and increased performance management.

To optimize the impact on supplier performance and innovation, internal collaboration and communication are table stakes. This year, one of the leading hurdles to procurement success is difficulty engaging business stakeholders, budget-holders, and executives (34%). Remote/hybrid workforces have added a degree of difficulty to normal collaboration and strategic planning. But for nearly two decades, CPOs have cited the difficulty of engaging stakeholders and executives as a persistent issue. The problem will not solve itself. Outbound marketing and communication, better video presentation training for staff, and an executive call for more collaboration with procurement are among Ardent’s recommended strategies.

The need to scale procurement operations in 2023 should be the CFO’s imperative, as the need for more savings has spiked. The clearest way to scale procurement is through the use of technology. Nonetheless, the difficulty in doing so is exacerbated by existing technology gaps, another CPO challenge (33%). In the same breath, closing tech gaps begins with aligning processes and systems, a challenge cited by 32% of respondents. It’s the classic “cart before the horse” scenario. Enterprise-level process and system alignment is crucial for effective stakeholder engagement and strategic decision-making. While this is intertwined with the current budget challenges, a larger decision around technology is facing most CPOs.

While the pandemic was the major business hurdle in recent years, it appears that CPOs and their teams have turned the corner on COVID-19 with less than 10% citing pandemic-related issues as a major challenge. COVID-19 is still lingering and thousands of people are still dying from it each week, but this has apparently been normalized and most Western enterprises are back to business as usual. Also in the rearview is the challenge of managing remote and hybrid teams (5%). Enterprises have embraced and operationalized remote and hybrid workforce models that became necessary during the height of the pandemic. CPOs are striking a balance between the need for employee flexibility and in-person collaboration.

Next week we’ll look at the transformative strategies enabling CPOs and their procurement teams to remain agile, adaptable, and proactive in the face of changing market conditions and emerging trends.