[Editor’s Note: Ardent Partners recently published its Procurement-themed report, “Procurement 2024: BIG Trends and Predictions.” Over the next few weeks, this site will feature articles highlighting the key discussion points from the report.
Chief Procurement Officers and their teams head into 2024 with a continued lack of clarity and a need for caution. While a recession was avoided last year and inflation slowed its pace in most regions, economic and overall market uncertainty remains. In addition, geopolitical unrest in the Middle East and climate conditions in Central America are causing big delays and increased costs in global shipping, forcing many procurement teams to seek alternative sources of supply. While the details fluctuate year to year, procurement’s headline remains the same. In 2024, CPOs face a series of new challenges that must be managed while operating with high uncertainty … AND great opportunities exist for the teams who are best prepared for them.
Over the next few weeks, we’ll feature the BIG trends in procurement followed by equally BIG predictions for 2024 that will help CPOs and procurement professionals understand the key issues at hand and better prepare them for the year ahead.
BIG Trend #1 – AI Is Everything Everywhere, All at Once
Perhaps only the newly-minted billionaire, Taylor Swift, had a bigger 2023 than the widely acclaimed (but also severely overhyped) technology known as artificial intelligence (“AI”). AI ran a close second to Taylor in regard to overall attention and impact in the year that was. While Taylor was a dominant presence in music, culture, and the NFL, AI was equally dominant in business and technology discussions, with solutions like ChatGPT presenting a renaissance of automation representative of the future impact of AI. Whether or not ChatGPT is an online parlor trick, the underlying technology has extraordinary potential.
More importantly, within the procurement realm, AI has the potential to channel an entirely new level of innovation, enabling procurement professionals and their teams to transform the tactical and strategic activities of the function (such as contract clause management, approval flow routing, supplier data validation, and fraud prevention), while also tapping into an underutilized repository of procurement information, data, and insights. Pay attention to this technology!
BIG Trend #2 – Savings Remains a Top Priority as the “Year of Efficiency” Continues in 2024
Do you know what makes your CFO happy? Growing the topline. Do you know what makes your CFO even happier? Growing the topline while also shrinking the bottom line. Meta Platforms Inc. (i.e., Facebook) founder & CEO, Mark Zuckerberg, proclaimed 2023 to be the “Year of Efficiency” and then stood back and watched his stock price (and net worth) nearly quadruple as his company grew while cutting expenses. The rest of the market took notice and many followed suit. Expect those efforts emanating from the C-suite to continue in 2024.
CPOs were all over efficiencies in 2022 and 2023 as businesses felt the impact of inflation and the pressure to defend their profit margins. In 2023, high inflation made “identifying cost savings” the top priority for CPOs (46%). The result was a dramatic return to an overall focus on savings within procurement. This year will have more of the same. Sourcing professionals accustomed to driving both innovation and cost reductions from their suppliers with each successive renewal operate in an entirely new market where prices can and will continue to increase. And, while inflation has been tamed, the thirst for corporate (i.e., supplier) profits remains unquenched; it will be challenging in 2024 to meet savings goals.
BIG Trend #3 – Inflation Has Flattened (In Most Countries)
Congratulations to the procurement and sourcing leaders around the world who survived the 40-year inflationary storm known for its skyrocketing prices. In many regions, but certainly not all, the unprecedented rates of inflation experienced over the last 2+ years shifted to more normal rates. Procurement teams experienced the difficult impact of higher prices. The good news is that central banks around the world indicated the highest inflation rates may be behind us, signaling a win in the banks’ collective fight to reduce them. At the same time, the labor market remains very strong, and many major stock exchanges reached all-time highs.
While these factors could increase the risk of higher prices, inflation is unlikely to be a major challenge for sourcing pros in 2024 when compared to the past 2-3 years. The bigger issue remains the unadulterated drive for corporate profits and the general power of many suppliers to push price increases to aggressive levels. The C-suite’s drive for bottom-line results in 2024 will almost assuredly keep your CPO and procurement leadership team focused on delivering more savings this year.
BIG Trend #4 – Today’s Cost of Capital Makes Procurement More Important
To combat high inflation rates experienced globally over the past few years, central banks raised interest rates with unprecedented speed. As interest rates climb, the cost of capital rises, impacting the cost of financing for a business (everything from long-term corporate bonds to short-term revolving credit lines). In response to the new economic reality that the cost of capital is real, smart CFOs quickly reassessed their financial strategies and tried to allocate resources more efficiently.
Against this backdrop, the importance of procurement teams, their processes, and associated supplier negotiations took center stage once again. When interest rates surge, managing cash becomes paramount. Procurement’s ability to impact cash is direct and potentially consequential (via lower prices paid for goods and services, better-negotiated payment terms, demand management strategies, and many other examples). When a procurement team has visibility into enterprise spend, it can work proactively with stakeholders to identify and execute top-sourcing opportunities. The source-to-settle process remains a linchpin in maintaining healthy supplier relationships and managing suppliers’ expectations; navigating these relationships amidst heightened interest rates can be both an art and a science. Ultimately, between driving higher savings rates and impacting cash, procurement’s role in battling higher capital costs can, and should, be high on the CFO’s radar screen this year.
