Here in Sweden, we are heading into the winter months, with our first snow occurring last week. As we get closer to the holiday season, I thought I’d treat you to some random winter rants today. Next week, I’ll do a look back at 2024 before the Magnus Mondays series takes a short break.
So, today I’m sharing some opinions on a few evergreen topics.
Cost Is King
Earlier this year we published our Procurement Metrics That Matter in 2024 eBook. In it, we could see that the top priority for CPOs was delivering cost savings. This finding has also been verified more recently by both practitioners and solution providers in various discussions and webinars. Cost savings as a priority has been trending upwards since the years leading to the COVID-19 pandemic. And it’s now back at the same levels as we saw during and just following the financial crisis of 2007-2008.
Given the times we live in with general uncertainty, looming tariffs, and geopolitical conflicts, it’s not surprising that cost savings are back in focus. If we are really honest, it never left — cost savings is the raison d’être for procurement. And for most critical stakeholders it’s always going to be the key priority (there are some exceptions, such as the direct materials categories in the pharmaceutical industry, for example, where quality is the number one priority — hopefully at least).
So, let’s face it, cost savings is always going to be the primary metric that procurement is measured by. That said, we have to be smart in how we go about it. Don’t focus on price and don’t focus too much on the short term (unless you must, such as in a cash flow emergency, for example). Focus on value and total cost of ownership and agree on what that means with the CFO. Don’t be afraid to create longer-term category plans to ensure success over time. But, at the same time, don’t forget all the other areas that procurement also can contribute to (and drive), such as innovation and ESG improvements, just to mention two.
AI Everywhere
Judging by solution provider marketing, analyst reports, and end-user questions, it seems like there is no way procurement can do its job without AI. As an analyst, I’m part of this problem, but I’m getting a bit fed up with it. I honestly don’t care if you use AI or not, as long as you can explain the outcomes of the solution and what problems it solves — ok, as an analyst, I might want to understand how as well, but as long as it works. Right now, it feels like being simply claiming the use of AI is more important than what it actually does. This also relates to one of my summer rants around positioning, “we are using AI to make your procurement processes more efficient” doesn’t tell me anything.
Don’t get me wrong, AI is already bringing value, and its impact will be even bigger in the future. But let’s focus on what it actually does and what specific value it brings. If there are other ways of doing the same thing, you won’t get any bonus points from me just because you are using AI to do it. As long as it’s scalable, accurate, and consistent, it doesn’t matter what approach is being used to get there.
eSource More
Speaking of the summer rants, here’s one I will keep repeating until the adoption rates get (close) to 100%: use eSourcing! Given that only 41% of organizations are currently using eSourcing solutions (Procurement Metrics That Matter in 2024 eBook), I’ll probably be doing this for a while.
But we know that the use of eSourcing increases both efficiency and savings. Since cost savings are back, coupled with the fact that procurement organizations source less than half of their addressable spend on average (48% according to Ardent Partners Procurement Metrics That Matter in 2024eBook), that should make it clear that procurement organizations need to step up their eSourcing game. Make sure you have the right tools so you can run eAuctions when appropriate and that you can manage all sorts of sourcing events, ranging from low-value self-service RFQs to highly complex sourcing projects that require optimization capabilities. Set up that center of excellence so you can support the organization with their needs. And make eSourcing mandatory, because professional buyers need to realize that emails and spreadsheets aren’t good enough.
As always, feel free to reach out to Ardent Partners with any questions in the S2P space!
