Will 2021 be about Cost Reduction or Strategic Supplier Relationships?

by Stephen Cleminson

PWC has been publishing the annual procurement survey since 2015, capturing many of the trends in procurement that we now see in organisations, such as the focus on supplier risk management.  Ivalua was honoured to provide some commentary on the survey results during a webinar with PWC in Sweden, as the 2020 survey is even more fascinating.

The survey for 2020 delivers this level of insight but also provides special insight as responses to the survey were split between responses before the Covid pandemic and during the pandemic.  Therefore, the survey gives a fascinating insight into the impact that the pandemic has had on procurement teams globally.

“70% of respondents maintained or increased digital procurement investment post covid” 

The most striking view of this change of importance that the survey delivers is around the significant increase in focus on cost reduction due to the pandemic.  It is no surprise that cost reduction was the leading area before the pandemic, but it was in a group of 3 other priorities, such as risk management that we will cover later.  The interesting viewpoint that can be gained from the survey is that cost reduction has subsequently doubled in terms of priority, with it being 43% of top strategic priorities.

Ivalua’s view on this is that this is understandable as companies have faced both a supply side and demand side crisis due to the impact of the pandemic on the global economy.  One of the viewpoints that Ivalua raised during the webinar was that our experience has been that organisations are continuing to look at savings around indirect spend, but we are seeing increasing focus on how to deliver cost savings in direct materials.  In some respects this is understandable as this area of the business has 70-80% of the spend in the organisation compared to indirect and has been an area under developed as it has been historically difficult to connect procurement tools to other systems involved in direct materials, such as PLM or MRP systems.  This lack of connectivity has meant that procurement teams are not able to collaborate with other departments as they cannot get access to essential data, such as a bill of materials from a PLM system when a new product is being developed.

The other key change from the pandemic around strategic priorities was that supplier sourcing and supplier risk management were the only other major strategic priority to increase.  This impact would be 100% in line with our experience to talking to organisations across Europe, where we have seen organisations looking at this area to give them flexibility in their supply chains.  The impact on supply chains of organisations from the pandemic is well reported and Ivalua’s view is that most organisations know that they have to ensure they have the right approach in this area.  Ivalua feels that the focus around cost reduction is the top priority now, but as the economy recovers the lasting memory for most organisations will be the importance of their suppliers.  There seems to be a drive within procurement teams to understand their suppliers and the network of suppliers under their tier one suppliers.  There is an understanding that an organisation needs to have visibility of the role suppliers are playing in the operations of the business, ensure that the suppliers are properly managed and gain flexibility, to protect against future shocks to the supply chain.

Finally, there was quite a sobering piece of insight for a solution provider such as Ivalua and that was that vendor selection ranked relatively low in terms of success factors for a successful digital transformation.   The feedback from the survey was that process adaption and change management are the most important factors.  Although this may bruise the corporate ego of a solution provider like Ivalua, it is in line with the focus we have seen from organisations that have delivered the most with a solution such as Ivalua. 

It is also reassuring to hear this feedback when Ivalua has quick deployment packages available to organisations who have the opportunity to adapt their processes to best or standard practice.  Likewise, Ivalua also has the flexibility to adapt the solution to specific business processes that cannot be adapted, which is more the case in the area of direct materials, where business processes that are critical to the operations of the business have been tuned over time, so organisations are less willing to access best practice in this area.

Interested in learning more? Read the Hackett Group’s 2021 Procurement Insights report.