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Supply Chain News: The Top 10 Procurement Priorities for 2023 from The Hackett Group


Ensuring Product Supply Tops the List

March 1, 2023
SCDigest Editorial Staff

The consultants at The Hackett Group are back with their annual list of top 10 priorities for Chief Procurement Officers for 2023.

Supply Chain Digest Says...

Hackett says that companies with Digital World Class performance are closely aligned with the ability to work with stakeholder groups to provide an exceptional performance.

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Before we get to that list, Hackett begins by noting that “To prepare for economic downturn or potential recession, organizations are changing their spending patterns to improve margins and find cash flow to fund potential recessionary challenges.”

So with that brief intro, let’s get right to the top 10 list:

No. 1 - Ensure supply continuity: In first place for the second year in a row, companies are still worried about supply chain disruptions.

To do this, companies must pursue “engaging risk monitoring across a broader set of risk exposures at earlier stages of the supplier life cycle – during the beginning of the sourcing process – and continuing to monitor and mitigate risks using real-time data and insights through the full supplier life cycle,” Hackett says.

However, the executive survey that in part forms the basis of the report found executives overall have low confidence in the ability of their procurement organizations to deliver in this area.

No. 2 - Combat inflationary price increases: In case you hadn’t noticed, the prices of almost everything are soaring.

To push back, Hackett says procurement organizations must have visibility to category-level price increases, with processes in place to manage pricing – especially with critical suppliers.

That means companies “must strengthen commercial acumen to minimize price inflation and mitigate contract exposure – while also managing key supplier partnerships proactively to find solutions for curtailing price surges and mitigating supply disruption risks,” Hackett says.

No. 3 - Reduce spend cost: Aways a top if not the top priority for many procurement organizations, this area is even more critical in an inflationary environment.

But, Hackett says, companies will need to balance between managing inflation and taking advantage of buyer-advantaged opportunities to reduce costs, leveraging more traditional sourcing techniques.

However, the ability to reduce spend varies widely across procurement organizations. Hackett research find that companies in the top quartile in both business value and operational excellence – what Hackett calls “Digital World Class” – enjoy a 90% advantage compared to peers achieving cost reduction.

Additionally, Hackett find that when looking at procurement’s return on investment (i.e., spend savings over the total cost of procurement), the performance gap widens, with Digital World Class procurement organizations achieving a 2.4 times advantage over peers.

No. 4 - Pursue procurement digital transformation and modernize landscape: Hackett says many companies have solid technologies in place to management core procurement processes, but many lack capabilities in areas such as supplier life cycle management, analytics, and supplier collaboration.

Hackett also notes that many procurement organizations adopt “point’ software solutions to solve specific problems, but it expects more firms to adopt source-to-pay suites.

No. 5 - Improve analytics and insights capabilities: Analytics are key to procurement success today, Hackett says, supporting everything from modeling to projecting the impact of inflation.

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Companies seem to understand this. Hackett research shows nearly one-half of companies surveyed have large-scale deployments of spend analytics tools, and another 44% have pilots in place.

Yet, Hackett says, procurement remains slow to adopt advanced analytics – even though organizations that have adopted advanced analytics are largely satisfied with their ability to deliver on business objectives. Only 10% of companies surveyed have large-scale deployments, and about one-third have pilots in place.

No. 6 - Strengthen third-party risk management visibility and capability: Hackett notes that as supply chains become more complex, the scope of risk expands beyond typical quality, performance and compliance concerns to include a broad array of risk areas.

In The Hackett Group’s 2021 Third-Party Risk Management Performance Study, many executives expressed concern about their ability to manage third-party risk management amid such complexity – which can add a lot of complexity to risk analysis.

Hackett also notes that various departments can own parts of the responsibility for third-party risk management. That can include compliance, information security, and procurement operations groups, often doing some of the same work in parallel, but each with its own goals, processes, and measurements.

What’s more, nearly one-half of respondents in a Hackett study said that while procurement is responsible for supply risk problems, it doesn’t have the mandate or resources to fulfill that responsibility.

No. 7 - Act as a strategic advisor to the business: Hackett says that having a place at the executive table is key to the procurement’s effectiveness.

That means being able to add more value in such settings.

Hackett’s research finds that two-thirds of procurement executives anticipate taking action over the next year to strengthen governance and improve information flow as a means of elevating their business partnering capabilities.

No. 8 - Improve stakeholder-centricity: Hackett says the ability to support a wide range of stakeholders is also key to procurement’s success – or not.

In fact, Hackett says that companies with Digital World Class performance are closely aligned with the ability to work with stakeholder groups to provide an exceptional performance – whether that is in the form of working with a department head on a strategic sourcing event or making it easy for end users to execute routine purchases for the business.

No. 9 - Improve procurement agility: It’s all about business agility these days, Hackett says, and procurement can play a big role in enabling agility.

In a procurement context, Hackett says, the meaning of agility varies by organization but at its core involves the ability to adapt to meet changing requirements.

“Some capabilities are broadly applicable, such as transitioning orders quickly to backup suppliers, mitigating external risk factors, preparing for merger and acquisition activity, or preparing for other supply chain risk and disruptions on an on-going basis,” Hackett notes.

Procurement must keep up with the pace of change, Hackett adds.

No. 10 - Embed responsible procurement: Hackett interestingly doesn’t have much to say on this topic, other than noting that supplier sustainability (e.g., environment, social, governance) has maintained this presence in procurement’s top 10 priorities again this year.

So there you have it, Hackett’s top 10 procurement priorities for 2023. It concludes by observing that In 2023, the procurement workload is predicted to increase by 10.6%, reflecting the broadening of priorities, but with little increase in head count and operating budget.

The result: a productivity gap of 7.4% and an efficiency gap of 7.8%.

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