5 Procurement Trends for 2020
Today’s business environment continues to put more pressure on businesses to get more done and improve performance, typically with the same or fewer resources available to them. This is true in today’s positive economic cycle, and one can only imagine the increased pressure that will get exerted when the market shifts downward.
The procurement function finds itself in the eye of this proverbial hurricane. There are very few areas of a company that can impact an organization in the manner that the procurement function can. This is one of the primary reasons that global organizations have been transforming their procurement functions from transactional and siloed to a core part of the organization’s success strategy.
Maintenance, repair, and operations (MRO) is typically one of the top controllable expenses impacting the bottom line for property owners and managers. If you are not focused on leveling up your procurement functions, you should likely rethink that decision. Here are the top 5 trends impacting MRO procurement to get started.1. Seeking Value Beyond Mere Cost Saving
There is no question that one of a procurement program’s’ primary “jobs” is to control prices paid and to source suppliers to provide them. However, that is at best table stakes for a modern organization that wants to thrive.
In addition to direct cost management, here are three key areas to focus on that often impact costs far more than a difference in the costs of materials:
The right procurement program will help manage any ongoing potential risks. While getting the lowest price under contract is important, you also want to ensure that your business won’t be endangered if it becomes too costly or too difficult to get the supplies you need in the timeframe you need them. (One example is a bicycle manufacturer that doesn’t have the time or resources to work around increased costs on parts from China.)
The takeaway: businesses need to control their supply chains instead of the supply chain controlling how businesses are run. Since a group purchasing program provides access to a number of pre-vetted suppliers under contract, it is also a great way to enhance risk management.
This is one of the key metrics we advise businesses to measure. That’s because a supplier may offer the lowest cost but makes errors that end up costing more in the long run. For example, it’s common for suppliers to substitute items without first checking whether comparable items will actually work, late shipments or supplies turning up at the wrong location. All these considerations cost businesses time and money.
Line of Sight
If you can’t see it you likely can’t do anything about it. Too often midmarket asset managers and property managers lack the data that is necessary to control and manage their supply chain effectively. Procurement is at the frontlines of data collection and management. Transforming that data into insights is crucial to the ability to run the business at speed.
2. Overcoming Increased Volatility
Even though the US economy is currently booming, businesses are facing more and more volatility. For example, tariffs, rising oil prices, Brexit, and natural disasters are throwing a great deal of uncertainty into the mix – and that can negatively impact business models.
Many businesses are already grappling with a shortage of skilled labor, which also results in a rise in the cost of labor. The widening spread between cost growth and inflation is pushing borderline projects past the threshold of profitability. This makes it more difficult to grow a business.
That’s why it’s crucial to pre-empt volatility by negotiating the best prices under contract, as well as managing and tracking suppliers effectively. Predicting change and managing disruption is imperative – and is one reason that procurement is moving into a more strategic position.
3. Consolidating Suppliers
The truth is, many businesses have far too many suppliers. (For example, we have worked with a large corporation with 500 suppliers! That’s simply too many to manage effectively.) Pruning that list down to the strongest and most reliable suppliers often pays off in a big way. Businesses can negotiate the best prices and terms while building stronger supplier relationships. Not to mention, the sheer amount of data will be more manageable and useful.
4. Utilizing Private Marketplaces
Private marketplaces have been receiving a lot of buzz and all signs point to that excitement continuing into 2020 and beyond. That’s because private marketplaces allow those in charge of procurement to create a digital catalog of pre-approved parts, materials, and supplies. This gives companies more control as procurement continues to de-centralize.
Contractors are also taking advantage of this trend to work with suppliers while eliminating the back-and-forth of manual ordering. Private marketplaces simplify and streamline procurement for everyone involved in the process.
5. Navigating Ongoing Digital Transformation
Digital transformation is an ongoing process that takes years and even decades. For execs in charge of procurement, digital transformation offers a huge opportunity as purchasing functionality becomes de-centralized. Still, most companies are still grappling – at least to some degree – with finding the most useful tools. Our tip: It’s very difficult to change buying behavior, so the best tools will work with employee habits, instead of fighting them.
For example, many businesses told us that, while they had negotiated excellent contracts and pricing, it was all for naught because employees simply weren’t purchasing through the proper channels. Why? The buying process was cumbersome, and employees resisted it. That’s why we created Best Value Finder™, a Chrome browser extension that alerts online shoppers to equal or lower prices from contracted suppliers. Employees can still browse their favorite sites, but they are prompted to buy from contracted suppliers.
We’re only one month into 2020, and we’ve already seen businesses fielding a number of procurement curveballs. Our takeaway? All these trends involve a proactive approach to MRO procurement. Ensure that your contracts with suppliers support your business strategy and everyone involved will benefit.
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