4 Predictions on Procurement’s Top Trends in 2023
A new year offers an opportunity to reflect on the past, learn from it, and prepare for the future. Of course, old problems don’t suddenly disappear because one year ends and a new one begins. But hopefully, we can incorporate what we’ve learned into our day-to-day, creating a better—more resilient—path going forward. In 2022, procurement faced challenges on multiple fronts. Among them were supply chain disruptions, inflation, and supply scarcity and shortages.
Disruptions became so common Collins Dictionary named 2022’s word of the year permacrisis.
But if there’s one advantage, it’s that crisis creates change and the potential for innovation. As Winston Churchill once said, “Never let a good crisis go to waste.” Eager to reduce administrative busywork, procurement teams are treating the permacrisis as an opportunity to make long-sought changes along a digital journey.
Procurement has had massive challenges and targets over the past year:
- Managing inflation
- Reducing supplier risk
- Ensuring continuity of supply
- Reducing spend
- Driving sustainability
- Accelerating digital transformation
- Navigating the Great Resignation
So, what trends will 2023 have in store for the procurement world? And what can we do better to navigate what’s coming? The Arkestro team shares some of their predictions on procurement’s top trends on the horizon.
1. Companies Will Scale Their Procurement Knowledge Base and Enablement Programs To Attract and Retain A New Profile of Category Management Talent
The talent shortage in procurement and supply chain is nothing new: it’s been going on for several years now. In 2021, Gartner reported that 52% of procurement leaders had seen their procurement staff decrease substantially. As we enter 2023, procurement will need to continue to focus on attracting and motivating high-performing teams.
“Attracting and retaining top employees will continue to be a challenge and priority for procurement leaders,” said Arkestro Enterprise Account Executive Andrew Blum. “This, coupled with the typical 30-plus years’ experience procurement veteran approaching retirement, companies are seeing their tribal knowledge about suppliers and processes walk out the door and not be replaced.”
What can procurement leaders do to overcome the ongoing talent shortage? And how can they attract and retain top employees? As the average tenure of a category manager continues to plummet, companies are investing to document best practices and enable faster onboarding cycles for new generations of hires.
“Procurement leaders will increasingly need to leverage emerging technologies to stay ahead of this trend,” Blum said. “They will ensure their teams have meaningful data available in an actionable format to help them supercharge the influence of each team member.”
2. The Supply Chain Will Continue to Heal
“Supply chains will improve,” according to Derek Mellott, Arkestro Solutions Consultant. He broke down some areas where procurement can expect improvements—and what will drive them.
“Inflation will go down. Companies will be more profitable than they were this year, and optimism, from a market perspective, will increase. However, it will be a very cautious optimism. I think there is a bit of ‘PTSD’ underlying both consumers and producers, given the state of the world and markets these last few years.
“This cautious optimism during a recessionary environment will fuel an increase in business transformation initiatives with a bottom-line cost savings impact—specifically those tied to procurement. The recent supply chain issues and market volatility have proven to businesses, large and small, the true value and necessity of an efficient and optimized sourcing/procurement team.”
As a result of recent turmoil, organizations will seek to prioritize responsible cost-cutting. At the same time, they’ll need to watch and prepare for future economic downturns and supply chain disruption. “Particularly for procurement, there will be increased reliance on tools and services that can create and foster supply chain resilience, cost optimization, and agility,” Mellot added.
“What goes up must come down,” said Arkestro founder Edmund Zagorin. “Customers that have been on the receiving end of monthly price increases from their suppliers for over a year will now have an opportunity to turn the tide, push back, and create some rationalization and consolidation across their supply base. Any procurement team without the SKU-level predictive data foundation to trigger a real-time prioritized list of cost reduction opportunities risks missing out on a substantial value creation opportunity.”
3. Procurement Will Still Need to Orchestrate Elements of the Fat Tail and the Long Tail of Spend
Managing—even fully orchestrating—tail spend has been a long-time procurement discussion point. But, according to Blum, “2023 may be the year that procurement leaders finally accept the fact that they will never eliminate tail spend.”
What will this acceptance result in? “Instead, I anticipate a push towards how to effectively manage it without much or any touch from their procurement team,” Blum said. “Technologies such as artificial intelligence and machine learning have been refined to a point where procurement teams can confidently simulate their processes without manual input. This will provide the trust for a ‘set-and-forget’ tail spend strategy.”
The most common reference to “tail spend” is the so-called “long tail” (e.g., multiple small-value purchases, often distributed across several non-strategic suppliers and tons of distinct purchase orders or transactions). But there is also the “fat tail,” which is more common among companies with significant CapEx.
The “long tail” (named for the same power law distribution that produces the Pareto Principle or 80/20 rule) suggests primarily low-value transactions that are often fast-moving. On the other hand, the “fat tail” can include one-off high-value transactions that may be for significant CapEx assets.
“That’s one of the benefits that Arkestro customers get from doing a Procurement Impact Assessment, which is an analytical segmentation of their tail spend into areas that can and cannot be automated, and the ability to use a predictive model to accurately classify a transaction at the requisition stage when there’s an opportunity to add value,” said Zagorin.
“In statistics, this skewness as an attribute is called ‘kurtosis,’ and it’s one of the many things you want to really make sure gets included in any Spend Under Prediction framework.”
4. Procurement Will Need to Produce Forecasts and Predictive Models As Part of Standard Reporting Cycles
Procurement teams today have a wide range of complex, conflicting, and ever-changing priorities. They need technology capable of finding and flagging the needle in the haystack—the procurement activity that will produce the most enterprise value.
That’s why we’re seeing more procurement teams turn towards iterative predictive models like
- scenario-driven demand plans
- should-be cost models
- process orchestration models
These models have become increasingly popular. They offer a hard-numbers approach to measuring success, keeping score across the procurement organization, and championing procurement’s impact on the C-Suite.
After all, the core problem with most procurement reports or dashboards is that the insights they report are fundamentally backward-looking. As a result, procurement is in a reactive position, finding out about projects too late to make a meaningful difference.
The only way to connect the dots between higher-quality data and value-creation opportunities is to bring these opportunities to procurement much earlier. Then the category leads can pick cycles to involve that truly make a meaningful difference to the business—and are aligned with stakeholder preferences.
Predictive procurement models are also broadly aligned with the omnidimensional spend imperative many teams face as the C-Suite challenges them to align more spend with every dimension of “preferred” suppliers. This includes improving ESG numbers and supplier diversity while reducing third-party risk.
Procurement Has Become a Trusted Advisor To the C-Suite. That’s Why Data and Predictive Models Are King
As procurement teams begin 2023, they must plan for resilience, speed, cost optimization, sustainability, and clarity. Orchestration solutions like Arkestro’s embedded platform will help businesses bring sanity checks and greater predictability across their procurement cycles. As a result, teams drive impact on every dimension of procurement’s value.
Arkestro is a recommendation engine built on a powerful set of always-on predictive models that learn from your organization’s supplier preferences (and best supplier selection decisions). It removes manual validation, approval, and data-entry steps across every procurement cycle. And it does this while living inside the systems and processes (like procure-to-pay systems) that enterprises already use. The result is a seamless user experience.
Using human behavior science, game theory, and machine learning, Arkestro helps you find the right supplier at the right price right now.
Interested in learning more about how predictive procurement will help your 2023 goals? See predictive monitoring in action or get in touch to learn how your organization can benefit from Arkestro’s Predictive Procurement Orchestration platform.