In this 3-part series, Marijn Overvest, founder of Netherlands-based company, Procurement Tactics, believes that in 2024, procurement will elevate business. In this article and over the next two issues of SmartProcurement News, he will take us through predictions and advice collected from procurement experts globally, to help professionals in the industry navigate the immediate future.
The key lessons to be learned are: Real-time systems in procurement improve accuracy and speed; companies are focusing more on eco-friendly practices and fair supplier relationships; and T-shaped procurement professionals, who have both deep and broad skills, are becoming essential.
We see three fundamental shifts driving this transformation, fueling 11 defining procurement trends.
First, procurement needs to innovate, to use modern digital opportunities to their advantage. Second, the way procurement operates will be reinvented with a focus on driving value for its customers and suppliers.
Finally, procurement is stepping up to champion meaningful change in the world. These shifts (introduced here as themes), will send procurement on a thrilling journey with opportunities, challenges and the promise of a future in which procurement takes centre stage in elevating procurement as a force for good.
Let’s dive into the procurement trends we’ve identified, drawing from these anticipated shifts.
Theme 1: Procurement Innovation
Companies understand that procurement is crucial for many other aspects next to cutting expenses. As the attention of companies grows on procurement, it’s changing significantly in today’s business world.
In 2024, procurement will be constantly merging with the newest innovations, particularly AI. This leads us to our first three Procurement trends.
Trend 1. Fast Integration of AI in Procurement
In recent findings from Research and Markets, it’s clear that AI is already bringing transformative changes to how procurement processes and supply chains function, delivering substantial cost savings. During the forecast period of 2017-2025, the global market for artificial intelligence in manufacturing is expected to grow at a CAGR of approximately 55.2%.
The primary drivers for this market growth are the increasing use of big data technology and industrial Internet of Things (IoT) in the manufacturing industry, the extensive usage of computer-based technology and robotics by manufacturing companies, a significant increase in venture capital investments, and cross-industry partnerships.
AI’s role in supply chain management extends to enhancing various facets, from process automation to providing enhanced insights into both real-time and static data in procurement.
Forecasts from the report project that global AI adoption in procurement and supply chain management will reach a staggering $1.3 billion by 2024.
Impact: Increasing AI integration in procurement processes
AI is streamlining supply chains through the introduction of virtual assistants, fostering collaboration not only within individual companies but also among different entities in the supply chain.
Additionally, the synergy between AI and IoT is creating a highly efficient operational environment, with AI expected to make supply chains 45% more effective in timely and error-free product delivery.
In essence, AI is poised to reshape procurement and supply chain operations, offering a more efficient future for businesses, encompassing cost savings, reliable product delivery, and overall supply chain enhancement.
Companies are already reaping the rewards of their investments in AI, especially in the realm of supply chains, according to Morgan’s observations.
For instance, Rolls Royce employs AI algorithms on its ships to detect and categorise objects in the water, assessing their threat to the ship.
UPS utilizes an AI-powered GPS tool to optimise the routes for its vehicle fleets, ensuring efficiency. Similarly, Lineage Logistics relies on an AI algorithm to predict the arrival and departure times of food orders at their warehouses.
Furthermore, AI’s integration into the supply chain and procurement process can effectively streamline businesses, allowing them to achieve cost savings and cost efficiency.
Action: Businesses’ continuous investment in AI
To gain the transformative impact of AI in procurement and supply chain management, businesses should consider the following strategic actions in procurement.
First, allocate resources to invest in AI technologies tailored for these procurement processes to realise cost savings and operational efficiencies.
Second, ensure effective integration and analysis of real-time and static data to lay the groundwork for AI-driven insights and process improvements.
Third, explore collaboration opportunities with supply chain stakeholders, leveraging AI’s capabilities to facilitate efficient communication and cooperation.
Fourth, embrace the synergy between AI and IoT by implementing sensors and devices to collect data for predictive analytics and process optimization. Establish mechanisms for continuous monitoring and evaluation of AI’s impact, and adapt strategies based on AI-driven insights.
Finally, invest in workforce training to equip employees with the necessary skills to work alongside AI systems effectively.
By taking these actions in 2024, procurement will not only cut costs but also boost efficiency and reliability, securing a competitive edge in the AI-transformed landscape.
Trend 2. Conversational AI leading to increased productivity
In 2024, it is expected to see a rise in the use of conversational AI in procurement. Although it is still in its early stage, conversational or generative AI is already getting popular as 84% of business leaders are planning to use conversational AI by next year.
Impact: Enhanced productivity for Procurement
Conversational AI is proving to be a game-changer in the world of procurement. It promises considerable time savings by enabling procurement professionals to interact with computer programmes using natural language, eliminating the need for dull manual database searches.
Procurement professionals can simply ask questions like “Find me a supplier for canned tomatoes in Italy,” and AI quickly retrieves the relevant information, thus freeing up valuable time for market research and strategic decision-making.
Conversational AI can be a useful tool in preparing for negotiations. By copying and pasting your negotiation strategy into an AI tool, you can identify areas that need improvement and address any inaccuracies in your plan.
Additionally, conversing with AI tools like ChatGPT can help you gauge the effectiveness of your negotiation skills. You can prompt ChatGPT to roleplay as the other party in the negotiation, allowing you to practise and strategise more effectively.
Overall, utilising conversational AI can enhance your negotiation preparedness and increase your chances of success.
Action: Plan ahead
It is evident that this technology is going to redefine the procurement industry. To ensure a successful integration, businesses must take several strategic actions. First, businesses should develop a comprehensive integration plan tailored to the unique needs of procurement. This plan should pinpoint specific areas where conversational AI can provide the most value, streamlining workflows and enhancing efficiency.
Additionally, investment in training and education is crucial to the success of integrating conversational AI in procurement. Procurement professionals should be proficient in using conversational AI tools. This inclusivity ensures that the benefits of this technology are accessible to all, fostering collaboration and informed decision-making.
Trend 3. Supplier development to counter supply chain disruptions
Another lesson that many procurement professionals learned the hard way over the last few years, was to plan on finding alternative suppliers proactively.
Being proactive helps to assess the possible challenges in the supply chain as a whole, and identify the risks that could affect your product to be delivered to your customers promptly.
Research shows that the main supply chain issues in 2023 are behind us, but high inflation is not yet. Next to this, geopolitical issues like we are seeing in the current wars in Russia-Ukraine and in Israel & Gaza could also affect global supply chains and the availability of raw materials negatively. There is only one answer for procurement professionals: making sure to put in as much effort as possible to finding and onboarding alternative suppliers.
Impact: Proactive Planning Should be The New Norm
Being proactive in dealing with this challenge in procurement and the supply chain will give professionals an edge over those who continually are reactive when problems arise in their operations.
Additionally, It’s important to be a proactive procurement professional given the facts about current food price fluctuations. According to the World Bank, 78.9% of high-income countries are experiencing food price inflation. Europe is among the regions most affected by immediate wheat futures.
How can being proactive aid in tackling supply chain disruptions in procurement? Let’s take a look at Tetra Pak as an example, a food processing and packaging solutions company. They upgraded their financial and simulation planning by switching from their old Excel-based system to faster tools for scenario analysis. Using smart technology to run simulations is a great way to get ready for future problems. It helps identify weaknesses or trouble spots in supplier landscape and supply chains before a real issue hits.
Procurement teams are very important in mitigating risks within supply chain planning. It’s smarter to find and fix things that could hurt customer relationships, revenue growth, and overall business efficiency now rather than waiting for a crisis. Let’s discuss how here.
Action: Fostering and Developing Proactive Alternative Supplier Strategies
To be ready to counter any challenge arising from the current geopolitical issues, procurement professionals should focus almost 40% of their time on contacting, visiting, negotiating and onboarding alternative suppliers.
This is the key driver for becoming less dependent on current suppliers and as a result, mitigating risks and achieving successful results with your current suppliers. Achievement in the field of mitigating risks, will reflect in the negotiation results. No supplier wants to lose business, and having an actual alternative gives endless power at the negotiation table. Yes, finding the right alternatives takes a lot of time. And yes, procurement still might not achieve all the goals due to external reasons, but this is the only way forward in 2024.
Theme 2: Transforming The Operational Procurement Model
The way procurement has operated has remained mostly the same despite the changing world and shifting business landscape of the past two decades. Often, procurement is organised to deliver savings through specific roles, divided into specialised buying teams and centralised administrative teams.
However, truly adding value in today’s complex world requires integrated solutions rather than separate specialisations. This leads to the need for procurement teams that drive business impact.
Doing so effectively requires a different set of skills as well as a different value proposition. It will compel procurement to forecast better, to use real-time supply chain systems, and to think about how we should organise our work to be future-proof. Lastly, in 2024, procurement will come to the realisation that suppliers are more important than ever in achieving its targets.
Procurement has an outdated self-image and 2024 is the year that this will change, with the next four trends. Read on next month!