Under Pressure, Will Procurement Take Performance Higher in 2023?Procurement
Under Pressure, Will Procurement Take Performance Higher in 2023?
Procurement and supply chain teams have been trying to hold the line against macroeconomic and global market forces that have been pushing hard against them for nearly three years. But the line has been slipping. If they aren’t able to overcome their challenges, 2023 could be their breaking point.
Procurious teamed up with Ivalua to survey 170 procurement and supply chain leaders on the pressures and conditions they’re experiencing in 2022 and their outlook for next year. We also asked how their executive teams are enabling them to respond, which revealed an all-too-common reality – the need to do more with the same or fewer resources.
Procurement and supply chain teams are under constant pressure. Recent data strongly suggests that this environment represents the new normal, with the landscape likely to get even more challenging next year.
“Our research found intense and growing pressure on procurement teams with the potential for even darker clouds on the horizon,” Alex Saric, CMO at Ivalua says. “We’re operating in one of the toughest markets in decades – and most leaders expect a recession to hit next year. There will be no break for procurement. Not enough executives are equipping procurement with the resources they need to navigate these dynamics. Unless procurement has ready access to actionable insights and the capacity for more strategic analysis, poor decisions with undesired trade-offs are a near certainty.”
Pressure on People
So what’s pressuring procurement and supply chain leaders the most?
Eighty-eight percent (88%) of respondents rated inflation as their top pressure. Although hopes were high that inflation levels would have reversed by now, we’re only seeing modest easing of conditions, indicating that inflation will persist into 2023.
As we examine market volatility, inflation is just part of the story. Other market conditions continue to exert significant pressure on procurement and supply chain teams and further complicate an already difficult environment.
These disruptions include:
- Supply disruptions and shortages – 86%. Recurring lockdowns in China; Russia’s war in Ukraine; sanctions and embargoes; energy market disruptions; high fuel costs. Such disruptions and subsequent shortages continue to reverberate across the value chain and are expected to continue into 2023.
- The Great Resignation – 68%. Supply management is struggling to retain and find new talent, along with many other business functions. High stress, long hours, stagnant pay, and the allure of something new make it difficult for procurement and supply chain leaders to keep their teams fully staffed.
- Recession Risk – 62%. The majority of procurement and supply chain leaders are weary of another recession. They’re feeling the stinging winds of an economic storm and they’re battening down the hatches.
- New sustainability expectations and regulations – 61%. A majority of respondents also feel the heat of new ESG laws and regulations, such as the Uyghur Forced Labor Prevention Act in the U.S. and the Supply Chain Due Diligence Act in Germany, that are now, or will soon be, enforced.
Eighty-one percent (81%) of Procurement and supply chain leaders and practitioners report feeling pressured by their executive team “to more quickly and effectively respond to challenges.” But as our research shows, the pressures and risks supply management teams face, and the methods with which they manage them, are not always aligned.
Despite the increased pressure on Procurement and supply chain teams, less than a quarter (24%) have had technology investments fast-tracked; only 21% have seen headcount increase on their team; and only 14% have received more budget to counter today’s market challenges.
Put another way: at least three quarters of Procurement teams are being tasked to respond to these new market conditions with the same level of resources and investment they’ve always had.
Under Pressure, We’re Cracking
The result: Many Procurement teams are bending and cracking under the pressure. Although the majority of procurement teams have not cut corners with their sourcing criteria and suppliers to secure supply in this market, 32% have – which is a huge red flag.
“Cutting corners may help procurement teams keep suppliers flowing in a pinch, but it will likely lead to more issues down the road. Quality, sustainability and ethical goals are just a few that are put at risk when supplier due diligence is compromised. You have to feel for procurement teams – company success is increasingly being placed upon their shoulders, too often without proportional investments to enable them,” Alex Saric says.
Hope Tomorrow Takes Me Higher
The Procurement and supply chain practitioners we surveyed are generally pessimistic about the current state of business, and the future of the global economy.
Just under half of respondents (49%) believe supply chains won’t return to pre-pandemic conditions until 2024. And nearly two thirds of respondents (64%) believe we’re in a recession now or will be by 2023.
So, how are procurement teams preparing for or responding to this recession?
They’re leaning into best practices, such as bringing more spend under management (46%) and sourcing alternative suppliers that are more affordable (45%). Others are negotiating supplier contracts to cut costs (39%) and consolidating suppliers (36%).
Notably, most procurement teams aren’t seeking tech-based solutions to respond to, or prepare for, this recession. An inability or unwillingness by most executive teams to provide procurement and supply chain teams with additional human and technical resources is alarming, and will continue to stress these teams as they head into 2023 facing risks and threats everywhere they look.
“Can’t We Give Ourselves One More Chance?”
There’s a lot at stake. Organizations are getting hit in multiple and meaningful ways. Consider that:
- 77% of respondents report late shipments or delays
- 55% of their businesses are seeing reduced profit margins
- 42% are seeing budgetary and investment freezes, and
- 40% are seeing reduced customer satisfaction
Let’s mobilize procurement teams to fight back and invest resources, people and technology to drive better outcomes. If procurement and supply chain leaders are unable to mitigate their own operational challenges, improve delivery times, positively impact customer satisfaction, and drive greater value for their organizations, the business repercussions in 2023 could be catastrophic.