Top five opportunities for procurement leaders in 2024

The manufacturing sector is facing unprecedented challenges in 2024 and into 2025, from supply chain disruptions to the need for sustainable practices. Procurement leaders play a critical role in navigating these challenges and driving growth for their enterprises - and they can do so by seizing the following opportunities.

1 - Supplier diversification: Reducing risk and enhancing resilience

Supplier diversification is a crucial strategy for procurement leaders to reduce risk and enhance resilience in their supply chains. By diversifying their supplier base, procurement leaders can mitigate the impact of supply chain disruptions, improve quality and reduce costs. This involves identifying and onboarding alternative suppliers, fostering strong relationships with suppliers and implementing robust supplier risk management strategies.

To capitalize on this opportunity, procurement leaders should:

• Conduct thorough supplier risk assessments to identify potential risks and develop mitigation strategies.
• Develop strategic partnerships with suppliers to ensure collaboration and adaptability.
• Implement a supplier diversity program to promote inclusivity and diversity in the supply chain.

A great example of a supplier diversity scheme is the award-winning UPS Supplier Diversity Tier 2 program, which actively supports supplier development, mentorship and certifications. The program is particularly successful where UPS requests suppliers who are not diverse themselves to participate in the scheme. These suppliers are then required to extend UPS’s commitments to work with small and diverse businesses. The results of this program are also regularly reported and accessible to UPS customers.

UPS' supplier diversification strategy has led to several benefits, including:

• Improved efficiency: UPS spends $2.6 billion annually on contracts with 6,000 small and diverse suppliers, which has contributed to the company's overall cost savings and efficiency improvements. The company has seen a higher volume of work with contracted vendors, faster invoice approval and order processing, and a greater reliance on electronic purchase orders and invoicing.
• Enhanced competitiveness: With a broader supplier base, UPS has been able to improve quality and reduce prices, making it more competitive in the market.
• Increased supplier retention: Diverse suppliers have an annual retention rate that is 20% higher, on average, than those who aren’t.
• Recruitment and retention: After a Harvard Business Review survey found that 52% of people were more inclined to work for a company that has a supplier diversity scheme, UPS incorporated information about its efforts into its communications with candidates - to great effect.

2 - Strengthening collaborations: Enhancing supply chain visibility and agility

Strengthening collaborations with suppliers, internal stakeholders and other partners is essential for procurement leaders to enhance supply chain visibility and agility. This involves fostering open communication, sharing data and aligning goals and objectives.

To capitalize on this opportunity, procurement leaders should:

• Implement collaborative tools and platforms to facilitate real-time data sharing and communication.
• Develop cross-functional teams to ensure alignment and collaboration across departments.
• Establish clear goals and objectives that align with the organization's overall strategy.

A clear example of how to enhance supply chain visibility and agility can be found with one of DSSI’s clients, an American multinational medical devices and healthcare company.

Challenge: The healthcare organization faced inefficiencies in its MRO sourcing and procurement processes across seven sites, leading to high costs and poor visibility across its supply chain.

Solution: DSSI implemented its Epic® Pro e-Procurement tool to streamline the organization's data, sourcing and vendor master list. This tool enabled real-time data sharing and communication, facilitating collaboration across departments and suppliers.

Results: The implementation led to significant cost savings of 27% on sourcing for the healthcare organization. Additionally, the tool improved efficiency, responsiveness and customer satisfaction by providing end-to-end, multi-tier supply chain visibility.

3 - Embracing digital transformation: Leveraging technology for efficiency and innovation

Embracing digital transformation is critical for procurement leaders to leverage technology for efficiency and innovation. This involves adopting digital tools and platforms to streamline processes, enhance data analytics and improve decision-making.

To capitalize on this opportunity, procurement leaders should:

• Develop a digital transformation roadmap to guide the organization's digital journey.
• Implement digital procurement platforms to automate routine tasks and enhance data analytics.
• Leverage artificial intelligence and machine learning to improve forecasting and predictive analytics.

Despite many CPOs understanding the technology imperative, 71% think that procurement technology investments remain a low priority when IT budgets are set. As Michael Klinger, Siemens’ Senior Director of Supply Chain Excellence, said, “Technology doesn’t give you visibility to reliably prevent supply disruptions before they happen, but it can give you information that can help you respond to supply-chain disruptions much faster than human buyers can.” Therefore digital transformation should be at the forefront of your agenda if it isn’t already. 

4 - Local sourcing: Enhancing supply chain resilience and supporting local economies

Local sourcing is an opportunity for procurement leaders to enhance supply chain resilience and support local economies. By sourcing goods and services locally, procurement leaders can reduce transportation costs, enhance supply chain visibility, and support local communities.

To capitalize on this opportunity, procurement leaders should:

• Conduct local market research to identify potential suppliers and opportunities.
• Develop local sourcing strategies that align with the organization's overall procurement strategy.
• Establish partnerships with local suppliers to ensure collaboration and adaptability.

Unilever offers a great example of local sourcing strategy done right. The company set a goal to source 100% of its agricultural raw materials sustainably and to increase its local sourcing in developing countries. To achieve this, Unilever works closely with local farmers, suppliers and communities to develop sustainable and responsible sourcing practices.

Challenges: 

• Supply chain complexity and quality control: Managing a global supply chain with diverse local suppliers and ensuring consistency in quality and delivery was a significant challenge. All locally sourced materials must meet Unilever's quality standards, which required significant investment in training and capacity-building programs for local suppliers.
• Logistical challenges: Managing transportation, storage, and distribution of locally sourced materials posed logistical challenges, particularly in regions with underdeveloped infrastructure.
• Cost and pricing: Balancing the costs of local sourcing with the need to maintain competitive pricing was a delicate task.

Results:

• Cost savings: Unilever has cut costs by $1.5 billion through sustainable sourcing since 2008, including on transportation costs and supply chain efficiencies. Furthermore, their goals for using renewable electricity in its operations were achieved a year early, and the savings from the resulting procurement contracts for “green electricity” have been “tremendous”, according to their CEO. Increased crop yields from sustainable agriculture practices are producing similar cost advantages.
• Economic impact: Unilever's local sourcing strategy has contributed to the economic development of local communities by creating jobs, increasing incomes and stimulating local economies. For example, in Kenya, the company aims to source 70% of its raw materials locally by 2025, which translates to approximately KSh7.6 billion (USD $517 million) in local spending.
• Environmental benefits: By reducing transportation distances and promoting sustainable agriculture practices, Unilever's local sourcing strategy has helped reduce the company's environmental footprint. With ESG regulation on the rise, these types of results cannot be overlooked. 

5 - Focus on holistic cost efficiency: Optimizing total cost of ownership

Procurement leaders have the opportunity to drive holistic cost efficiency across the entire product lifecycle and value chain, not just in procurement. With their in-depth understanding of said value chain and supply markets they can go beyond mere cost management, helping to “shape corporate strategy, identify M&A targets, scout early-stage innovations and enhance cross-functional collaboration for long-term value creation.”

Focusing on holistic cost efficiency is also critical for procurement leaders to optimize the total cost of ownership (TCO) and enhance profitability. This involves considering all costs associated with procurement, including direct and indirect costs.

To capitalize on this opportunity, procurement leaders should:

• Implement TCO analysis to identify areas for cost optimization.
• Establish key performance indicators (KPIs) to measure cost efficiency and optimize performance. These include:
  • Cost savings: Measures the amount of money saved through procurement practices such as strategic sourcing, negotiating better prices, and reducing waste.
  • Cost reduction: Aims to quantify the tangible "hard savings" achieved through cost management efforts over time.
  • Cost avoidance: Measures the amount of money that would have been spent if not for procurement strategies such as negotiating better prices or reducing waste.
  • Cost of Purchase Order: Tracks the cost associated with processing a purchase order, including labor, overhead, and software costs.
  • Spend under management: Monitors and optimizes the spend under procurement management, ensuring that procurement efforts are aligned with business objectives.
  • Maverick spend rate: Measures the percentage of purchases made outside of approved procurement channels, helping to identify areas for cost reduction and process improvement.
  • Invoice processing time: Tracks the time it takes to process invoices, helping to identify inefficiencies and opportunities for automation.
  • Purchase Order cycle time: Measures the time it takes to complete the entire ordering process, from purchase order creation to approval, receipt, invoice, and payment.

By seizing these opportunities, procurement leaders in manufacturing can drive growth, resilience and sustainability in their organizations. If you’re looking for support in achieving supply chain and spend visibility, or implementing a source-to-pay solution that streamlines your procurement function and drives cost savings, get in touch with the DSSI team.