Procurement has undergone a meaningful transformation over the past several years. Driven by global economic, political, and environmental instability procurement has transitioned from its traditionally transactional back-room role, becoming an increasingly strategic value orchestrator for the business as a whole. A recent report by McKinsey observes that “to succeed in the new environment, organisations are currently embedding agility, technology, and innovation into every aspect of their value chains.”
Nowhere is this more true than in the procurement sector, with CPOs becoming drivers of sustainable practice and digital transformation, while simultaneously taking on more and more responsibility for resilience in the value chain and, of course, cost-containment.
With procurement often responsible for as much as 50-60% of spend within the organisation as a whole, saving money has always been (and will always be) a key responsibility of the function. However, as the discipline becomes more strategic, and factors like supplier relations, carbon emissions, and brand value are also taken into account, we thought it would be useful to take a look at some of the ways a modern procurement function can create value for the business beyond the bottom line.
5. Ensuring compliance
Much of the risk when it comes to remaining compliant often stems from the organisations your company interacts with, and how those interactions are handled across international borders. Procurement has a critical role to play in ensuring that company spend is not in breach of compliance, and that effective steps are being taken to reduce risk of fraud, waste, and abuse, as well as legal and reputational risks.
4. Increasing resilience in the value-chain
Much of the strategy surrounding how and from where goods are sourced has changed in the wake of the pandemic, when global supply chain disruption led to spiking logistics prices, resource scarcity, and massive delays. The global source to pay process has restructured itself in the last few years, placing greater emphasis on resilience and adaptability than the last-minute, lowest possible price pre-pandemic approach.
However, that volatility isn’t going away, despite the waning effects of the pandemic. Climate instability, political upheaval, and continued economic strain felt around the world aren’t going anywhere, and organisations that can learn to thrive amid the chaos will fare better than those who try to resist it. McKinsey’s recent report on the changing nature of the procurement process notes that “Thriving in the future will mean embracing volatility, so that procurement can become a truly predictive function that anticipates price increases, captures downward price movements, and creates value from uncertainty.” A purely risk-averse approach will leave an organisation less prepared to face disruption than one that prioritises adaptability. “Volatility in the markets is at a level we have not seen before,” a pharma CPO told MicKinsey. “Procurement’s ability to adapt to these changes and monetize that volatility will be absolutely crucial for success.”
3. Managing the supplier ecosystem
While corporate rhetoric has for years been pushing the idea that our value-chains have transitioned from a transactional, legacy approach to a world of strategic partner relationships, many organisations have, it seems, been talking the talk without walking the walk.
Criticisms were levelled against fast fashion companies in particular this year. It was found that, while a McKinsey survey found that “brands say their relationships with suppliers have depend”, a survey of suppliers by the Better Buying Partnership Index found no change. Reporters for Vogue Business also uncovered partnerships that follow “an exploitative blackmailing model, where brands use the partnership as a guise to pressure suppliers into lowering costs, providing discounts or refusing orders.”
Procurement is the primary point of contact between many enterprises and their supplier ecosystems, and buyers have a disproportionate amount to power to set the tone and practices in a relationship. Procurement has the potential to make meaningful changes throughout the value-chain with selective buying, favouring qualities beyond just cost, and the tender process.
2. Create transparency and brand trust throughout the value-chain
The modern consumer and client is increasingly politically aware, environmentally conscious, and assiduous when it comes to identifying empty rhetoric, greenwashing, and corporate spin. Stakeholders, regulators, and consumers are demanding more in terms of environmental impact reduction, starting with transparency throughout the supply chain.
This month, the European Union introduced legislation banning the use of terms such as “climate neutral” or “climate positive” that rely on carbon offsetting—a widely criticised method of reducing climate emission figures while continuing to pollute. By 2026, inaccurately claiming to be “climate neutral”, “climate positive”, “environmentally friendly”, “natural”, “biodegradable”, “climate neutral” or “eco” without sufficient evidence could carry heavy sanctions.
Procurement teams have a significant role to play in the process of drawing down carbon emissions, but these steps can’t be taken without first creating the necessary transparency to identify and report Scope 3 emissions accurately. Doing so will not only pave the way for companies to reduce their emissions through supplier and material selection, but will also increase brand trust—and therefore value—in the eyes of an increasingly critical public and regulatory landscape.
1. Driving emissions reductions in the value-chain
Taking all the emissions tied to a modern company into account, sometimes fewer than 10% emanate from within its own operations. Scope 3 emissions are a tremendous source of environmental impact, and need to be meaningfully tackled in numerous different ways to avert the worst effects of the climate crisis.
Increasing efficiency to reduce consumption, transitioning to renewable energy (as well as cleaner sources like nuclear, not to mention advocating for energy mix restructuring at a governmental level), embedding more circular economic practices, and voting with the budget are all key strategies for reducing emissions, and procurement has a huge amount of power to drive their adoption.
