Research
The CPO Agenda: 2024 Procurement Key Issues
Expectations have never been higher for procurement teams. In the face of continuing economic uncertainty – coupled with new and ongoing geopolitical events – procurement teams are feeling increased pressure from business stakeholders. As experts predict a stall or slowdown for global economic growth in 2024, our findings from The Hackett Group’s 2024 Key Issues Study indicate that procurement leaders have shifted their priorities for this year.
What’s changed
The top three priorities remain the same as in 2023, but the order has changed. Given the economic uncertainty, spend cost reduction is back in the top spot, as it was in 2021. Combating inflationary price increases – which made its first appearance on the list last year – remains in the top three.
While cost is king in 2024, procurement teams are looking beyond just cost to elevate procurement’s role as a strategic advisor to the business and deliver additional value to the organization. Procurement operating model transformation makes its debut to the list this year as executives look more seriously at generative artificial intelligence (generative AI).
Cost reduction is top priority
Spend cost reduction is perennially a high priority for procurement, but economic concerns have propelled it back into the No. 1 spot. Procurement teams project higher levels of savings in 2024 compared to 2023 for both purchase cost reduction and cost avoidance. For purchase cost reduction, 27% of participants anticipate a decrease in savings versus 40% who project an increase. For cost avoidance, 22% of respondents expect a decrease in savings, while 35% foresee an increase.
Supply issues remain top of mind for many procurement teams
Procurement must continue to enhance capabilities for ensuring supply continuity. This means engaging risk monitoring across a broader set of risk exposures at earlier stages of the supplier life cycle – during the beginning of the sourcing process – and continuing to monitor and mitigate risks using real-time data and insights through the full supplier life cycle. Teams also must stay abreast of development in digital tools – such as generative AI – to maximize visibility through the supply chain, and leverage market intelligence data from multiple internal and external sources.
Inflationary price increases are still a concern
Although rates of inflation have stabilized – and eased in some cases – uncertainty continues to cloud the economic outlook. As a result, combating inflationary price increases remains high on the priority list. Procurement teams need to apply and continue to develop capabilities in this area to manage price inflation closely with suppliers in 2024. In an inflationary environment, procurement organizations must ensure they have visibility of category-level price increases, with processes in place to manage pricing – especially with critical suppliers.
Procurement should have a seat at the table
Expectations of procurement teams have been increasing as business stakeholders seek support on areas such as supply risk management, digital transformation, and corporate environmental, social and governance (ESG) objectives. Business partnering is a key capability to increase procurement’s influence, yet fewer than one-half (43%) of procurement organizations surveyed have a strategic business partnering/stakeholder engagement initiative planned for 2024.
Transforming the operating model is essential to meet evolving business requirements
Operating model transformation involves rethinking service placement to improve the function’s capacity and agility. Today, more than one-half of the staff managing the key procurement strategy and processes are based in the corporate procurement team for most processes, with the exception of more transactional processes such as supplier information management and purchase order (PO) processing and management. Global business services and procurement outsourcing are more likely to play a role in transactional rather than strategic processes.
Do more with less through procurement digital transformation
Procurement organizations have a high level of adoption of end-to-end core procurement technologies, and the largely double-digit growth projections for 2024 demonstrate the perceived importance of technology enablement. Executives deemed e-invoicing tools to be the most effective in delivering on business objectives, while supplier portals and e-sourcing solutions fell short of expectations for more than one-third of companies surveyed.
Digital automation is still not widely adopted, with limited large-scale deployment but significant piloting, as organizations explore the best ways to adopt these tools. Over one-half of procurement organizations have adopted robotic process automation (RPA), but many of those are still in the pilot stage – even though RPA meets or exceeds expectations for 84% of organizations using it. Despite the relatively recent emergence of generative AI, 28% of procurement organizations have already adopted it, primarily in pilot programs, while others are evaluating its potential. Growth projections for all digital automation technologies are very modest – in the single digits.
Third-party risk management capabilities are still evolving
Third-party risk management (TPRM) remains an area of focus because procurement teams have struggled to gain sufficient visibility into risk and the capability to react quickly to a rapidly changing business environment.
Given the priority, it is surprising that only 39% of organizations include TPRM in dashboards reported to senior management, and only 22% include it as a component of procurement management team bonuses. About one-half (48%) of companies have a 2024 improvement initiative on the transformation agenda, but it is one of several key 2024 initiatives that fall in the critical development area – of high importance, but low maturity.
Performance improvements depend on data and insights
The ability to provide reliable and forward-looking data and intelligence, including capabilities such as modeling and projecting the impact of inflation, is critical. Digital and other technologies are at the center of this capability, yet adoption remains mixed. Still, this is among the technologies with the highest anticipated growth in 2023 – a 14% projected year-on-year increase in adoption.
Sustainability is still a concern
The expectations and demands of employees, customers, governments and other stakeholders regarding supplier sustainability – specifically, environmental concerns – keep this among the function’s top 10 priorities for 2024 – up one position from 2023. Yet, fewer than one-half of organizations (48%) have a 2024 transformation initiative planned to address sustainable procurement.
Agility is necessary to be nimble in a disruptive environment
Being able to pivot to support new stakeholder requirements is critical to effectively support business objectives and stakeholder satisfaction levels. In a procurement context, the meaning of agility varies by organization, but fundamentally relates to the ability to adapt to meet changing requirements. Some capabilities are broadly applicable, such as transitioning orders quickly to backup suppliers, mitigating external risk factors, preparing for merger and acquisition activity, or preparing for other supply chain risk and disruptions on an ongoing basis.
Procurement’s increased workload creates productivity and efficiency gaps
Addressing these varied priorities will require resources. The 2024 Key Issues Study confirms and quantifies what procurement executives already know: They must find a way to do more with less. In 2024, the procurement workload is predicted to increase by 8.0%, reflecting the broadening of priorities but with little increase in head count and operating budget. This creates a productivity gap of 6.6% and an efficiency gap of 6.4%. Procurement organizations are planning to increase their use of technology by 4.6% in 2024 to help close these gaps.
Transform your procurement capabilities in 2024
As economic disruption and potential geopolitical risk remain prominent features in the 2024 outlook, procurement teams will need to adjust their priorities to ensure that they are able to support the success of their business stakeholders. We believe most procurement teams can make meaningful progress toward achieving their priorities by focusing in four areas:
- Enhance team capabilities to unlock the full value potential of supply-side commercial opportunities and fully support the requirements of business stakeholders.
- Invest in developing data analytics capabilities, especially to drive insights for cost optimization/cost modeling supplier performance, supply risk analytics, supply market analysis, and sustainability and/or ESG reporting.
- Architect your technology landscape purposefully to get the right balance of the integration provided by enterprise resource planning and suite solutions versus the more specialized functionality available from point solutions.
- Evaluate procurement operating model transformation to simplify operations, as well as reflect the changing nature of work driven by the dual forces of generative AI deployment and the expanding expectations – including cost optimization – of business partners.
Download the full report to learn more about chief procurement officers’ top priorities for 2024, including ensuring supply continuity, combating inflationary price increases, reducing spend cost, strengthening third-party risk management, and improving procurement agility and stakeholder-centricity.
