With near-term consumer demand uncertain, and high interest rates likely to continue for some time, corporate belts are tightening. Some initiatives — such as compliance with environmental, social and governance (ESG) requirements — are going begging for resources. So what are companies spending money on today?
It all comes down to figuring out corporate priorities. Two years ago, procurement leaders were ranking their top concerns as, in order, supply stability, talent, cost containment and sustainability, according to Etosha Thurman, chief marketing and solutions officer for the SAP Intelligent Spend and Business Network. Now, cost containment heads the list, following by supply stability, talent and sustainability.
Setting aside the need to hold the line on spending, the issue of supply stability becomes paramount. And that concern takes the form of a focus on supply chain collaboration, said Muhammad Alam, president and chief product officer of SAP’s Intelligent Spend and Business Network. “It squarely addresses what our customers are feeling — continuous disruption,” he said in an interview at SAP’s recent Spend Connect Live conference in Vienna, Austria.
The urge for collaboration comes directly out of the COVID-19 pandemic, when supplier ties became threatened or unraveled completely as factories shut down and consumer demand surged. Buyers want to know about the ability of their suppliers to deliver what they ordered in a timely fashion. To achieve that knowledge, they need visibility into the status of raw materials, components and finished goods flowing through the pipeline.
Oversight of Tier 1 suppliers is relatively easy to achieve. Beyond that, it’s another matter. Few companies have visibility across multiple tiers of their supply chains, all the way to the farm, mine or other sources of raw materials.
“Most organizations today are still at a very basic level, still trying to break out of their own four walls,” Alam said. That makes visibility of Tier 2 and beyond a dream. High-tech and life sciences are doing a better job of acquiring “N-tier” visibility, he said, but for most industries and businesses, it’s a long way to go.
Companies today are directing their limited resources to initiatives that show a rapid return on investment. And that’s where the procurement organization is in a position to shine. Just putting a stop to “maverick” spending that departs from designated suppliers can yield dramatic results in just three to four months, Alam said. And the success of such a project can fuel additional initiatives aimed at producing similarly quick results.
When it comes to the discounts and spending discipline that are the result of procurement initiatives, “the ROI discussion is just so simple,” Alam said. “Implementation times are shorter, and in some cases the project ends up funding the rest of the transformation.”
Tighter collaboration with suppliers becomes even more vital as original equipment manufacturers seek to diversify sourcing, especially from China. A combination of the pandemic and geopolitical tensions between the U.S. and China has awakened OEMs to the need to spread their business to other regions, including those closer to American markets.
Alam said companies face a “tremendous” amount of work in order to tackle N-tier visibility. The solution is twofold: acquisition of new technology, and a willingness to share information.
New applications residing in the cloud can enable the exchange of data between buyer and supplier. But whether the parties are willing to embrace the ethos of collaboration, by sharing sensitive and proprietary information, is another question.
Still, that reluctance is beginning to crumble. “Because of geopolitical conditions, people are now more willing to participate,” Alam said. “Ten years ago, that willingness didn’t exist. Today, most organizations know this is the right thing to do, as long as they have control over what and when they share.”
Thurman said projects to enhance supply chain stability must be pursued in phases. “I think it’s rare that you find a company that can transform 100% of their processes at one time. It’s not just a question of budget, but fatigue — the capability for [handling] process change.”
Even for companies that have the resources to proceed on multiple fronts, Thurman urges caution. “I prefer to see a roadmap that we can walk toward and introduce a solution into one area, then move to the next.”
The key, she said, lies in sitting down with customers and learning about their individual pain points. “Tell me about how you operate today — where your waste and cost structure is. For example, if you hand me your spend data for the last 12 months, with no process in place, I can look right away and tell you that you have five categories where you need to apply rationalization and can deliver a lot of savings.”
That kind of well-thought-out exercise seems increasingly necessary for companies facing strict limitations on spending. But external pressures threaten to disrupt the financial playbook at any time. Reluctance to spend now on ESG initiatives, for instance, opens up companies to huge penalties in the near future. And the need to address the dynamics of the changing market for talent, both full-time and contingent, is equally important. For corporate and supply chain leaders, the next few years are likely to see too little money chasing too many projects — and some tough decisions needing to be made.
