Spend Trends That Procurement Leaders Should Expect in 2022

Spend Trends That Procurement Leaders Should Expect in 2022

Table of Contents Spend on ESG efforts has become a gold standard The impact on procurement The way forward Inflation means unpredictable spend The impact on procurement The way forward Cybersecurity is top of mind The impact on procurement The way forward Conclusion References

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Spend Trends That Procurement Leaders Should Expect in 2022 İ 1

Within the past few years, organizations faced extreme demand volatility and supply chain disruptions that have forced them to radically adapt their procurement systems. An abundance of M&A activity, inflation, labor shortages and increasing regulations have been out of organizations’ hands, but spotting savings opportunities, creating value through procurement and optimizing spend has all been within the realm of possibility.

This guide gives an overview of spend trends that will continue through 2022, how procurement is directly impacted, and how procurement can stay ahead of change.

Spend Trends That Procurement Leaders Should Expect in 2022 İ 2

Spend on ESG efforts has become a gold standard In 2020, the pandemic brought on brand messages like “we’re all in this together” and other phrases that promoted togetherness in the height of social distancing and global restrictions.1 However, a lot of consumers have lost trust in this sort of messaging. With all the labor strikes, whistleblowers, climate change, and risky health conditions for on-site workers, consumers have been largely skeptical of the goodwill of major brands and small businesses alike.

Consumers now want to know the specifics of where their dollars go, and laws are emerging all around the world that require businesses to meet

Companies can’t merely share their supplier lists or zero carbon emissions, either.

Consumers want to know how much money is going to each supplier by percentage and if there are any hidden tradeoffs. In other words, companies need paper trails showing their contributions to a cleaner, more equitable, and diverse supply chain.

certain Environmental, Social, and Corporate Governance (ESG) metrics.2

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The impact on procurement There is an added pressure on procurement to make strategic sourcing decisions that align with ESG goals and to properly document those sourcing decisions. Ethical sourcing is a huge way of proving a company’s positive impact. Procurement cannot support these efforts without actually seeing their existing spend. Too many procurement organizations have disparate sources of data — effectively rendering the data useless.

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The way forward Procurement must truly have transparency into their end-to-end operations and supplier base, not just because their brand relies on it, but because sustainable practices improve ROI. For example, having a diverse supplier base can cut emissions if a vendor is nearby instead of overseas, and it enables pivoting to other suppliers when disruptions occur in your supply chain. Plus, legal teams need documentation of sourcing practices to show compliance with emerging ESG laws.

The only way to have a granular and dynamic view into company spend at a moment’s notice is through spend visibility and spend analytics software.

Importantly, if procurement teams extend their supplier network into new geographies with the aims of diversifying, they’re also going to need to track their spend in those areas to know where to track geopolitical risk to sustain those relationships.

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Inflation means unpredictable spend Even though economists have alluded to a prosperous 2022,3 fears of inflation and other mixed signals will continue to skew spending patterns indefinitely. The consumer price index is the highest it has been in 40 years, and it’s a known issue.4 Even though the Fed plans to raise interest rates to mitigate inflation, there is no clarity around how much intervention is needed given the pandemic’s wavering impact on consumer behavior. In other words, raising interest rates as an economic lever might not function as it did in the past. In addition, labor scarcity has enabled a higher average hourly salary for workers, ultimately sparking fear of a wage-price spiral.

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The impact on procurement While procurement professionals have worked to negotiate the best prices possible, their purchasing power has been changing by the day. The worst price today might be the worst of the worst — but it may also be the best price tomorrow. Trying to negotiate too low can make suppliers walk (they also have businesses to run), but settling for a high price also feeds inflation, and many buyers have fallen into a passive mindset (i.e., “this is just the reality of the inflation/supply chain/pandemic right now”).

Plus, cash flow has to be taken into consideration — finance teams might not encourage too much volume within a condensed timeframe.

Notably (especially for direct buyers), procurement must also be wary of the foundation of their supply chain; increased orders can drain their suppliers’ volume and even risk their businesses. This leads to procurement being caught between a rock and a hard place.

Procurement teams have done their best to strategize; unfortunately, some of these strategies have also backfired.

For example, bringing in extra inventory to lock down low prices and combat shortages can seem smart, in theory, but there are other inflated costs creating additional headaches (e.g., logistics, carriers, space for inventory).

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The way forward As procurement increasingly becomes a more strategic role and not just a tactical one5, negotiating the best prices and jumping on deals will no longer be enough. Procurement pros will need to level up their demand management and supplier strategies.

They must also prepare for the future, which includes having a laser focus on the bottom line. They’ll need to know which suppliers provide the most holistic value and which to prioritize (e.g., adjust contracts or payment terms).

Machiavellian approaches will likely need to be taken, and the tough questions need to be asked. How can suppliers be consolidated? Do spend categories need to be re-evaluated?

Are contracts renewing too frequently?

At the end of the day, procurement can be focusing on whether certain spend is actually necessary rather than fixating so much on inflation. This, like tackling ESG initiatives, will also require granular insight into existing supplier spend.

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Cybersecurity is top of mind According to PwC’s 2022 Global Digital Trust Insights report, 69% of organizations are predicting a rise in cyberspending in 2022.6 Gartner’s 2022 CIO and Technology Executive Survey reported that “Cyber and information security is at the top of the list of planned investments for 2022, with 66% of all respondents expecting to increase associated investments in the next year.”7 Investment in cybersecurity will continue to increase as cyberattacks continue to grow in frequency and complexity in an ever-expanding digital environment.

Cyber and information security is at the top of the list of planned investments for 2022, with 66% of all respondents expecting to increase associated investments in the next year.7

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The impact on procurement Many organizations have integrated multiple tools into their source-to-pay process in order to standardize business processes, create an efficient buying cycle, and improve data collection so that spend analysis can readily be conducted using uniform, enriched data. Enriched data, however, also means sensitive data — like when procurement and suppliers exchange banking information, contracts and other sensitive documents that require extra protection.

Although automated and recurring payments to suppliers improve those relationships and free up personnel’s time, it is an increased risk for massive data breaches that encroach on a buying organization’s privacy, as well as their suppliers’ privacy.

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The way forward At the very least, procurement teams should have a grasp on their spend because it can be a direct indicator of fraud. With the right category management technology, non-compliant spend within a given timeframe can be seen down to the line-item detail. With adequate spend visibility, you can see whether a given item number has been paid for multiple times, whether unnecessary purchases have been made, or if there are supplier-spend outliers (e.g., fishy supplier entity names, unusually high payments, new geographies, etc.). In essence, spend analytics solutions can combat fraud all the time.

Most importantly, the spend analytics solution must offer strong spend visibility.

There are a lot of spend analytics providers in the market; but, in reality, most of them aren’t focused primarily on driving spend visibility. Instead, they are often a part of a larger procurement suite or part of a consultancy or other services firm offering. They might have the front-end analytics (just through Excel), but they don’t necessarily have the back-end capabilities to track, document, and monitor spend data, while simultaneously alerting users to aberrations within the data through easy-to-understand dashboards. To put it frankly, “category management” is often used loosely, and procurement technologies that only analyze your spend on a project-basis cannot proactively mitigate fraud the way best-of-breed solutions can: dynamically and down to line-item detail.

Most importantly, the spend analytics solution must offer strong spend visibility.

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Conclusion The spend trends of 2022 might also prove to be the spend trends of 2023 and 2024, but there’s no need to get too ahead of ourselves (and we certainly don’t have a crystal ball). What we can do is get our spend technology up to speed — old school approaches and ad hoc spreadsheets no longer cut it.

When organizations optimize their spend analytics with best-in-class tools, they have the detailed visibility into their spend to enable control over their ESG spend, control over their savings amid rising prices, and control over where their money actually goes. It can feel that so many things are still out of our control right now, as was the case before and will be the case forever.

Procurement teams can stay ahead of change by focusing on taking control over what they can, and, luckily, one step which goes a long way is to adopt forward-looking spend analytics technology .

When organizations optimize their spend analytics with best-in-class tools, they have the detailed visibility into their spend to enable control over their ESG spend, control over their savings amid rising prices, and control over where their money actually goes.

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References 1 F Sobande, ‘We’re all in this together’: Commodified notions of connection, care and community in brand responses to COVID-19, European Journal of Cultural Studies, 2020 2 Hogan Lovells, New and Emerging ESG Laws, 2021 3 T Fairless, Booming U.S. Economy Ripples World-Wide, Wall Street Journal, 2021 4 Guilford, Gwynn U.S. Inflation Hit 7% in December, Fastest Pace Since 1982, Wall Street Journal, 2022 5 KPMG, The Future of Procurement, 2021 6 PwC, 2022 Global Digital Trust Insights Survey, 2021 7 Gartner, Gartner Survey of Over 2,000 CIOs Reveals the Need for Enterprises to Embrace Business Composability

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