Procurement Trends and Priorities to Pursue in 2023

Earlier this year, QAD hosted a live webinar to explore and analyze the trends that are likely to dominate the procurement world over the coming months. It’s no secret that procurement teams have an amplified role within their businesses and that many are left with questions — our goal was to offer answers.

I sat down with Kenneth Zins, Henry Schein vice president of global sourcing, to take a look at trends, discuss where best to focus a team’s energy, and share approaches for navigating the inevitable challenges ahead. Henry Schein is a worldwide solutions provider to more than 1 million healthcare professionals across the globe. Ken’s role is focused on the operational side of Henry Schein’s corporate brand portfolio, supplier management, cost management, and project management of new product introduction.

Ken and I started out talking about procurement landscape predictions for the year ahead. A trusted source we both look to is The Hackett Group’s downloadable e-book, 2023 Key Issues, which opens up with the statement, “To thrive amid uncertainty, technology and digital transformation will be key.”

What Are the Top 10 Priorities for Procurement Leaders?

The Hackett Group polled procurement executives to compile a Top 10 list of priorities:

• Ensure supply continuity
• Combat inflationary price increases
• Reduce spend cost
• Pursue procurement digital transformation and modernize landscape
• Improve analytics and insights capabilities
• Strengthen third-party risk management visibility and capability
• Act as a strategic advisor to the business
• Improve stakeholder-centricity
• Improve procurement agility (i.e. adapt quickly)
• Embed responsible procurement

Over time, this list has changed with industry modernization and world events. Looking back to just four years ago, improving cost efficiency had always been ranked #1. But in the last few years since COVID-19 and the Russia-Ukraine war, we have seen an unprecedented multi-crisis unfold that has put the availability of products and  the mitigation of supply chain risks in order to ensure supply continuity at the top of the list.

We’ve seen an increasing need to find qualified new suppliers, and those suppliers need to be located closer to the manufacturing plants. Very often, this calls for multi-sourcing as well as near-shoring, or block building, aka localization — whatever term you want to use. And this trend is not at all over. Some companies are just starting to realize that they have to do more supplier selection processes with fewer people in the workforce. 

At the same time, there is an ever-increasing need to collect information around ESG, or environmental, social and corporate governance.

We have a 36-letter German word for this: Lieferkettensorgfaltspflichtengesetz, which is the name for a German supply chain diligence law that came into effect at the beginning of this year. It basically says: If your supplier doesn’t play by the rules, you will pay for it. 

This law makes companies responsible for ensuring their suppliers adhere to human working conditions and environmental sustainability, and applies to companies with more than 3,000 employees for now, but will go down to 2,000 next year. And there’s an EU law on the horizon that’s predicted to apply to companies with as few as 250 employees.

The penalties are painful, and other countries and U.S. states have passed or are looking to pass similar laws, so taking ESG initiatives into consideration is here to stay.

Ken said that’s among the interwoven challenges keeping him up at night: You want to make sure you have continuity of supply. You want to balance your inventory levels. You want to make sure you’re cost competitive. You want to make sure you’re compliant. You want to make sure that you’re meeting ESG opportunities and requirements. All of these “make-sure” demands get compressed together, and your overarching goal is to find the right balance and diversification between all of them, to make sure you’re servicing the customer.

We asked Ken how Henry Schein stays ahead of the game to ensure customer satisfaction and profitability, and he went back to that idea of balance, saying, “You really can’t go too far into one of those avenues without having a direct impact on the other. So what we’ve done is diversify our supply chain, making sure we have sources that are established domestically within the markets that we operate, and also internationally. A lot of times, the international sources may be a little bit more cost competitive, but the domestic sources have less geopolitical constraints and shorter lead times. So there’s a balance that we look to achieve to make sure we’re delivering the full package to the customer. That’s the strategy we’ve developed and implemented since COVID.”

Digitization Pays Off

Looking back at that Top 10 Priorities list to address #4 — pursue procurement digital transformation and modernize landscape — Ken and I discussed the chicken-and-egg issue of scarce budgets and a shrinking labor force, and how digitization comes down to ROI.

We looked at a survey supported by the German Association for Materials Management, Purchasing and Logistics, which shows that the companies who have implemented e-sourcing to select the right supplier with digitized tools are saving 14% in process costs, which is great. But they also experience a staggering 9.5% savings through e-sourcing solutions. 

Does that sound too good to be true? Let’s simplify it by taking a look at a typical client size from the manufacturing space. If a company has $1 billion in revenue and we assume just a 1% cost savings — not the 9.5% as reported by the companies that have digitized sources — this $1 billion revenue company is going to add a staggering $2.5 million to their annual bottom line. That digital solution will pay for itself in mere months.

We have a solution that can help you get there. By collecting and managing all supplier information and activities, QAD Supplier Management:

• Improves supplier performance.
• Simplifies supplier onboarding, qualification and classification.
• Boosts visibility of certificates, contracts, NDAs, reports and other documents.
• Enhances supplier compliance with environmental, social and governance objectives.
• Improves productivity across procurement processes.
• Reduces direct and indirect procurement costs.
• Eliminates manually intensive supplier management processes.
• Reduces supplier-related risks and ensures compliance.

Through a single portal, you and your suppliers can access:

• Supplier Data Management – Manages all supplier information to reduce discovery, onboarding and qualification cycle time.
• Sourcing – Manages the electronic RFQ process with suppliers, from recording requirements to the RFI, RFQ, contracts and, finally, the order.
• Auctions – Delivers superior sourcing results by tailoring the auction design to the negotiation situation and awarding strategy.
• QAD Demand and Delivery – Ensures visibility and collaboration on inventory, schedules, orders, shipments, invoices and replenishment requirements.

The Hackett Group determined that digitization is one of the driving factors of success and procurement. And that alone is a compelling argument to start the journey.