Cyber risks, geopolitical risks, reputational impacts… Procurement leaders face unprecedented challenges in an ever-evolving business environment. In this context, automation and AI appear as the ultimate solutions for source-to-pay efficiency and accuracy. Mike Deng and Brent Griffith, Deloitte procurement experts deep dive into this changing landscape.
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- Could you start by presenting yourself and explaining your expertise in terms of procurement? How long have you been working in that field?
Brent: I am Brent Griffith, leader of our digital procurement offering here at Deloitte.
Within our sourcing and procurement practice, this concerns anything that has to do with the automation of source-to-pay activity or the use of technology. I have been doing this work for over 25 years. I came up through our supply chain practice.
Overall, I’ve been almost exclusively focused on sourcing and procurement. I really have a broad supply chain background, before having a more specific focus on digital procurement. My current responsibilities as our digital procurement leader spans across all industries. I look at automation activities and source-to-pay across all types of industries.
Mike: I am also part of the Deloitte sourcing and procurement practice. I work in Brent’s team. In the past decade, I’ve primarily focused on anything tied to sourcing and the procurement in the world.
That covers supplier strategy, category management strategy and all the way to procurement, sourcing, programming, operating model design as well digital transformation, like Brent mentioned. For the past decade, I have been focusing on technology, media and the telecom industry.
I help these companies think through their transformation journey from a process perspective, help them choose and use the right technologies. In addition to this guidance, I also lead our focus around gen-AI for procurement.
I lead a team doing market research around gen-AI’s impact on sourcing and procurement.
We bring our research back to our clients to help our client think through their AI journey in the procurement space. How can we help them design, build and pilot a gen-AI solution to add to their existing stack.
I do many client interviews and alliance partner interviews to sort through the different market trends. For example, we’ve just concluded the CPO survey which interviews CPOs to understand the key market trends and evolutions of their jobs.
- You both have many years of experience in the procurement area. What major changes have you seen in the last few years?
Brent: Let me highlight two main themes that capture a lot of what we’re seeing in terms of the evolution of sourcing and procurement.
The first one is the evolution of the overall responsibilities of the procurement organization and chief procurement officer. Procurement’s role has become much broader and strategic in businesses.
As I mentioned before, I go back a number of years in this space. When I started working with procurement organizations, there were two primary metrics that were measured.
One was the delivery time from their suppliers: do the goods and services that we’re buying show up on time? The second was a year over year cost. Procurement was really seen as a driver of cost management and cost reduction in most organizations. There probably were other metrics, but overall, CPOs really rose and fell based on their ability to get the product there and reduce costs.
What we’ve really seen over the past decade, is that procurement officers are now being evaluated on a much broader set of metrics. Delivery delays and cost obviously remain important but we’re seeing procurement leaders playing a key role when it comes to ESG, to driving a diverse supplier network and looking for sustainability.
There’s been offshoring – and now reshoring in some organizations – and CPOs have been central in managing these transitions, finding new suppliers in new
There’s been offshoring – and now reshoring in some organizations – and CPOs have been central in managing these transitions, finding new suppliers in new markets, in order to support the geographic diversity of the supply chains.
CPOs have increasing responsibilities in driving innovation and developing relationships with innovative suppliers as well. Obviously, risk management is also an increasing responsibility. There’s a much broader set of risks than there used to be. It used to be “will I have enough supplies?”, “Will the product show up?”. There’s geopolitical risk, cyber risk, reputational risk… Managing a network of suppliers means managing the risk exposure of the organization.
And if we look at the CPO survey we’ve been doing for years now, we can see the targets and metrics CPOs follow have really changed. They’re not only accountable for costs or delivery now. It’s balanced with other metircs. In fact, in some industries, cost isn’t even the top metric anymore.
The second one is about technology. Procurement teams are now leveraging technology, more than ever.
Throughout much of my career, the focus of what procurement technology meant was replacing disparate and fragmented legacy solutions – many of them homegrown – with best-of-breed source to pay technology. For organizations that have not gone through that transition that remains their number one priority.
But in 2024, many – if not most – large organizations put that source to pay backbone in place. We’ve seen these backbones upgrade to almost entirely cloud-based technologies, with the ability to integrate other cloud-based technologies into them fairly easily.
Now what we’re observing – and it’s the case for most of our major procurement software partners – is the focus on broader procurement challenges like risk management modules as well as the integration of more niche and best-in-breed technologies into those core backbone solutions. This is leading to a more diverse ecosystem when it comes to technologies that are being leveraged, and in the end it really opens the door to better use of AI.
Mike: There are a couple of other trends I can think about.
- The most recent – and maybe the most striking – is the use of data AI and gen-AI in procurement.
We’ve seen in the last few years there’s been a push for CPOs to be more analytic and data-driven. This is where AI came into the picture. It’s helped automate, analyze, etc, and overall gain efficiency. It helps CPOs make the right decisions. - There’s also been a real change in the operating model. Historically there was a lot of emphasis to keep the entire procurement activities in-house. Now there’s more and more outsourcing. The transaction side of the house is being outsourced more and more frequently. Companies trust service providers to do that for them.
- One other trend is the talent one. During the pandemic, there was a real shortage in terms of sourcing, procurement, and so on. It was hard for companies to recruit new talents in procurement. Historically, procurement jobs were “for life”. But now, companies are looking for more diverse profiles who can work in fast-paced and technological environments. And now, there’s a real change in what companies look for in procurement hires. It’s not only negotiation skills, communication or supplier management. There’s also new technical and technological skills. The procurement organizations have changed and the expected set of skills as well.
- Could we focus on the new risks that have emerged in the procurement landscape?
Brent: Historically, there was a focus on the supply base primarily as a source of opportunity. Where are we going to find better suppliers, cheaper suppliers, and more diverse suppliers? Now the focus has shifted to “how are we going to handle the risks that are inherent to the supply chain”? This has really changed the way procurement jobs are considered.
- Cyber risk has really emerged and gone from being something organizations didn’t think about at all to front and center in the hierarchy of risks that organizations manage. Any organization using data is exposed to cyber risks and to seeing that data leaked or hacked. Some suppliers can even provide backdoor access to buying companies own systems. Cyber risk definitely has gone from being for a non-existent risk to a risk that was primarily worried about by the IT organization to being something that procurement also has responsibility for managing.
- The growth in privacy, especially in terms of regulation – is also an “issue”, or at least a parameter to take into consideration. Europe is front and center on this matter, and really taking a global lead on it. Other jurisdictions around the world are also adopting fairly strong regulation around data privacy. How privacy is managed has put a focus on what information suppliers have access to and how that comes into play from a data privacy standpoint.
- And then reputation risk, broadly. It’s another one of those areas that organizations did not previously worry about, except in exceptional circumstances.Now it’s something that companies fairly routinely consider as part of their evaluation criteria when they select a new supplier. “Who is this supplier? Who is their management? What is their history when it comes to reputational issues and what type of reputational exposure do they place the organization in?”
Mike: The geopolitical risk is getting more and more attention in the marketplace, especially with the overall geopolitical situation between China and the US, as well as the current wars and conflicts. When these unfortunate events happen, they cause supply chain disruption. So it’s all about improving your overall supply chain resilience and overall procurement strategy. Procurement teams are more and more responsible for having communication plans in case of geopolitical events and adapt their supplier strategy.
One thing I’d add about risks is that companies need to be much more prepared now – vs before. There are so many possible risks – geopolitical, cyber, etc – procurement teams need to have specific capabilities to handle these risks, and detailed action plans. We’ve seen what happened during covid and the intense operational disruption that followed.
- What are the main opportunities for procurement teams right now? With a focus on digital, automation and AI in procurement.
Brent: In the end, the opportunity is to effectively deal with all the challenges we’ve mentioned above. We’re seeing more and more procurement organizations think about how they can become sources of competitive advantage to their organizations, on top of just driving effective cost management for the company..
One example that I would highlight recently in the life sciences industry.
We did see an acquisition that was conducted where one of the major drivers of that acquisition was the supply base that the target company had been able to develop. This was both in terms of establishing and developing relationships with a broader set of sources of supply that allowed them to mitigate risk, as well as putting in place a platform arrangement with those suppliers where they could more effectively access innovation that was coming from the supply base.
So it wasn’t the only reason for the deal.. But it shows thinking beyond just the sourcing and thinking about what is the supply base that we’re acquiring through this acquisition? And how does that create a competitive advantage for us?
So being able to drive those kinds of opportunities, create new ways for procurement to play in organizations, create opportunities for procurement executives to grow their careers.
One other thing that I would highlight is the continued focus on effectiveness. We’re seeing a lot of new opportunities for procurement organizations to gain new capabilities and to play more broadly.
That does not mean that we’re seeing procurement organizations grow in terms of either head count or percent of spend that they account for in organizations.
There’s a lot of focus on how we execute core activities more efficiently and in such a way that we can create the mind space, the budget, the room to focus on some of these new and more innovative capabilities.
Mike: There’s a lot opportunities like for the procurement leaders to adopt new technology, new processes, new operating models to achieve tangible outcomes.
One specific example is one of our customers that validated most of their Purchase Requests behind the scenes with their centralized procurement team. They had to do manual reviews of the PRs to validate the quality, the accuracy, etc. Obviously, this represent a lot of manual effort for the team.
We came in with an AI solution to add to the existing solution and do all this manual and low added value work. The AI solution uses historical data and existing policies to review PRs automatically. Basically, we moved from 80% of manual review to 10%. This is a huge operational efficiency gain for them.
Historically, the procurement team focused a lot on that type of work. Now they can learn to use new tools and do more strategic and valuable work.
The second part that clients try to capitalize on is analytics.
Analytics are becoming more and more critical and important for the procurement function. They want to analyze their data and come back with potential opportunities, optimizations, etc. More and more companies are adopting analytics as a foundational capability.
We’re really seeing a revamp of analytics capabilities and tools. Companies are revamping but also bringing in gen-AI on top of that, to automate classification, validation, etc. Gen-AI brings in the ultimate degree of accuracy.
I have customers who build in-house tools that use AI and are able to scan market trends for a certain category. This brings insights that category managers can use and combine with their analytics. The category managers don’t have to get these insights by themselves, manually. Once again, there’s a real tangible operational gain.
- What would be your advice for procurement teams that want to harness the power of AI?
Brent: I think one thing that is important is to upskill organizations when it comes to understanding how Gen-AI can transform actual work and processes.
I have two separate clients that sent all of their procurement organizations through generative AI training, and then asked every one of their procurement professionals to come back with three to five ideas for how generative AI could be used in order to transform the work they do.
They actually conducted an internal competition to develop a set of use cases based on what was being submitted by their procurement professionals.
They actually got better ideas from asking all their procurement professionals for use cases than having a top down approach.
So upskilling and crowdsourcing would be one of the things that I would highlight as an effective way for organizations to start thinking about to how to leverage generative AI.
Also, this is an area where a lot of investments are being made across the procurement technology ecosystem. So I would encourage organizations to understand what their technology partners are doing as they think about where they make investments.
If they use a backbone source-to-pay solution today and their solution provider is investing in building out an AI capability in that tool, it probably doesn’t make sense for them to duplicate that and build internally. It’s important to have an understanding of what the ecosystem is doing.
However, don’t just sit and wait for generative AI to be developed for you by others out there in the market. We are really seeing organizations generate advantages and very real benefits by getting started on their own to leverage the power of AI.
Mike: I tell my clients to think big, start small and then move fast.
They need to actually enable the team to think about the art of possible. They need to think holistically about what gen AI can do for the procurement function. But in the end, not everything is applicable to them. I really think this crowdsourcing piece is very critical.
When you know the processes, you’ll be able to pinpoint what you can improve in your day-to-day work.
So in addition to that, the question is: how do you actually define your vision? What do you want to get out of gen-AI? Are you trying to achieve more automation? Are you trying to achieve more operational efficiency? Are you trying to improve speed-to-market? Are you trying to drive more risk mitigation? What is your key vision?
And of course, this combines with what Brent mentioned: what is your existing technology, what are your capabilities? What is the underlying technological investments.
It’s also important to understand you need to prioritize. You can’t go after everything you want. You need to prioritize a couple of use cases and use them as proof of concept.
Once you’ve proven the value of AI, you can add it to the overall digital procurement strategy and technology roadmap.
It’s important to understand all roadmaps and tools involved. You don’t want to duplicate efforts or build something that your main provider will release in a few months.
- Are there any last few words that you want to add to close this topic of key procurement trends?
Brent: I think it’s really about getting started, jumping in, identifying those high value use cases and getting moving right. This is a space where there’s a lot of innovation.
Things will continue to change and I really encourage organizations to get moving quickly and to start to realize some of the benefits that they can see. It’s also important to elevate and upskill the procurement team. You need to adopt a holistic approach to AI for long-term success.
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