After an immensely challenging year, the stage is set for major procurement transformation in 2022 says Omer Abdullah, CEO of The Smart Cube. Here’s how he thinks things might change.
2021 was an immensely challenging year for procurement teams across the globe. Not only did most of the challenges of 2020 continue, but many got significantly worse. Between major supply shortages, rising commodity prices and new variants reigniting pandemic-related disruption, teams had to work extremely hard just to keep their organizations operational, let alone achieve their strategic goals.
But it was also an incredible year for procurement innovation. Faced with those challenges, leaders and their teams found new levers and devised new strategies to help keep costs under control, keep goods on shelves and keep their organizations moving forward.
Now, as we look ahead to 2022, here are four key trends that are set to define the procurement landscape over the next 12 months:
1. Nearshoring discussions will continue, but plans to reshore sourcing strategies may be put on hold.
Offshoring, nearshoring and reshoring have been key topics across the procurement space over the last couple of years. As pandemic-related supply issues hit, supply base diversification was an essential strategy to keep organizations operational.
However, since those supply issues first emerged, many more have appeared alongside them. From shipping and container shortages to ongoing geopolitical challenges, supply chain conditions haven’t improved to the point that many — including myself — had previously expected them to by the beginning of 2022.
Ultimately, we won’t see reshoring start happening widely until we solve some of the more immediate supply chain issues present across a lot of key categories and commodities today.
Of course, to the extent that procurement teams can use reshoring to improve availability without impacting prices materially, that will be the green light to go after reshoring in earnest. But until then, plans to reshore will likely remain tabled — at least until market conditions improve.
2. Procurement’s role as a strategic advisor to the business will expand.
The challenging supply conditions that we’ve all faced over the last couple of years have given procurement the opportunity to demonstrate a huge range of capabilities and help others see the full strategic value that it can deliver to the wider business. From mitigating supply chain risk to identifying opportunities for product innovation and supplier collaboration, we’ve seen a huge shift in what organizations look to procurement to deliver.
As we move into 2022, I expect to see procurement’s role as a strategic advisor to the business expand even further. The function has always been the organization’s eyes and ears on external markets, but senior stakeholders are only just beginning to discover what that really means.
As inflation returns as a key variable that organizations need to manage and mitigate, procurement has the potential to prove its strategic value once again, by using market and supplier insights and deep analytics to help optimize strategies and limit the customer impact of price increases.
Similarly, the function can also help senior decision-makers better understand the movements and decisions competitors make. With supply constrained across numerous categories and geographies, more and more organizations are recognizing the need to keep up with what others are buying, and how that might impact their own operations. Procurement is perfectly positioned to provide that insight, giving the function an even larger presence at the strategic table.
3. Procurement and product teams will get a lot closer.
With inflated prices and constrained supply omnipresent across so many commodities and categories today, organizations have had to get very creative to stay operational, control costs and keep products on store shelves.
With supply issues so widespread, many traditional procurement levers — such as switching suppliers or offshoring supply — haven’t been able to deliver the same kind of results and improvements that they have in the past.
As a result, procurement teams have had to work closely with product teams to find new ways of alleviating cost and supply pressure. By collaborating closely, teams have unlocked powerful new levers like altering product sizes, switching to alternative ingredients and even creating entirely new products composed of more readily available ingredients.
That’s been a key component in many organizations’ pandemic survival strategies, helping them discover the power and strategic value of closer product-procurement collaboration. Now that they’ve had the chance to see its value in action, that collaboration is only going to grow deeper.
Equipped with the right market intelligence and insights, procurement can guide product optimization and innovation in a very meaningful way. And by involving procurement much earlier in the conversation, product teams can achieve their biggest goals in a range of innovative (and value-optimized) ways. It’s a mutually beneficial relationship that should only grow in the years to come.
4. More teams will embrace hedging to help control costs and mitigate risk.
One of the silver linings that came out of the period of intense instability that we’ve all been through over the last couple of years is that those conditions helped many procurement teams discover the power and value of commodity hedging.
By securing future contracts or pre-purchasing additional commodities before they’re needed, teams can simultaneously lock in lower commodity prices and ensure continued supply — two exceptionally valuable benefits in 2022. However, those benefits don’t come for free.
Incredibly strong category and market intelligence are critical to successful hedging. As more stories of hedging success during the pandemic become public, more teams will start to explore doing it themselves. However, if they don’t have the intelligence and insights required to do it well, it could end up having the opposite of its intended impact on costs.
Hedging requires teams to make informed decisions about the future of commodity prices. If they bet big and lock in prices on key commodities today, then those prices fall, it can have a huge negative impact on their bottom line. It’s an incredibly powerful strategy, but the teams that embrace it this year will need to make sure they have the intelligence and insight process in place to execute it successfully.